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 March 31, 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		(I.R.S. Employer
incorporation or organization)		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 March 31, 2010: Class B 1,795,981; Class C 254,373.

INDEX


	Page No.
PART I FINANCIAL INFORMATION

Item 1

Condensed Consolidated Balance Sheets — March 31, 2010 (unaudited) and December 31, 2009		1

Condensed Consolidated Statements of Operations (unaudited) — for the three months ended March 31, 2010 and 2009		2

Condensed Consolidated Statements of Comprehensive Loss (unaudited) — for the three months ended March 31, 2010 and 2009		3

Condensed Consolidated Statements of Changes in Members’ Equity (unaudited) — for the three months ended March 31, 2010 and 2009		4

Condensed Consolidated Statements of Cash Flows (unaudited) — for the three months ended March 31, 2010 and 2009		5-6

Condensed Notes to the Consolidated Financial Statements (unaudited) — March 31, 2010		7-36

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations (unaudited) — for the three months ended March 31, 2010 and 2009		37-49

Item 3 Quantitative and Qualitative Disclosures about Market Risk		50

Item 4T Controls and Procedures		50

PART II OTHER INFORMATION

Item 1 Legal Proceedings		50

Item 1A Risk Factors		50

Item 6 Exhibits		50

Signatures		51

Exhibit 31.1
Exhibit 31.2
Exhibit 32

NATIONAL CONSUMER COOPERATIVE BANK

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	March 31, 2010			December 31, 2009
	(Unaudited)
Assets
Cash and cash equivalents	$	193,243		$	258,406
Federal funds sold		7,958			7,684

Total cash and cash equivalents		201,201			266,090
Restricted cash		5,711			179
Investment securities
Available-for-sale		29,359			29,805
Held-to-maturity		387			387
Loans held-for-sale ($11.0 million and $1.8 million recorded at fair value, respectively)		65,399			35,730
Loans held-for-investment		1,538,268			1,693,689
Less: Allowance for loan losses		(45,677	)		(36,468	)

Net loans and lease financing		1,492,591			1,657,221
Other assets		105,235			104,125

Total assets	$	1,899,883		$	2,093,537


Liabilities and Members’ Equity
Liabilities
Deposits	$	1,196,966		$	1,253,954
Other liabilities		35,493			40,441
Borrowings		486,232			614,553

Total liabilities		1,718,691			1,908,948

Members’ equity
Common stock		205,035			205,035
Retained deficit — unallocated		(23,289	)		(19,650	)
Accumulated other comprehensive loss		(554	)		(796	)

Total members’ equity		181,192			184,589

Total liabilities and members’ equity	$	1,899,883		$	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
	March 31,
	2010			2009
Interest income
Loans and lease financing	$	24,194		$	27,973
Investment securities		368			872
Other interest income		575			567

Total interest income		25,137			29,412


Interest expense
Deposits		5,585			8,106
Borrowings		7,498			5,254

Total interest expense		13,083			13,360

Net interest income		12,054			16,052

Provision for loan losses		6,653			10,869


Net interest income after provision for loan losses		5,401			5,183

Non-interest income
Gain on sale of loans		2,918			3,135
Servicing fees		1,052			949
Letter of credit fees		717			1,017
Real estate loan fees		384			197
Prepayment fees		97			80
Change in unrealized gain on derivatives		79			93
Gain on sale of investments available-for-sale		—			59
Other		586			699

Total non-interest income		5,833			6,229


Non-interest expense
Compensation and employee benefits		8,056			8,441
Contractual services		1,655			1,436
Occupancy and equipment		1,561			1,704
Information systems		919			1,134
FDIC premium		786			450
Loan costs		776			722
Corporate development		143			286
Lower of cost or market valuation allowance — loans held-for-sale		(17	)		(212	)
Provision for losses on unfunded commitments		686			331
Other		408			537

Total non-interest expense		14,973			14,829


Loss before income taxes		(3,739	)		(3,417	)

Income tax benefit		(100	)		(180	)


Net loss	$	(3,639	)	$	(3,237	)


Distribution of net loss
Patronage dividend accrual	$	—		$	5,837
Retained earnings		(3,639	)		(9,074	)

	$	(3,639	)	$	(3,237	)

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

NATIONAL CONSUMER COOPERATIVE BANK

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the three months ended March 31,

(in thousands)

(Unaudited)


	2010			2009

Net loss	$	(3,639	)	$	(3,237	)

Other comprehensive loss:
Unrealized holding gain (loss) before tax on available-for-sale investment securities and interest-only non-certificated receivables		256			(136	)
Tax effect		(14	)		3

Comprehensive loss	$	(3,397	)	$	(3,370	)

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 three months ended March 31, 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 loss		—		—		(3,639	)		—			(3,639	)
Unrealized gain on available-for-sale investment securities and interest-only non-certificated receivables, net of taxes		—		—		—			242			242

Balance, March 31, 2010	$	205,035	$	—	$	(23,289	)	$	(554	)	$	181,192


								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		—		—		(3,237	)		—			(3,237	)
2009 patronage dividends retained in form of equity		—		5,837		(5,837	)		—			—
Unrealized loss on available-for-sale investment securities and interest-only non-certificated receivables, net of taxes		—		—		—			(133	)		(133	)

Balance, March 31, 2009	$	197,784	$	12,991	$	16,011		$	(4,642	)	$	222,144

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 three months ended March 31, 2010 and 2009

(in thousands)

(Unaudited)


	2010			2009
Cash flows from operating activities
Net loss	$	(3,639	)	$	(3,237	)
Adjustments to reconcile net loss to net cash provided by operating activities
Provision for loan losses		6,653			10,869
Provision for losses on unfunded commitments		686			331
Amortization and writedown of interest-only receivables and servicing rights		1,854			3,175
Depreciation and amortization, other		1,221			618
Gain on sale of loans, including derivatives		(2,997	)		(3,228	)
Loss on sale of investments available-for-sale		—			(59	)
Purchase of loans held-for-sale		(89,657	)		(25,409	)
Loans originated for sale, net of principal collections		(88,427	)		(131,905	)
Lower of cost or market valuation allowance		(17	)		(212	)
Net proceeds from sale of loans held-for-sale		193,327			127,409
Decrease in other assets		1,011			4,101
(Decrease) increase in other liabilities		(2,537	)		12,200

Net cash provided by (used in) operating activities		17,478			(5,347	)


Cash flows from investing activities
Increase in restricted cash		(5,532	)		—
Purchase of investment securities Available-for-sale		—			(8,048	)
Proceeds from maturities or repayments of investment securities Available-for-sale		438			5,001
Proceeds from the sale of investment securities Available-for-sale		—			10,485
Net decrease in loans held-for-investment		108,406			10,253
Purchase of premises and equipment		(35	)		(131	)

Net cash provided by investing activities		103,277			17,560


Cash flows from financing activities
Net decrease in deposits		(57,264	)		(113,485	)
Increase in borrowings		—			127,296
Repayment of borrowings		(128,321	)		—
Incurrence of debt amendment costs		(59	)		(2,734	)
Incurrence of financing costs		—			(887	)

Net cash (used in) provided by financing activities		(185,644	)		10,190


(Decrease) increase in cash and cash equivalents		(64,889	)		22,403
Cash and cash equivalents, beginning of period		266,090			39,971

Cash and cash equivalents, end of period	$	201,201		$	62,374

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 three months ended March 31, 2010 and 2009
(in thousands)
(Unaudited)


Supplemental schedule of non-cash investing and financing activities:	2010		2009

Loans transferred to other real estate owned	$	3,117	$	695

Loans held-for-sale transferred to loans held-for-investment, at the lower of cost or market		2,656		593

Transfer of loans held-for-investment to loans held-for-sale, at the lower of cost or market		45,713		—

Supplemental information:

Interest paid	$	11,581	$	11,295

Income taxes paid		24		93

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

NATIONAL CONSUMER COOPERATIVE BANK

CONDENSED NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

March 31, 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 NCCB 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 derivative 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 March 31, 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 concept of a “qualifying special-purpose entity,” changes the requirement for derecognizing financial assets, and requires additional disclosures. During the three months ended March 31, 2010, the Company transferred loans to Fannie Mae and several other institutions. These loans were accounted for as “sales” 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 nor does it have any significant variable interests 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.

President Obama signed into law the Patient Protection and Affordable Care Act. The new legislation makes extensive changes to the current system of health care insurance and benefits. The Health Care and Education Reconciliation Act of 2010 makes certain changes to the law. The reconciliation bill was passed on March 25, 2010 and was signed into law on March 30, 2010. Although many of the provisions of the law do not take effect immediately, there are various provisions in the law that could have accounting consequences in periods prior to the law taking effect. The Company does not believe that this law will have a material effect on its financial statements as of March 31, 2010.

The Emerging Issues Task Force (EITF) reached a final consensus that a modified loan in a pool of purchased credit-impaired loans should remain in the pool even if the modification would otherwise be considered a troubled debt restructuring. A one-time election to terminate accounting for loans in a pool, which may be made on a pool-by-pool basis, is provided upon adoption of this accounting guidance. This EITF is effective for interim and annual reporting periods ending after July 15, 2010. The Company is evaluating the impact, if any, that this guidance will have on its financial statements.

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 may have begun to subside to some degree, deteriorating 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 deteriorating economic conditions into the first quarter of 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 amendment fees and higher interest costs. The payment of these fees and higher interest cost has 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 $67.6 million at April 30, 2010 from $87.1 million at March 31, 2010 and $215.5 million at December 31, 2009. The Company expects to repay the remaining amounts due under the revolving credit facility and senior note agreements on or before December 15, 2010. 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”). 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.

•

NCB Financial Corporation entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist with the OTS. 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. 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 must 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.

The Company is awaiting the OTS response to its business plans. None of the OTS Actions restrict the Holding Company, NCB Financial Corporation or NCB, FSB from 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 March 31, 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 March 31, 2010:
Tangible Capital (to tangible assets)	$	157,681		10.29	%	$	22,980		1.50	%		N/A		N/A
Total Risk-Based Capital (to risk-weighted assets)		173,618		13.30	%		104,444		8.00	%	$	130,555		10.00	%
Tier I Risk-Based Capital (to risk-weighted assets)		157,287		12.05	%		N/A		N/A			78,333		6.00	%
Core Capital (to adjusted tangible assets)		157,681		10.29	%		61,280		4.00	%		76,600		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 Plans 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 for the Holding Company specifically, has reduced its aggregate debt outstanding on the revolving credit facility and senior note to $67.6 million at April 30, 2010 from $87.1 million at March 31, 2010 and $215.5 million at December 31, 2009. However, the Company’s ability to accomplish these goals may be constrained by the current economic environment, and therefore the Company can give no assurances that it will be able to continue to preserve capital, reduce debt levels or reduce its exposure to contingent liabilities.

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

Management has been aggressively addressing liquidity needs to maintain adequate cash flows to sustain operations and reduce debt levels. As of March 31, 2010, the Company maintained liquid assets totaling $296.3 million as follows: cash balances totaling $201.2 million; investments totaling $29.7 million; and loans held-for-sale totaling $65.4 million. Additionally, the Company may continue to sell loans classified as held for investment on its consolidated balance sheet as the Company identifies such assets and identifies a willing and able buyer.

Additionally, as reflected in the OTS Actions the OTS is monitoring the Company’s performance closely. If the Holding Company, NCB Financial Corporation or NCB, FSB were to engage in unsafe and unsound banking practices, or there is deterioration in NCB, FSB’s regulatory capital levels, 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 the prior approval. 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):


	March 31,		December 31,
	2010		2009
Cash	$	186,850	$	251,922
Cash equivalents		14,351		14,168
Restricted cash		5,711		179

Total	$	206,912	$	266,269

As of March 31, 2010, the Company’s restricted cash includes $5.5 million of escrow deposits in favor of Fannie Mae and required under the Company’s loan servicing arrangement, 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 as well).

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):


	March 31, 2010
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
Interest-only non-certificated receivables	$	25,368	$	197	$	(1,140	)	$	24,425
U.S. Treasury and agency obligations		12,582		175		—			12,757
Mortgage-backed securities		12,857		302		—			13,159
Collateralized mortgage obligations (“CMO’s”)		3,434		97		(115	)		3,416
Equity securities		52		—		(25	)		27

Total	$	54,293	$	771	$	(1,280	)	$	53,784


	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):


	March 31, 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		—		—			20,246		(1,140	)		20,246		(1,140	)
CMO’s		96		(115	)		—		—			96		(115	)
Equity securities		2		(1	)		25		(24	)		27		(25	)

Total	$	98	$	(116	)	$	20,271	$	(1,164	)	$	20,369	$	(1,280	)


	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 investments. Each of the interest-only non-certificated receivables is collateralized only by loans originated by the Company. As of March 31, 2010, the collateral mortgages continue to perform and the Company does not expect there to be an adverse change in future cash flows. The Company does not view these assets as a source of short-term liquidity and expects to fully recover the amortized cost basis of these assets. Consequently as of March 31, 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 March 31, 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 March 31, 2010 the Company does not expect any interruptions 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 March 31, 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 months ended March 31, 2010 and 2009.

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


	March 31, 2010
			Weighted
	Amortized		Average			Fair
	Cost		Yield			Value
Within 1 year	$	3,166		3.61	%	$	3,226
After 1 year through 5 years		8,649		0.84	%		8,715
After 5 years through 10 years		183		5.29	%		204
After 10 years		586		5.43	%		614

Total	$	12,584		1.81	%	$	12,759

Equity securities, CMO’s, mortgage-backed securities, and interest-only non-certificated receivables are excluded from the maturity table above. Mortgage-backed securities, CMO’s and interest-only non-certificated receivables have contractual maturities, which differ from actual maturities because borrowers may have the right to call or prepay obligations.

6. LOANS HELD—FOR-SALE

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


	March 31,		December 31,
	2010		2009
Consumer Loans	$	2,765	$	22,186
Commercial Loans		27,174		1,650
Residential Real Estate Loans		35,460		11,894

Total	$	65,399	$	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 them without the burden of complying with the requirements of derivative accounting standards. Unrealized gains and losses for these identified loans and the related loan sale agreement are included in earnings. The Company has elected the fair value option for $11.0 million and $1.8 million of Residential Real Estate Loans as of March 31, 2010 and December 31, 2009, respectively.

During the first quarter of 2010, the Company identified certain loans that it now intends to sell and therefore transferred $45.7 million of loans originally held-for-investment to held-for-sale.

7. LOAN SALES

During the periods presented, the Company sold Commercial, Residential Real Estate and Consumer Loans. The net proceeds from the sale of Commercial and Residential Real Estate Loans were $161.3 million and generated a total of $1.2 million in retained interests for the three months ended March 31, 2010. The net proceeds from the sale of loans were $101.8 million and generated a total of $1.5 million in retained interests for the three months ended March 31, 2009. The Company does not retain servicing or any other interests on Consumer Loan sales, which generated net proceeds of $107.1 million and $25.6 million for the three months ended March 31, 2010 and 2009, respectively. 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.

In total, the Company generated a gain on the sale of loans of $3.0 million including the change in unrealized gain on derivatives for the three months ended March 31, 2010 compared with a gain of $3.2 million, including the change in unrealized gain on derivatives for the three months ended March 31, 2009.

The following table summarizes the cash flows received from loan sale activity and retained interests for the three months ended March 31, (dollars in thousands):


	2010		2009
Net proceeds from Consumer Loan sales	$	107,088	$	25,637
Net proceeds from Commercial and Residential Real Estate Loan sales		161,270		101,772
Servicing fees received		1,797		1,599
Cash flows received on interest-only receivables		1,683		3,508

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 (included in servicing fees) 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		210			657			526			86			736			743
Amortization		(265	)		(350	)		(318	)		(249	)		(583	)		(599	)
Change in valuation allowance		—			(75	)		(165	)		23			(165	)		(52	)

Balance at March 31	$	4,103		$	3,110		$	10,373		$	10,234		$	14,476		$	13,344

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		—		(259	)		(214	)		(7	)		(214	)		(266	)
Recoveries		—		184			49			31			49			215

Balance at March 31	$	—	$	(259	)	$	(1,106	)	$	(418	)	$	(1,106	)	$	(677	)

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 in 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 three months ended March 31, were as follows:


	2010			2009
Weighted-average life (in years):
Share and Single-family Residential Loans		6.1			6.4
Multifamily, Cooperative and Commercial Real Estate Loans		4.0			7.7

Weighted-average annual prepayment speed:
Share and Single-family Residential Loans		13.1	%		12.9	%
Multifamily, Cooperative and Commercial Real Estate Loans		2.1	%		4.2	%

Residual cash flow discount rate (annual):
Share and Single-family Residential Loans		10.0	%		10.0	%
Multifamily, Cooperative and Commercial Real Estate Loans		14.1	%		9.0	%

Earnings rate P&I float, escrows and replacement reserves:
Share and Single-family Residential Loans		2.7	%		2.5	%
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):


	March 31,			December 31,
	2010			2009
Fair value of mortgage servicing rights:
Share and Single-family Residential Loans	$	4,818		$	4,867
Multifamily, Cooperative and Commercial Real Estate Loans		11,647			11,214

Weighted-average life (in years):
Share and Single-family Residential Loans		4.1			4.2
Multifamily, Cooperative and Commercial Real Estate Loans		6.1			6.2

Weighted-average annual prepayment speed:
Share and Single-family Residential Loans		20.7	%		20.7	%
Multifamily, Cooperative and Commercial Real Estate Loans		2.4	%		2.6	%
Impact on fair value of 10% adverse change:
Share and Single-family Residential Loans	$	(345	)	$	(312	)
Multifamily, Cooperative and Commercial Real Estate Loans		(66	)		(61	)
Impact on fair value of 20% adverse change:
Share and Single-family Residential Loans		(717	)		(629	)
Multifamily, Cooperative and Commercial Real Estate Loans		(131	)		(121	)

Residual cash flows discount rate (annual):
Share and Single-family Residential Loans		10.3	%		10.3	%
Multifamily, Cooperative and Commercial Real Estate Loans		9.4	%		9.2	%
Impact on fair value of 10% adverse change:
Share and Single-family Residential Loans	$	(146	)	$	(149	)
Multifamily, Cooperative and Commercial Real Estate Loans		(349	)		(336	)
Impact on fair value of 20% adverse change:
Share and Single-family Residential Loans		(283	)		(289	)
Multifamily, Cooperative and Commercial Real Estate Loans		(682	)		(657	)

Earnings rate of P&I float, escrow and replacement:
Share and Single-family Residential Loans		2.7	%		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	$	(49	)	$	(51	)
Multifamily, Cooperative and Commercial Real Estate Loans		(328	)		(330	)
Impact on fair value of 20% adverse change:
Share and Single-family Residential Loans		(98	)		(102	)
Multifamily, Cooperative and Commercial Real Estate Loans		(655	)		(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:


	March 31,
	2010			2009
Weighted-average life (in years)		8.5			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 receivables and the effect on the fair value of the interest-only receivables from adverse changes in those assumptions are as follows (dollars in thousands):


	March 31,			December 31,
	2010			2009
Fair value	$	24,425		$	24,851
Weighted-average life (in years)		7.9			8.9
Weighted average annual discount rate		9.00	%		9.00	%
Impact on fair value of 10% adverse change	$	36		$	(683	)
Impact on fair value of 20% adverse change		(620	)		(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		119,644			100,552
Loan payments and payoffs		(46,673	)		(94,603	)

Balance at March 31	$	5,918,714		$	5,556,541

8. LOANS HELD-FOR-INVESTMENT

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


	March 31,		December 31,
	2010		2009
Consumer Loans	$	18,626	$	17,367
Commercial Loans		543,880		616,343
Real Estate Loans:
Residential		606,036		680,736
Commercial		369,635		379,086
Leases		91		157

Total	$	1,538,268	$	1,693,689

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 identified and sold $75.0 million of loans that were held-for-investment to raise liquidity and repay borrowings. Of these loans sold, $57.4 million were Residential Real Estate Loans and $17.6 million were Commercial Loans. During 2009, the Company sold $168.5 million of loans that were held-for-investment for liquidity purposes. Of these total loans sold, $149.1 million were Residential Real Estate Loans and $19.4 million were Commercial Loans.

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 $104.6 million and $97.7 million as of March 31, 2010 and December 31, 2009, respectively. The aggregate average balance of impaired loans was $88.9 million and $73.6 million for the three months ending March 31, 2010, and the year ending December 31, 2009, respectively. The interest income that was due but not recognized on impaired loans was $1.3 million and $0.9 million for the three months ended March 31, 2010 and March 31, 2009, respectively.

As of March 31, 2010, the Company’s impaired loans included $43.6 million 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 significant decline in the value of the collateral. The remaining $61.0 million of loans are not accruing interest because the debt service payments were at least 90 days delinquent. As of December 31, 2009, the Company’s impaired loans included $26.3 million 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 significant decline in the value of the collateral. The remaining $71.4 million of loans are not accruing interest because the debt service payments were at least 90 days delinquent. Although some of the Company’s loans are still current on payments, the loans are considered impaired due to deterioration in the financial condition of the borrower or due to a significant decline in the value of the collateral.

As of March 31, 2010, the Company had an allowance of $20.8 million on the $104.6 million of impaired loans. Of the $104.6 million of impaired loans, $22.4 million needed no allowance because the fair value of the collateral was greater than the amount due to the Company on the loan. As of December 31, 2009 the Company had an allowance of $14.3 million on the $97.7 million of impaired loans. Of the $97.7 million of impaired loans, $24.7 million needed no allowance because the fair value of the collateral was greater than the amount due to the Company on the loan.

As of March 31, 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.

10. ALLOWANCE FOR LOAN LOSSES

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


	March 31, 2010		December 31, 2009
Allowance on impaired loans	$	20,760	$	14,347
Allowance on non-impaired loans		24,917		22,121

Total allowance for loan losses	$	45,677	$	36,468

The following is a summary of the activity in the allowance for loan losses during the three months ended March 31 (dollars in thousands):


	2010			2009
Balance as of January 1	$	36,468		$	27,067


Charge-offs
Consumer Loans		(1,439	)		(1,277	)
Commercial Loans		(482	)		(488	)

Total charge-offs		(1,921	)		(1,765	)


Recoveries
Consumer Loans		659			103
Commercial Loans		37			87
Real Estate Loans (Commercial and Residential)		26			—

Total recoveries		722			190


Net charge-offs		(1,199	)		(1,575	)


Provision for loan losses		6,653			10,869

Allowance reclassification		3,755			—


Balance as of March 31	$	45,677		$	36,361

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.

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 the borrowers. During 2010, the borrowers drew on and the Company funded the standby letters of credit creating a loan receivable. The allowance 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 completely drawn upon, the total commitment amounts do not necessarily represent future cash requirements. As of March 31, 2010 and December 31, 2009, the Company had outstanding undrawn lines of credit of $697.4 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. 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 March 31, 2010, the Company had outstanding standby letters of credit with a total commitment amount of $221.1 million of which $74.6 million were classified as criticized with an associated reserve for losses on these unfunded commitments of $7.4 million. 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 with an associated reserve for losses on these unfunded commitments of $10.5 million. During 2010, the 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 to the allowance for loan losses.

Fair Value of the Stand Ready Obligation and Provision for Losses on Unfunded Commitments

A liability of $4.2 million related to the Company’s obligation to stand ready to perform under outstanding standby letters of credit was recorded in other liabilities, and a corresponding asset of $4.8 million was recorded in other assets in the Consolidated Balance Sheet related to the issuance fees from the standby letters of credit as of March 31, 2010. A liability of $4.4 million related to the Company’s obligation to stand ready to perform under outstanding letters of credit was recorded in other liabilities, and a corresponding asset of $5.2 million was recorded in other assets in the Consolidated Balance Sheet related to the issuance fees from the standby letters of credit as of December 31, 2009.

The estimated fair value of undrawn lines of credit and standby letters of credit is based on fees currently charged for similar agreements at the reporting date. The contract or commitment amounts and the respective estimated fair value of the Company’s undrawn lines of credit and standby letters of credit are as follows (dollars in thousands):


	Contract or				Estimated
	Commitment Amounts				Fair Value
	March 31,		December 31,		March 31,		December 31,
	2010		2009		2010		2009
Undrawn lines of credit	$	697,371	$	764,888	$	3,487	$	3,824
Standby letters of credit		221,144		245,165		7,529		8,451

In addition to the fair value of the stand ready obligation, the Company has recorded a reserve for probable losses on these commitments. 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	$	11,131
Provision for losses on unfunded commitments		686
Allowance reclassification *		(3,755	)

Balance as of March 31	$	8,062


	2009
Balance as of January 1	$	2,675
Provision for losses on unfunded commitments		331

Balance as of March 31	$	3,006


*		See Note 10 for information regarding this reclassification.

12. OTHER ASSETS

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


	March 31,		December 31,
	2010		2009

Interest-only non-certificated receivables, at fair value	$	24,425	$	24,851
Mortgage servicing rights		14,476		14,488
Premises and equipment, net		11,644		11,957
Federal Home Loan Bank stock		9,651		9,651
Accrued interest receivable		8,768		9,101
FDIC prepaid premium		7,233		7,957
Other real estate owned		5,397		2,315
Fees receivable from standby letters of credit		4,776		5,163
Debt issuance costs		3,880		4,687
Other prepaid assets		3,863		2,864
Equity method investments		3,063		3,046
Derivative assets		1,997		1,419
Other		6,062		6,626

Total other assets	$	105,235	$	104,125

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

13. DEPOSITS

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


	March 31, 2010					December 31, 2009
			Average					Average
	Balance		Rate Paid			Balance		Rate Paid
Non-interest bearing demand deposits	$	131,370		—		$	141,493		—
Interest-bearing demand deposits		197,626		1.09	%		211,228		1.06	%
Savings deposits		8,770		0.27	%		8,930		0.27	%
Certificates of deposit		859,200		2.28	%		892,303		2.25	%

Total deposits	$	1,196,966		1.81	%	$	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):


	March 31, 2010		December 31, 2009
Within 3 months	$	144,306	$	116,558
Over 3 months through 6 months		81,956		104,160
Over 6 months through 12 months		161,992		164,624
Over 12 months		355,492		382,023

Total certificates of deposit	$	743,746	$	767,365

As of March 31, 2010, the Company had one depositor with deposits in excess of 5% of the Company’s total deposits. This depositor had 8.5% of the Company’s total deposits of which $8.0 million are maturing within three months. The remaining $94.0 million have maturities ranging from three months to 82 months. These deposits are fully insured as of March 31, 2010.

The Company had $512.7 million and $589.1 million of brokered deposits all relating to certificates of deposit as of March 31, 2010 and December 31, 2009, respectively. Of the $512.7 million of brokered certificates of deposit, $124.3 million mature within three months and $388.4 million has a maturity ranging from four months to 69 months. The Company is actively working to decrease its brokered deposit concentration.

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 $11.9 million and $37.4 million as of March 31, 2010 and December 31, 2009, respectively and unused borrowing capacity from the Federal Reserve Bank (“FRB”) which was $80.7 million and $78.0 million as of March 31, 2010 and December 31, 2009, respectively.

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. In 2008, the FDIC announced a new program — the Transaction Account Guarantee Program that provided unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000. This program is expected to end on December 31, 2010. All eligible institutions were covered under the program for the first 30 days without incurring any costs. After the initial period, participating institutions are assessed a 10 basis point surcharge on the additional insured deposits.

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


	For the three months ended
	March 31,
	2010		2009
Interest-bearing demand deposits	$	553	$	711
Savings deposits		6		6
Certificates of deposit		5,026		7,389

Total deposit interest expense	$	5,585	$	8,106

14. BORROWINGS

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


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

Revolving credit facility	$	53,059		$	128,394			13.50	%	December 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		34,090			87,092			13.50	%	December 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			2.76	%*	December 2010
Subordinated debt — Class A (non-current)		90,000			90,000			2.76	%*	October 2020

Junior subordinated debt		51,547			51,547			3.15	%	January 2034

Debt valuation and discount		(141	)		(157	)


Total borrowings	$	486,232		$	614,553


*		Weighted average interest rate

Revolving Credit Facility and Senior Notes

The Holding Company is seeking to repay or refinance its obligations under the revolving credit facility and senior notes on or before June 30, 2010. The Holding Company is required to reduce the aggregate principal through paydowns such that the maximum aggregate debt outstanding is (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 is not required to fully repay the debt by June 30, 2010, if it fails to do so, it must pay a fee of 2% of then-outstanding debt balance. In the event that the Holding Company is ultimately unable to refinance or otherwise meet its amortization obligations under the agreements, the lenders and the note holders have the right to call and demand immediate repayment of any and all amounts due. As of April 30, 2010 the Holding Company is in full compliance and expects to remain in full compliance with the remaining financial covenants through the maturity date.

The Holding Company has reduced its aggregate debt outstanding on the revolving credit facility and senior note to $67.6 million at April 30, 2010 from $87.1 million at March 31, 2010 and $215.5 million at December 31, 2009.

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. The pledged mortgages are required to have a principal balance of 178% to 250% as of March 31, 2010 and as of December 31, 2009, of any advances. NCB, FSB’s FHLB borrowing capacity is determined by the FHLB using several factors, including asset quality and performance, capital, earnings, liquidity and credit ratings. Changes in the 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 March 31, 2010, the total FHLB facility was $181.7 million of which $145.0 million of debt borrowings and $24.8 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.

As of March 31, 2010, NCB, FSB had pledged eligible Share and Single-family Residential Loans totaling $281.1 million, eligible Cooperative and Multifamily Loans totaling $35.2 million and eligible Commercial Real Estate Loans totaling $85.8 million. As of December 31, 2009, NCB, FSB had pledged eligible Share and Single-family Residential Loans totaling $321.0 million, eligible Cooperative and Multifamily Loans totaling $34.8 million and eligible Commercial Real Estate Loans totaling $86.7 million. As of March 31, 2010 and December 31, 2009, NCB, FSB had $21.6 million of investments pledged with the FHLB.

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 scheduled 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. 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 consolidated balance sheet as follows (dollars in thousands):


	March 31, 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	$	8,678	$	56	Other liabilities	$	1,435	$	(4	)
Cooperative and Multifamily Loans	Other assets		54,060		504	Other liabilities		18,648		(169	)
Rate lock commitments to extend credit:
Single-family Residential and Share Loans	Other assets		7,598		139	Other liabilities		491		(3	)
Cooperative and Commercial Real Estate Loans	Other assets		61,708		1,298	Other liabilities		—		—


Total derivatives not designated as hedging instruments		$	132,044	$	1,997		$	20,574	$	(176	)


	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 sale of loans.

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 value of the mortgage servicing rights associated with 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 sale of loans in the Statement of Operations is as follows (dollars in thousands):


	For the three months ended March 31, 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	$	—		$	(85	)	$	—		$	(85	)
Cooperative and Multifamily Loans		—			(36	)		—			(36	)
Rate lock commitments to extend credit:
Single-family Residential and Share Loans		(13	)		88			(5	)		70
Cooperative and Commercial Real Estate Loans		470			159			109			738

Total fair value measurement, March 31, 2010	$	457		$	126		$	104		$	687

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 them without the burden of complying with the requirements of derivative accounting standards. Unrealized gains and losses for these identified loans were included in earnings. Of the $35.5 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 $11.0 million and $1.8 million as of March 31, 2010 and December 31, 2009, respectively. The difference in fair value of these loans compared to their principal balance was $117 thousand and $23 thousand and was recorded in gain on sale of loans as of March 31, 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. The fair value hierarchy is as follows:

•

Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•

Level 2 — Financial assets and liabilities whose values are based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

•

Level 3 — Financial assets and liabilities whose values are based on inputs that are both unobservable and significant to the overall valuation.

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 below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value:

•

Interest-only Non-Certificated Receivables — reported at fair value utilizing Level 3 inputs, as limited secondary market information is available for the valuation of these receivables.

•

U.S. Treasury and Agency Obligations — reported at fair value utilizing Level 1 inputs from readily observable data in active secondary fixed income markets.

•

Mortgage-Backed Securities — reported at fair value utilizing Level 2 inputs. As quoted market prices in actively traded markets are not available, fair values are estimated by using pricing models and quoted prices of securities with similar characteristics.

•

CMO’s — reported at fair value utilizing Level 3 inputs as these assets are not traded in active markets and there is little secondary market data that can be used.

•

Equity Securities — reported utilizing Level 1 inputs as these assets are traded in active markets.

•

Derivative Instruments — because the Company’s derivative contracts are not listed on an exchange and, therefore quoted market prices are not available, the Company’s derivative positions are valued using models that use readily observable market parameters and are classified within Level 2 of the valuation hierarchy.

•

Loans Held-For-Sale — the Company’s loans held-for-sale, for which the fair value option has been elected, are reported at fair value. The Company determines the fair value of the loans-held-for sale using discounted cash flow models which incorporate quoted observable prices from market participants. Therefore, the Company classifies these loans held-for-sale as Level 2.

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):


	March 31, 2010
					Significant
	Quoted Prices in Active		Significant Other		Unobservable
	Markets for Identical Assets		Observable Inputs		Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		March 31, 2010
Assets
Interest-only non-certificated receivables	$	—	$	—	$	24,425	$	24,425
U.S. Treasury and agency obligations		12,757		—		—		12,757
Mortgage-backed securities		—		13,159		—		13,159
CMO’s						3,416		3,416
Equity securities		27		—		—		27
Derivative instruments		—		1,997		—		1,997
Loans held-for-sale		—		11,117		—		11,117

Total	$	12,784	$	26,273	$	27,841	$	66,898


Liabilities
Derivative instruments	$	—	$	176	$	—	$	176

Total	$	—	$	176	$	—	$	176

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 significant transfers of assets or liabilities between Level 1 and Level 2 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 three months ended March 31, 2010
	Interest-Only Non-
	certificated			Collateralized
	Receivables			Mortgage Obligations

Balance at December 31, 2009	$	24,851		$	3,723
Total gains or (losses) (realized/unrealized):
Included in earnings		—			—
Included in other comprehensive income		177			(104	)
Purchases, issuances, settlements and fundings		506			—
Write down of asset due to prepayment		—			—
Principal repayments		—			(203	)
Amortization		(1,109	)		—
Transfers out of Level 3		—			—

Balance at March 31, 2010	$	24,425		$	3,416


	For the twelve months ended December 31, 2009
	Interest-Only			Interest-Only			Collateralized
	Certificated			Non-certificated			Mortgage
	Receivables			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			(383	)		1,955
Purchases, issuances, settlements and fundings		—			2,391			—
Write down of asset due to prepayment		—			(49	)
Principal repayments		—			—			(681	)
Amortization		(4,845	)		(4,372	)		2
Sales		(22,919	)		—			—

Balance at December 31, 2009	$	—		$	24,851		$	3,723


(1)		These losses included in earnings have been recognized as OTTI losses on the Company’s 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). The following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis as of March 31, 2010 and December 31, 2009:

•

Loans Held-For-Sale — the Company’s loans held-for-sale for which the fair value option has not been elected, are reported at the lower of cost or fair value. The cost basis, including adjustments due to derivative accounting, of these loans was $2.7 million and $30.0 million as of March 31, 2010 and December 31, 2009, respectively. The Company determines the fair value of the loans-held-for sale measured at the lower of cost or fair value using discounted cash flow models. Discounted cash flow models which incorporate readily observable market data or a quoted price for an identical asset are classified as Level 2.

•

Mortgage Servicing Rights (“MSRs”) — the Company’s MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, precise terms and conditions vary with each transaction and are not readily available. Accordingly, the Company provides data on the MSRs to a third party who estimates the fair value of the MSRs using discounted cash flow models that calculate the present value of estimated future net servicing income. The valuation inputs are largely unobservable, therefore, MSRs are classified within Level 3 of the valuation hierarchy.

•

Impaired Loans — the Company’s impaired loans, primarily Commercial Real Estate and Commercial Loans, are evaluated and valued at the time the loan is identified as impaired, at the lower of cost or fair value. Fair value is measured based on the value of the collateral securing these loans and is classified at Level 3. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable.

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


	March 31, 2010
	Quoted Prices in Active		Significant Other		Significant
	Markets for Identical Assets		Observable Inputs		Unobservable Inputs		Balance as of
	(Level 1)		(Level 2)		(Level 3)		March 31, 2010
Assets
Loans held-for-sale	$	—	$	2,698	$	—	$	2,698	⁽¹⁾
Mortgage servicing rights		—		—		5,509		5,509	⁽²⁾
Impaired loans		—		—		68,683		68,683	⁽³⁾

Total	$	—	$	2,698	$	74,192	$	76,890


	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 March 31, 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 March 31, 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):


	March 31, 2010				December 31, 2009
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Financial Assets:
Cash and cash equivalents	$	201,201	$	201,201	$	266,090	$	266,090
Held-to-maturity investment securities		387		371		387		372
Loans held-for-sale		65,399		64,162		35,730		35,846
Loans held-for-investment, net		1,492,591		1,456,344		1,657,221		1,618,271
Financial Liabilities:
Deposits		1,196,966		1,225,436		1,253,954		1,279,749
Borrowings		486,232		406,684		614,553		527,888

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.

The following is the segment reporting for the three months ended March 31 (dollars in thousands):


								Retail and
	Commercial		Real Estate		Warehouse			Consumer					Consolidated
2010	Lending		Lending		Lending			Lending		Other			Company
Net interest income:
Interest income	$	7,343	$	10,980	$	1,210		$	5,236	$	368		$	25,137
Interest expense		2,149		6,418		350			2,888		1,278			13,083

Net interest income		5,194		4,562		860			2,348		(910	)		12,054

Provision for loan losses		3,808		2,503		—			342		—			6,653

Non-interest income		874		1,080		255			475		3,149			5,833

Non-interest expense:
Direct expense		941		882		2,045			488		5,547			9,903
Overhead and support		1,079		951		2,467			573		—			5,070

Total non-interest expense		2,020		1,833		4,512			1,061		5,547			14,973


Income (loss) before taxes	$	240	$	1,306	$	(3,397	)	$	1,420	$	(3,308	)	$	(3,739	)


Total average assets	$	483,143	$	734,351	$	72,979		$	417,850	$	351,967		$	2,060,290


Total assets	$	462,697	$	684,243	$	89,865		$	375,840	$	287,238		$	1,899,883


								Retail and
	Commercial		Real Estate			Warehouse		Consumer					Consolidated
2009	Lending		Lending			Lending		Lending		Other			Company
Net interest income:
Interest income	$	8,436	$	11,794		$	1,428	$	7,328	$	426		$	29,412
Interest expense		3,812		5,281			540		3,200		527			13,360

Net interest income		4,624		6,513			888		4,128		(101	)		16,052

Provision for loan losses		2,311		7,798			—		760		—			10,869

Non-interest income		1,181		1,276			3,103		247		422			6,229

Non-interest expense:
Direct expense		1,233		930			1,302		558		5,979			10,002
Overhead and support		1,502		1,091			1,524		710		—			4,827

Total non-interest expense		2,735		2,021			2,826		1,268		5,979			14,829


Income (loss) before taxes	$	759	$	(2,030	)	$	1,165	$	2,347	$	(5,658	)	$	(3,417	)


Total average assets	$	575,685	$	846,505		$	82,730	$	525,045	$	135,515		$	2,165,480


Total assets	$	568,248	$	852,235		$	98,994	$	514,299	$	144,663		$	2,178,439

18. PROVISION FOR INCOME TAXES

The federal income tax provision is determined on the basis of non-member 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, while only certain of the Company’s subsidiaries are subject to federal taxation. The income tax benefit for the three months ended March 31, 2010 and March 31, 2009 was $0.1 million and $0.2 million, respectively. NCB, FSB’s effective weighted average state tax rate was approximately 5.4% as of March 31, 2010 compared to 5.7% as of March 31, 2009. The effective combined tax rate for both federal and state tax was 2.7% as of March 31, 2010 compared to 5.3% as of March 31, 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 NCCB 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.

First Quarter 2010 Summary

The Company’s financial results continue to be impacted by the recessionary economic conditions. The residual impact of the recession that the U.S. economy has faced prior to and during 2009 continues to impact the Company’s borrowers, and as a result, the Company is experiencing a higher frequency of loan losses, both in number and severity, than in prior years. Specifically, increased foreclosure rates, unemployment rates and credit scores, in localities in which many of the Company’s loans are most highly concentrated, have resulted in corresponding increases to the Company’s provision for loan losses which more than offset the net income (before provision for loan losses) of the Company during the three months ending March 31, 2010. Increased cost of funds 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.

Debt Amendments

The Holding Company is the borrower under a senior note purchase agreement and a revolving credit facility as of December 31, 2009. NCB, FSB is not a guarantor under either agreement. However, both facilities are secured by NCB Financial Corporation, which has pledged all of the stock of NCB, FSB in connection with such guarantees.

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. The covenant violations were primarily a result of increased loan loss provisions and charge-offs, principally related to a small number of borrowers experiencing pronounced financial difficulties, including several borrowers which have filed for bankruptcy.

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 continues not to have access to the revolving credit facility.

The Holding Company is seeking to repay or refinance its obligations under the revolving credit facility and senior notes on or before June 30, 2010. The Holding Company is required to reduce the aggregate principal through paydowns such that the maximum aggregate debt outstanding is (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 is not required to fully repay the debt by June 30, 2010, if it fails to do so, it must pay a fee of 2% of then-outstanding debt balance. In the event that the Holding Company is ultimately unable to refinance or otherwise meet its amortization obligations under the agreements, the lenders and the note holders have the right to call and demand immediate repayment of any and all amounts due. As of April 30, 2010 the Holding Company is in full compliance and fully expects to remain in full compliance with the remaining financial covenants through the maturity date.

The Holding Company believes that it has adequate liquidity to meet all of its obligations for the duration of the amended agreements and beyond. The Holding Company plans to fund loan curtailments and 2010 debt maturities with some combination of cash on hand, proceeds from the delivery of loans held-for-sale, the receipt of interest and principal payments on loans receivable, and potentially, through leveraging existing assets through the use of a securitization vehicle or another borrowing transaction, disposing of certain assets and raising funds from other capital sources. Management is in the process of identifying specific investment securities or loans of the Holding Company that may potentially be sold or refinanced for liquidity purposes and to facilitate in retirement of debt. As of March 31, 2010, the Company has identified for sale during 2010 and thus transferred $45.7 million of loans originally held-for-investment to held-for-sale. As of March 31, 2010, none of these loans had been sold.

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”):

•

NCB, FSB entered into a Supervisory Agreement with the OTS. 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 not declare or pay any dividends or make any other capital distribution without prior approval. Additionally, NCB, FSB must 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.

None of the OTS Actions restrict the Holding Company, NCB Financial Corporation or NCB, FSB from 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.

Results of Operations
For the three months ended March 31, 2010 compared to the three months ended March 31, 2009
Overview

The Company’s net loss for the three months ended March 31, 2010 was $3.6 million compared to a net loss of $3.2 million for the three months ended March 31, 2009.

Total assets decreased 9.3% or $193.7 million to $1.90 billion as of March 31, 2010, from $2.09 billion as of December 31, 2009.

The annualized return on average total assets was -0.7% for the three months ended March 31, 2010 and 2009. The annualized return on average members’ equity was -7.9% and -5.8% for the three months ended March 31, 2010 and 2009, respectively.

Selected Financial Data
(Dollars In Thousands)


	For the three months ended
	March 31,
Profitability	2010			2009
Net interest income	$	12,054		$	16,052
Provision for loan losses		6,653			10,869
Net interest income after provision for loan losses		5,401			5,183
Non-interest income		5,833			6,229
Non-interest expense		14,973			14,829
Net loss		(3,639	)		(3,237	)

Ratios
Net yield on interest earning assets		2.60	%		3.03	%
Return on average assets		-0.7	%		-0.6	%
Return on average members’ equity		-7.9	%		-5.8	%
Efficiency ratio		83.7	%		66.6	%


	March 31,			December 31,
Supplemental Data	2010			2009
Loans held-for-sale	$	65,399		$	35,730
Loans held-for-investment		1,538,268			1,693,689
Total assets		1,899,883			2,093,537
Total borrowings		486,232			614,553

Fulltime equivalent employees		244			248

Ratios
Average members’ equity as a percentage of average total assets		8.9	%		9.6	%
Average members’ equity as a percentage of average total loans and lease financing		10.9	%		10.7	%

Net average loans and lease financing to average total assets		80.3	%		87.6	%
Net average earning assets to average total assets		88.3	%		94.7	%


	March 31,			December 31,
Credit Quality	2010			2009
Allowance for loan losses	$	45,677		$	36,468
Non-accrual loans		61,006			71,401
Real estate owned		5,397			2,315
Total non-performing assets		66,403			73,716

Ratios
Allowance for loan losses to loans outstanding		2.8	%		2.1	%
Non-performing assets as a percentage of total assets		3.5	%		3.5	%
Non-performing assets as a percentage of total loans held-for-investment		4.3	%		4.4	%

Net Interest Income

The largest 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 three months ended March 31, 2010, decreased $4.0 million or 24.9% to $12.1 million compared with $16.1 million for the three months ended March 31, 2009. The net yield on interest earning assets decreased from 3.03% for the three months ended March 31, 2009 to 2.60% for the same period in 2010.

For the three months ended March 31, 2010, interest income decreased by 14.5% or $4.3 million to $25.1 million compared with $29.4 million for the three months ended March 31, 2009. The decrease resulted primarily from a $2.3 million decrease in Residential and Commercial Real Estate loan volume and a decrease of $1.8 million in 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 216 basis points from the three months ended March 31, 2009 to the three months ended March 31, 2010.

Interest expense for the three months ended March 31, 2010, decreased $0.3 million or 2.1% from $13.4 million for the three months ended March 31, 2009 to $13.1 million for the three months ended March 31, 2010.

Variable interest rates, to which NCB FSB’s deposits are tied, have decreased significantly from the three months ended March 31, 2009 to the three months ended March 31, 2010 which is the primary cause of the $2.5 million year-over-year decrease in deposit interest expense. Specifically, NCB FSB’s cost of deposits has decreased 89 basis points from 2.61% in the first quarter of 2009 to 1.72% in the first quarter of 2010. NCB FSB’s average total deposits have increase slightly year-over-year; however, NCB, FSB’s brokered deposits, all relating to certificates of deposit, decreased $76.4 million from December 31, 2009 to March 31, 2010. Of the $512.7 million of brokered certificates of deposit, $124.3 million mature within three months and $388.4 million have a maturity ranging from four months to 69 months. The Company is actively working to decrease this concentration of brokered deposits.

Interest expense on borrowings increased $2.2 million or 42.7% from the first quarter of 2009 to the first quarter of 2010. The increase was primarily attributable to fees incurred and increased interest costs related to the Holding Company’s amended agreements for its revolving credit facility and senior notes beginning in the second quarter of 2009. Related to the amendments, the interest rate on the revolving credit facility has increased significantly since the first quarter of 2009 from approximately 350 basis points over the prime rate at the beginning of 2009 to the current rate of 13.5%. The senior notes interest rate has increased by more than 500 basis points over the initial rate to the current rate of 13.5% primarily as a result of the forbearance agreements. The increase in the interest rates on the revolving credit facility and senior notes contributed $1.4 million to the year-over-year increase while the amortization related to the amendment fees contributed $0.4 million to the year-over-year increase in borrowings interest expense.

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 March 31, 2010 and March 31, 2009.

Table 1
Changes in Net Interest Income
For the three months ended March 31,
(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	$	(2,285	)	$	332		$	(1,953	)
Consumer and Commercial Loans and Leases		(1,837	)		11			(1,826	)

Total loans and lease financing		(4,122	)		343			(3,779	)
Investment securities and cash equivalents		163			(667	)		(504	)
Other interest income		(54	)		62			8


Total interest income		(4,013	)		(262	)		(4,275	)


Interest Expense
Deposits		321			(2,842	)		(2,521	)
Borrowings		(1,336	)		3,580			2,244


Total interest expense		(1,015	)		738			(277	)


Net interest income	$	(2,998	)	$	(1,000	)	$	(3,998	)


**		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 three months ended March 31,
(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*	$	1,061,590		$	14,933		5.63	%	$	1,225,713		$	16,886		5.51	%
Consumer and Commercial Loans and Leases*		631,340			9,261		5.87	%		756,629			11,087		5.86	%

Total loans and lease financing*		1,692,930			24,194		5.72	%		1,982,342			27,973		5.64	%
Investment securities and cash equivalents		138,586			368		1.06	%		108,209			872		3.22	%
Other interest income		24,525			575		9.38	%		26,961			567		8.41	%

Total interest earning assets		1,856,041			25,137		5.42	%		2,117,512			29,412		5.56	%


Allowance for loan losses		(37,734	)							(30,021	)

Non-interest earning assets
Cash		170,185								15,998
Other		71,798								61,991

Total non-interest earning assets		241,983								77,989

Total assets	$	2,060,290							$	2,165,480


Liabilities and members’ equity
Interest bearing liabilities
Deposits	$	1,301,271		$	5,585		1.72	%	$	1,241,923		$	8,106		2.61	%
Borrowings		539,203			7,498		5.56	%		661,502			5,254		3.18	%

Total interest bearing liabilities		1,840,474			13,083		2.84	%		1,903,425			13,360		2.81	%

Other liabilities		35,927								38,448
Members’ equity		183,889								223,607

Total liabilities and members’ equity	$	2,060,290							$	2,165,480

Net interest earning assets	$	15,567							$	214,087

Net interest revenues and spread				$	12,054		2.57	%				$	16,052		2.75	%
Net yield on interest earning assets							2.60	%							3.03	%


*		Average loan balances include non-accrual loans.

Non-interest Income
(dollars in thousands)


	Non-interest income for the
	three months ended March 31,
	2010		2009
Gain on sale of loans	$	2,918	$	3,135
Servicing fees		1,052		949
Letter of credit fees		717		1,017
Real estate loan fees		384		197
Prepayment fees		97		80
Change in unrealized gain on derivatives		79		93
Gain on sale of investments available-for-sale		—		59
Other		586		699

Total	$	5,833	$	6,229

Total non-interest income decreased $0.4 million or 6.5% from $6.2 million during the three months ended March 31, 2009, to $5.8 million for the three months ended March 31, 2010. The decrease was driven primarily by a $0.2 million decrease in gain on sale of loans and a $0.3 million decrease in letter of credit fees resulting from a decrease in standby letters of credit outstanding year-over-year. These decreases were partially offset from various minimal increases in other areas of non-interest income.

The following table shows the unpaid principal balance of loans sold during the three months ended March 31 (dollars in thousands):


	2010					2009
			Percentage of					Percentage of
	Balance		Gain			Balance		Gain
Cooperative, Multifamily and Commercial Real Estate Loans	$	114,375		0.82	%	$	31,093		4.36	%
Consumer Loans (auto loans)		106,842		0.23	%		25,637		—
Single-family Residential Loans and Share Loans		44,853		1.31	%		63,715		1.81	%
SBA Loans		578		8.70	%		5,744		1.87	%

Total	$	266,648		1.12	%	$	126,189		2.56	%

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. During 2010, the Company sold $16.3 million of auto loans that were initially held-for-investment.

The Consumer Loans disclosed in the table above include $16.3 million of auto loans that the Company initially held-for-investment but later transferred to held-for-sale and sold at a gain of 0.23%.

Non-interest Expense
(dollars in thousands)


	Non-interest expense for the three months
	ended March 31,
	2010			2009
Compensation and employee benefits	$	8,056		$	8,441
Contractual services		1,655			1,436
Occupancy and equipment		1,561			1,704
Information systems		919			1,134
FDIC premium		786			450
Loan costs		776			722
Corporate development		143			286
Lower of cost or market adjustment		(17	)		(212	)
Provision for losses on unfunded commitments		686			331
Other		408			537

Total	$	14,973		$	14,829

Non-interest expense for the three months ended March 31, 2010, remained relatively stable compared to the corresponding prior year period. A $0.4 million decrease in compensation and employee benefits resulting from a decrease in employee benefits related to the Company’s reduction in force during the second half of 2009 was primarily offset by an increase in the FDIC premium expense resulting from special fees assessed by the FDIC of $0.6 million.

During the first quarter of 2010 NCB, FSB agreed to retention bonuses for some of its employees which are subject to continued employment and a non-compete agreement. The first bonus payment of $0.9 million was made during the first quarter of 2010 and there will be two additional payments during the second and third quarters of 2010 of $0.3 million each. The employees must be employed on each of the payment dates to receive payment.

Credit Quality

Since December 31, 2009, the allowance for loan losses increased by $9.2 million, or 25.2% to $45.7 million. This included $0.7 million of loan recoveries received and $1.2 million of loans charged off. The allowance for loan losses represented 3.0% and 2.2% of loans held-for-investment, as of March 31, 2010 and December 31, 2009, respectively. The allowance as a percentage of non-performing assets was 68.8% as of March 31, 2010 compared with 49.5% as of December 31, 2009.

Of the $6.7 million provision for loan losses, $3.8 million is related to Commercial Loans, $1.8 million is related to Real Estate Loans and $1.1 million is related to Consumer Loans. Net charge-offs were 0.1% and 1.8% of the average loans held-for-investment balance for the periods ended March 31, 2010 and December 31, 2009, respectively.

Table 3
IMPAIRED ASSETS
(dollars in thousands)


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

Real estate owned	$	5,397		$	2,315		$	3,553		$	3,988		$	1,286
Impaired loans		104,563			97,748			147,001			86,531			66,061


Total	$	109,960		$	100,063		$	150,554		$	90,519		$	67,347


As a percentage of loans held- for-investment		7.15	%		5.91	%		7.97	%		4.73	%		3.46	%

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 the borrowers. During 2010, the 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.

Standby Letters of Credit

As of March 31, 2010, the Company had outstanding standby letters of credit with a total commitment amount of $221.1 million of which $74.6 million were classified as criticized with an associated reserve for losses on these unfunded commitments of $7.4 million. 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 with an associated reserve for losses on these unfunded commitments of $10.5 million. During 2010, the Company funded two standby letters of credit in the aggregate amount of $3.8 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 provision for loan losses as of March 31, 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.

Liquidity and Capital Resources

As of March 31, 2010, the Company believes that it has adequate liquidity to meet all its obligations. As of March 31, 2010, the Company had cash on hand of $201.2 million, investments of $29.7 million and loans held-for-sale of $65.4 million. The following describe the Company’s primary sources and uses of liquidity as of March 31, 2010:

•

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

•

In addition to the methods discussed above, and if necessary, the Holding Company plans to fund the debt service on the revolving credit facility and senior notes through leveraging existing assets of the Holding Company through the use of a securitization vehicle or a secured borrowing arrangement, evaluating possible loan sale transactions and raising funds from other capital sources. As of March 31, 2010, management is in the process of identifying loans of the Holding Company that may potentially be sold or refinanced for liquidity purposes and to facilitate in retirement of debt. As of March 31, 2010, the Company has identified for sale in 2010 and thus transferred $45.7 million of loans originally held-for-investment to held-for-sale. During 2010, the Company sold $75.0 million of loans that were held-for-investment for liquidity purposes. Of these loans sold, $57.4 million were Residential Real Estate Loans and $17.6 million were Commercial Loans. During 2009, the Company sold $168.5 million of loans that were held-for-investment for liquidity purposes. 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 $11.9 as of March 31, 2010 which was a $25.5 million decline from $37.4 million as of December 31, 2009. As of March 31, 2010, the FHLB of Cincinnati, with whom NCB, FSB banks, has not provided notice of any potential dividend cancellations. Also, the FHLB capacity is not affected by any debt amendments entered into by the Holding Company.

•

FRB unused borrowing capacity was $80.7 million and $78.0 million as of March 31, 2010 and December 31, 2009, respectively.

•

In addition to funding operations and debt service, an additional usage of liquidity may include funding the maturity and withdrawal of certificates of deposit, specifically brokered deposits. NCB, FSB’s brokered deposit balances were $512.7 million and $589.1 million or 42.8% and 47.0% of total deposits as of March 31, 2010 and December 31, 2009, respectively. NCB, FSB intends to reduce its concentration of brokered deposits with some combination of cash on hand, proceeds from the delivery of loans held for sale, the receipt of interest and principal payments on loans held-for-investment as well as growth in non-brokered deposits.

In the event that the Holding Company is ultimately unable to refinance or otherwise meet its amortization obligations under the most recent amendments to its senior note and revolving credit agreements, the lenders and the note holders have the right to call and demand immediate repayment of any and all amounts due.

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, repayments of debt and purchases of investment securities.

Cash Provided by (Used in) Operating Activities. The Company’s net cash provided by operating activities for the three months ended March 31, 2010 was $17.5 million compared to cash used of $5.2 million for the three months ended March 31, 2009. This $22.7 million change was primarily due to a $65.9 million increase in the net proceeds from the sale of loans held-for-sale which was partially offset by a $4.2 million decrease in the provision for loan losses, a $20.7 million net increase of cash used for the purchase and origination of loans held-for-sale, and a $12.8 million net decrease in other liabilities and other assets.

Cash Provided by Investing Activities. The Company’s net cash provided by investing activities for the three months ended March 31, 2010 was $103.3 million compared to $17.4 million of net cash used in investing activities for the three months ended March 31, 2009. This $85.7 million change was primarily due to a $98.2 million decrease in cash used to originate loans and lease financing, net of principal collections partially offset by a $5.5 million increase in restricted cash and a $7.0 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 three months ended March 31, 2010 was $185.6 million compared to $10.2 million of cash provided for the three months ended March 31, 2009. The $195.8 million increase in cash used was primarily due to a $255.6 million net increase in cash used to repay debt borrowings partially offset by a $56.2 million decrease in cash used for deposit activities.

Interest-Bearing Liabilities

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


	March 31,		December 31,
	2010		2009		% Change
Deposits	$	1,199,502	$	1,256,046		-4.5	%
Borrowings		489,466		617,611		-20.7	%

Total	$	1,688,968	$	1,873,657		-9.9	%

The decrease in deposits, all of which are held at NCB, FSB, from December 31, 2009 to March 31, 2010 was a result of a slight shift in funding source from deposits to borrowings (primarily FHLB and TLGP funds) and an effort to reduce brokered certificates of deposit. The weighted average rate on deposits was 1.8% as of March 31, 2010 and December 31, 2009. The average maturity of the certificates of deposit as of March 31, 2010 was 17.5 months compared with 17.7 months as of December 31, 2009.

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

As of March 31, 2010, the Company has the following contractual debt maturities:


	Amount
2010	$	111,138
2011		65,000
2012		98,688
2013		20,000
2014		50,000
2015 and thereafter		141,547

Total payments	$	486,373

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.

As of March 31, 2010, the Company has not allocated any of its 2010 retained earnings for patronage dividends to be distributed.

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

There have been no material changes in the risk factors described in Item 1A (“Risk Factors”) of the Company’s Annual Report on Form 10-K since the year ended December 31, 2009.

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

SIGNATURE

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: May 14, 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