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| GCBC > SEC Filings for GCBC > Form 10-Q on 14-May-2012 | All Recent SEC Filings |
14-May-2012
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, including unemployment rates and real estate values,
(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 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, 2012 and June 30, 2011
ASSETS
Total assets of the Company were $578.7 million at March 31, 2012 as compared to $547.5 million at June 30, 2011, an increase of $31.2 million, or 5.7%. Securities available for sale and held to maturity amounted to $213.6 million, or 36.9% of assets, at March 31, 2012 as compared to $214.3 million, or 39.1% of assets, at June 30, 2011, a decrease of $645,000. Net loans grew by $11.1 million or 3.7% to $312.1 million at March 31, 2012 as compared to $301.0 million at June 30, 2011.
CASH AND CASH EQUIVALENTS
Total cash and cash equivalents increased to $30.9 million at March 31, 2012 as compared to $10.0 million at June 30, 2011, an increase of $20.9 million. The level of cash and cash equivalents is a function of the daily account clearing needs and deposit levels as well as activities associated with securities transactions and loan funding. All of these items can cause cash levels to fluctuate significantly on a daily basis.
SECURITIES
Securities, including both available-for-sale and held-to-maturity issues, decreased $645,000 to $213.6 million at March 31, 2012 as compared to $214.3 million at June 30, 2011. Securities purchases totaled $40.6 million during the nine months ended March 31, 2012 and consisted of $27.9 million in state and political subdivision securities and $12.7 million in mortgage-backed securities. Principal pay-downs and maturities amounted to $39.5 million, of which $22.5 million were mortgage-backed securities, $11.0 million were state and political subdivision securities and $6.0 million were U.S. government agency securities. Additionally, during the nine months ended March 31, 2012, corporate debt securities sold totaled $759,000, resulting in a realized gain of $11,000, and unrealized net gains on available for sale securities decreased $228,000. Greene County Bancorp, Inc. holds 27.5% of the securities portfolio at March 31, 2012 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
(Dollars in thousands) March 31, 2012 June 30, 2011
Percentage Percentage
Balance of portfolio Balance of portfolio
Securities available-for-sale:
U.S. government sponsored enterprises $ 20,093 9.4 % $ 25,703 12.0 %
State and political subdivisions 5,592 2.6 7,062 3.3
Mortgage-backed securities-residential 24,433 11.4 28,914 13.5
Mortgage-backed securities-multifamily 17,580 8.2 21,096 9.8
Asset-backed securities 20 0.0 23 0.0
Corporate debt securities 6,361 3.0 7,206 3.3
Total debt securities 74,079 34.6 90,004 41.9
Equity securities and other 126 0.1 113 0.1
Total securities available-for-sale 74,205 34.7 90,117 42.0
Securities held-to-maturity:
U.S. treasury securities 11,037 5.2 11,062 5.1
U.S. government sponsored enterprises 998 0.5 997 0.5
State and political subdivisions 53,197 24.9 34,933 16.3
Mortgage-backed securities-residential 52,184 24.4 57,347 26.8
Mortgage-backed securities-multifamily 21,643 10.1 19,434 9.1
Other securities 385 0.2 404 0.2
Total securities held-to-maturity 139,444 65.3 124,177 58.0
Total securities $ 213,649 100.0 % $ 214,294 100.0 %
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LOANS
Net loans receivable increased to $312.1 million at March 31, 2012 from $301.0 million at June 30, 2011, an increase of $11.1 million, or 3.7%. The loan growth experienced during the nine months primarily consisted of $7.0 million in nonresidential real estate loans, $5.2 million in residential mortgage loans, $1.7 million in non-mortgage loans, and $457,000 in construction loans and was partially offset by a $467,000 decrease in multifamily mortgage loans, a $1.9 million decrease in home equity loans and a $898,000 increase in the allowance for loan losses. The continued low interest rate environment and, we believe, 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. 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 or other exotic loan products. The Company is subject, however, 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 consolidated 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 along with increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios resulting in increased losses in these portfolios. As of March 31, 2012, declines in home values have been modest in the Company's market area. However, updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower's ability to repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy. During the nine months ended March 31, 2012, properties within several communities within the Company's market area were either severely damaged or destroyed as a result of Hurricane Irene. Many of the properties were covered by flood insurance. The Company is monitoring the affected mortgage loans within its portfolio, evaluating collateral values, disbursing insurance proceeds to the borrower as repairs progress, and monitoring ongoing repayment of the loans. The Company has evaluated its potential losses that may result from this natural disaster and has made additional provisions to the allowance for loan losses. During the nine months ended March 31, 2012, the Company recognized a charge-off in the amount of $130,000 related to flood damage resulting from Hurricane Irene.
March 31, 2012 June 30, 2011
Percentage Percentage
(Dollars in thousands) Balance of Portfolio Balance of Portfolio
Real estate mortgages:
Residential $ 186,821 58.8 % $ 181,612 59.4 %
Nonresidential 70,909 22.3 63,860 20.9
Construction and land 6,202 2.0 5,745 1.9
Multi-family 5,581 1.8 6,048 2.0
Total real estate mortgages 269,513 84.9 257,265 84.2
Home equity loans 23,677 7.4 25,559 8.4
Consumer installment 4,107 1.3 4,008 1.3
Commercial loans 20,378 6.4 18,788 6.1
Total gross loans 317,675 100.0 % 305,620 100.0 %
Deferred fees and costs 414 495
Allowance for loan losses (5,967 ) (5,069 )
Total net loans $ 312,122 $ 301,046
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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 collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, 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 Bank of Greene County considers residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements. The measurement of impaired loans is generally based on the fair value of the underlying collateral. 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 charge-offs.
Analysis of allowance for loan losses activity
(Dollars in thousands) Nine
months ended March
31,
2012 2011
Balance at the beginning of the period $5,069 $4,024
Charge-offs:
Residential real estate mortgages 172 140
Nonresidential mortgage 212 78
Consumer installment 183 185
Commercial loans 35 9
Total loans charged off 602 412
Recoveries:
Residential real estate mortgages 4 ---
Consumer installment 57 77
Commercial loans 2 8
Total recoveries 63 85
Net charge-offs 539 327
Provisions charged to operations 1,437 1,179
Balance at the end of the period $5,967 $4,876
Ratio of annualized net charge-offs to 0.23% 0.15%
average loans outstanding
Ratio of annualized net charge-offs to 9.92% 6.31%
nonperforming assets
Allowance for loan losses to 87.33% 76.80%
nonperforming loans
Allowance for loan losses to total 1.88% 1.62%
loans receivable
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Nonaccrual Loans and Nonperforming Assets
Management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis. A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan. The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic "Receivables - Loan Impairment." Management may consider a loan impaired once it is classified as nonaccrual and 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. Management does not evaluate all loans individually for impairment. The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors. In contrast, large commercial mortgage, construction, multi-family and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral. As a result, the level of impaired loans may only be a portion of the nonaccrual loans. Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy. Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors. Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually considered impaired, are either designated as Special Mention or Substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation. For further discussion and detail regarding the Allowance for Loan Losses and impaired loans please refer to Note (5) Credit Quality of Loans and Allowance for Loan Losses. A loan does not have to be 90 days delinquent in order to be classified as nonperforming. The Bank of Greene County had one accruing loan delinquent more than 90 days as of March 31, 2012 totaling $41,000 and had no accruing loans delinquent more than 90 days as of June 30, 2011. Loans delinquent more than 90 days and accruing consist of loans that are well collateralized and the borrower has demonstrated the ability and willingness to pay. The borrower has made arrangements with the Bank to bring the loan current within a specified time period and has made a series of payments as agreed. Foreclosed real estate is considered to be a nonperforming asset.
Analysis of Nonaccrual Loans and Nonperforming Assets
At
(Dollars in thousands) March 31, 2011 June 30, 2011
Nonaccrual loans:
Real estate mortgages:
Residential $ 4,015 $ 3,074
Nonresidential 2,062 2,171
Construction and land --- 238
Multi-family 434 577
Home equity loans 60 49
Consumer installment 19 41
Commercial loans 202 144
Total nonaccrual loans 6,792 6,294
Accruing loans delinquent 90 days or more
Residential 41 ---
Total nonperforming loans 6,833 6,294
Foreclosed real estate:
Residential 60 363
Nonresidential 200 80
Land 150 ---
Foreclosed real estate 410 443
Total nonperforming assets $ 7,243 $ 6,737
Total nonperforming assets as a percentage of total assets 1.25 % 1.23 %
Total nonperforming loans to net loans 2.19 % 2.09 %
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The table below details additional information related to nonaccrual loans for
the nine months ended March 31:
(In thousands) 2012 2011 Interest income that would have been recorded if loans had been performing in accordance with original terms $ 442 $ 458 Interest income that was recorded on nonaccrual loans during the nine months ended 211 176 |
The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic "Receivables - Loan Impairment". 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.
The table below details additional information on impaired loans as of and for
the nine months ended March 31:
(In thousands) 2012 2011 Balance of impaired loans, with a valuation allowance $ 2,911 $ 373 Allowance relating to impaired loans included in allowance for loan losses 778 93 Balance of impaired loans, without a valuation allowance 1,803 212 Average balance of impaired loans for the nine months ended 2,808 768 Interest income recorded on impaired loans during the nine months ended 117 10 |
Nonperforming assets amounted to $7.2 million at March 31, 2012 and $6.7 million as of June 30, 2011, an increase of approximately $506,000 or 7.5%, and total impaired loans amounted to $4.7 million at March 31, 2012 compared to $2.9 million at June 30, 2011, an increase of $1.8 million, or 62.1%. The growth in nonperforming assets has been the result of adverse changes within the economy and increases in local unemployment. Loans on nonaccrual status totaled $6.8 million at March 31, 2012 of which $2.9 million were in the process of foreclosure. Of the remaining $3.9 million in nonaccrual loans, $2.8 million were less than 90 days past due, or were current at March 31, 2012, but have a recent history of delinquency greater than 90 days past due. These loans will be returned to accrual status once they have demonstrated a history of timely payments. Of total delinquent loans, $922,000 were making payments pursuant to forbearance agreements. Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment). During this period, the Bank has agreed not to continue foreclosure proceedings. While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years. The growth in nonperforming assets is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years. The majority of The Bank of Greene County loans, including most nonaccrual loans as of March 31, 2012, are small homogenous loan types adequately supported by collateral. As a result, the level of impaired loans may only be a portion of nonaccrual loans. Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy. These loans are included in total nonperforming assets.
DEPOSITS
Total deposits increased to $514.6 million at March 31, 2012 from $469.9 million at June 30, 2011, an increase of $44.7 million, or 9.5%. This increase was primarily the result of an increase of $32.6 million in balances at Greene County Commercial Bank, our commercial bank subsidiary, which attracts deposits from local municipalities, due primarily to the annual collection of taxes. Interest bearing checking accounts (NOW accounts) increased $35.3 million or 24.6% to $178.7 million at March 31, 2012 as compared to $143.4 million at June 30, 2011. Savings deposits increased $14.4 million, and money market deposits increased $10.9 million between June 30, 2011 and March 31, 2012. Noninterest bearing deposits increased $494,000 to $49.8 million at March 31, 2012. Partially offsetting these increases was a $16.4 million decrease in certificates of deposit balances between June 30, 2011 and March 31, 2012.
(Dollars in thousands)
At March
31, Percentage At June Percentage
2012 of Portfolio 30, 2011 of Portfolio
Noninterest bearing deposits $ 49,807 9.7 % $ 49,313 10.5 %
Certificates of deposit 75,095 14.6 91,549 19.5
Savings deposits 126,254 24.5 111,851 23.8
Money market deposits 84,695 16.5 73,795 15.7
NOW deposits 178,746 34.7 143,389 30.5
Total deposits $ 514,597 100.0 % $ 469,897 100.0 %
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BORROWINGS
At March 31, 2012, The Bank of Greene County had pledged approximately $164.0 million of its residential mortgage portfolio as collateral for borrowing at the Federal Home Loan Bank ("FHLB"). The maximum amount of funding available from the FHLB through either overnight advances or term borrowings was $129.3 million . . .
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