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| GCBC > SEC Filings for GCBC > Form 10-Q on 14-May-2009 | All Recent SEC Filings |
14-May-2009
Quarterly Report
Overview of the Company's Activities and Risks
Greene County Bancorp, Inc.'s results of operations depend primarily on its net interest income, which is the difference between the income earned on Greene County Bancorp, Inc.'s loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by Greene County Bancorp, Inc.'s provision for loan losses, gains and losses from sales of securities, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges. Greene County Bancorp, Inc.'s noninterest expense consists principally of compensation and employee benefits, occupancy, equipment and data processing, and other operating expenses. Results of operations are also significantly affected by general economic and competitive conditions, changes in interest rates, as well as government policies and actions of regulatory authorities. Additionally, future changes in applicable law, regulations or government policies may materially affect Greene County Bancorp, Inc.
To operate successfully, the Company must manage various types of risk, including but not limited to, market or interest rate risk, credit risk, transaction risk, liquidity risk, security risk, strategic risk, reputation risk and compliance risk. While all of these risks are important, the risks of greatest significance to the Company relate to market or interest rate risk and credit risk.
Market risk is the risk of loss from adverse changes in market prices and/or interest rates. Since net interest income (the difference between interest earned on loans and investments and interest paid on deposits and borrowings) is the Company's primary source of revenue, interest rate risk is the most significant non-credit related market risk to which the Company is exposed. Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of the Company's assets and liabilities.
Interest rate risk is the exposure of the Company's net interest income to adverse movements in interest rates. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancings, and the flow and mix of deposits.
Credit risk is the risk to the Company's earnings and shareholders' equity that results from customers, to whom loans have been made and to the issuers of debt securities in which the Company has invested, failing to repay their obligations. The magnitude of risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased.
Special Note Regarding Forward Looking Statements
This quarterly report contains forward-looking statements. Greene County
Bancorp, Inc. desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is including this statement
for the express purpose of availing itself of the protections of the safe harbor
with respect to all such forward-looking statements. These forward-looking
statements, which are included in this Management's Discussion and Analysis and
elsewhere in this quarterly report, describe future plans or strategies and
include Greene County Bancorp, Inc.'s expectations of future financial
results. The words "believe," "expect," "anticipate," "project," and similar
expressions identify forward-looking statements. Greene County Bancorp, Inc.'s
ability to predict results or the effect of future plans or strategies or
qualitative or quantitative changes based on market risk exposure is inherently
uncertain. Factors that could affect actual results include but are not limited
to:
(a) changes in general market interest rates,
(b) general economic conditions,
(c) legislative and regulatory changes,
(d) monetary and fiscal policies of the U.S. Treasury and the Federal Reserve,
(e) changes in the quality or composition of The Bank of Greene County's loan portfolio or the consolidated investment portfolios of The Bank of Greene County, Greene County Commercial Bank and Greene County Bancorp, Inc.,
(f) deposit flows,
(g) competition, and
(h) demand for financial services in Greene County Bancorp, Inc.'s market area.
These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements, since results in future periods may differ materially from those currently expected because of various risks and uncertainties.
Comparison of Financial Condition as of March 31, 2009 and June 30, 2008
ASSETS
Total assets of the Company were $458.6 million at March 31, 2009 as compared to $379.6 million at June 30, 2008, an increase of $79.0 million, or 20.8%. Securities classified as both available-for-sale and held-to-maturity amounted to $151.4 million, or 33.0% of assets, at March 31, 2009 as compared to $112.1 million, or 29.5% of assets, at June 30, 2008, an increase of $39.3 million or 35.1%. Securities purchases, including both available-for-sale and held-to-maturity, totaled $70.4 million between June 30, 2008 and March 31, 2009. These activities were partially offset by principal pay-downs and maturities of $25.9 million and sales of $5.5 million over the same time frame. Gross loans grew by $27.3 million or 11.4% to $267.4 million at March 31, 2009 as compared to $240.1 million at June 30, 2008.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents increased $12.8 million or 146.0% to $21.4 million at March 31, 2009 as compared to $8.7 million at June 30, 2009. Federal funds sold comprised $10.1 million of the balance at March 31, 2009 and $6.5 million was held in interest-bearing deposits at that date. The balances grew during the period due to an increase in deposits. The company utilizes cash and cash equivalents for short-term liquidity and for asset/liability management purposes.
SECURITIES
Securities, including both available-for-sale and held-to-maturity issues, increased $39.3 million or 35.1% to $151.4 million at March 31, 2009 as compared to $112.1 million at June 30, 2008. Securities purchases totaled $70.4 million during the nine months ended March 31, 2009. Purchases consisted of $23.6 million of U.S. government sponsored enterprises bonds, $39.5 million of mortgage-backed securities, and $7.3 million of state and political subdivision securities. These purchases were funded through deposit growth, primarily from local municipalities. The deposits with municipalities require the Company to pledge securities as collateral for any uninsured balances. This increase was partially offset by principal pay-downs and maturities that amounted to $25.9 million, of which $6.7 million were mortgage-backed securities, $5.3 million were state and political subdivision securities and $13.9 million were U.S. government sponsored enterprises securities, and sales of mortgage-backed securities of $4.6 million, and sales of state and political subdivision securities of $900,000.
During the quarter ended December 31, 2008, $23.8 million of securities available-for-sale were transferred to held-to-maturity and included primarily mortgage-backed securities. These securities were transferred at fair value which reflected a net unrealized loss of $338,000 at the time of transfer. This unrealized loss is being accreted to other comprehensive income over the remaining average lives of these securities. Additionally, during the nine months ended March 31, 2009, unrealized net gains on securities increased $764,000. Greene County Bancorp, Inc. holds 18.2% of the securities portfolio at March 31, 2009 in state and political subdivision securities to take advantage of tax savings and to promote Greene County Bancorp, Inc.'s participation in the communities in which it operates. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.
Carrying Value at
March 31, 2009 June 30, 2008
(Dollars in thousands) Percentage Percentage
Balance of portfolio Balance of portfolio
Securities available-for-sale:
U.S. government sponsored enterprises $22,001 14.5% $16,146 14.4%
State and political subdivisions 10,303 6.8 10,850 9.7
Mortgage-backed securities 61,540 40.7 60,782 54.2
Asset-backed securities 48 0.0 49 0.1
Corporate debt securities 7,901 5.2 8,486 7.5
Total debt securities 101,793 67.2 96,313 85.9
Equity securities and other 29 0.0 379 0.3
Total available-for-sale securities 101,822 67.2 96,692 86.2
Securities held-to-maturity:
U.S. government sponsored enterprises 4,021 2.7 --- ---
State and political subdivisions 17,290 11.4 15,457 13.8
Mortgage-backed securities 27,934 18.5 --- ---
Other 360 0.2 --- ---
Total held-to-maturity securities 49,605 32.8 15,457 13.8
Total securities $151,427 100.0% $112,149 100.0%
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LOANS
Net loans receivable increased to $264.4 million at March 31, 2009 from $238.4 million at June 30, 2008, an increase of $26.0 million, or 10.9%. The loan growth experienced during the nine months primarily consisted of $12.7 million in residential mortgages, $10.2 million in commercial real estate loans, $2.0 million in home equity loans, and $2.2 million in commercial loans. The continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth. If long term rates begin to rise, the Company anticipates some slow down in new loan demand as well as refinancing activities. It appears consumers continue to use the equity in their homes to fund financing needs for some activities, where in the past an installment loan may have been the choice. The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending. It should be noted however that the Company is subject to the effects of any downturn, and especially, a significant decline in home values in the Company's markets could have a negative effect on the results of operations. A significant decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios. As of March 31, 2009, declines in home values have been modest in the Company's market area.
(Dollars in thousands) At Percentage At Percentage
March 31, 2009 of portfolio June 30, 2008 of portfolio
Real estate mortgages
Residential $170,848 63.9% $158,193 65.9%
Construction and land 12,702 4.8 12,295 5.1
Commercial 40,614 15.2 30,365 12.6
Multifamily 1,178 0.4 1,094 0.5
Home equity loans 25,988 9.7 23,957 10.0
Commercial loans 11,857 4.4 9,669 4.0
Installment loans 3,803 1.4 4,172 1.7
Passbook loans 398 0.2 401 0.2
Total loans 267,388 100.0% $240,146 100.0%
Deferred fees and costs 330 182
Less: Allowance for loan losses (3,280) (1,888)
Net loans receivable $264,438 $238,440
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ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss. In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County's allowance for loan losses. Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by net charge-offs. The level of the provision for the nine months ended March 31, 2009, was driven by the continued growth of the loan portfolio and recent increases in loan delinquencies and charge-offs. Any future increase in the allowance for loan losses or loan charge-offs could have a material adverse effect on Greene County Bancorp, Inc.'s results of operations and financial condition.
Analysis of allowance for loan losses activity
(Dollars in thousands) Nine months ended
March 31, 2009 March 31, 2008
Balance at the beginning of the period $ 1,888 $ 1,486
Charge-offs:
Residential mortgage 65 ---
Commercial loan 110 46
Installment loans to individuals 57 28
Overdraft protection 209 182
Total loans charged off 441 256
Recoveries:
Residential mortgage 1 ---
Home equity loans 1 27
Installment loans to individuals 22 44
Overdraft protection 45 53
Total recoveries 69 124
Net charge-offs 372 132
Provisions charged to operations 1,764 449
Balance at the end of the period $ 3,280 $ 1,803
Ratio of net charge-offs to average loans outstanding, annualized 0.19 % 0.08 %
Ratio of net charge-offs to nonperforming assets, annualized 27.07 % 11.50 %
Allowance for loan loss to nonperforming loans 189.38 % 117.84 %
Allowance for loan loss to total loans receivable 1.23 % 0.78 %
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Nonaccrual Loans and Nonperforming Assets
Loans are reviewed on a regular basis. Management determines that a loan is impaired or nonperforming when it is probable at least a portion of the loan will not be collected in accordance with its contractual terms due to an irreversible deterioration in the financial condition of the borrower or the value of the underlying collateral. When a loan is determined to be impaired, the measurement of the loan impairment is based on the present value of estimated future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. Management places loans on nonaccrual status once the loans have become 90 days or more delinquent. Nonaccrual is defined as a loan in which collectibility is questionable and therefore interest on the loan will no longer be recognized on an accrual basis. A loan does not have to be 90 days delinquent in order to be classified as nonperforming. Foreclosed real estate is considered nonperforming. The Bank of Greene County had no accruing loans delinquent 90 days or more at March 31, 2009 or June 30, 2008.
Analysis of Nonaccrual Loans and Nonperforming Assets
At March At June 30,
(Dollars in thousands) 31, 2009 2008
Nonaccruing loans:
Real estate mortgage loans:
Residential mortgages loans (one- to-four family) $ 1,002 $ 1,123
Construction and land loans 13 38
Commercial mortgage loans 192 91
Multifamily mortgage loans 26 26
Home equity 327 493
Commercial loans 146 142
Installment loans to individuals 26 26
Total nonaccruing loans 1,732 1,939
Foreclosed real estate 100 ---
Total nonperforming assets $ 1,832 $ 1,939
Total nonperforming assets as a percentage of total assets 0.40 % 0.51 %
Total nonperforming loans to total loans 0.65 % 0.81 %
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The Company identifies impaired loans and measures the impairment in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (Statement 114), as amended. A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring. Impaired loans totaled $247,000 as of March 31, 2009 of which $122,000 were nonaccrual. The Company has allocated approximately $80,000 of the allowance for loan losses for impaired loans as of March 31, 2009. Interest income of $47,000 and $51,000 was recorded on nonaccrual loans based on cash payments received during the nine months ended March 31, 2009 and 2008, respectively.
DEPOSITS
Total deposits increased to $398.1 million at March 31, 2009 from $321.4 million at June 30, 2008, an increase of $76.7 million, or 23.9%. The Company has recently attracted new local municipalities including school districts to use the services of Greene County Commercial Bank, which is a limited purpose entity for such activities. The level of deposits held by such public entities can be cyclical and fluctuate significantly from quarter to quarter and are significantly dependent and affected by tax collection periods or special projects such as new buildings or renovations. These types of local municipal entities are also required to have certain forms of collateral pledged for amounts deposited over the FDIC insurance limits. Deposits at Greene County Commercial Bank increased $54.6 million to $101.4 million at March 31, 2009 compared to $46.8 million at June 30, 2008. This increase was primarily in NOW deposits. Interest bearing checking accounts (NOW accounts) increased $40.5 million or 50.9% to $120.0 million at March 31, 2009 as compared to $79.5 million at June 30, 2008. Money market deposits increased $27.8 million or 73.2% to $65.8 million at March 31, 2009. Certificate of deposit balances increased $12.2 million or 13.6% between June 30, 2008 and March 31, 2009. Savings deposits increased $1.3 million or 1.8% to $74.0 million at March 31, 2009 as compared to $72.7 million at June 30, 2008. Noninterest bearing deposits decreased $5.1 million to $36.7 million at March 31, 2009.
(Dollars in thousands)
At
March 31, Percentage At Percentage
2009 of portfolio June 30, 2008 of portfolio
Noninterest bearing deposits $ 36,704 9.2 % $ 41,798 13.0 %
Certificates of deposit 101,666 25.5 89,470 27.9
Savings deposits 73,998 18.6 72,706 22.6
Money market deposits 65,776 16.5 37,970 11.8
NOW deposits 119,986 30.2 79,487 24.7
Total deposits $ 398,130 100.0 % $ 321,431 100.0 %
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BORROWINGS
At March 31, 2009, The Bank of Greene County had available an Overnight Line of Credit and a One-Month Overnight Repricing Line of Credit, each in the amount of $37.7 million with the Federal Home Loan Bank ("FHLB"). At March 31, 2009, there were no balances outstanding under these facilities. Interest rates on these lines are determined at the time of borrowing.
At March 31, 2009, The Bank of Greene County had term borrowings totaling $19.0 million from the FHLB, of which $14.0 million consisted of several fixed rate, fixed term advances with a weighted average rate of 3.34% and a weighted average maturity of 28 months. The remaining $5.0 million borrowing, which carried a 3.64% interest rate at March 31, 2009, is unilaterally convertible by the FHLB under certain market interest rate scenarios, including three-month LIBOR at or above 7.50%, into replacement advances for the same or lesser principal amount based on the then current market rates. If the Bank chooses not to accept the replacement funding, the Bank must repay this convertible advance, including any accrued interest, on the interest payment date.
At March 31, 2009, Greene County Bancorp, Inc. had available a revolving line of credit of $5.0 million with Atlantic Central Bankers Bank ("ACBB"). At March 31, 2009, there were no balances outstanding under this line of credit. This line of credit will mature on April 28, 2012 and carries a floating interest rate equal to the prime rate as reported in the Wall Street Journal.
Scheduled maturities of borrowings at March 31, 2009 were as follows:
(In thousands)
Fiscal year end
2010 $4,000
2011 5,000
2012 3,000
2013 1,000
2014 6,000
$19,000
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EQUITY
Shareholders' equity increased to $39.1 million at March 31, 2009 from $36.3 million at June 30, 2008, as net income of $3.0 million was partially offset by dividends declared and paid of $917,000. Additionally, shareholders' equity increased $468,000 as a result of unrealized securities gains, net of tax. Other changes in equity, totaling an $279,000 increase, were the result of activities associated with the various stock-based compensation plans of the Company including the 2000 and 2008 Stock Option Plans and ESOP Plan.
Comparison of Operating Results for the Nine Months and Quarter Ended March 31, 2009 and 2008
Average Balance Sheet
The following table sets forth certain information relating to Greene County Bancorp, Inc. for the nine months and quarters ended March 31, 2009 and 2008. For the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, are expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances were based on daily averages for the quarters and nine months ended March 31, 2009 and 2008. Average loan balances include non-performing loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.
Nine months Ended March 31, 2009 and 2008
(Dollars in 2009 2009 2009 2008 2008 2008
thousands)
Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
Interest earning
assets:
Loans receivable, $257,609 $12,101 6.26% $220,744 $10,922 6.60%
net1
Securities2 139,180 4,636 4.44 92,502 3,096 4.46
Federal funds 3,446 16 0.62 7,803 237 4.05
Interest bearing 2,963 25 1.13 3,650 104 3.80
bank balances
FHLB stock 1,413 46 4.34 830 40 6.42
Total interest 404,611 16,824 5.54% 325,529 14,399 5.90%
earning assets
Cash and due from 6,079 5,602
banks
Allowance for loan (2,083) (1,616)
losses
Other non-interest 18,096 17,324
earning assets
Total assets $426,703 $346,839
Interest bearing
liabilities:
Savings and money $118,634 $1,043 1.17% $106,607 $1,447 1.81%
market deposits
NOW deposits 115,403 1,579 1.82 70,828 1,360 2.56
Certificates of 93,638 2,059 2.93 81,545 2,613 4.27
deposit
Borrowings 20,629 503 3.25 8,838 237 3.57
Total interest 348,304 5,184 1.98% 267,818 5,657 2.82%
bearing liabilities
Non-interest bearing 38,433 40,366
deposits
Other non-interest 2,586 2,525
bearing liabilities
Shareholders' equity 37,380 36,130
Total liabilities $426,703 $346,839
and equity
Net interest income $11,640 $8,742
Net interest rate 3.56% 3.08%
spread
Net interest margin 3.84% 3.58%
Average interest
earning assets to
average interest 116.17% 121.55%
bearing liabilities
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1 Calculated net of deferred loan fees and costs, loan discounts, and loans in
process.
2 Includes tax-free securities, mortgage-backed securities and asset-backed
securities.
Quarter Ended March 31, 2009 and 2008
(Dollars in 2009 2009 2009 2008 2008 2008
. . .
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