-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WBNHRRmoN40//oF9Mz5dPN4zW4YPmbjMrBZ9P8MYHiKjCpJoLiXsgmkMgxBEBd+2 2ln11mF2BHi8dhY6hIY/mQ== 0001070524-03-000005.txt : 20030416 0001070524-03-000005.hdr.sgml : 20030416 20030416144258 ACCESSION NUMBER: 0001070524-03-000005 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20030416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENE COUNTY BANCORP INC CENTRAL INDEX KEY: 0001070524 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 141809721 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25165 FILM NUMBER: 03652384 BUSINESS ADDRESS: STREET 1: 302 MAIN STREET CITY: CATSKILL STATE: NY ZIP: 12414 BUSINESS PHONE: 5189432600 MAIL ADDRESS: STREET 1: 302 MAIN STREET CITY: CATSKILL STATE: NY ZIP: 12414 10KSB/A 1 b10ksba_june2002.txt AMMENDMENT FROM 6/30/2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2002 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transaction period from ___________________ to ______________________ Commission File Number: 0-25165 GREENE COUNTY BANCORP, INC. (Name of Small Business Issuer in its Charter) United States 14-1809721 (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) 302 Main Street, Catskill, New York 12414 (Address of Principal Executive Office) (Zip Code) (518) 943-2600 (Issuer's Telephone Number including area code) Securities Registered Pursuant to Section 12(b) of the Act: None -------- Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $0.10 per share (Title of Class) Check 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 past twelve 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 / NO Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendments to this Form 10-KSB. [X] The Registrant's revenues for the fiscal year ended June 30, 2002 were $14,389,771. As of September 16, 2002, there were issued and outstanding 2,024,835 shares of the Registrant's common stock of which 872,519 were shares of voting stock held by non-affiliates of the Registrant. Computed by reference to the closing price of Common Stock of $17.60 on such date, the aggregate value of stock held by non-affiliates was $15,356,334. DOCUMENTS INCORPORATED BY REFERENCE 1. Sections of Annual Report to Shareholders for the fiscal year ended June 30, 2002 (Part II). 2. Proxy Statement for the 2002 Annual Meeting of Shareholders (Part III)
GREENE COUNTY BANCORP, INC. AND SUBSIDIARY ------------------------------------------ FORM 10-KSB ----------- Index ------ Page _____ Part I - ------ Item 1. Description of Business.................................................................................1 Item 2. Description of Properties..............................................................................29 Item 3. Legal Proceedings......................................................................................29 Item 4. Submissions of Matters to a Vote of Security Holders...................................................30 Part II - -------- Item 5. Market for Common Equity and Related Stockholder Matters...............................................30 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations..................30 Item 7. Financial Statements...................................................................................30 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures..................30 Part III - -------- Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act..................................................................................30 Item 10. Executive Compensation.................................................................................30 Item 11. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters..............................................................................................30 Item 12. Certain Relationships And Related Transactions.........................................................31 Item 13. Exhibits, Financial Statements Schedules And Reports On Form 8-K.......................................31 Part IV - ------- Signatures Certifications
PART I - ------ ITEM 1. Description of Business ----------------------- General - ------- Greene County Bancorp, Inc. operates as the federally chartered holding company of The Bank of Greene County, a New York-chartered savings bank. A majority of Greene County Bancorp, Inc.'s common stock (53.5%) is held by Greene County Bancorp, MHC, a federally chartered mutual holding company. The remaining shares of Greene County Bancorp, Inc. are owned by public stockholders and The Bank of Greene County's Employee Stock Ownership Plan. Greene County Bancorp, Inc. - --------------------------- Greene County Bancorp, Inc. was organized in December of 1998 at the direction of the Board of Trustees of The Bank of Greene County (formerly Greene County Savings Bank) for the purpose of acting as the holding company of The Bank of Greene County. In 2001, Greene County Bancorp, Inc. converted its charter from a Delaware corporation regulated by the New York Superintendent of Banks and the Board of Governors of the Federal Reserve System to a federal corporation regulated by the Office of Thrift Supervision. At June 30, 2002, Greene County Bancorp, Inc.'s assets consisted primarily of the outstanding capital stock of The Bank of Greene County and cash and investments of $4.5 million. At June 30, 2002, 872,519 shares of Greene County Bancorp, Inc.'s common stock, par value $0.10 per share, were held by the public, 128,000 shares were held as Treasury stock and 1,152,316 shares were held by Greene County Bancorp, MHC, Greene County Bancorp, Inc.'s mutual holding company. Greene County Bancorp, Inc.'s principal business is overseeing and directing the business of The Bank of Greene County and various Greene County Bancorp, Inc. investment securities. At June 30, 2002, Greene County Bancorp, Inc. had consolidated total assets of $220.2 million, consolidatedtotal deposits of $183.7 million, consolidated borrowings from Federal Home Loan Bank of $9.0 million and consolidated total equity of $26.4 million. Greene County Bancorp, Inc.'s administrative office is located at 302 Main Street, Catskill, New York 12414-1317. Its telephone number is (518) 943-2600. The Bank of Greene County The Bank of Greene County was organized in 1889 as The Building and Loan Association of Catskill, a New York-chartered savings and loan association. In 1974, The Bank of Greene County converted to a New York mutual savings bank under the name Greene County Savings Bank. In conjunction with the reorganization and the offering completed in December 1998, which resulted in the organization of Greene County Bancorp, Inc., Greene County Savings Bank changed its name to The Bank of Greene County. The Bank of Greene County's deposits are insured by the Bank Insurance Fund, as administered by the Federal Deposit Insurance Corporation, up to the maximum amount permitted by law. The Bank of Greene County's principal business consists of attracting retail deposits from the general public in the areas surrounding its branches and investing those deposits, together with funds generated from operations and borrowings, primarily in one- to four-family residential mortgage loans, commercial real estate loans, consumer loans, home equity loans and commercial business loans. In addition, The Bank of Greene County invests a significant portion of its assets in investment securities and mortgage- and asset-backed securities. The Bank of Greene County's revenues are derived principally from interest on its residential mortgages, and to a lesser extent, from interest on consumer and commercial loans and securities, as well as from servicing fees & services charges and other fees collected on its deposit accounts. The Bank of Greene County's primary sources of funds are deposits, and principal and interest payments on loans and investment securities and mortgage- and asset-backed securities. At June 30, 2002, The Bank of Greene County had borrowed $9.0 million from the Federal Home Loan Bank. The Bank of Greene County's administrative office is located at 302 Main Street, Catskill, New York 12414-1317. Its telephone number is (518) 943-2600. Greene County Bancorp, MHC Greene County Bancorp, MHC was formed in December 1998 as part of The Bank of Greene County's mutual holding company reorganization. In 2001, Greene County Bancorp, MHC converted from a state to a federal charter. The Office of Thrift Supervision under the new charter currently regulates Greene County Bancorp, MHC. Greene County Bancorp, MHC owns 53.5% of the common stock of Greene County Bancorp, Inc.. Greene County Bancorp, MHC does not engage in any business activity other than to hold Greene County Bancorp, Inc.'s common stock and to invest any liquid assets of Greene County Bancorp, MHC, which amounted to $166,000 in cash and cash equivalents at June 30, 2002. Greene County Bancorp, MHC's administrative office is located at 302 Main Street, Catskill, New York 12414-1317, and its telephone number at that address is (518) 943-2600. Market Area The Bank of Greene County has been, and intends to continue to be, a community-oriented bank offering a variety of financial services to meet the needs of the communities it serves. The Bank of Greene County currently operates six full-service banking offices in Greene County and southern Albany County, New York. The Bank of Greene County's primary market area is currently concentrated around the areas within Greene County and southern Albany County where its full-service banking offices are located, namely the towns of Catskill, Cairo, Coxsackie, Greenville, Tannersville and Westerlo. As of the 2000 census estimates, the Greene County population was 48,300 persons, indicating an overall increase in the population level of 8.0% since the last census conducted in 1990. Greene County is primarily rural and the major industry consists of tourism associated with the several ski facilities and festivals located in the Catskill Mountains. The County has no concentrations of manufacturing industry. Greene County is contiguous to the Albany-Schenectady-Troy metropolitan statistical area. The close proximity of Greene County to the city of Albany has made it a "bedroom" community for persons working in the Albany capital area. Greene County and the Coxsackie Correctional Facilities are the largest employers in the County. Other large employers include the Hunter Mountain and Ski Windham resort areas, the Catskill, Cairo-Durham, Greenville and Coxsackie-Athens Central School Districts and Stiefel Labs, Inc. Competition The Bank of Greene County faces significant competition both in making loans and in attracting deposits. The Bank of Greene County's market area has a high density of financial institutions, many of which are branches of significantly larger institutions that have greater financial resources than The Bank of Greene County, and all of which are competitors of The Bank of Greene County to varying degrees. The Bank of Greene County's competition for loans comes principally from commercial banks, savings banks, savings and loan associations, mortgage-banking companies, credit unions, insurance companies and other financial service companies. Its most direct competition for deposits has historically come from commercial banks, savings banks, savings and loan associations and credit unions. The Bank of Greene County faces additional competition for deposits from non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies. Competition may also increase as a result of the lifting of restrictions on the interstate operations of financial institutions. Competition is likely to increase as a result of the enactment of the Gramm-Leach-Bliley Act of 1999, which eases restrictions on entry into the financial services market by insurance companies and securities firms. Moreover, to the extent that these changes permit banks, securities firms and insurance companies to affiliate, the financial services industry could experience further consolidation. This could result in a growing number of larger financial institutions competing in The Bank of Greene County's primary market area that offer a wider variety of financial services than The Bank of Greene County currently offers. Competition for deposits, for the origination of loans and the provision of other financial services may limit The Bank of Greene County's growth and adversely impact its profitability in the future. Lending Activities General. The principal lending activity of The Bank of Greene County is the origination, for retention in its portfolio, of fixed-rate and adjustable-rate mortgage loans collateralized by one- to four-family residential real estate located within its primary market area. To a lesser extent, The Bank of Greene County also originates commercial real estate loans, home equity loans, consumer loans and commercial business loans. The Bank of Greene County also offers a variety of line of credit products. In an effort to manage the interest rate risk associated with its predominantly fixed-rate loan portfolio, The Bank of Greene County maintains high levels of liquidity. Cash, cash equivalents and securities available for sale comprised 38.1% of total assets at June 30, 2002, all of which can be used for liquidity. In addition, where possible, The Bank of Greene County corresponds the funding of fixed-rate residential mortgages with FHLB advances. Finally, The Bank of Greene County seeks to attract checking and other transaction accounts that generally have lower interest rate costs and tend to be less interest rate sensitive when interest rates rise. Loan Portfolio Composition. Set forth below is selected information concerning the composition of The Bank of Greene County's loan portfolio in dollar amounts and in percentages (before deductions for deferred fees and costs, unearned discounts and allowances for losses) as of the dates indicated.
At June 30, 2002 2001 2000 Amount Percent Amount Percent Amount Percent ------------- ----------- ------------- ----------- ------------ ----------- (Dollars in thousands) Real estate loans: One- to four-family $98,834 76.19% $86,336 77.84% $80,696 81.54% Commercial 8,764 6.76 5,239 4.72 4,702 4.75 Construction and land 3,003 2.31 1,979 1.78 616 0.62 Multi-family 1,657 1.28 1,213 1.09 1,253 1.27 ------------- ----------- ------------- ----------- ------------ ----------- Total real estate loans 112,258 86.54 94,767 85.43 87,267 88.18 Consumer loans Installment (1) 5,611 4.32 6,128 5.53 4,865 4.92 Home equity 6,957 5.36 6,138 5.53 4,631 4.68 Passbook 545 0.42 596 0.54 490 0.50 ------------- ----------- ------------- ----------- ------------ ----------- Total consumer loans 13,113 10.10 12,862 11.60 9,986 10.10 Commercial business loans 4,356 3.36 3,291 2.97 1,707 1.72 ------------- ----------- ------------- ----------- ------------ ----------- Total consumer loans and commercial business loans 17,469 13.46 16,153 14.57 11,693 11.82 ------------- ----------- ------------- ----------- ------------ ----------- Total gross loans 129,727 100.00% 110,920 100.00% 98,960 100.00% ------------- ------------- ------------ Less: Deferred fees and discounts (285) (277) (275) Allowance for loan losses (1,069) (886) (866) ------------- ------------- ------------ Total loans receivable, net $128,373 $109,757 $97,819 ============= ============= ============ (1) Includes direct automobile loans (on both new and used automobiles) and personal loans.
At June 30, 2002 2001 2000 Amount Percent Amount Percent Amount Percent ------------- ----------- ------------ ----------- ---------- ---------- (Dollars in thousands) Fixed-rate loans: Real estate loans: One- to four-family $91,586 70.60% $77,852 70.19% $69,360 70.08% Commercial 6,587 5.08 3,589 3.23 2,840 2.87 Construction and land 2,554 1.97 1,979 1.78 616 0.62 Multi-family 1,442 1.11 1,175 1.06 1,124 1.14 ------------- ----------- ----------- ---------- -------------- ----------- Total fixed-rate real estate loans 102,169 78.76 84,595 76.26 73,940 74.71 Consumer loans Installment (1) 5,611 4.32 6,128 5.53 4,865 4.92 Home equity 6,957 5.36 6,138 5.53 4,631 4.68 Passbook 545 0.42 596 0.54 490 0.50 Commercial business loans 4,356 3.36 3,291 2.97 1,707 1.72 ------------- ----------- ----------- ---------- -------------- ----------- Total fixed-rate loans 119,638 92.22 100,748 90.83 85,633 86.53 ------------- ----------- ---------- ---------- -------------- ----------- Adjustable-rate loans Real estate loans: One- to four-family 7,248 5.59 8,484 7.65 11,336 11.46 Commercial real estate 2,177 1.68 1,650 1.49 1,862 1.88 Construction and land 449 0.34 --- --- 129 --- Multi-family 215 0.17 38 0.03 129 0.13 ------------ ----------- ------------ ----------- -------------- ----------- Total adjustable-rate loans 10,089 7.78 10,172 9.17 13,327 13.47 Total gross loans 129,727 100.00% 110,920 100.00% 98,960 100.00% ------------ ----------- ----------- ----------- -------------- ----------- Less: Deferred fees and discounts (285) (277) (275) Allowance for loan losses (1,069) (886) (866) ------------ ------------- -------------- Total loans receivable, net $128,373 $109,757 $97,819 ============== ============ =============== (1) Includes direct automobile loans (on both new and used automobiles) and personal loans.
One- to Four-Family Residential Loans. The Bank of Greene County's primary lending activity is the origination of one- to four-family residential mortgage loans collateralized by property located in The Bank of Greene Countys primary market area. One- to four-family residential mortgage loans refer to loans collateralized by single-family residences; by contrast, multi-family loans refer to loans secured by multi-family units, such as apartment buildings. Generally, one- to four-family residential mortgage loans are made in amounts up to 89.9% of the appraised value of the property. However, The Bank of Greene County will originate one- to four-family residential mortgage loans with loan-to-value ratios of up to 95%, with private mortgage insurance. For the year ended June 30, 2002, less than one percent of the one- to four-family mortgage loans originated by The Bank of Greene County were originated with loan-to-value ratios over 89.9%. For the year ended June 30, 2002, The Bank of Greene County originated 75%to 80% in one- to four-family residential mortgage loans with loan-to-value ratios of 80% or more but without private mortgage insurance. Generally, residential mortgage loans are originated for terms of up to 30 years, though in recent years The Bank of Greene County has been successful in marketing and originating such loans with 15-year terms. One- to four-family fixed-rate loans are offered with both a monthly and bi-weekly payment feature. The Bank of Greene County generally requires fire and casualty insurance, the establishment of a mortgage escrow account for the payment of real estate taxes, hazard and flood insurance, as well as title insurance on all properties collateralizing real estate loans made by The Bank of Greene County. At June 30, 2002, virtually all of The Bank of Greene County's one- to four-family residential mortgage loans were conforming loans and, accordingly, were eligible for sale in the secondary mortgage market. However, generally the one- to four-family residential mortgage loans originated by The Bank of Greene County are retained in its portfolio and are not sold into the secondary mortgage market. To the extent fixed rate one- to four-family residential mortgage loans are retained by The Bank of Greene County, it is exposed to increases in market interest rates, since the yields earned on such fixed-rate assets would be lower than the rates paid by The Bank of Greene County for deposits and borrowings, which could result in lower net interest income. The Bank of Greene County currently offers one- to four-family residential mortgage loans with fixed and adjustable interest rates. Originations of fixed-rate loans versus adjustable-rate loans are monitored on an ongoing basis and are affected significantly by the level of market interest rates, customer preference, The Bank of Greene County's interest rate gap position, and loan products offered by The Bank of Greene County's competitors. Particularly, in a relatively low interest rate environment, borrowers may prefer fixed-rate loans to adjustable-rate loans. Single-family residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms because borrowers may refinance or prepay loans at their option. The average length of time that The Bank of Greene County's single-family residential mortgage loans remain outstanding varies significantly depending upon trends in market interest rates and other factors. The Bank of Greene County's adjustable-rate mortgage ("ARM") loans currently provide for maximum rate adjustments of 150 basis points per year and 600 basis points over the term of the loan. The Bank of Greene County offers ARM loans with initial interest rates that are below market, referred to as "teaser rates." However, in underwriting such loans, borrowers are qualified at the full index rate. Generally, The Bank of Greene County's ARM loans adjust every year. After origination, the interest rate on such ARM loans is reset based upon a contractual spread or margin above the average yield on one-year United States Treasury securities, adjusted to a constant maturity, as published weekly by the Federal Reserve Board. ARM loans decrease the risk associated with changes in market interest rates by periodically re-pricing, but involve other risks because as interest rates increase, the underlying payments by the borrower increase, thus increasing the potential for default by the borrower. At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates. Upward adjustment of the contractual interest rate is also limited by the maximum periodic and lifetime interest rate adjustment permitted by the terms of the ARM loans, and, therefore, is potentially limited in effectiveness during periods of rapidly rising interest rates. At June 30, 2002, $7.2 million, or 5.59% of The Bank of Greene County's loan portfolio consisted of one- to four-family residential loans with adjustable interest rates, compared to $91.6 million, or 70.6% of the loan portfolio comprised of one- to four-family residential loans with fixed interest rates. The Bank of Greene County's willingness and capacity to originate and hold in portfolio fixed rate one- to four-family residential mortgage loans has enabled it to generate various loan fees and expand customer relationships in the current low interest rate environment where borrowers have generally preferred fixed rate mortgage loans. However, as noted above, to the extent The Bank of Greene County retains fixed rate one- to four-family residential mortgage loans in its portfolio, it is exposed to increases in market interest rates, since the yields earned on such fixed rate assets would be lower than the rates paid by The Bank of Greene County for deposits and borrowings, which could result in lower net interest income. The Bank of Greene County originates construction to permanent loans to homeowners for the purpose of construction of primary and secondary residences. The Bank of Greene County issues a commitment and has one closing which encompasses both the construction phase and permanent financing. The construction phase is a maximum term of six months and the interest charged is the rate as stated in the commitment, with loan-to-value ratios of up to 89.9% (or up to 95% with private mortgage insurance), of the completed project. The Bank of Greene County began offering loans collateralized by undeveloped land during fiscal year 2001. The acreage associated with such loans is limited. These land loans generally are intended for future sites of primary or secondary residences. Construction lending generally involves a greater degree of risk than other one- to four-family mortgage lending. The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property. Construction delays may further impair the borrower's ability to repay the loan. The Bank of Greene County's residential mortgage loan originations are generally obtained from The Bank of Greene County's loan representatives operating in its branch offices through their contacts with existing or past loan customers, depositors of The Bank of Greene County, attorneys and accountants who refer loan applications from the general public, and local realtors. The Bank of Greene County has hired a loan originator who calls upon customers during non-banking hours and at locations convenient to the customer. All one- to four-family residential mortgage loans originated by The Bank of Greene County include "due-on-sale" clauses, which give The Bank of Greene County the right to declare a loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. At June 30, 2002, $98.8 million, or 76.19% of The Bank of Greene County's loan portfolio, consisted of one- to four-family residential mortgage loans. Approximately $314,000 of such loans (representing seven loans) were included in nonperforming loans as of that date. Commercial Real Estate and Multifamily Loans. At June 30, 2002, $ 8.8 million, or 6.76%, of the total loan portfolio consisted of commercial real estate loans. Office buildings, mixed-use properties and other commercial properties collateralize commercial real estate loans. The Bank of Greene County originates fixed- and adjustable-rate commercial mortgage loans with maximum terms of up to 20 years. The maximum loan-to-value ratio of commercial real estate loans is generally 75%. At June 30, 2002, the largest commercial mortgage loan had a principal balance of $861,900 and was a construction to permanent loan for a firehouse. There were no commercial real estate loans included in nonperforming loans. In underwriting commercial real estate loans, The Bank of Greene County reviews the expected net operating income generated by the real estate to ensure that it is generally at least 110% of the amount of the monthly debt service; the age and condition of the collateral; the financial resources and income level of the borrower; and the borrower's business experience. The Bank of Greene County's policy is to require personal guarantees from all commercial real estate borrowers. Loans collateralized by commercial real estate generally are larger than one- to four-family residential loans and involve a greater degree of risk. Commercial mortgage loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of commercial real estate loans makes them more difficult for Bank management to monitor and evaluate. The Bank of Greene County originates a limited number of multi-family loans, which totaled $1.7 million, or 1.28% of The Bank of Greene County's total loans at June 30, 2002. Multi-family loans are generally collateralized by apartment buildings located in The Bank of Greene County's primary market area. There were no multi-family loans included in nonperforming loans. The Bank of Greene County's underwriting practices and the risks associated with multi-family loans do not differ substantially from that of commercial real estate loans. Consumer Loans. The Bank of Greene County's consumer loans consist of direct loans on new and used automobiles, personal loans (either secured or unsecured), home equity loans, and other consumer installment loans (consisting of passbook loans, unsecured home improvement loans and recreational vehicle loans). Consumer loans (other than home equity loans) are originated at fixed rates with terms to maturity of one to five years. At June 30, 2002 consumer loans totaled $13.1 million, or 10.10% of the total loan portfolio. Approximately $18,886 of such loans (representing five loans) were included in nonperforming loans as of that date. Consumer loans generally have shorter terms and higher interest rates than one- to four-family mortgage loans. In addition, consumer loans expand the products and services offered by The Bank of Greene County to better meet the financial services needs of its customers. Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the underlying collateral. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower's personal financial stability. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans. The Bank of Greene County's underwriting procedures for consumer loans includes an assessment of the applicant's credit history and an assessment of the applicant's ability to meet existing and proposed debt obligations. Although the applicant's creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral to the proposed loan amount. The Bank of Greene County underwrites its consumer loans internally, which The Bank of Greene County believes limits its exposure to credit risks associated with loans underwritten or purchased from brokers and other external sources. At this time, The Bank of Greene County does not purchase loans from any external sources. The Bank of Greene County offers fixed and adjustable-rate home equity loans that are collateralized by the borrower's residence. Home equity loans are generally underwritten with terms not to exceed 15 years and under the same criteria that The Bank of Greene County uses to underwrite one- to four-family fixed rate loans. Home equity loans may be underwritten with terms not to exceed 15 years and with a loan to value ratio of 80% when combined with the principal balance of the existing mortgage loan. The maximum amount of a home equity loan may not exceed $50,000 unless approved by the Board of Directors. The Bank of Greene County appraises the property collateralizing the loan at the time of the loan application (but not thereafter) in order to determine the value of the property collateralizing the home equity loans. At June 30, 2002, the outstanding balance of home equity loans totaled $7.0 million, or 5.36% of The Bank of Greene County's total loan portfolio. There were no home equity loans included in nonperforming loans. Commercial Business Loans. The Bank of Greene County also originates commercial business loans up to 10 years at fixed and adjustable-rates. The Bank of Greene County attributes growth in this portfolio to its ability to offer borrowers senior management attention as well as timely and local decision-making on commercial loan applications. The decision to grant a commercial business loan depends primarily on the creditworthiness and cash flow of the borrower (and any guarantors) and secondarily on the value of and ability to liquidate the collateral which may consist of receivables, inventory and equipment. The Bank of Greene County generally requires annual financial statements, tax returns and personal guarantees from the commercial business borrowers. The Bank of Greene County also generally requires an appraisal of any real estate that collateralizes the loan. At June 30, 2002, The Bank of Greene County had $4.4 million of commercial business loans representing 3.36% of the total loan portfolio. On such date, the average balance of The Bank of Greene Countys commercial business loans was approximately $36,300. The largest commercial business loan had a balance of $560,000 and represented a fire truck loan for a local fire district. At June 30, 2002, The Bank of Greene County's commercial loan portfolio included 121 loans collateralized by real estate, fire trucks, or other equipment. There were no commercial business loans included in nonperforming loans. Commercial business lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate lending. Real estate lending is generally considered to be collateral based, with loan amounts based on fixed-rate loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial business loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial business loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment. Loan Maturity Schedule. The following table sets forth certain information as of June 30, 2002 regarding the amount of loans maturing or re-pricing in The Bank of Greene County's portfolio.Adjustable-rate loans are included in the period in which interest rates are next scheduled to adjust rather than the period in which they contractually mature, and fixed-rate loans are included in the period in which the final contractual repayment is due. Lines of credit with no specified maturity date are included in the category "within one year". The following table illustrates the future maturities of such loans at June 30, 2002.
1 Year 3 Years 5 Years Within Through Through Through Beyond 1 Year 3 Years 5 Years 10 Years 10 Years Total -------- --------- ----------- ----------- ---------- ------ (Dollars in thousands) Real estate loans: One- to four-family $6,844 $1,504 $2,911 $10,258 $77,317 $98,834 Commercial 1,693 332 149 1,137 5,453 8,764 Construction and land --- --- --- 80 2,923 3,003 Multi-family 236 33 59 --- 1,329 1,657 -------- ---------- ---------- ------------- -------- ----------- Total real estate loans 8,773 1,869 3,119 11,475 87,022 112,258 Consumer loans 1,229 2,797 3,319 2,439 3,329 13,113 Commercial business loans 804 550 1,321 623 1,058 4,356 -------- ---------- ---------- ------------- -------- ----------- Total loan portfolio $10,806 $5,216 $7,759 $14,537 $91,409 $129,727 ======== ========== ========== =========== ========== ==========
The total amount of the above loans due after June 30, 2003 which have fixed-rate interest rates is $117.1 million while the total amount of loans due after such date which have adjustable interest rates is $1.8 million. The interest rate risk implications of Greene County Bancorp's substantial preponderance of fixed-rate loans is discussed in detail on pages 7-11 of Greene County Bancorp, Inc.'s 2002 Annual Report to Shareholders, which discussion is incorporated herein by reference. The following table sets forth the loan origination and repayment activities of The Bank of Greene County for the periods indicated. The Bank of Greene County did not purchase or sell any loans during the periods presented.
For the Years Ended June 30, 2002 2001 2000 --------- ---------- --------- (Dollars in thousands) Originations by type: Adjustable rate loans One- to four-family $466 $409 $541 Commercial real estate 1,398 252 51 Construction and land 449 --- --- Multi-family 185 10 17 --------- ---------- --------- Total adjustable rate loans 2,498 671 609 Fixed rate loans One- to four-family 27,589 17,123 15,910 Commercial real estate 5,496 1,485 1,682 Construction and land 3,871 4,405 4,512 Multi-family 701 145 483 Installment 4,354 5,630 4,317 Home equity 3,800 3,311 1,610 Passbook 415 431 450 Commercial business 4,099 3,286 2,235 --------- ---------- --------- Total fixed rate loans 50,325 35,816 31,199 Total loans originated 52,823 $36,487 $31,808 --------- ---------- --------- Repayments: One- to four-family 15,557 11,892 9,900 Commercial real estate 3,369 1,200 1,016 Construction and land 3,296 3,042 5,550 Multi-family 442 195 88 Installment 4,871 4,367 4,213 Home equity 2,981 1,804 1,668 Passbook 466 325 485 Commercial business 3,034 1,702 1,758 --------- ---------- --------- Total repayments 34,016 24,527 24,678 --------- ---------- --------- Net increase in loans $18,807 $11,960 $7,130 ========= ========== =========
Loan Approval Procedures and Authority. The Board of Directors establishes the lending policies and loan approval limits of The Bank of Greene County. Loan officers generally have the authority to originate mortgage loans, consumer loans and commercial business loans up to amounts established for each lending officer. The Executive Committee or the full Board of Directors must approve all residential loans over $200,000. The Board annually approves independent appraisers used by The Bank of Greene County. For larger loans, The Bank of Greene County may require an environmental site assessment to be performed by an independent professional for all non-residential mortgage loans. It is The Bank of Greene County's policy to require hazard insurance on all mortgage loans. Loan Origination Fees and Other Income. In addition to interest earned on loans, The Bank of Greene County receives loan origination fees. Such fees and costs vary with the volume and type of loans and commitments made and purchased, principal repayments, and competitive conditions in the mortgage markets, which in turn respond to the demand and availability of money. In addition to loan origination fees, The Bank of Greene County also receives other income that consists primarily of deposit accountservice charges, ATM fees and loan payment late charges. The Bank of Greene County also installs, maintains and services merchant bankcard equipment for local retailers and is paid a percentage of the transactions processed using such equipment. Loans to One Borrower. Savings banks are subject to the same loans to one borrower limits as those applicable to national banks, which under current regulations restrict loans to one borrower to an amount equal to 15% of unimpaired capital and unimpaired surplus on an unsecured basis, and an additional amount equal to 10% of unimpaired capital and unimpaired surplus if the loan is secured by readily marketable collateral (generally, financial instruments and bullion, but not real estate). The Bank of Greene County's policy provides that loans to one borrower (or related borrowers) should not exceed 10% of The Bank of Greene County's capital and reserves. At June 30, 2002, the largest aggregate amount loaned by The Bank of Greene County to one borrower consisted of a commercial real estate loan of $861,000 for the construction of a firehouse.The loan comprising the lending relationship was performing in accordance with its terms as of June 30, 2002. Delinquencies and Classified Assets Collection Procedures. A computer generated late notice is sent and a 2% late charge is assessed when a payment is 15 days late. A second notice will be incorporated in the next month's billing notice, approximately 21 days after the due date of the first late payment. Accounts thirty days or more past due will be reviewed by the collection manager and receive individual attention as required, including collection letters and telephone calls. The collection manager in order to avoid further deterioration will closely monitor accounts that have a history of consistent late or delinquent payments. Accounts two or more payments past due are reported to the Board of Directors for consideration of foreclosure action. With respect to consumer loans, a late notice is sent and a late charge is assessed 10 days (or, in the case of home equity loans, 15 days) after payment is due. A second notice is sent 15 days (in the case of home equity loans, 25 days) thereafter. The collection manager reviews loans 30 days or more past due individually, following up with collection letters and telephone calls. Accounts three or more payments past due are reported to the Board of Directors and are subject to legal action and repossession of collateral. Loans Past Due and Non-performing Assets. Loans are reviewed on a regular basis. Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected 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 is based on 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 non-performing. Interest on nonaccrual loans is recognized on a cash basis until such time as the borrower has brought the loan to performing status. Other real estate owned is included in non-performing assets. At June 30, 2002, The Bank of Greene County had non-performing loans of $332,867 and a ratio of non-performing loans to total loans of 0.26%. Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned ("OREO") until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less estimated costs of disposal. If the value of the property is less than the loan, less any related specific loan loss provisions, the difference is charged against the allowance for loan losses. Any subsequent write-down of OREO is charged against earnings. At June 30, 2002, The Bank of Greene County's OREO totaled $30,229 and its ratio of non-performing assets to total assets was 0.16%. The following table sets forth delinquencies in The Bank of Greene County's loan portfolio at June 30, 2002. When a loan is delinquent 90 days or more, The Bank of Greene County fully reverses all accrued interest thereon and ceases to accrue interest thereafter. A loan is not removed from nonaccrual status until the loan is current and evidence supports the borrower's ability to maintain a current status. The Bank of Greene County also had a single one- to four-family real estate loan that amounted to $51,599 classified as nonaccrual which was in the 60 to 89 days delinquent category at June 30, 2002. For all the dates indicated, The Bank of Greene County did not have any material restructured loans.
Percentage Dollar of loan Number amount category ------------ ----------- ----------- 60 to 89 days delinquent Real estate: One- to four-family 9 $547,209 80.1% Commercial 1 33,551 4.9 Construction and land --- --- --- Multi-family --- --- --- Installment 7 20,140 3.0 Home equity 2 82,037 12.0 Commercial business --- --- --- ---------- ---------- ------------ Total loan delinquency 60 to 89 days 19 682,937 100.0 90 days and over delinquent Real estate: One- to four-family 6 262,382 93.3 Commercial --- --- --- Construction and land --- --- --- Multi-family --- --- --- Installment 5 18,886 6.7 Home equity --- --- --- Commercial business --- --- --- ---------- ----------- ------------ Total loan delinquency 90 days and over 11 281,268 100.0 Total loans delinquent over 60 days Real estate: One- to four-family 15 809,591 84.0 Commercial 1 33,551 3.5 Construction and land --- --- --- Multi-family --- --- --- Installment 12 39,026 4.0 Home equity 2 82,037 8.5 Commercial business --- --- --- ---------- ----------- ------------ Total loans delinquent over 60 days 30 $964,205 100.0% ========== =========== ============
Nonaccrual Loans and Nonperforming Assets. The following table sets forth information regarding nonaccrual loans and other non-performing assets at the dates indicated. The Bank of Greene County had no accruing loans delinquent more than 90 days at June 30, 2002, 2001, and 2000.
At June 30, 2002 2001 2000 ---------- ----------- ---------- Nonaccruing loans: Real estate loans One- to four-family $313,981 $660,607 $495,909 Commercial real estate --- 71,711 155,002 Installment and home equity 18,886 11,150 20,801 Commercial business --- --- --- --------- ----------- ---------- Total nonaccruing loans 332,867 743,468 671,712 Real estate owned: Real estate loans One- to four-family --- --- 42,133 Commercial real estate 30,229 30,229 --- Commercial business --- --- 109,000 --------- ----------- ---------- Total real estate owned 30,229 30,229 151,133 --------- ----------- ---------- Total non-performing assets $363,096 $773,697 $822,845 ========= =========== ========== Total as a percentage of total assets 0.16% 0.42% 0.49%
During the year ended June 30, 2002, gross interest income of $9,700 would have been recorded on nonaccrual loans under their original terms if the loans had been current throughout the period. No interest income was recorded on nonaccrual loans or on accruing loans more than 90 days delinquent during the year ended June 30, 2002. Classification of Assets. Consistent with regulatory guidelines, The Bank of Greene County provides for the classification of loans and other assets considered to be of lesser quality. Such ratings coincide with the "Substandard", "Doubtful" and "Loss" classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. Substandard assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in assets classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a specific loss reserve and/or charge-off is not warranted. Assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated "Special Mention." When The Bank of Greene County classifies problem assets as either Substandard or Doubtful, it establishes a valuation allowances or "loss reserves" in an amount deemed prudent by management. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When The Bank of Greene County classifies problem assets as "Loss," it is required either to establish a specific allowance for losses equal to 100% of the amount of assets so classified, or to charge-off such amount. The Bank of Greene County's determination as to the classification of its assets and the amount of its valuation allowance is subject to review by its regulatory agencies, which can order the establishment of additional general or specific loss allowances. The Bank of Greene County reviews its portfolio monthly to determine whether any assets require classification in accordance with applicable regulations. At June 30, 2002, The Bank of Greene County had $74,000 in loans classified as substandard and no other classified assets. Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the losses 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 the loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene Count's allowance for loan losses and valuation of OREO. 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 noninterest expense) and is reduced by net charge-offs. At June 30, 2002, the total allowance was $1,068,734, which amounted to 0.83% of total net loans receivable and 321.07% of nonperforming loans. Management will continue to monitor and modify the level of the allowance for loan losses. For the year ended June 30, 2002, The Bank of Greene County's charge-offs amounted to $52,257. For the years ended June 30, 2001 and 2000, The Bank of Greene County's charge-offs amounted to $76,915 and $65,557, respectively. The Bank of Greene County may require an environmental site assessment to be performed by an independent professional for non-residential mortgage loans. It is also The Bank of Greene County's policy to require title and hazard insurance on all mortgage loans. In addition, The Bank of Greene County may require borrowers to make payments to a mortgage escrow account for the payment of property taxes. Any exceptions to The Bank of Greene County's loan policies must be made in accordance with the limitations set out in each policy. Typically, the exception authority ranges from the Chief Lending Officer to the Board of Directors, depending on the size and type of loan involved. Analysis of the Allowance For Loan Losses. The following table sets forth the analysis of the allowance for loan losses for the periods indicated.
For the Years Ended June 30, 2002 2001 2000 ------------- ----------- ------------ Balance at the beginning of period $886,081 $866,443 $791,897 Charge-offs: One- to four-family real estate --- --- --- Commercial real estate --- 26,432 --- Installment 49,877 50,483 65,557 Home equity 2,380 --- --- Commercial business --- --- --- ----------- ----------- ----------- Total charge-offs 52,257 76,915 65,557 Recoveries: One- to four-family real estate --- --- --- Installment 16,010 36,553 5,103 ----------- ----------- ----------- Total recoveries 16,010 36,553 5,103 Net charge-offs 36,247 40,362 60,454 ----------- ----------- ----------- Additions charged to operations 218,900 60,000 135,000 ----------- ----------- ----------- Balance at end of period $1,068,734 $886,081 $866,443 =========== =========== =========== Ratio of net charge-offs to average loans outstanding 0.03% 0.04% 0.06% Ratio of net charge-offs to nonperforming assets 9.98% 5.22% 7.35% Allowance for loan loss to nonperforming loans 321.07% 119.18% 128.99% Allowance for loan loss to net loans 0.83% 0.81% 0.89%
Allocation of Allowance for Loan Losses. The following table sets forth the allocation of the allowance for loan losses by loan category for at the dates indicated. The allowance is allocated to each loan category based on historical loss experience and economic conditions. The unallocated portions of the allowance represent reserves for unused lines of credit and losses inherent in the loan portfolio.
June 30, 2002 June 30, 2001 June 30, 2000 Percent Percent Percent of of loans of loans loans Loan in each Loan in each Loan in each Amount amounts category Amount amounts category Amount amounts category of of of loan loss by to total loan loss by to total loan loss by to total allowance category loans allowance category loans allowance category loans (Dollars in thousands) One- to four-family $488 $98,834 76.2% $467 $86,336 77.8% $442 $80,696 81.5% Commercial real 182 8,764 6.8 120 5,239 4.7 105 4,702 4.8 estate Construction and land 7 3,003 2.3 13 1,979 1.8 4 616 0.6 Multi-family 18 1,657 1.3 10 1,213 1.1 22 1,253 1.3 Installment 92 5,611 4.3 100 6,128 5.5 121 4,865 4.9 Home equity 38 6,957 5.4 32 6,138 5.5 1 4,631 4.7 Passbook 1 545 0.4 1 596 0.6 1 490 0.5 Commercial business 191 4,356 3.3 136 3,291 3.0 72 1,707 1.7 Specific 24 --- --- --- --- --- --- --- --- Unallocated 28 --- --- 7 --- --- 98 ---- --- --------- --------- -------- ---------- --------- --------- ----------- -------- -------- Totals $1,069 $129,727 100.0% $886 $110,920 100.0% $866 $98,960 100.0% ========= ========= ======== ========== ========= ========= =========== ======== ========
Securities Investment Activities Given The Bank of Greene County's substantial portfolio of fixed-rate residential mortgage loans, The Bank of Greene County maintains high balances of liquid investments for the purpose of mitigating interest rate risk. The Board of Directors establishes the securities investment policy. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, and desired risk parameters. In pursuing these objectives, management considers the ability of an investment to provide earnings consistent with factors of quality, maturity, marketability and risk diversification. The Bank of Greene County's current policies generally limit securities investments to U.S. Government and agency securities, federal funds sold, municipal bonds, corporate debt obligations and certain mutual funds. In addition, The Bank of Greene County's policy permits investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage obligations. The Bank of Greene County's current securities investment strategy utilizes a risk management approach of diversified investing among three categories: short-, intermediate- and long-term. The emphasis of this approach is to increase overall investment securities yields while managing interest rate risk. The Bank of Greene County will only invest in securities rated "A" or higher by at least one nationally recognized rating agency (or securities attaining such rating as a result of guarantees by insurance companies), with the exception of occasional investments in smaller non-rated local bonds. The Bank of Greene County does not engage in any derivative or hedging transactions, such as interest rate swaps or caps. At June 30, 2002, The Bank of Greene County had $66.1 million in investment securities, or 30.0% of total assets. SFAS No. 115 requires The Bank of Greene County to designate its securities as held to maturity, available for sale, or trading, depending on The Bank of Greene County's ability and intent regarding its investments. As of June 30, 2002, the entire investment securities portfolio was classified as available for sale. At June 30, 2002, The Bank of Greene County's mortgage-backed securities portfolio totaled $19.6 million, or 8.9% of total assets and The Bank of Greene County's asset-backed securities portfolio totaled $0.8 million, or 0.4% of total assets. Book Value of Investment Securities. The following table sets forth certain information regarding the investment securities and other interest earning assets as of the dates indicated.
At June 30, 2001 2000 1999 Book Percent Book Percent Book Percent value of total value of total value of total --------- ----------- ------------ ---------- ----------- --------- (Dollars in Thousands) Investment securities, AFS U.S. Treasuries $--- ---% $1,005 2.1% $4,684 10.4% U.S. Government agencies 14,862 22.5 1,794 3.7 5,190 11.6 State and political subdivisions 8,811 13.3 9,420 19.3 9,904 22.1 Mortgage-backed securities 19,564 29.6 8,783 18.0 6,000 13.4 Asset-backed securities 818 1.3 3,300 6.7 4,915 11.0 Corporate debt securities 20,760 31.4 23,432 47.9 12,812 28.6 Equity securities and other 1,274 1.9 1,141 2.3 1,303 2.9 --------- ----------- ------------- ----------- ----------- ---------- Total investment securities, AFS $66,089 100.0% $48,875 100.0% $44,808 100.0% ========= =========== ============= =========== =========== ==========
A discussion of management's decisions with respect to shifting investments among the various investment portfolios described above is set forth in Management's Discussion and Analysis on pages 13 and 14 of Greene County Bancorp, Inc.'s Annual Report to Shareholders, which discussion is incorporated herein by reference. Mortgage-Backed and Asset-Backed Securities. The Bank of Greene County purchases mortgage-backed securities in order to: (i) generate positive interest rate spreads with minimal administrative expense; (ii) lower The Bank of Greene County's credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae, and GNMA; and (iii) increase liquidity. At June 30, 2002, mortgage-backed securities (including CMOs) totaled $19.6 million or 8.9% of total assets, all of which were classified as available for sale. At June 30, 2002, $15.2 million of the mortgage-backed securities were adjustable rate and $4.4 million were fixed rate. The mortgage-backed securities portfolio had coupon rates ranging from 4.00% to 7.00%, a weighted average yield of 4.02% and a weighted average life (including pre-payment assumptions) of 2.5 years at June 30, 2002. The estimated market value of The Bank of Greene County's mortgage-backed securities at June 30, 2002 was $19.6 million, which was $204,760 more than cost. The pooling of mortgages and the issuance of a security with an interest rate that is based on the interest rate on the underlying mortgages create mortgage-backed securities. Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although The Bank of Greene County focuses its investments on mortgage-backed securities backed by single-family mortgages. The issuers of such securities (generally U.S. Government agencies and government sponsored enterprises, including Fannie Mae, Freddie Mac and GNMA) pool and resell the participation interests in the form of securities to investors, such as The Bank of Greene County, and guarantee the payment of principal and interest to these investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. In addition, mortgage-backed securities are usually more liquid than individual mortgage loans and may be used to collateralize certain liabilities and obligations of The Bank of Greene County. Investments in mortgage-backed securities involve a risk that actual prepayments will be greater than estimated over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby altering the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are prepaid. In addition, the market value of such securities may be adversely affected by changes in interest rates. Management reviews prepayment estimates periodically to ensure that prepayment assumptions are reasonable considering the underlying collateral for the securities at issue and current interest rates and to determine the yield and estimated maturity of The Bank of Greene County's mortgage-backed securities portfolio. Of The Bank of Greene County's $19.6 million mortgage-backed securities portfolio at June 30, 2002, $1.4 million with a weighted average yield of 6.08% had contractual maturities within five years, $2.9 million with a weighted average yield of 5.40% had contractual maturities of five to ten years and the remaining $15.3 million with a weighted average yield of 3.57% had contractual maturities more than 10 years. However, the actual maturity of a security may be less than its stated maturity due to prepayments of the underlying mortgages. Prepayments that are faster than anticipated may shorten the life of the security and may result in a loss of any premiums paid and thereby reduce the net yield on such securities. Although prepayments of underlying mortgages depend on many factors, the difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates generally is the most significant determinant of the rate of prepayments. During periods of declining mortgage interest rates, refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security. Under such circumstances, The Bank of Greene County may be subject to reinvestment risk because, to the extent that The Bank of Greene County's securities prepay faster than anticipated, The Bank of Greene County may not be able to reinvest the proceeds of such repayments and prepayments at a comparable rate of return. Conversely, in a rising interest rate environment prepayments may decline, thereby extending the estimated life of the security and depriving The Bank of Greene County of the ability to reinvest cash flows at the increased rates of interest. At June 30, 2002, The Bank of Greene County's portfolio of asset-backed securities totaled $0.8 million, or 0.4% of total assets, all of which were classified as available for sale. At June 30, 2002, all of the asset-backed securities were fixed rate. The portfolio had coupon rates ranging from 6.10% to 6.85%, a weighted average yield of 5.23% and a weighted average life (including prepayment assumptions) of 3.0 years at June 30, 2002. The estimated market value of The Bank of Greene County's asset-backed securities portfolio at June 30, 2002 was $0.8 million, which was $13,311 more than cost at such date. Asset-backed securities are a type of debt security collateralized by various loans and assets including: automobile loans, equipment leases, credit card receivables, home equity and improvement loans, manufactured housing, student loans and other consumer loans. In the case of The Bank of Greene County, its asset-backed securities are collateralized by automobile loans and second-mortgage loans. Asset-backed securities provide The Bank of Greene County with a broad selection of fixed-income alternatives, most with higher credit ratings and less downgrade risk than corporate bonds and more stable cash flows than mortgage related securities.Prepayments and structure risk of asset-backed securities are less of a concern than CMO securities due to the shorter maturities of the underlying collateral promoting greater stability of payments. Of The Bank of Greene County's $0.8 million portfolio of asset-backed securities at June 30, 2002, $0.1 million with a weighted average yield of 5.76% had contractual maturities within 5 years, no asset-backed securities held in the portfolio had contractual maturities of 5 to 10 years, and the remaining $0.7 million with a weighted average yield of 5.17% had contractual maturities of more than 10 years. Mortgage Servicing Rights. In October 1999, The Bank of Greene County acquired for $1.2 million the mortgage servicing rights for one- to four-family mortgage loans with outstanding balances aggregating $179.2 million. A third-party provider performed the servicing associated with these loans. The Bank of Greene County purchased the mortgage servicing rights for the purpose of increasing its servicing fee income. In general, the market value of purchased mortgage servicing rights increases as interest rates rise and decreases as interest rates fall, primarily because the estimated life of the loan and the estimated income from idle funds both increase as interest rates increase and decrease as interest rates decrease. Market interest rates declined in the period following The Bank of Greene County's purchase of the mortgage servicing rates and The Bank of Greene County elected to sell the mortgage servicing rights at a loss of $39,000 in August 2000. At June 30, 2002, The Bank of Greene County had no investments in mortgage servicing rights and The Bank of Greene County currently does not expect to invest in mortgage servicing rights in future periods. Sources of Funds General. Deposits, repayments and prepayments of loans and securities, proceeds from sales of securities, and proceeds from maturing securities and cash flows from operations are the primary sources of The Bank of Greene County's funds for use in lending, investing and for other general purposes. Deposits. The Bank of Greene County offers a variety of deposit accounts with a range of interest rates and terms. The Bank of Greene County's deposit accounts consist of savings, NOW accounts, money market accounts, certificates of deposit and non-interest bearing checking accounts. The Bank of Greene County also offers IRAs. At June 30, 2002, deposits totaled $183.7 million. At June 30, 2002, The Bank of Greene County had a total of $62.6 million in certificates of deposit, of which $49.1 million had maturities of one year or less. Although The Bank of Greene County has a significant portion of its deposits in shorter-term certificates of deposit, management monitors activity on these accounts and, based on historical experience and The Bank of Greene County's current pricing strategy, believes it will retain a large portion of such accounts upon maturity. The flow of deposits is influenced significantly by general economic conditions, changes in money market rates, prevailing interest rates and competition. Deposits are obtained predominantly from the areas in which The Bank of Greene County's branch offices are located. The Bank of Greene County relies primarily on competitive pricing of its deposit products and customer service and long-standing relationships with customers to attract and retain these deposits; however, market interest rates and rates offered by competing financial institutions significantly affect The Bank of Greene County's ability to attract and retain deposits. The Bank of Greene County uses traditional means of advertising its deposit products, including radio, television, and print media. It generally does not solicit deposits from outside its market area. While The Bank of Greene County accepts certificates of deposit in excess of $100,000, they are not subject to preferential rates. The Bank of Greene County does not actively solicit such deposits, as they are more difficult to retain than core deposits. Historically, The Bank of Greene County has not used brokers to obtain deposits. The following table sets forth the deposit activities of The Bank of Greene County for the periods indicated.
For the Years Ended June 30, 2002 2001 2000 ----------- --------------- --------------- (Dollars in thousands) Opening balance $154,192 $133,460 $127,999 Deposits 664,399 512,785 333,442 Withdrawals 641,720 496,480 332,441 Interest credited 6,843 4,427 4,460 Ending balance 183,714 154,192 133,460 ----------- --------------- --------------- Net increase $29,522 $20,732 $5,461 =========== =============== =============== Percent increase 19.15% 15.53% 4.27%
The following tables set forth information, by various rate categories, regarding the balance of deposits by types of deposit as of the dates indicated.
At June 30, 2002 2001 2000 Amount Percent Amount Percent Amount Percent -------- ---------- ---------- ---------- ----------- --------- (Dollars in thousands) Transaction and savings deposits Demand deposits $22,067 12.0% $18,418 11.9% $12,344 9.3% Savings deposits 70,825 38.5 57,021 37.0 53,892 40.4 NOW deposits 14,294 7.8 11,446 7.4 9,090 6.8 Money market deposits 13,883 7.6 9,194 6.0 6,189 4.6 ---------- ---------- --------- ----------- ----------- ---------- Total non-certificates of deposit 121,069 65.9% 96,079 62.3 81,515 61.1 ---------- ---------- --------- ----------- ----------- ---------- Certificate of deposit 0.00 - 2.99% 26,024 14.2 100 0.1 --- --- 3.00 - 3.99% 16,369 8.9 430 0.3 77 0.1 4.00 - 5.99% 20,252 11.0 57,583 37.3 51,868 38.8 6.00 - 7.99% --- --- --- --- --- --- 8.00 - and over --- --- --- --- --- --- ---------- ---------- --------- ----------- ----------- ---------- Total certificates of deposit 62,645 34.1 58,113 37.7 51,945 38.9 ---------- ---------- --------- ----------- ----------- --------- Total deposits $183,714 100.0% $154,192 100.0% $133,460 100.0% ========== ========== ========= =========== =========== =========
The following table sets forth the amount and remaining maturities of The Bank of Greene County's certificates of deposit accounts at June 30, 2002.
0.00- 3.00- 4.00- 6.00% or Percent of 2.99% 3.99% 5.99% Greater Total Total --------- ---------- --------- ----------- --------- ------------ (Dollars in thousands) Certificates of deposit Maturity in quarter ended: September 30, 2002 $7,319 $2,136 $7,600 $--- $17,055 27.2% December 31, 2002 9,553 3,063 4,398 --- 17,014 27.2 March 31, 2003 3,640 2,399 2,734 --- 8,773 14.0 June 30, 2003 2,973 1,207 2,103 --- 6,283 10.0 September 30, 2003 1,741 1,326 462 --- 3,529 5.6 December 31, 2003 747 2,220 286 --- 3,253 5.2 March 31, 2004 28 1,685 254 --- 1,967 3.2 June 30, 2004 23 432 493 --- 948 1.5 September 30, 2004 --- 352 242 --- 594 1.0 December 31, 2004 --- 1,074 298 --- 1,372 2.2 March 31, 2005 --- 36 352 --- 388 0.6 June 30, 2005 --- 206 185 --- 391 0.6 Thereafter --- 233 845 --- 1,078 1.7 --------- ---------- --------- ----------- --------- ------------ Total $26,024 $16,369 $20,252 $--- $62,645 100.0% ========= ========== ========= =========== ========= ============ Percent of total 41.6% 26.1% 32.3% ---% 100.0%
Borrowed Funds. In the event that The Bank of Greene County requires funds beyond its ability to generate them internally, additional sources of funds are available through Federal Home Loan Bank ("FHLB"). At June 30, 2002 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 $8,512,800 with the FHLB. Residential mortgages are pledged by The Bank of Greene County as collateral to secure The Bank of Greene County's line of credit and term borrowing. Interest on the line is determined at the time of borrowing. In addition to the overnight line of credit program, The Bank of Greene County also has access to the FHLB's Term Advance Program under which it can borrow at various terms and interest rates. The advances are collateralized by all of The Bank of Greene County's stock and deposits in the FHLB and a general lien on one- to four-family mortgage loans, certain multi-family loans and U.S. Government Agency obligations in an aggregate amount equal up to 133% of outstanding advances. The maximum amount that the FHLB will advance to member institutions, including The Bank of Greene County, fluctuates from time to time in accordance with policies of the FHLB. The following table set forth certain information regarding borrowed funds. Balance Outstanding at June 30, 2002:
Maturity Amount Rate date ------------- --------------- ------------ $4,000,000 2.19% - fixed 01/14/2003 2,500,000 6.82% - fixed 09/02/2004 2,500,000 6.80% - fixed 10/04/2005 ------------- $9,000,000 =============
Average daily balance outstanding: $6,841,096 Maximum amount outstanding during the year $9,000,000 Weighted average interest rate during the year 5.57% Weighted average interest at end of year 4.76%
Personnel As of June 30, 2002, The Bank of Greene County had 74 full-time employees and 12 part-time employees. Greene County Bancorp, Inc. has no employees who are not also Bank employees. A collective bargaining unit does not represent the employees and The Bank of Greene County considers its relationship with its employees to be good. FEDERAL AND STATE TAXATION Federal Taxation General. Greene County Bancorp, MHC, Greene County Bancorp, Inc. and The Bank of Greene County are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to these entities. Method of Accounting. For federal income tax purposes, Greene County Bancorp, Inc. and The Bank of Greene County currently report income and expenses on the accrual method of accounting and use a tax year ending June 30 for filing consolidated federal income tax returns.The Small Business Protection Act of 1996 (the "1996 Act") eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995. Bad Debt Reserves. Prior to the 1996 Act, The Bank of Greene County was permitted to establish a reserve for bad debts and to make annual additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at The Bank of Greene County's taxable income. As a result of the 1996 Act, The Bank of Greene County must use the specific charge off method in computing its bad debt deduction beginning with its 1996 federal tax return. Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income should The Bank of Greene County fail to meet certain thrift asset and definitional tests. New federal legislation eliminated these thrift related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should The Bank of Greene County redeem its common stock, pay dividends or make distributions in excess of earnings and profits. At June 30, 2002, The Bank of Greene County's total federal pre-1988 reserve was approximately $2.1 million. This reserve reflects the cumulative effects of federal tax deductions by The Bank of Greene County for which no federal income tax provision has been made. A deferred tax liability has not been provided on this amount as management does not intend to redeem stock, make distributions or take other actions that would result in recapture of the reserve. Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a rate of 20% on a base of regular taxable income plus certain tax preferences ("alternative minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI is in excess of an exemption amount. For all loss years except those originating in 2001 and 2002, net operating losses can offset no more than 90% of AMTI. For loss years originating in 2001 and 2002, you can offset 100% of AMTI. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. Greene County Bancorp, Inc. and The Bank of Greene County have not been subject to the alternative minimum tax and has no such amounts available as credits for carryover. Net Operating Loss Carryovers. A financial institution may carry back net operating losses to the preceding five taxable years and forward to the succeeding 20 taxable years.At June 30, 2002, The Bank of Greene County had no net operating loss carry forward for federal income tax purposes. Corporate Dividends-Received Deduction. Greene County Bancorp, Inc. may exclude from its income 100% of dividends received from The Bank of Greene County as a member of the same affiliated group of corporations. Greene County Bancorp, MHC owns less than 80% of the outstanding Common Stock of Greene County Bancorp, Inc.. As such, Greene County Bancorp, MHC is not permitted to file a consolidated federal income tax return with Greene County Bancorp, Inc. and The Bank of Greene County. The corporate dividends-received deduction is 80% in the case of dividends received from corporations with which a corporate recipient does not file a consolidated return, and corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf. State Taxation New York State Taxation - General. Greene County Bancorp, Inc. and The Bank of Greene County report income on a combined fiscal year basis to New York State. The New York State franchise tax on banking corporations is imposed in an amount equal to the greater of (a) 8.0% "entire net income" allocable to New York State (b) 3.0% of "alternative entire net income" allocable to New York State (c) 0.01% of the average value of assets allocable to New York State or (d) $250. Entire net income is based on federal taxable income, subject to certain modifications. Alternative entire net income is equal to entire net income without certain modifications. Greene County Bancorp, MHC files a separate New York State franchise tax return. Bad Debt Reserves. The Bank of Greene County is allowed to utilize the reserve method of accounting for New York State franchise tax purposes and is required to maintain two reserve accounts: the Reserve for Losses on Nonqualifying Loans (the "NY NQL Reserve") and the Reserve for Losses on Qualifying Real Property Loans (the "NY QRPL Reserve"). The addition to the NY NQL Reserve must be computed under the "experience method". The addition to the NY QRPL Reserve may be computed under either the experience method or the "percentage of taxable income method" (the "PTI method"). The deduction under the PTI method is equal to 32.0% of entire net income (before the deduction for the bad debt reserve addition), which must first be allocated to the NY NQL Reserve. The balance, if any, is the allowable addition to the NY QRPL reserve, subject to a limitation based upon 6.0% of Qualifying Real Property Loans ("QRPL"). Recapture of New York State Bad Debt Reserves. If The Bank of Greene County ceases to qualify as a "thrift institution" (as defined in the New York State tax law), or fails to hold at least 60.0% of its assets in "Qualifying Assets", it will no longer be entitled to use the reserve method and must recapture into entire net income a portion of its NY QRPL Reserve. The amount subject to recapture is generally equal to the excess of the NY QRPL Reserve over the federal QRPL Reserve as of December 31, 1995. The amount of The Bank of Greene County's NY QRPL Reserve subject to recapture is approximately $1.8 million. Since it is The Bank of Greene County's intention to continue to qualify as a thrift institution and to meet the 60.0% Qualifying Asset test, a deferred tax liability has not been established for the $153,000 New York State tax that would result from such failure. Net Operating Loss Deductions. For New York State franchise tax purposes, The Bank of Greene County is not entitled to carry back or forward net operating losses ("NOLs") incurred in taxable years ending before January 1, 2001. NOLs incurred in taxable years beginning on or after January 1, 2001 can be carried forward to the succeeding 20 taxable years and carried back to the five preceding years, however there is a $10,000 limitation on carry-backs. Corporate Dividends-Received Deduction. Similar to the federal rules, Greene County Bancorp, Inc. and The Bank of Greene County file a combined New York State franchise tax report and inter-company dividends will be eliminated. However, Greene County Bancorp, MHC does not own the requisite percentage (generally 80.0% or more) of the common stock of Greene County Bancorp, Inc. necessary to file on a combined basis with Greene County Bancorp, Inc.. As long as Greene County Bancorp, MHC owns more than 50.0% of the common stock of Greene County Bancorp, Inc., it is entitled to a full exclusion from taxation of dividend income related to subsidiary capital. Greene County Bancorp, MHC is entitled to a 50.0% dividends-received deduction if it owns 50.0% or less of the common stock of Greene County Bancorp, Inc.. REGULATION General The Bank of Greene County is a New York-chartered savings bank and the Federal Deposit Insurance Corporation through the Bank Insurance Fund ("BIF") insures its deposit accounts up to applicable limits. The Bank of Greene County is subject to extensive regulation by the New York State Banking Department (the "Department"), as its chartering agency, and by the Federal Deposit Insurance Corporation, as its deposit insurer. The Bank of Greene County is required to file reports with, and is periodically examined by, the Federal Deposit Insurance Corporation and the New York Superintendent of Banking concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other banking institutions. The Bank of Greene County is a member of the FHLB of New York and is subject to certain regulations by the Federal Home Loan Bank System. Both Greene County Bancorp, Inc. and Greene County Bancorp, MHC, as mutual savings and loan holding companies, are subject to regulation by the Office of Thrift Supervision and are required to file reports with the Office of Thrift Supervision. Any change in such regulations, whether by the Department, the Federal Deposit Insurance Corporation, or the Office of Thrift Supervision could have a material adverse impact on The Bank of Greene County, Greene County Bancorp, Inc., or Greene County Bancorp, MHC. Certain of the regulatory requirements applicable to The Bank of Greene County, Greene County Bancorp, Inc. and Greene County Bancorp, MHC are referred to below or elsewhere herein. New York Bank Regulation Federal Deposit Insurance Corporation regulations and other federal law and regulations limit the exercise by a Federal Deposit Insurance Corporation-insured savings bank of the lending and investment powers under the New York State Banking Law. In particular, the applicable provisions of New York State Banking Law and regulations governing the investment authority and activities of an Federal Deposit Insurance Corporation insured state-chartered savings bank have been substantially limited by the Federal Deposit Insurance Corporation Improvement Act of 1991 and the Federal Deposit Insurance Corporation regulations issued pursuant thereto. The Bank of Greene County derives its lending, investment and other authority primarily from the applicable provisions of New York State Banking Law and the regulations of the Department, as limited by Federal Deposit Insurance Corporation regulations. Under these laws and regulations, savings banks, including The Bank of Greene County, may invest in real estate mortgages, consumer and commercial loans, certain types of debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies, certain types of corporate equity securities and certain other assets. Under the statutory authority for investing in equity securities, a savings bank may invest up to 7.5% of its assets in corporate stock, with an overall limit of 5% of its assets invested in common stock. Investment in the stock of a single corporation is limited to the lesser of 2% of the outstanding stock of such corporation or 1% of the savings bank's assets, except as set forth below. Such equity securities must meet certain earnings ratios and other tests of financial performance. A savings bank's lending powers are not subject to percentage of assets limitations, although there are limits applicable to single borrowers. A savings bank may also, pursuant to the "leeway" power, make investments not otherwise permitted under the New York State Banking Law. This power permits investments in otherwise impermissible investments of up to 1% of assets in any single investment, subject to certain restrictions and to an aggregate limit for all such investments of up to 5% of assets. Additionally, in lieu of investing in such securities in accordance with and reliance upon the specific investment authority set forth in the New York State Banking Law, savings banks are authorized to elect to invest under a "prudent person" standard in a wider range of investment securities as compared to the types of investments permissible under such specific investment authority. However, in the event a savings bank elects to utilize the "prudent person" standard, it will be unable to avail itself of the other provisions of the New York State Banking Law and regulations, which set forth specific investment authority. The Bank of Greene County has not elected to conduct its investment activities under the "prudent person" standard. A savings bank may also exercise trust powers upon approval of the Department. New York State chartered savings banks may also invest in subsidiaries under their service corporation investment authority. A savings bank may use this power to invest in corporations that engage in various activities authorized for savings banks, plus any additional activities which may be authorized by the Department. Investment by a savings bank in the stock, capital notes and debentures of its service corporations is limited to 3% of the bank's assets, and such investments, together with the bank's loans to its service corporations, may not exceed 10% of the savings bank's assets. Furthermore, New York banking regulations impose requirements on loans which a bank may make to its executive officers and directors and to certain corporations or partnerships in which such persons have equity interests. These requirements include, but are not limited to, requirements that (i)-certain loans must be approved in advance by a majority of the entire board of directors and the interested party must abstain from participating directly or indirectly in the voting on such loan, (ii)-the loan must be on terms that are not more favorable than those offered to unaffiliated third parties, and (iii)-the loan must not involve more than a normal risk of repayment or present other unfavorable features. Insurance of Accounts and Regulationby the Federal Deposit Insurance Corporation The Bank of Greene County is a member of the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation insures deposits up to applicable limits and such insurance is backed by the full faith and credit of the U.S. Government. As insurer, the Federal Deposit Insurance Corporation imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by Federal Deposit Insurance Corporation-insured institutions. It also may prohibit any Federal Deposit Insurance Corporation-insured institution from engaging in any activity the Federal Deposit Insurance Corporation determines by regulation or order to pose a serious risk to the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation also has the authority to initiate enforcement actions against savings banks, after giving the Superintendent an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged or is engaging in unsafe or unsound practices, or is in an unsafe or unsound condition. Regulatory Capital Requirements The Federal Deposit Insurance Corporation has adopted risk-based capital guidelines for banks under their supervision. The guidelines establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations. The Bank of Greene County is required to maintain certain levels of regulatory capital in relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is referred to as The Bank of Greene County's "risk-based capital ratio". Risk-based capital ratios are determined by allocating assets and specified off-balance sheet items to four risk-weighted categories ranging from 0% to 100%, with higher levels of capital being required for the categories perceived as representing greater risk. These guidelines divide Bank's capital into two tiers. The first tier ("Tier I") includes common equity, retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues) and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing rights and purchased credit card relationships subject to certain limitations). Supplementary ("Tier II") capital includes, among other items, cumulative perpetual and long-term limited-life preferred stock, mandatory convertible securities, certain hybrid capital instruments, term subordinated debt and the allowance for loan and lease losses, subject to certain limitations, less required deductions. Savings banks are required to maintain a total risk-based capital ratio of 8%, of which at least 4% must be Tier I capital. In addition, the Federal Deposit Insurance Corporation has established regulations prescribing a minimum Tier I leverage ratio (Tier I capital to adjusted total assets as specified in the regulations). These regulations provide for a minimum Tier I leverage ratio of 3% for banks that meet certain specified criteria, including that they have the highest examination rating and are not experiencing or anticipating significant growth. All other banks are required to maintain a Tier I leverage ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The Federal Deposit Insurance Corporation may, however, set higher leverage and risk-based capital requirements on individual institutions when particular circumstances warrant. Savings banks experiencing or anticipating significant growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels. At June 30, 2002, The Bank of Greene County exceeded all regulatory capital requirements. Standards for Safety and Soundness The federal banking agencies have adopted a final regulation and Interagency Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to implement the safety and soundness standards required under federal law. The Guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The standards set forth in the Guidelines address internal controls and information systems; internal audit system; credit underwriting; loan documentation; interest rate risk exposure; asset growth; compensation; fees and benefits. The agencies also adopted additions to the Guidelines, which require institutions to examine asset quality and earnings standards. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the Guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard, as required by federal law. The final regulations establish deadlines for the submission and review of such safety and soundness compliance plans. Limitations on Dividends and Other Capital Distributions The Federal Deposit Insurance Corporation has the authority to use its enforcement powers to prohibit a savings bank from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis. New York law restricts The Bank of Greene County from declaring a dividend, which would reduce its capital below (i) the amount required to be maintained by state and federal law and regulations, or (ii) the amount of The Bank of Greene County's liquidation account established in connection with the December 1998 Reorganization. New York law also prescribes that dividends declared by a stock savings bank in any calendar year shall not exceed the total of its net profits for that year combined with its retained net profits of the preceding two years, plus any required transfer to surplus or for the retirement of any preferred stock, unless approved by the Superintendent. Prompt Corrective Action The federal banking agencies have promulgated regulations to implement the system of prompt corrective action required by federal law. Under the regulations, a bank shall be deemed to be (i) "well capitalized" if it has total risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not subject to any written capital order or directive; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of "well capitalized"; (iii) "undercapitalized" if it has a total risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0% under certain circumstances); (iv) "significantly undercapitalized" if it has a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Federal law and regulations also specify circumstances under which a federal banking agency may reclassify a well capitalized institution as adequately capitalized and may require an adequately capitalized institution to comply with supervisory actions as if it were in the next lower category (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized). Based on the foregoing, The Bank of Greene County is currently classified as a "well capitalized" savings institution. Activities and Investments of Insured State-Chartered Banks Federal law generally limits the activities and equity investments of Federal Deposit Insurance Corporation-insured, state-chartered banks to those that are permissible for national banks, notwithstanding state laws.Under regulations dealing with equity investments, an insured state bank generally may not, directly or indirectly, acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank. An insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary; (ii) investing as a limited partner in a partnership the sole purpose of which is the direct or indirect investment in the acquisition, rehabilitation, or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets; (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees', and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions; and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met. Federal law and Federal Deposit Insurance Corporation regulations permit certain exceptions to the foregoing limitation. For example, certain state-chartered banks, such as The Bank of Greene County, may continue to invest in common or preferred stock listed on a National Securities Exchange or the National Market System of NASDAQ, and in the shares of an investment company registered under the Investment Company Act of 1940, as amended. As of June 30, 2002, The Bank of Greene County had no securities pursuant to this exception. Transactions with Affiliates Under current federal law, transactions between depository institutions and their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a savings bank is any company or entity that controls, is controlled by, or is under common control with the savings bank, other than a subsidiary. In a holding company context, at a minimum, the parent holding companies of a savings bank and any companies that are controlled by such parent holding company are affiliates of the savings bank. Generally, Section 23A limits the extent to which the savings bank or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such savings bank's capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. The term "covered transaction" includes the making of loans or other extensions of credit to an affiliate; the purchase of assets from an affiliate, the purchase of, or an investment in, the securities of an affiliate; the acceptance of securities of an affiliate as collateral for a loan or extension of credit to any person; or issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate. Section 23A also establishes specific collateral requirements for loans or extensions of credit to, or guarantees, acceptances on letters of credit issued on behalf of an affiliate. Section 23B requires that covered transactions and a broad list of other specified transactions be on terms substantially the same, or no less favorable, to the savings bank or its subsidiary as similar transactions with nonaffiliates. Further, Section 22(h) of the Federal Reserve Act restricts a savings bank with respect to loans to directors, executive officers, and principal stockholders. Under Section 22(h), loans to directors, executive officers and stockholders who control, directly or indirectly, 10% or more of voting securities of a savings bank, and certain related interests of any of the foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated entities, the savings bank's total capital and surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate federal banking agency to directors, executive officers, and stockholders who control 10% or more of voting securities of a stock savings bank, and their respective related interests, unless such loan is approved in advance by a majority of the board of directors of the savings bank. Any "interested" director may not participate in the voting. The loan amount (which includes all other outstanding loans to such person) as to which such prior board of director approval is required, is the greater of $25,000 or 5% of capital and surplus or any loans over $500,000. Further, pursuant to Section 22(h), loans to directors, executive officers and principal stockholders must generally be made on terms substantially the same as offered in comparable transactions to other persons. Section 22(g) of the Federal Reserve Act places additional limitations on loans to executive officers. Holding Company Regulation Generally. Federal law allows a state savings bank, such as The Bank of Greene County that qualifies as a "Qualified Thrift Lender" discussed below, to elect to be treated as a savings association for purposes of the savings and loan holding company provisions of the Home Owners' Loan Act (the "HOLA"). Such election results in its holding company being regulated as a savings and loan holding company by the Office of Thrift Supervision rather than as a bank holding company by the Federal Reserve Board. Greene County Bancorp, Inc. and Greene County Bancorp, MHC have made such election by converting from a Delaware corporation and a New York mutual holding company to a federal corporation and federal mutual holding company, respectively, effective May 15, 2001. Greene County Bancorp, Inc. and Greene County Bancorp, MHC savings and loan holding companies are within the meaning of HOLA. As such, Greene County Bancorp, Inc. and Greene County Bancorp, MHC are registered with the Office of Thrift Supervision and are subject to the Office of Thrift Supervision regulations, examinations, supervisions and reporting requirements. In addition, the Office of Thrift Supervision has enforcement authority over Greene County Bancorp, Inc. and Greene County Bancorp, MHC and any nonsavings institution subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution. As federal corporations, Greene County Bancorp, Inc. and Greene County Bancorp, MHC are generally not subject to state business organization law. Permissible Activities. Under the HOLA and Office of Thrift Supervision regulations and policies, a federal mid-tier holding company such as Greene County Bancorp, Inc. is permitted to, among other things: (i) own a savings association or savings bank; (ii) acquire a mutual institution; (iii) merge with or acquire another mutual holding company, one of whose subsidiaries is a savings institution; (iv) acquire non-controlling amounts of the stock of savings institutions and savings institution holding companies, subject to certain restrictions; (v) invest in any corporation that a savings association may invest in under federal law or under the law of any state where the savings association has its home office; (vi) furnish or perform management services for a savings institution subsidiary; (vii) hold, manage or liquidate assets owned or acquired from a savings institution subsidiary of such company; (viii) hold or manage properties used or occupied by a savings institution subsidiary of such company; and (ix) act as trustee under deed or trust. In addition, a federal mutual holding company may engage in any other activity that is permissible for bank holding companies under the Bank Holding Company Act, or in which multiple savings and loan companies may engage. Finally, under recently enacted financial modernization legislation, federal mutual holding companies may engage in any activity in which a financial holding company may engage, including maintaining an insurance agency, escrow business and underwriting securities and insurance. Moreover, a federal mutual holding company may engage in the activities of a financial holding company without having to make financial holding company election that is applicable to bank holding companies. If a mutual holding company acquires or merges with another holding company, the holding company acquired or the holding company resulting from such merger or acquisition may only invest in assets and engage in activities listed-above, and has a period of two years to cease any nonconforming activities and divest of any nonconforming investments. Holding Company Regulatory Capital Requirements. Greene County Bancorp, Inc., as a mutual savings and loan holding company, does not have any regulatory capital requirements. Mergers and Acquisitions. The Home Owners' Loan Act prohibits a savings and loan holding company, including Greene County Bancorp, Inc. and Mutual Holding Company, directly or indirectly, or through one or more subsidiaries, from acquiring another savings institution or holding company thereof, without prior written approval of the Office of Thrift Supervision. The Home Owners' Loan Act also prohibits a savings and loan holding company from, directly or indirectly, acquiring more than 5% of the voting stock of another savings association or savings and loan holding company, or from acquiring such an institution or company by merger, consolidation, or purchase or its assets, without the prior written approval of the Office of Thrift Supervision. In evaluating applications by holding companies to acquire other financial institutions, the Office of Thrift Supervision considers the financial and managerial resources and future prospects of the acquiror and the merging institution, the convenience and needs of the community and competitive factors. The Office of Thrift Supervision is prohibited from approving any acquisitions that would result in multiple savings and loan holding companies controlling savings institutions in more than one state, subject to two exceptions: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies, and (ii) the acquisition of a savings institution in another state if the laws of the state or target savings institution specifically permit such acquisitions.The states vary in the extent to which they permit interstate savings and loan holding company acquisitions. Payment of Cash Dividends. Office of Thrift Supervision regulations generally do not restrict the ability of a savings and loan holding company to pay dividends. However, federal and state law do impose certain limitations on the payment by The Bank of Greene County, Greene County Bancorp, Inc.'s principal operating subsidiary, of cash dividends to Greene County Bancorp, Inc. (described herein). Waivers of Dividends by Greene County Bancorp, MHC. Office of Thrift Supervision regulations require Greene County Bancorp, MHC to notify the Office of Thrift Supervision of any proposed waiver of its right to receive dividends. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis, and, in general, does not object to any such waiver if: (i) the mutual holding company's board of directors determines that such waiver is consistent with such director's fiduciary duties to the mutual holding company's members; (ii) for as long as the savings association subsidiary is controlled by the mutual holding company, the dollar amount of dividends waived by the mutual holding company are considered as a restriction to the retained earnings of the savings association, which restriction, if material is disclosed in the public financial statements of the savings association as a note to the financial statements; (iii) the amount of any dividend waived by the mutual holding company is available for declaration as a dividend solely to the mutual holding company, and, in accordance with SFAS 5, where the savings association determines that the payment of such dividend to the mutual holding company is probable, an appropriate dollar amount is recorded as a liability; and (iv) the amount of any waived dividend is considered as having been paid by the savings association in evaluating any proposed dividend under Office of Thrift Supervision capital distribution regulations. Conversion of Greene County Bancorp, MHC to Stock Form. Office of Thrift Supervision regulations permit Greene County Bancorp, MHC to convert from the mutual to the stock form of ownership (a "Conversion Transaction"). There can be no assurance when, if ever, a Conversion Transaction will occur, and the Board of Directors has no current intention to plan to undertake a Conversion Transaction. In a Conversion Transaction a new holding company would be formed as the successor to Greene County Bancorp, Inc. (the "New Holding Company"), the Mutual Holding Company's corporate existence would end, and certain depositors of The Bank of Greene County would receive the right to subscribe for additional shares of the New Holding Company. Based upon the current Office of Thrift Supervision policy, in a Conversion Transaction, each share of Common Stock held by Greene County Bancorp, Inc.'s public stockholders ("Minority Shareholders") would be automatically converted into a number of shares of common stock of the New Holding Company determined pursuant an exchange ratio that ensures that after the Conversion Transaction, subject to any adjustment to reflect the receipt of cash in lieu of fractional shares, the percentage of the to-be outstanding shares of the New Holding Company issued to Minority Shareholders in exchange for their Common Stock would be equal to the percentage of the outstanding shares of Common Stock held by Minority Shareholders immediately prior to the Conversion Transaction. The total number of shares held by Minority Stockholders after the Conversion Transaction would also be affected by any purchases by such persons in the offering that would be conducted as part of the Conversion Transaction. Stock Repurchases. The Office of Thrift Supervision imposes no restrictions on stock repurchases by Greene County Bancorp, Inc.. Qualified Thrift Lender Test. In order for Greene County Bancorp, Inc. to be regulated as a savings and loan holding company by the Office of Thrift Supervision (rather than as a bank holding company by the Federal Reserve Board), The Bank of Greene County must qualify as a "qualified thrift lender" under Office of Thrift Supervision regulations or satisfy the "domestic building and loan association" test under the Internal Revenue Code. Under the qualified thrift lender test, a savings institution is required to maintain at least 65% of its "portfolio assets" (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangible, including goodwill; and (iii) the value of property used to conduct business) in certain "qualified thrift investments" (primarily residential mortgages and related investments, including certain mortgage-backed and related securities) in at least nine out of each 12 month period. The Bank of Greene County currently maintains the majority of its portfolio assets in qualified thrift investments and has met the qualified thrift lender test in each of the last 12 months. Federal Securities Law The common stock of Greene County Bancorp, Inc. is registered with the SEC under the Securities Exchange Act of 1934. Greene County Bancorp, Inc. is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act. Greene County Bancorp, Inc. common stock held by persons who are affiliates (generally officers, directors and principal shareholders) of Greene County Bancorp, Inc. may not be resold without registration or unless sold in accordance with certain resale restrictions. If Greene County Bancorp, Inc. meets specified current public information requirements, each affiliate of Greene County Bancorp, Inc. is able to sell in the public market, without registration, a limited number of shares in any three-month period. Sarbanes-Oxley Act of 2002 On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for the reporting company and their directors and executive officers; and (v) new and increased civil and criminal penalties for violation of the securities laws. Many of the provisions became effective immediately while other provisions become effective over a period of 30 to 270 days and are subject to rulemaking by the Securities and Exchange Commission. Although we anticipate that we will incur additional expense in complying with the provisions of the Sarbanes-Oxley Act and the resulting regulations, management does not expect that such compliance will have a material impact on our results of operations or financial condition. Community Reinvestment Act Under the Community Reinvestment Act, as amended, as implemented by Federal Deposit Insurance Corporation regulations, a savings bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA requires the Federal Deposit Insurance Corporation, in connection with its examination of a savings institution to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The Bank of Greene County's latest CRA rating was "outstanding". The Bank of Greene County is also subject to provisions of the New York State Banking Law which impose continuing and affirmative obligations upon banking institutions organized in New York State to serve the credit needs of its local community which are substantially similar to those imposed by the CRA. The NYCRA also requires the Superintendent to consider a bank's NYCRA rating when reviewing a bank's application to engage in certain transactions, including mergers, asset purchases and the establishment of branch offices or automated teller machines, and provides that such assessment may serve as a basis for the denial of any such application. The Bank of Greene County's NYCRA rating as of its latest examination was "outstanding". Federal Home Loan Bank System The Bank of Greene County is a member of the Federal Home Loan Bank of New York, which is one of 12 regional FHLBs, that administers the home financing credit function of savings institutions. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLB. These policies and procedures are subject to the regulation and oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing. As a member, The Bank of Greene County is required to purchase and maintain stock in the FHLB of New York. At June 30, 2002, The Bank of Greene County had $1,121,100 of FHLB stock. The dividend rate from FHLB stock was 3.67% at June 30, 2002. No assurance can be given that such dividends will continue in the future at such levels. Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings institutions and to contribute to low and moderately priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the future. These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of The Bank of Greene County's FHLB stock may result in a corresponding reduction in The Bank of Greene County's capital. Reports to Security Holders Greene County Bancorp, Inc. files annual and quarterly reports with the SEC on Forms 10-KSB and 10-QSB, respectively. Greene County Bancorp, Inc. also files current reports on the Form 8-K with the SEC. Finally, Greene County Bancorp, Inc. files preliminary and definitive proxy materials with the SEC. The public may read and copy any materials filed by Greene County Bancorp, Inc. with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Greene County Bancorp, Inc. is an electronic filer. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the site is http://www.sec.gov. ITEM 2. Description of Properties - ------ The Bank of Greene County currently conducts its business through six full-service banking offices. Both Greene County Bancorp, Inc. and The Bank of Greene County maintain their executive offices at the Operations Center, 302 Main Street, Catskill, New York. The following table sets forth The Bank of Greene County's offices as of June 30, 2002. The Bank of Greene County's current facilities are considered by management to be adequate for the needs of The Bank of Greene County and Greene County Bancorp, Inc. in the foreseeable future.
Original Net Book Value Leased Year Date of Of Property or or Leased or Lease Leasehold Location Owned Acquired Expiration Improvements - ----------------- ------- --------- ---------------- --------------- (Dollars in thousands) Main Office (1) Main & Church Streets Catskill, NY 12414 Owned 1963 --- $245 Full Service Branches Coxsackie Branch Route 385 West Coxsackie, NY 12051 Owned 1974 --- $111 Cairo Branch Main Street Cairo, NY 12413 Owned 1988 --- $360 Greeneville Branch Route 32 Greeneville, NY 12083 Owned 1997 --- $1,012 Tannersville Branch Main Street Tannersville, NY 12485 Owned 2000 --- $1,298 Westerlo Branch Routes 141 & 143 Westerlo, NY 12193 Leased 2001 November 30, 2005 $100 Operations Center 302 Main Street Catskill, NY 12414 Owned 1999 --- $554
(1) Includes adjacent parking lot ITEM 3. Legal Proceedings - ------ Greene County Bancorp, Inc. is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business which, in the aggregate, involve amounts which are believed by management to be immaterial to the financial condition and results of operations of Greene County Bancorp, Inc. ITEM 4. Submission of Matters to a Vote of Security Holders - ------ No matters were submitted to a vote of shareholders during the fourth quarter of the fiscal year under report. PART II ITEM 5. Market for Common Equity and Related Security Holder Matters - ------ The "Common Stock and Related Matters" section on pages 23-24 of Greene County Bancorp, Inc.'s Annual Report to Shareholders is incorporated herein by reference. ITEM 6. ______ Management's Discussion and Analysis of Financial Condition and Results of Operations The "Management's Discussion and Analysis of Financial Condition and Results of Operations" section on pages 7-23 of Greene County Bancorp, Inc.'s Annual Report to Shareholders is incorporated herein by reference. ITEM 7. Financial Statements ------ The selected financial information for the year ended June 30, 2002 is filed as part of Greene County Bancorp, Inc.'s Annual Report to Shareholders on pages 5-6, and is incorporated by reference. ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure _______ None. PART III ITEM 9. Directors, Executive Officers, Promoters and Control Persons; ______ Compliance With Section 16(a) of the Exchange Act The "Proposal I - Election of Directors" section on pages 5-7 of Greene County Bancorp, Inc.'s definitive Proxy Statement for Greene County Bancorp, Inc.'s 2002 Annual Meeting of Shareholders (the "2002 Proxy Statement") is incorporated herein by reference. ITEM 10. Executive Compensation - -------- The "Proposal I - Election of Directors" section on pages 8-9 of Greene County Bancorp, Inc.'s 2002 Proxy Statement is incorporated herein by reference. ITEM 11. - ------- Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The "Proposal I - Election of Directors" section on page 5 of Greene County Bancorp, Inc.'s 2002 Proxy Statement is incorporated herein by reference. ITEM 12. Certain Relationships and Related Transactions - ------- The "Transactions with Certain Related Persons" section on page 13 of Greene County Bancorp, Inc.'s 2002 Proxy Statement is incorporated herein by reference. ITEM 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------- (a)(1) Financial Statements -------------------- The exhibits and financial statement schedules filed as a part of this Form 10-KSB are as follows, all of which are included in the Annual Report to Shareholders (Exhibit 13): (A) Report of Independent Accountants - page 26 (B) Consolidated Statements of Condition - page 27 (C) Consolidated Statements of Income - page 28 (D) Consolidated Statements of Comprehensive Income - page 29 (E) Consolidated Statements of Changes in Shareholders' Equity - page 30 (F) Consolidated Statements of Cash Flows - page 31 (G) Notes to Consolidated Financial Statements - pages 32-47
(a)(2) Financial Statement Schedules ----------------------------- All financial statement schedules have been omitted as the required information is inapplicable or has been included in the Notes to Consolidated Financial Statements. The remaining information appearing in the Annual Report to Shareholders for the year ended June 30, 2002 is not deemed to be filed as part of this report except as expressly provided herein. (b) Reports on Form 8-K None (c) Exhibits 3.1 Certification of Incorporation of Greene County Bancorp, Inc. (incorporated herein by reference to Greene County Bancorp, Inc.'s Registration statement on SB-2, file No. 333-63681 (the "SB-2"). 3.2 Bylaws of Greene County Bancorp, Inc. (incorporated herein by reference to Greene County Bancorp, Inc.'s SB-2) 4.0 Form of Stock Certificate of Greene County Bancorp, Inc. (incorporated herein by reference to the Form SB-2) 10.1 Employment Agreement with J. Bruce Whittaker (incorporated herein by reference to Greene County Bancorp, Inc.'s SB-2) 10.2 Employee Stock Ownership Plan (incorporated herein by reference to Greene County Bancorp, Inc.'s SB-2) 13.0 Annual Report to Shareholders 21.0 Subsidiaries of Greene County Bancorp, Inc. 23.0 Consent of Experts 99.1 Additional Exhibit SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GREENE COUNTY BANCORP, INC. Date: April 16, 2003 By: /s/ J. Bruce Whittaker __________________________ President and Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Michelle Plummer --------------------- Chief Financial Officer and Treasurer Date: April 16, 2003 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, J. Bruce Whittaker, President and Chief Executive Officer, certify that: (1) I have reviewed this annual report on Form 10-KSB of Greene County Bancorp, Inc.; (2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements and other financial information included in this annual report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. - ------------------- --------------------------------------- Date April 16, 2003 J. Bruce Whittaker President and Chief Executive Officer Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michelle Plummer, Chief Financial Officer, certify that: (7) I have reviewed this annual report on Form 10-KSB of Green County Bancorp, Inc.; (8) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (9) Based on my knowledge, the financial statements and other financial information included in this annual report fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; (10) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (11) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (12) The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. - --------------------- -------------------------- Date April 16, 2003 Michelle Plummer Chief Financial Officer EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 21 SUBSIDIARIES OF GREENE COUNTY BANCORP, INC. Company Percent Owned ________ ______________ The Bank of Greene County 100.0% owned by Greene County Bancorp, Inc. EXHIBIT 23 CONSENT OF EXPERTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-51538) of Greene County Bancorp, Inc. of our report dated July 26, 2002 except for Note 18, for which the date is April 16, 2003 relating to the financial statements of Greene County Bancorp, Inc., which appears in the Annual Report to Shareholders, which is included in this Form 10-KSB/A. /s/ PricewaterhouseCoopers LLP Albany, New York April 16, 2003 EXHIBIT 99.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 J. Bruce Whittaker, Chief Executive Officer and President and Michelle Plummer, Chief Financial Officer and Treasurer of Greene County Bancorp, Inc. each certify in his/her capacity as an officer of Greene County Bancorp, Inc. that he has reviewed the annual report on Form 10-KSB for the fiscal year ended June 30, 2002 and that to the best of his/her knowledge: 1. the report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Greene County Bancorp, Inc.. Date: April 16, 2003 /s/ J. Bruce Whittaker _______________________ Chief Executive Officer and President Date: April 16, 2003 /s/ Michelle Plummer _____________________ Chief Financial Officer and Treasurer
EX-13 3 c_annrptrev4142003.txt AMMENDED 4/14/2003 2002 ANNUAL REPORT TO SHAREHOLDERS GREENE COUNTY BANCORP, INC. (Cover page) A BANK WITH HEART, ON A STREET FULL OF PROMISE ABOUT OUR COMPANY Greene County Bancorp, Inc. is the parent company of The Bank of Greene County. The Company's consolidated assets as of June 30, 2002 were $220.2 million. The Bank of Greene County was founded in 1889 as The Building and Loan Association of Catskill. In 1974, the Bank changed to a New York State chartered mutual savings bank, under the name Greene County Savings Bank. In 1998, the Bank converted to the mutual holding company form of ownership, with the Bank changing its name to The Bank of Greene County. The Bank serves Greene County, New York through an operations center and six banking offices in Catskill, Cairo, Coxsackie, Greenville, Tannersville, and Westerlo. As part of its mission the Bank tries to foster a sense of community through personal service, local decision-making and participation with customers in community activities. We believe in Main Street, and what is says about our community's ambition and creativity. Each occupied storefront is a testament to hard work and commitment. Every vacant space represents a new opportunity, just waiting to be recognized. So when the Heart of Catskill Association launched a campaign designed to spur investment in this historic street, the Bank of Greene County pledged $2.0 million in low-interest loans to help sweeten the pot. The loan program complements an advertising campaign aimed at attracting entrepreneurs from downstate. This grassroots movement is being led by local people like developer Frank Cuthbert, who has personally helped revitalize over a dozen buildings on Main Street, and Linda Overbaugh, executive director of the Heart of Catskill Association Inc. Their work embodies a community spirit that can be found throughout our primary market area of Greene County. And we're proud to share that spirit. Whether awarding grants to public interest organizations, sponsoring free public concerts or leading local efforts to raise money for the victims of 9/11, maintaining a deep involvement with the community has always been a central part of our business philosophy. It's banking with heart, but it's also banking smart. Because the prosperity of our community ultimately rests with the promise of the people and places we serve. To Our Shareholders: In last year's message to our shareholders I stated that that we were beginning to reap the benefits of our investment in people, new branches, and new products and technology. The increased costs of opening branches in Tannersville and Westerlo, and the implementation of Internet banking and VISA check cards, had a significant impact on earnings during fiscal year 2001. During the last two quarters of fiscal 2001, however, earnings began to improve as these investments began to bear fruit. We expected to continue the recent earnings improvement in the following year. I am happy to report that the results for the year ended June 30, 2002 more than met our expectations. Net income for the year ended June 30, 2002 was $1.7 million, a $0.7 million or 70% increase over the prior year's $1.0 million. Interest income increased $1.0 million or 8.7% to $12.5 million for the year ended June 30, 2002, from $11.5 million in the prior year. Interest expense for the year ended June 30, 2002 was $4.9 million as compared to $5.4 million during the 2001 fiscal year, a $0.5 million or 9.3% decrease. Net interest margin increased to 4.00% for fiscal year 2002, as compared to 3.76% for the prior fiscal year. Net interest spread was 3.78% for fiscal year 2002, as compared to 3.45% for fiscal year 2001. Spread and margin were positively affected by the continued national economic weakness and the Bank's ability to continue attracting lower-cost checking and NOW accounts. Non-interest income jumped to $1.8 million during fiscal 2002, a $0.7 million or 64.0% increase, over the $1.1 million during fiscal 2001. The largest contributor to this increase was our new Overdraft Protection Program which was initiated in October 2001. Significant gains were also realized in merchant credit card processing fees, VISA check card fees, and non-customer ATM surcharges. Non-interest expense was $7.0 million for fiscal year 2002, a $1.0 million increase over the $6.0 million for fiscal year 2002. Again this year, much of the increase was volume related, as the Bank continued to experience significant account growth across the board. This was also the first full year of operation for the Westerlo office which was opened in February 2001. Increases in salaries, health benefit expense and stock compensation expense also contributed to the increase in non-interest expense. Total assets increased to $220.2 million at June 30, 2002, an increase of $35.1 million or 19.0% over total assets of $185.1 million a year ago. The large increase in assets was primarily due to increases in loans and investments. The growth in assets was primarily funded by a large increase in deposits and a lesser increase in borrowed funds. Total deposits increased to $183.7 million at June 30, 2002, a $29.5 million or 19.1% increase over the $154.2 million at June 30, 2001. With all types of deposit accounts showing healthy increases, the largest gains were seen in lower-cost savings and transaction accounts. Part of the increase may be attributable to the downturn in the stock market, which may have resulted in some investors seeking a safe haven during this period of economic uncertainty. We continue to feature the advantages of our full line of reasonably priced transaction accounts for individuals and businesses. At June 30, 2002, checking and NOW accounts had grown to 20.0% of all bank deposits, up from 19.3% last year and 16.0% two years ago. Our two newest branch offices, Tannersville-opened in June 2000, and Westerlo-opened in February 2001, came into their own during the past year. At June 30, 2002, deposits at these branches were $12.9 million and $6.3 million, respectively, and both branches are now contributing to the bottom line. Net loans and mortgages totaled $128.4 million at fiscal year end 2002, an $18.6 million or 16.9% increase over the previous fiscal year end total of $109.8 million. This is the second year in a row of significant gains in our lending department, following a $12.0 million or 12.3% gain during fiscal year 2001. Our reputation in our market area for prompt, friendly, and knowledgeable service resulted in our bank being the No. 1 lender in Greene County, in terms of both the number of loans and dollar amount, for calendar year 2001. The entire lending staff has worked very hard and maintained a high standard of service during this extended period of unprecedented growth. Our tax-free lending program for municipalities and fire departments continues to grow, with several new loans and bonds originated during the past year. At fiscal year end 2002, $2.7 million in locally originated municipal loans and bonds were included in our loan and investment balances. While the above lending numbers certainly speak for themselves, they do not tell the whole story. During the past few years there has been a positive change in the economic climate in the Village of Catskill, as there has been throughout the County. Several Main Street properties have changed hands and new businesses have opened. The Heart of Catskill Association, the local business and community organization, has developed a marketing strategy to advertise the business advantages of our community to the metropolitan New York area. Their goal is to fill all of the remaining empty storefronts on Catskill's Main Street. In conjunction with their marketing initiative, the Bank announced that it has allocated up to $2.0 million in financing, at its residential interest rate, for the purchase and renovation of Main Street commercial property. Soon after the announcement was made in the local newspaper in late June, we received applications for two purchases and one renovation. We anticipate further inquiries after the marketing campaign begins in late August in several New York City publications. Merchant credit card processing continued to expand, with $25.5 million in credit card sales processed during the 2002 fiscal year, a $4.3 million or 20.2% gain over the prior fiscal year's $21.2 million. Our merchant base continues to grow and we have recently expanded our sales force to meet the demand for this service. VISA check card volume grew substantially during the past year and now represents a large part of transaction account volume. More and more customers are also taking advantage of direct-deposit of their payroll checks. Several area employers are using the Bank's Magicwrighter software for their direct-deposit payroll processing. Much of the growth in our transaction accounts is attributable to the product line being offered. Our totally-free checking account, first offered in April 2000, continues to draw large numbers of new customers. Equally attractive are the low-minimum-balance checking and NOW accounts and business checking accounts. All accounts are eligible to apply for our Overdraft Protection Program. This feature permits the Bank, at its discretion, to cover customer overdrafts, with the customer making a deposit upon receiving notification of the overdraft from the Bank. We have received many favorable comments from our customers since its introduction in October 2001. In addition to this new program, we have continued to make a wide variety of services available to our customers, including the VISA check card, telephone and Internet banking, direct deposit capabilities, check-imaged bank statements, and recently, CD-ROM bank statements for our commercial customers. Our commitment to providing customers with new products that are convenient and of high quality has contributed not only to an increase in deposits, but more importantly, an increase in market share. We now have a major direct-mail campaign underway to further increase our transaction account penetration throughout our market area. Despite the weakness in the stock market, our affiliation with Fenimore Asset Management in Cobleskill, New York continues to flourish. Their reputation for conservative and value-oriented investing has proved to be popular, in these uncertain times, with many of the Bank's customers. Fenimore offers private client portfolio management as well as two mutual funds (The FAM Funds). Last year I reported to you that we had re-negotiated, with our current vendor, our outsourcing contract for on-line data processing. Subsequent to our contract renewal, the data company was purchased by another data processing firm. We are currently exploring our options in this regard, including the possibility of bringing the data processing operation in-house. In the coming year, we also intend to focus on all of our non-operating expenses in an effort to improve the Bank's efficiency ratio. Of direct interest to our shareholders has been the increase in dividend payouts. During the fiscal year ended June 30, 2001, the Company paid two semi-annual dividends of $0.12 each. Due to its conversion to a federal charter late in the 2001 fiscal year, our Mutual Holding Company was allowed to waive receipt of its share of future dividends. This fact, together with the increased level of earnings, resulted in semi-annual dividends of $0.25 and $0.28 being paid during fiscal year 2002 to the minority shareholders. The first dividend of fiscal year 2003 was paid on September 1, 2002 to shareholders of record as of August 15, 2002 in the amount of $0.32 per share. Our Charitable Foundation, established in 1998 as part of the Bank's mutual-to-stock conversion, made 19 grants totaling $26,500 to a wide variety of non-profit organizations in Greene and southern Albany County during its fiscal year ended June 30, 2002. During the past three years the Foundation has awarded 44 grants totaling just under $70,000 to organizations that support culture and arts, education, health and wellness, social and civic services, and recreation. At fiscal year end, total unaudited assets of the Foundation were $822,000. This past summer marked the fourth year that the Bank was the corporate sponsor of Music in the Park. This event provides a wide variety of free musical entertainment every Thursday evening between the 4th of July and Labor Day at Catskill's Dutchmen's Landing on the Hudson River. Several hundred people attend each week. Shortly after the Sept. 11th tragedy at the World Trade Center in New York City, the Heart of Catskill Association approached the Bank with the idea of raising funds for the WTC relief fund. The outcome was that the Bank made a challenge pledge of $10,000. Within a few weeks the Association culminated their fund drive with a well-attended all-day concert at Dutchmen's Landing. A final tally showed that the group had raised more than $25,000 on their own. When combined with the Bank's check, the result was more than $35,000 being donated to the relief effort. The Bank was the recipient of several awards during the past year. The Greene County Economic Development Office presented the Bank with its Greene Diamond Award for our overall economic contribution to the County. The Greene County Legislature also presented the Bank with its Economic Development Recognition Award for our contribution to the economic health of the County. We received the Greene County Planning Board's Ellen Rettus Planning Achievement Award for the construction of our Tannersville office, a unique timber-frame constructed building. The Hunter Foundation also honored the Bank with an award for construction of the Tannersville office. The Bank was also named business of the year by the Heart of Catskill Association. When I began my banking career 40 years ago, there were seven financial institutions headquartered in Greene County, with ours being the smallest of the group. Over the years, one by one, most of these were merged into larger, out-of-area banks. At the present time, our bank is the larger of only two remaining local banks. We believe that we have not only survived, but prospered, during this time because of the way in which we conduct our business. While we have seen significant gains in assets, deposits, lending, and net profit, we do not intend to rest on our past accomplishments. We will continue to focus on our business strategy in the coming year. As I stated in last year's message to you, the Board of Directors and the management of the Bank believe that we can continue to grow and flourish in our market area by offering personal, friendly and knowledgeable service, together with quality products that are reasonably priced and that provide value to the customer. Sincerely, /s/ J. Bruce Whittaker President and Chief Executive Officer SELECTED FINANCIAL INFORMATION The selected financial and operational data presented below at and for the years shown were derived from the audited consolidated financial statements of Greene County Bancorp, Inc. and should be read in conjunction with the consolidated financial statements presented elsewhere in this Annual Report.
As of June 30, 2002 2001 2000 (Dollars In Thousands) SELECTED FINANCIAL CONDITION DATA: Total assets $220,158 $185,105 $167,735 Loans receivable, net 128,373 109,757 97,819 U.S. treasury (all available for sale) --- 1,005 4,684 U.S. government agencies (all available for sale) 14,862 1,794 5,190 State and political subdivisions (all available for 8,811 9,420 9,904 sale) Mortgage-backed securities (all available for sale) 19,564 8,783 6,000 Asset-backed securities (all available for sale) 818 3,300 4,916 Corporate debt securities (all available for sale) 20,760 23,432 12,811 Other investment securities (all available for sale) 1,274 1,141 1,303 Deposits 183,714 154,193 133,460 Shareholders' equity $26,401 $25,094 $23,594
Years Ended June 30, 2002 2001 2000 (Dollars In Thousands) SELECTED OPERATIONS DATA: Total interest income $12,550 $11,512 $10,547 Total interest expense 4,934 5,448 4,985 Net interest income 7,616 6,064 5,562 Provision for loan losses 219 60 135 Net interest income after provision for loan losses 7,397 6,004 5,427 Total noninterest income 1,840 1,097 851 Total noninterest expense 6,984 5,928 4,973 Income before taxes 2,253 1,173 1,305 Income tax provision 600 216 347 Net income $1,653 $956 $958
SELECTED FINANCIAL RATIOS AND OTHER DATA:
At and for the Years Ended June 30, 2002 2001 2000 PERFORMANCE RATIOS: Return on average assets 0.82% 0.55% 0.60% (ratio of net income to average total assets) Return on average shareholders' equity 6.46 3.93 4.10 (ratio of net income to average shareholders' equity) Ratio of operating expenses to average total assets 3.44 3.44 3.11 Ratio of average interest-earning assets to average interest-bearing liabilities 108.51 109.34 108.61 Net interest rate spread (1) 3.78 3.45 3.42 Net interest margin (2) 4.00 3.76 3.70 Efficiency ratio (3) 73.86 82.78 77.55 ASSET QUALITY RATIOS: Nonperforming assets to total assets, at end of period 0.16 0.42 0.49 Nonperforming loans to total loans, at end of period 0.26 0.67 0.68 Allowance for loan losses to non-performing loans 321.07 119.18 128.93 Allowance for loan losses to loans receivable, net 0.83 0.81 0.89 CAPITAL RATIOS: Shareholders' equity to total assets, at end of period 11.99 13.56 14.07 Average shareholders' equity to average assets 12.63 14.10 14.63 Dividend payout ratio4 63.10% 50.00% None Book value $13.37 $12.66 $11.94 OTHER DATA: Number of full-service offices 6 6 5 1 The difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities 2 Net interest income as a percentage of average interest-earning assets 3 The ratio of noninterest expense divided by the sum of net interest income and noninterest income 4 The ratio of dividends per share divided by the basic earnings per share
General Greene County Bancorp, Inc. (the "Company") is the bank holding company for The Bank of Greene County (the "Bank") which is a community based bank offering a variety of financial services to meet the needs of the communities it serves. The Company's principal business is attracting deposits from customers within its market area and investing those funds primarily in loans with excess funds used to invest in securities. The Bank currently operates six full service branches and an administration office in New York's Greene and Southern Albany counties. The Company's stock is traded on the NASDAQ Stock Market under the symbol "GCBC". Greene County Bancorp, MHC, is a mutual holding company that owns 56.9% of the Company's outstanding common stock. The Company's results of operations, like many other financial institutions, depend primarily on its net interest income, which is the difference between the income earned on the Company'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 the Company's provision for loan losses, income and expense pertaining to other real estate owned, gains and losses from sales of securities, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges. The Company'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 the Company. Management of Credit Risk Management considers credit risk to be an important risk factor affecting the financial condition and operating results of the Company. The potential for loss associated with this risk factor is managed through a combination of policies approved by the Company's Board of Directors, the monitoring of compliance with these policies, and the periodic reporting and evaluation of loans with problem characteristics. Policies relate to the maximum amount that can be granted to a single borrower and such borrower's related interests, the aggregate amount of loans outstanding by type in relation to total assets and capital, loan concentrations, loan-to-collateral value ratios, approval limits and other underwriting criteria. Policies also exist with respect to the rating of loans, determination of when loans should be placed in a nonperforming status, and the factors that should be considered in establishing the Company's allowance for loan losses. Management also considers credit risk when evaluating potential and current holdings of investment securities. Credit risk is a critical component in evaluating corporate debt securities. Typically the Company will not purchase an investment below Standard & Poor's A- rating and will consider selling a security if it falls into a lower category while in the investment portfolio. The Company has purchased municipal securities as part of its strategy based on the fact such securities can offer a higher tax-equivalent yield than other similar investments. Management of Interest Rate Risk While the Company's loan portfolio, consisting primarily of mortgage loans collateralized by residential real property located in its market area, is subject to risks associated with the local economy, the Company's most significant form of market risk is interest rate risk because the Company's assets and liabilities are sensitive to changes in interest rates. The Company's assets consist primarily of residential mortgage loans, which have longer maturities than the Company's liabilities, which consist primarily of deposits. The Company does not engage in any hedging transactions, such as interest rate swaps and caps. Due to the complex nature and additional risk often associated with hedging transactions it is the Company's policy to continue its' strategy of mitigating interest rate risk through balance sheet composition at this time. The Company's interest rate risk management program focuses primarily on evaluating and managing the composition of the Company's assets and liabilities in the context of various interest rate scenarios. Factors beyond management's control, such as market interest rates and competition, also have an impact on interest income and interest expense. A principal part of the Company's business strategy is to manage interest rate risk and to minimize the Company's exposure to changes in market interest rates. In recent years, the Company has followed the following strategies to manage interest rate risk: (i) maintaining a high level of liquid interest-earning assets such as short-term federal funds sold and various investment securities; (ii) maintaining a high concentration of less interest-rate sensitive and lower-costing core deposits; (iii) originating consumer installment loans that have up to five year terms but that have significantly shorter average lives due to early prepayments; and (iv) where possible, matching the funding requirements for fixed-rate residential mortgages with lower-costing core deposit accounts. By investing in liquid securities, which can be sold to take advantage of interest rate shifts, and originating consumer installment loans with shorter average durations, the Company believes it is better positioned to react to changes in market interest rates. Investments in short-term securities, however, generally bear lower yields than longer-term investments. The Company also attempts to offset interest rate risk by investing in adjustable rate securities, which will increase or decrease at periodic internals based on a current interest rate. Thus, these strategies may result in lower levels of interest income than would be obtained by investing in longer-term fixed-rate loans. Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring a company's interest rate sensitivity "gap". An asset or liability is deemed to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. Accordingly, during a period of rising interest rates, an institution with a negative gap position generally would not be in as favorable a position, compared with an institution with a positive gap, to invest in higher yielding assets. The resulting yield on the institution's assets generally would increase at a slower rate than the increase in its cost of interest-bearing liabilities. Conversely, during a period of falling interest rates, an institution with a negative gap would tend to experience a repricing of its assets at a slower rate than its interest-bearing liabilities which, consequently, would generally result in its net interest income growing at a faster rate than an institution with a positive gap position. At June 30, 2002, the Company's cumulative one-year gap position, the difference between the amount of interest-earning assets maturing or repricing within one year and interest-bearing liabilities maturing or repricing within one year, as a percentage of total interest-earning assets was negative 9.76%. Certain shortcomings are inherent in the method of analysis presented in the gap table that follows. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets such as adjustable-rate loans have features that restrict changes in interest rates both on a short-term basis and over the life of the asset. Further, in the event of changes in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their adjustable-rate loans may decrease in the event of an interest rate increase. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 2002, which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each of the future time periods shown in the gap table. Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at June 30, 2002, on the basis of contractual maturities, anticipated prepayments and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. The annual prepayment rate for real estate-related assets are based on the particulars of coupon maturity of the real estate-related assets. A decay rate was used when estimating the expected maturity of certain deposits, which typically have no stated contractual maturity. A ten percent decay rate was used for savings and NOW deposits and a twenty percent decay rate was used for money market accounts. Christmas club accounts, which were included in savings accounts, were slated in the 3 to 12 month bucket due to the annual pay out of such funds in the fall of each year. Amounts Maturing or Repricing at June 30, 2002 (1)
Within 3 to 12 1 to 3 3 Months Months Years (Dollars in thousands) Interest earning assets: Loans receivable $200 $10,606 $5,216 Investment securities 4,417 16,624 26,234 Federal funds sold 10,424 --- --- Interest-bearing bank balances 149 --- --- FHLB stock 1,121 --- --- ------------ ----------- ------------ Total interest-earning assets (1) $16,311 $27,230 $31,450 ============ =========== ============= Interest-bearing liabilities Savings deposits $1,753 $5,952 $11,993 NOW deposits 357 1,072 2,444 MMDA deposits 694 2,082 3,998 Certificates of deposit 17,055 32,071 13,519 Borrowings --- 4,000 5,000 ------------ ----------- ------------- Total interest-bearing liabilities $19,859 $45,177 $36,954 ============ =========== ============= Interest sensitivity gap ($3,548) ($17,947) ($5,504) Cumulative interest sensitivity gap ($3,548) ($21,495) ($26,999) Cumulative interest sensitivity gap as a percentage of total assets (1.61%) (9.76%) (12.26%) Cumulative interest sensitivity gap as a Percentage of interest-earning assets (1.71%) (10.36%) (13.01%) Cumulative interest-earning assets as a Percentage of cumulative interest-bearing Liabilities 82.13% 66.95% 73.53%
3 to 5 5 to 10 Beyond Years Years 10 Years Total (Dollars in thousands) Interest earning assets: Loans receivable $7,759 $14,537 $91,409 $129,727 Investment securities 17,032 822 959 66,088 Federal funds sold --- --- --- 10,424 Interest-bearing bank balances --- --- --- 149 FHLB stock --- --- --- 1,121 ------------ ----------- ------------- ----------- Total interest-earning assets (1) $24,791 $15,359 $92,368 $207,509 ============ =========== ============= =========== Interest-bearing liabilities Savings deposits $9,714 $16,959 $24,454 $70,825 NOW deposits 1,980 3,456 4,984 14,293 MMDA deposits 2,559 3,059 1,491 13,883 Certificates of deposit --- --- --- 62,645 Borrowings --- --- --- 9,000 ------------ ----------- ------------- ----------- Total interest-bearing liabilities $14,253 $23,474 $30,929 $170,646 ============ =========== ============= =========== Interest sensitivity gap $10,538 ($8,115) $61,439 $36,863 Cumulative interest sensitivity gap ($16,461) ($24,576) $36,863 Cumulative interest sensitivity gap as a percentage of total assets (7.48%) (11.16%) 16.74% Cumulative interest sensitivity gap as a Percentage of interest-earning assets (7.93%) (11.84%) 17.76 Cumulative interest-earning assets as a Percentage of cumulative interest-bearing Liabilities 85.84% 82.41% 121.60% 1 Interest-earning assets are included in the period in which the balances are expected to be redeployed or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.
The following table presents the Bank's net portfolio value ("NPV"). These calculations were based upon assumptions believed to be fundamentally sound, although they may vary from assumptions utilized by other financial institutions. The information set forth below is based on data that included all financial instruments as of June 30, 2002. Assumptions made by the Bank relating to interest rates, loan prepayment rates, core deposit duration, and the market values of certain assets under the various interest rate scenarios are believed to be fundamentally sound. Actual maturity dates were used for fixed rate loans and certificate accounts. Investment securities were scheduled at either maturity date or next scheduled call date based upon judgment of whether the particular security would be called based upon the current interest rate environment, as it existed on June 30, 2002. Variable rate loans were scheduled as of their next scheduled interest rate repricing date. Additional assumptions made in the preparation of the NPV table include prepayment rates on loans and mortgage-backed securities, core deposits without stated maturity dates were scheduled with an assumed term of 48 months, and money market and noninterest bearing accounts were scheduled with an assumed term of 24 months. The NPV at "PAR" represents the difference between the Bank's estimated value of assets and estimated value of liabilities assuming no change in interest rates. The following sets forth the Bank's NPV as of June 30, 2002.
Changes in Market interest rates $Change %Change NPV as a % of assets (Basis Points) Company NPV From Par From Par NPV Ratio(1) Change(2) (Dollars in thousands) +300 bp $26,459 $(8,126) (23.50)% 13.28% (245) bps. +200 bp 29,556 (5,030) (14.54)% 14.30% (143) bps. +100 bp 32,243 (2,343) (6.78)% 15.10% (63) bps. PAR 34,586 0 0.00% 15.73% 0 bps. -100 bp 36,616 2,030 5.87% 16.21% 49 bps. -200 bp 38,298 3,712 10.73% 16.56% 83 bps. -300 bp $39,784 $5,198 15.03% 16.83% 110 bps. (1) Calculated as the estimated NPV divided by the present value of total assets (2) Calculated as the excess (deficiency) of the NPV ratio assuming the indicated change in interest rates over the estimated NPV ratio assuming no change in interest rates.
As indicated with the gap table, certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. Analysis of Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income also depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them, respectively. Average Balance Sheet The following table sets forth certain information relating to the Company for the years ended June 30, 2002 and 2001. 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. All average balances are average monthly balances. Interest and balances of nonaccrual loans and certain deferred origination fees have been excluded from the average loan balances and yield calculations in these tables.
2002 2001 2002 2001 2002 2001 Average Average Interest Interest Average Average Outstanding Outstanding Earned/ Earned/ Yield/ Yield/ Balance Balance Paid Paid Rate Rate (Dollars in thousands) Interest-earning assets: Loans receivable, net1 $121,087 $102,230 $9,081 $7,884 7.50% 7.71% Investment securities2 55,089 49,270 3,105 3,054 5.64 6.20 Federal funds 12,670 8,252 301 472 2.38 5.72 Interest-bearing bank balances 742 551 19 37 2.56 6.72 FHLB stock 1,000 909 44 65 4.40 7.15 -------------- ------------ ----------- --------- ------- ---------- Total interest-earning assets $190,588 $161,212 $12,550 $11,512 6.59 7.14 ============== ============ =========== ========= ======== ========== Interest-bearing liabilities: Savings deposits $73,785 $61,026 $1,727 $1,876 2.34 3.07 Demand and NOW deposits 32,419 24,373 163 173 0.50 0.71 Certificates of deposit 62,445 53,298 2,663 2,807 4.26 5.27 Borrowings 7,000 8,750 381 592 5.44 6.77 ------------ ------------- ----------- --------- ---------- ---------- Total interest-bearing $175,649 $147,447 $4,934 $5,448 2.81 3.69 liabilities ============ ============= =========== ========== ========== =========== Net interest income $7,616 $6,064 Net interest rate spread 3.78% 3.45% Net interest margin 4.00% 3.76% Average interest-earning assets to average interest-bearing 108.51% 109.34% liabilities 1 Calculated net of deferred loan fees, loan discounts, loans in process and loan loss reserves. 2 Includes tax-free securities, mortgage-backed securities and asset-backed securities.
Rate / Volume Analysis The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) Change attributable to changes in volume (changes in volume multiplied by prior rate); (ii) Change attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) The net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
2002 versus 2001 2001 versus 2000 Increase/(Decrease) Total Increase/(Decrease) Total Due to Increase/ Due to Increase/ Volume Rate (Decrease) Volume Rate (Decrease) Interest-earning assets: Loans receivable, net(1) $1,407 $(210) $1,197 $503 $112 $615 Investment securities(2) 220 (169) 51 115 123 238 Federal funds 1,858 (2,029) (171) 146 (28) 118 Interest-bearing bank balances 23 (41) (18) (16) 11 (5) FHLB stock 7 (28) (21) (66) 65 (1) ------- ------- --------- -------- ----- -------- Total interest-earning assets 3,515 (2,477) 1,038 682 283 965 ------- ------- --------- -------- ----- -------- Interest-bearing liabilities: Savings deposits 1,055 (1,204) (149) 67 (21) 46 Demand and NOW deposits (86) 76 (10) 35 (16) 19 Certificates of deposit 1,325 (1,469) (144) 84 197 281 Borrowings (279) 68 (211) 89 29 118 ------- ------- --------- -------- ----- -------- Total interest-bearing liabilities 2,015 (2,529) (514) 275 189 464 ------- ------- --------- -------- ----- -------- Net interest income $1,500 $52 $1,552 $407 $94 $501 ======= ======= ========= ======== ===== ======== (1) Calculated net of deferred loan fees, loan discounts, loans in process and loan loss reserves. (2) Includes tax-free securities, mortgage-backed securities and asset-backed securities.
As the above table demonstrates, net interest income for the fiscal year ended June 30, 2002 has been impacted significantly by the change in volume and to a lesser extent by the change in rates. It has been a year of tremendous growth in the loan and investment portfolios, which have been primarily funded by outstanding deposit growth. The growth in the volume of the loan and investments portfolios has been offset by corresponding decreases in the yield on such assets. The various types of deposit products have grown significantly with corresponding decreases in rate on these products. As a result of these changes in volume and changes in yield or rate the Company's net interest margin and spread have expanded. The net interest margin improved 24 basis points to 4.00% for the fiscal year ended June 30, 2002, as compared to 3.76% for the fiscal year ended June 30, 2001. The spread increased to 3.78% for the fiscal year ended June 30, 2002, an improvement of 33 basis points, as compared to 3.45% for the fiscal year ended June 30, 2001. COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2002 AND JUNE 30, 2001. Total assets increased $35.1 million, or 19.0%, to $220.2 million at June 30, 2002 as compared to $185.1 million at June 30, 2001. Asset growth occurred primarily in the investment and loan portfolios. The asset growth was largely funded through increases in deposit accounts and to a lesser extent with borrowings from the Federal Home Loan Bank ("FHLB"). The Company attributes a portion of the growth to our locally provided customer service offered in our branches and by our knowledgeable and service-oriented staff. The uncertainty in the stock market has also brought individuals back to the more conservative banking products. Cash and federal funds sold Cash and due from banks increased to $7.4 million at June 30, 2002 from $5.3 million at June 30, 2001, an increase of $2.1 million or 39.6% as a result of daily fluctuations due to normal deposit account clearing activities and vault cash needs, based on customer cash needs. Federal funds sold decreased to $10.4 million at June 30, 2002 from $13.5 million at June 30, 2001, a decrease of $3.1 million or 23.0%. The level of federal funds sold is also a function of the daily account clearing needs and deposit levels, which can fluctuate significantly on a daily basis. Management has attempted to minimize the level of cash and federal funds sold during fiscal year 2002 due to the low interest rate environment, while maintaining sufficient liquidity to fund loan and customer demand. Investments Investments increased to $66.1 million at June 30, 2002 from $48.9 million at June 30, 2001, an increase of $17.2 million or 35.2%. As the table below demonstrates, the portfolio composition has shifted toward U.S. agency and mortgage-backed securities and away from corporate securities, asset-backed securities and tax-free state and political subdivision securities. During fiscal year 2002, management believed U.S. agencies and mortgage-backed securities were offering the highest yield relative to the level of risk. Management also attempted to address interest rate risk by purchasing a number of adjustable rate securities. These adjustable rate securities are expected to partially offset the interest rate risk associated with long-term fixed rate loans. During the fiscal year ended June 30, 2002, principal payments of $3.0 million for securities, other than mortgage-backed securities, and $5.5 million for mortgage-backed securities were received, partially offsetting purchases made during the fiscal year. Purchases of securities, other than mortgage-backed securities, amounted to $15.8 million during the fiscal year ended June 30, 2002. Purchases of mortgage-backed securities amounted to $16.2 million for the fiscal year ended June 30, 2002. Further offsetting the purchases were maturities and calls of securities amounting to $5.8 million during fiscal 2002. Approximately $1.0 million in corporate securities were sold at a profit of $19,000 during the fiscal year ended June 30, 2002. Management decided to sell these corporate securities due to potential credit risk. As part of its Asset Liability Management practice, management continually reviews the securities held for potential credit and adverse interest rate risk characteristics. A decision to sell may result from these reviews. The Company continues to hold 13.3% of the investment portfolio at June 30, 2002, in state and political subdivision securities to take advantage of tax savings and to promote the Company's participation in the communities in which it operates. The Company continues to operate a niche market of financing for fire trucks and firehouses through either bond purchases or loans.
Market value at Percentage Market value at Percentage June 30, 2002 of portfolio June 30, 2001 of portfolio (Dollars in thousands) U.S. Treasuries $--- ---% $1,005 2.1% U.S. government agencies 14,862 22.5% 1,794 3.7% State and political subdivisions 8,811 13.3% 9,420 19.3% Mortgage-backed securities 19,564 29.6% 8,783 18.0% Asset-backed securities 818 1.3% 3,300 6.7% Corporate debt securities 20,760 31.4% 23,432 47.9% ------- ------ ---------- -------- Total debt securities 64,815 98.1% 47,734 97.7% Equity securities and other 1,274 1.9% 1,141 2.3% ------- ------ ---------- -------- Total available-for-sale securities $66,089 100.0% $48,875 100.0% ========== ========= ============ =========
Federal Home Loan Bank Stock Federal Home Loan Bank Stock amounted to $1.1 million at June 30, 2002, an increase of $182,000. This increase was a result of minimum capital stock requirements of all members of the Federal Home Loan Bank of New York. Loans Total loans increased to $129.7 million at June 30, 2002 from $110.9 million at June 30, 2001, an increase of $18.8 million or 17.0%. Residential real estate loans increased $14.0 million, or 15.6%, between fiscal year end June 30, 2002 and 2001. The most significant increases within residential real estate loans occurred in conventional fixed rate mortgages of $13.7 million, or 18.6% and construction loans of $1.0 million, or 50.0%; however, adjustable rate real estate mortgages indexed to treasury rates decreased by $1.3 million, or 15.9%. The remaining changes were within the various other types of residential real estate loans. Commercial real estate mortgages increased $3.6 million, or 69.2%, to $8.8 million at June 30, 2002 from $5.2 at June 30, 2001. Commercial loans increased $1.1 million, or 33.3%, to $4.4 million at June 30, 2002 as compared to $3.3 million at June 30, 2001. Marketing efforts to attract commercial customers have been successful in both gathering deposits and making loans. A marketing campaign begun in the quarter ended June 30, 2002, to advertise home equity products has begun to succeed. Home equity loans increased $0.9 million or 14.8%, to $7.0 million at June 30, 2002 as compared to $6.1 million at June 30, 2001. Management believes that the decreases in installment and passbook loans were a result of some of this lending being picked up in mortgages or refinancing. Zero percent auto financing offered by automakers has led to a decrease in auto loans, which are classified as installment. As a result of these changes, the loan portfolio composition has slightly shifted to commercial real estate mortgages from residential real estate mortgages and installment loans.
At Percentage At Percentage June 30, 2002 of portfolio June 30, 2001 of portfolio (Dollars in thousands) Real estate mortgages Residential $103,494 79.8% $89,528 80.7% Commercial 8,764 6.8% 5,239 4.7% Home equity loans 6,957 5.4% 6,138 5.6% Commercial loans 4,356 3.3% 3,291 3.0% Installment loans 5,611 4.3% 6,128 5.5% Passbook loans 545 0.4% 596 0.5% -------- -------- --------- -------- Total loans $129,727 100.0% $110,920 100.0% ======== ========= ========== ==========
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's allowance for loan losses and valuation of OREO. Such agencies may require the Bank 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 is reduced by net charge-offs. During the fiscal year ended June 30, 2002, the level of provision was affected by the growth of the loan portfolio and composition of the portfolio shifting to more commercial loans. These types of loans generally possess a higher degree of credit risk than traditional one-to-four family residential mortgage loans. Management also implemented improved procedures for pursuing delinquent and previously charged-off accounts during fiscal year 2002, which appears to have helped reduce the effect of credit quality deterioration due to current economic weakness in the overall economy. Any increase in the allowance for loan losses or loan charge-offs could have a material adverse effect on our results of operations and financial condition.
Analysis of the Allowance for Loan Losses June 30, 2002 June 30, 2001 Balance at the beginning of the period $886,081 $866,443 Charge-offs: Commercial real estate mortgage loans --- 26,432 Home equity 2,380 --- Installment loans to individuals 49,877 50,483 ------------- -------------- Total loans charged off 52,257 76,915 Recoveries: Installment loans to individuals 16,010 36,553 ------------- -------------- Total recoveries 16,010 36,553 ------------- ------------- Net charge-offs 36,247 40,362 Provisions charged to operations 218,900 60,000 ------------- ------------- Balance at the end of the period $1,068,734 $886,081 ============= ============= Ratio of net charge-offs to average loans outstanding 0.03% 0.04% Ratio of net charge-offs to nonperforming assets 9.98% 5.22% Allowance for loan loss to nonperforming loans 321.07% 119.18% Allowance for loan loss to net loans 0.83% 0.81%
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 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 over 90 days 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. Other real estate owned is considered nonperforming. The Bank had no accruing loans delinquent more than 90 days at June 30, 2002 or 2001.
The following table sets forth information regarding nonaccrual loans and other nonperforming assets. June 30, 2002 June 30, 2001 Nonaccruing loans: Real estate mortgage loans Residential mortgage loans (One-to-four family) $313,981 $660,607 Commercial mortgage loans --- 71,711 Home equity --- 2,380 Installment loans to individuals 18,886 8,770 ------------- ----------- Total nonaccruing loans 332,867 743,468 Other real estate owned Real estate mortgage loans Commercial mortgage loans 30,229 30,229 ------------- ----------- Total other real estate owned 30,229 30,229 ------------- ----------- Total nonperforming assets $363,096 $773,697 ============= =========== Total nonperforming assets as a percentage of total assets 0.16% 0.42% Total nonperforming loans to total loans 0.26% 0.67%
Gross interest income of $9,700 and $31,000 would have been recorded on nonaccrual loans under their original terms if the loans had been current through the fiscal years ended June 30, 2002 and 2001, respectively. No interest income was recorded on nonaccrual loans more than 90 days delinquent during the fiscal years ended June 30, 2002 or 2001. Other real estate owned Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned ("OREO") until such time as it is sold. When real estate is acquired through foreclosure or by deed in lieu of foreclosure, it is recorded at its fair value, less estimated costs of disposal. If the value of the property is less than the loan, less any related specific loan loss provisions, the difference is charged against the allowance for loan losses. Any subsequent write-down of OREO is charged against earnings. At June 30, 2002 and 2001, other real estate owned amounted to $30,000. During the fiscal year ended June 30, 2002, one other property was transferred to other real estate owned through foreclosure proceedings of approximately $87,000. A net gain of approximately $22,000 was recognized in connection with the sale of this property. Premises and equipment Premises and equipment amounted to $5.0 million at June 30, 2002 as compared to $5.1 million at June 30, 2001. The decline of $100,000 was the net result of purchases of approximately $375,000 and depreciation expense of approximately $476,000. Accrued interest receivable At June 30, 2002, accrued interest receivable on loans and investments amounted to $1.5 million as compared to $1.4 million at June 30, 2001, an increase of $0.1 million or 7.1%. The increase was due to growth in the loan and investment portfolios. Timing of interest payments can affect the level of accrued interest receivable. Prepaid expenses and other assets Prepaid expense and other assets amounted to $297,000 at June 30, 2002 as compared to $289,000 at June 30, 2001, an increase of $8,000. Fees such as insurance, real estate taxes, software licensing and advertising that have been paid in advance of the service are the majority of the assets in this category. The expense related with these fees is amortized over the service period. Deposits It has been an unprecedented year in attracting new customers and serving existing customers. The number of deposit accounts grew by approximately 2,200 accounts, or 9.2% over the prior year. The uncertainty of the stock market also helped to turn consumers to the more conservative deposit products offered by banking institutions. Noninterest bearing deposits increased $3.6 million, or 19.8%. Certificates of deposit increased $4.5 million, or 7.8%. Savings deposits increased $13.8 million, or 24.2%. Money market deposits increased $4.7 million, or 51.0%. NOW deposits increased $2.8 million, or 24.9%. The overall increase in deposit accounts amounted to $29.5 million, or 19.1%. There has been a slight shift in the composition of the deposit portfolio to savings and money market deposits, which represent 38.5% and 7.6% of the portfolio at June 30, 2002 as compared to 37.0% and 6.0%, respectively, at June 30, 2001. Certificates of deposit represented 34.1% of the portfolio at June 30, 2002 as compared to 37.7% of the portfolio at June 30, 2001. The maturity of certificates of deposits has shifted to shorter terms. Approximately $34.1 million, or 54.4%, of the certificates of deposit at June 30, 2002, were scheduled to mature in less than seven months as compared to $28.9 million, or 49.7%, of the certificates of deposit at June 30, 2001. Approximately $15.1 million, or 24.0% of the certificates of deposit will mature between seven and twelve months as of June 30, 2002, as compared to $16.7 million, or 28.8%, at June 30, 2001.
At Percentage At Percentage June 30, 2002 of portfolio June 30, 2001 of portfolio (Dollars in thousands) Noninterest bearing deposits $22,067 12.0% $18,418 11.9% Certificates of deposit 62,645 34.1% 58,113 37.7% Savings deposits 70,825 38.5% 57,021 37.0% Money market deposits 13,883 7.6% 9,194 6.0% NOW deposits 14,294 7.8% 11,446 7.4% -------------- -------------- ------------- ----------- Total deposits $183,714 100.0% $154,192 100.0% =============== ============== ============= ===========
Borrowings from FHLB Borrowings from FHLB amounted to $9.0 million at June 30, 2002 as compared to $5.0 million at June 30, 2001, an increase of $4.0 million or 80.0%. Due to the low interest rate environment, management was able to borrow funds from the FHLB and invest such funds in higher yielding investment securities. Accrued expenses and other liabilities Accrued expense and other liabilities increased $289,000, or 46.4%, to $912,000 at June 30, 2002 as compared to $623,000 at June 30, 2001. The most significant factor contributing to the increase was an increase in the deferred tax liabilities associated with the unrealized gains on the available-for-sale investment portfolio. Accrued income taxes Accrued income taxes amounted to $131,000 at June 30, 2002 as compared to $196,000 at June 30, 2001, a decrease of approximately $65,000, or 33.1%. The level of accrued income tax is related to and will fluctuate as the result of changes in the estimated effective tax rate and provision for income taxes. Shareholders' equity Retained earnings increased to $17.2 million at June 30, 2002 compared to $16.0 million at June 30, 2001 as a result of net income of $1.7 million partially offset by dividend payments amounting to $481,000. Unearned stock-based compensation was affected by stock-based compensation earned. Unearned ESOP shares changed due to earned and allocated shares during the fiscal year. The change in other accumulated comprehensive income was a result of the change in the equity portion of marking to market the available-for-sale investment portfolio. The change in treasury stock balances are a result of the repurchase of 37,500 shares of common stock at an average cost of $14.16 per share, at an aggregate cost of $531,000. These purchases were partially offset by 12,580 options that were exercised during the fiscal year ended June 30, 2002. The issuance of 9,400 shares of stock due to normal vesting and vesting upon retirement associated with the Management Recognition and Retention Plan of 2000 contributed the remaining offset to the treasury stock account. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 2002 AND JUNE 30, 2001 The earnings of the Company, as well as other financial institutions, depend primarily on its level of net interest income, which is the difference between interest earned on the Company's interest-earning assets, consisting primarily of residential and commercial real estate loans, consumer loans and securities available for sale, and the interest paid on interest-bearing liabilities, consisting of deposits and borrowings. Net interest income is a function of the Company's interest rate spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, as well as a function of the average balance of interest-earning assets as compared with interest-bearing liabilities. The Company's earnings also are affected by its fees and service charges and gains on sale of loans and securities, as well as its level of operating and other expenses, including salaries and employee benefits, occupancy and equipment costs, data processing expense, marketing and advertising costs, and federal deposit insurance premiums. Net interest income Net interest income is a function of interest income and interest expense. Net interest income for the fiscal year ended June 30, 2002 amounted to $7.6 million as compared to $6.1 million for the fiscal year ended June 30, 2001, an increase of $1.5 million, or 24.6%. As illustrated rate / volume and average balance sheet tables, the increased volume in most categories of interest-earning assets and interest-bearing liabilities significantly contributed to the improved net interest income. These increases in volume were offset by decreases in yield on interest-earning assets which experienced decreases in all categories with shorter term assets experiencing the greatest decrease in yield. As a result the overall yield on interest-earning assets decreased 55 basis points to 6.59% for the fiscal year ended June 30, 2002 as compared to 7.14% for the fiscal year ended June 30, 2002. However, the rate charged on interest-bearing liabilities also decreased even more significantly, 88 basis points to 2.81% for the fiscal year ended June 30, 2002 as compared to 3.69% for the same period ended June 30, 2001. As a result of changes in interest-earning assets and interest-bearing liabilities, net interest spread increased 33 basis points to 3.78% for the period ended June 30, 2002 as compared to 3.45% for the period ended June 30, 2001. Net interest margin increased 24 basis points to 4.00% for the fiscal year ended June 30, 2002 as compared to 3.76% for the fiscal year ended June 30, 2001. These fluctuations were primarily the result of the Federal Reserve rate cuts completed during the fiscal year ended June 30, 2002. The rates were cut in response to weakness demonstrated in the United States economy and the terrorist attacks of September 11, 2001. INTEREST INCOME Interest income for the fiscal year ended June 30, 2002 amounted to $12.5 million as compared to $11.5 million for the fiscal year ended June 30, 2001, an increase of $1.0 million, or 8.7%. Interest income is derived from loans, investments and other interest-bearing assets. The average balance of interest-earning assets increased to $190.6 million for the fiscal year ended June 30, 2002 as compared to $161.2 million for the fiscal year ended June 30, 2001, an increase of $29.4 million, or 18.2%. The decrease in average yield on such investments partially offset the increase in average balance. Interest income on loans increased to $9.1 million for the fiscal year ended June 30, 2002 as compared to $7.9 million for the fiscal year ended June 30, 2001, an increase of $1.8 million, or 22.8%. The level of interest on loans was affected by the average balance and yield on such loans as well as the composition of the portfolio. The average balance of loans increased to $121.1 million for the fiscal year ended June 30, 2002 as compared to $102.2 million for the same period of the prior year, an increase of $18.9 million, or 18.5%. The increase in average balance was offset by a decrease in the average yield on such loans, which was 7.50% for the fiscal year ended June 30, 2002 as compared to 7.71% for the same period the prior year, a decrease of 21 basis points. The shift in the loan portfolio composition to more commercial type loans from standard residential loans partially offset a potentially more significant decreases in yield on the loan portfolio. Commercial real estate mortgages represented $8.8 million, or 6.8%, of the portfolio at June 30, 2002 as compared to $5.2 million, or 4.7%, of the portfolio at June 30, 2001. Commercial real estate mortgages tend to have a higher interest rate than other types of mortgages and long-term loans. These loans experienced the greatest percentage fluctuation between June 30, 2002 and 2001, growing $3.5 million, or 67.3%. Residential real estate mortgages continue to represent the greatest component of the loan portfolio, and represented the largest dollar increase of $14.0 million, or 15.6%, between June 30, 2002 and 2001. Interest income on investments was also affected by the average balance, rate and composition of the portfolio. Interest income on investments increased $30,000 to $3.1 million when comparing fiscal year end June 30, 2002 and 2001. The average balance of the investment portfolio amounted to $55.1 million for the fiscal year ended June 30, 2002 as compared to $49.3 million for the fiscal year ended June 30, 2001, an increase of $5.8 million, or 11.8%. The increase in average balance was partially offset by decreases in yield on such investments. The yield on investments was 5.64% for the fiscal year ended June 30, 2002 as compared to 6.20% for the same period of the prior year, a decrease of 56 basis points. The shift in the portfolio composition also contributed to the lower yield. Corporate securities represented $20.8 million, or 31.4% of the portfolio at June 30, 2002 as compared to $23.4 million, or 47.9% of the portfolio at June 30, 2001. Corporate securities tend to carry a higher yield than other investments such as U.S. government agencies and mortgage-backed securities. U.S. government agency investments represented $14.9 million, or 22.5% of the portfolio at June 30, 2002 as compared to $1.8 million, or 3.7% of the portfolio at June 30, 2001. Mortgage-backed securities represented $19.6 million, or 29.6% of the portfolio at June 30, 2002 as compared to $8.8 million, or 18.0% of the portfolio at June 30, 2001. As stated above, the change in overall yield was most significantly affected by the general change to a lower interest rate environment between June 30, 2002 and 2001. Management has attempted to invest in more adjustable rate investments when appropriate during fiscal year 2002 than in the past in order to partially protect the net interest position when interest rates begin to rise. Interest income on federal funds sold was significantly impacted by the interest rate environment. The rate on such funds decreased 334 basis points when comparing the fiscal year ended June 30, 2002 and 2001. Due to the fact that the Bank maintains a substantial balance in federal funds, a change in this interest rate can considerably affect the level of interest income. The growth in deposit balances contributed to the increase in average balance of federal funds. INTEREST EXPENSE Interest expense for the fiscal year ended June 30, 2002 amounted to $4.9 million as compared to $5.4 million for the fiscal year ended June 30, 2001, a decrease of $0.5 million, or 9.3%. Interest expense includes interest on deposits as well as interest on borrowings. The average balance of interest-bearing liabilities increased to $175.6 million for the fiscal year ended June 30, 2002 as compared to $147.4 million for the fiscal year ended June 30, 2001, an increase of $28.2 million. The average rate on such interest-bearing liabilities decreased 88 basis points to 2.81% as compared to 3.69% between fiscal years ended June 30, 2002 and 2001, respectively. The average balance of savings deposits, which includes escrow deposits, Christmas club accounts and student savings increased $12.8 million, or 20.9%, to $73.8 million for the fiscal year ended June 30, 2002 as compared to $61.0 million for the fiscal year ended June 30, 2001. The increase in average balance of such savings accounts was offset by a decrease in average rate of 73 basis points to 2.34% for the twelve-month period ended June 30, 2002 as compared to 3.07% for the same period ended June 30, 2001. The average balance of demand and NOW deposit accounts increased $8.0 million to $32.4 million for the fiscal year ended June 30, 2002 as compared to $24.4 million for the fiscal year ended June 30, 2001. The average rate on such deposits decreased 21 basis points to 0.50% for the fiscal year ended June 30, 2002 as compared to 0.71% for the same period ended June 30, 2001. The average balance of certificates of deposit amounted to $62.4 million for the fiscal year ended June 30, 2002 as compared to $53.3 million for the fiscal year ended June 30, 2001, an increase of $9.1 million or 17.1%. The average rate on such certificates of deposit decreased 101 basis points to 4.26% for the fiscal year ended June 30, 2002 as compared to 5.27% for the same period of the prior year. As stated above, these rates are largely affected by the interest rate environment in general and competitive pressures, which can be more significant in a rising rate environment as compared to a declining rate environment. Management recognizes that a rising rate environment could have an inverse relationship to the net interest spread and margin causing them to decrease, potentially affecting the overall net income position and profitability. The decrease in average balance of borrowings of $1.8 million and decrease in rate on such borrowings of 133 basis points between fiscal year ended June 30, 2002 and 2001 also contributed to the decreased interest expense and improved net interest income. NONINTEREST INCOME Other income amounted to $1.8 million for the fiscal year ended June 30, 2002 as compared to $1.1 million for the fiscal year ended June 30, 2001, an increase of $0.7 million, or 63.6%. Service charges on deposit accounts amounted to $1.1 million for the fiscal year ended June 30, 2002 as compared to $0.5 million for the same period of the prior year, an increase of $0.6 million. The most significant item affecting this revenue was the introduction of the new Carefree Overdraft Privilege product. The program, which was initiated in October 2001, allows certain select customers to overdraw their checking accounts while the Bank continues to honor their checks up to certain limits based on checking account type and customer history. Other operating income increased to $713,000 for the fiscal year ended June 30, 2002 as compared to $554,000 for the fiscal year ended June 30, 2001, an increase of $159,000, or 28.7%. The most significant contributors to the improvement in other operating income included merchant credit card processing fees, debit card fees and referral fees earned on our collaboration with Fenimore Asset Management. Merchant credit card processing fees were generated based on referrals to Transfirst credit card processors. Gains of approximately $22,300 and $17,000 associated with the sale of a property formerly categorized in other real estate owned were recognized during fiscal 2002 and 2001, respectively. Gains of approximately $19,000 were recognized on the sales of two corporate securities during fiscal 2002. Other fees included in other income are associated with late charges, appraisal fees, mortgage lock-in and origination fees. NONINTEREST EXPENSE Other expenses increased to $7.0 million for the fiscal year ended June 30, 2002 as compared to $6.0 million for the fiscal year ended June 30, 2001, an increase of $1.0 million, or 16.7%. A portion of the increase in other expenses was directly related to the overall increase in volume of customer accounts. Depreciation expense increased approximately $48,000 between fiscal year 2002 and 2001. This increase was the direct result of branch openings and equipment amortization associated with these new branches. Professional fees were $54,000 higher the for fiscal year 2002 as compared to fiscal year 2001. The Bank begun using an independent loan review team to assist in evaluating the commercial loan portfolios. Another firm assisted the Bank in reviewing its operations and lending departments in efforts to improve efficiency. The Bank also used an outside firm to help with the implementation of the Carefree Overdraft Privilege program. This firm was paid approximately $115,000 during fiscal year 2002. Increases in salary and other employee benefits increased $370,000, which related to annual salary increases, higher medical and retirement benefit expenses such as ESOP expense and funding requirements associated with the Defined Benefit Plan. The Company also invested in educating employees to appropriately use the technology that it has invested in during the last few years in order to make sure the efficiencies that should be achieved with this technology are realized. The relatively rural environment in which the Company operates increased some costs because of the inability to take full advantage of some of the technological advances in telephone and other data communication options available to other geographic areas. PROVISION FOR INCOME TAXES The provision for income taxes directly reflects the expected tax associated with the revenue generated for the given year and certain regulatory requirements. The increase in the provision was primarily due to the adjustments needed to properly reflect the expected tax requirements. The most significant items affecting the effective rate include tax-exempt income as a percent of total income and tax benefits associated with stock compensation. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are deposits and proceeds from principal and interest payments on loans, mortgage-backed securities and debt securities, as well as lines of credit and term borrowing facilities available through the Federal Home Loan Bank as needed. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and borrowings are greatly influenced by general interest rates, economic conditions and competition. The Company's primary investing activities are the origination of residential one- to four-family and commercial real estate loans, other consumer and commercial business loans, and the purchase of mortgage-backed securities and debt securities. Purchases of mortgage-backed securities and debt securities totaled $32.0 million and $20.4 million for the years ended June 30, 2002 and 2001, respectively. These activities were funded primarily through deposit growth, and principal payments on loans, mortgage-backed securities and debt securities. Loan sales did not provide an additional source of liquidity during the years ended June 30, 2002 and 2001, as the Company generally originates loans for retention in its portfolio. The Company experienced a net increase in total deposits of $29.5 million and $20.7 million for the years ended June 30, 2001 and 2000, respectively. The level of interest rates and products offered by local competitors are some factors affecting deposit flows. During the fiscal year ended June 30, 2002, it appeared that the overall reduction of investment in the stock market also helped to contribute to the increase in deposit balances. The Company monitors its liquidity position on a daily basis. Excess short-term liquidity is usually invested in overnight federal funds sold. In the event the Company requires funds beyond its ability to generate them internally, additional sources of funds are available through the use of FHLB advance programs made available to the Company. During fiscal year 2002, the Company's maximum borrowing reached $9.0 million and minimum amounted to $5.0 million from the FHLB. The $9.0 million borrowing at June 30, 2002 was a combination of $2.5 million, which matures in September 2004, $2.5 million which matures in October 2005 and $4.0 million scheduled to mature in January 2003. Loan commitments totaled $4.0 million at June 30, 2002 and were comprised of $3.7 million in commitments to originate residential loans and $0.3 million in commercial loan commitments. Another $3.4 million in unused lines of credit, including $1.4 million in commercial lines of credit, $0.8 in overdraft lines of credit and $1.2 million in home equity lines of credit were outstanding at June 30, 2002. The Company anticipates that it will have sufficient funds available to meet current loan commitments. Time accounts or certificate of deposits, which are scheduled to mature in one year or less from June 30, 2001, totaled $49.1 million. Based upon the Company's experience and its current pricing strategy, management believes that a significant portion of such deposits will remain with the Company. At June 30, 2002 and 2001, the Bank and Company exceeded all of their regulatory capital requirements, as illustrated in the regulatory capital footnote within the financial statements. Shareholders' equity represented 12.0% of total assets at June 30, 2002, as compared to 13.6% at June 30, 2001. The Company's most liquid assets are cash and cash equivalent accounts. The levels of these assets are dependent on the Company's operating, financing, lending and investing activities during any given period. At June 30, 2002, cash and cash equivalents totaled $17.8 million, or 8.1% of total assets.
A summary of selected financial data at and for the fiscal quarter ends for the years ended June 30, 2002 and 2001 is as follows: First Second Third Fourth Quarter Quarter Quarter Quarter (Dollars in thousands, except per share data) FISCAL 2002 Loans receivable, net $115,734 $120,336 $125,478 $128,373 Deposits 159,654 165,918 175,673 183,714 Interest income 3,109 3,083 3,131 3,227 Net interest income 1,767 1,845 1,943 2,061 Provisions of loan losses 30 69 60 60 Income before provision for income taxes 473 530 608 642 Net income 344 381 468 460 Earnings per common share - Basic 0.17 0.20 0.24 0.23 Earnings per common share - Diluted $0.17 $0.19 $0.23 $0.23 FISCAL 2001 Loans receivable, net $98,914 $101,654 $103,832 $109,757 Deposits 132,749 136,025 140,955 154,193 Interest income 2,798 2,851 2,908 2,955 Net interest income 1,428 1,472 1,536 1,627 Provisions of loan losses 15 15 15 15 Income before provision for income taxes 260 373 248 292 Net income 212 250 212 282 Earnings per common share - Basic 0.11 0.13 0.11 0.14 Earnings per common share - Diluted $0.11 $0.13 $0.11 $0.14
COMMON STOCK AND RELATED MATTERS The Company's common stock is listed on the NASDAQ Small-Cap Market under the symbol "GCBC". As of August 1, 2002 the Company had six registered market makers, 613 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms) and 2,024,835 shares outstanding. As of such date, Greene County Bancorp, MHC (the "Mutual Company"), the Company's mutual holding company held 1,152,316 shares of common stock or 56.9% of total shares outstanding. Consequently, shareholders other than the Mutual Company held 872,519 shares. The following table sets forth high, low, closing market price and dividend information of Greene County Bancorp, Inc. common stock during the quarterly periods indicated for the years ended June 30, 2002 and 2001. Closing price information is stated at the quarter end dates indicated. During the fiscal year ended June 30, 2002, the Mutual Holding Company waived its right to receive dividends under the provisions of its' OTS charter.
Semi-Annual Cash Dividend High Low Close Declared June 30, 2002 $18.46 $17.00 $18.22 None March 31, 2002 19.75 14.75 17.99 $0.28/share December 31, 2001 15.75 13.46 15.05 None September 30, 2001 15.75 10.40 13.96 $0.25/share June 30, 2001 14.00 9.15 10.90 None March 31, 2001 10.50 9.06 9.88 $0.12/share December 31, 2000 10.50 8.00 9.25 None September 30, 2000 $9.13 $7.75 $8.50 $0.12/share
Payment of dividends on the Company's common stock is subject to determination and declaration by the Board of Directors and depends upon a number of factors, including capital requirements, regulatory limitations on the payment of dividends, the Company's results of operations, financial condition, tax considerations and general economic conditions. No assurance can be given that dividends will be declared or, if declared, what the amount of dividends will be, or whether such dividends, once declared, will continue. IMPACT OF INFLATION AND CHANGING PRICES The consolidated financial statements of the Company and notes thereto, presented elsewhere herein, have been prepared in accordance with U.S. generally accepted accounting principles, which requires the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of the Company's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statement No. 141, "Business Combinations", which requires all business combinations to be accounted for under the purchase method of accounting, thus eliminating the pooling of interest method of accounting. The adoption of this statement in fiscal 2002 had no impact on the Company's consolidated financial statements. In July 2001, the Financial Accounting Standards Board issued Statement No. 142, "Goodwill and Other Intangible Assets", which requires acquired intangible assets (other than goodwill) to be amortized over their useful economic lives, while goodwill and any acquired intangible assets with an indefinite useful economic life would not be amortized, but would be reviewed for impairment on an annual basis based upon guidelines specified by the statement. The adoption of this statement in fiscal 2003 is expected to have no impact on the Company's consolidated financial statements. In August 2001, the Financial Accounting Standards Board issued Statement No. 143, "Accounting for Asset Retirement Obligations", which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of long-lived assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently reviewing this statement to determine its effect on the Company's financial statements. In August 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of APB No. 30. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The adoption of this statement in fiscal 2002 had no impact on the Company's consolidated financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which replaces Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, liabilities for costs associated with an exit or disposal activity are to be recognized when the liability is incurred. Under EITF Issue No. 94-3, liabilities related to exit or disposal activities were recognized when an entity committed to an exit plan. In addition, Statement No. 146 establishes that the objective for the initial measurement of the liability is fair value. Statement No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company is currently evaluating the impact the adoption of this statement will have on its financial statements but does not believe it will be material. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS This annual report contains forward-looking statements. The Company 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 annual report, describe future plans or strategies and include the Company's expectations of future financial results. The words "believe," "expect," "anticipate," "project," and similar expressions identify forward-looking statements. The Company'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 Company's loan and investment portfolios, (f) deposit flows, (g) competition, and (h) demand for financial services in the Company'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. REPORT OF INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP State Street Centre at 80 State Street Albany NY 12207-2591 Telephone (518) 462 2030 Facsimile (518) 427 4499 To the Board of Directors and Shareholders Greene County Bancorp, Inc. In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Greene County Bancorp, Inc. and its subsidiary at June 30, 2002 and 2001, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The Company has revised its financial statements, effective April 16, 2003 to include the addition of Note 18 to the Notes to Consolidated Financial Statements. PricewaterhouseCoopers LLP July 26,2002 except for Note 18, for which the date is April 16, 2003
Greene County Bancorp, Inc. Consolidated Statements of Financial Condition As of June 30, 2002 and 2001 June 30, 2002 June 30, 2001 ------------- ------------- ASSETS Cash and due from banks $7,408,150 $5,336,195 Federal funds sold 10,423,871 13,468,163 ------------- --------------- Total cash and cash equivalents 17,832,021 18,804,358 Investment securities, at fair value 66,088,530 48,875,229 Federal Home Loan Bank stock, at cost 1,121,100 939,600 Loans 129,727,150 110,920,369 Less: Allowance for loan losses (1,068,734) (886,081) Unearned origination fees and costs, net (285,132) (277,277) ------------- --------------- Net loans receivable 128,373,284 109,757,011 Premises and equipment 4,963,621 5,052,208 Accrued interest receivable 1,452,104 1,357,239 Prepaid expenses and other assets 296,691 288,914 Other real estate owned 30,229 30,229 ------------- --------------- Total assets $220,157,580 $185,104,788 ============= =============== LIABILITIES AND SHAREHOLDERS' EQUITY Non-interest bearing deposits $22,067,347 $18,418,308 Interest bearing deposits 161,646,281 135,774,206 ------------- --------------- Total deposits 183,713,628 154,192,514 Borrowings from FHLB 9,000,000 5,000,000 Accrued expenses and other liabilities 911,959 623,038 Accrued income taxes 131,287 195,646 ------------- --------------- Total liabilities 193,756,874 160,011,198 Shareholders' equity Preferred stock, Authorized 1,000,000 at June 30, 2002 and 2001; --- --- Common stock, par value $.10 per share; Authorized: 12,000,000 at June 30, 2002 and 2001; Issued: 2,152,835 at June 30, 2002 and 2001 Outstanding: 2,024,835 at June 30, 2002; 2,040,355 at June 30, 2001 215,284 215,284 Additional paid-in capital 10,084,621 10,188,573 Retained earnings 17,164,403 15,993,025 Accumulated other comprehensive income 880,401 499,022 Less: Treasury stock, 128,000 at June 30, 2002; 112,480 at June 30, 2001, shares at cost (1,371,527) (1,075,923) Unearned stock-based compensation (156,791) (229,753) Unearned ESOP shares 49,972 at June 30, 2002; 58,516 at June 30, 2001, shares at cost (415,685) (496,638) ------------- ---------------- Total shareholders' equity 26,400,706 25,093,590 ------------- ---------------- Total liabilities and shareholders' equity $220,157,580 $185,104,788 ============= ================ See notes to consolidated financial statements.
Greene County Bancorp, Inc. Consolidated Statements of Income For the Years Ended June 30, 2002 and 2001 2002 2001 ---- ---- Interest income: Loans $9,080,523 $7,883,669 Investment securities 1,963,241 2,220,765 Mortgage-backed securities 758,010 440,407 Tax free securities 427,803 458,289 Interest bearing deposits and federal funds sold 320,32 509,241 ------------------- ----------------- Total interest income 12,549,899 11,512,371 Interest expense: Interest on deposits 4,553,485 4,855,977 Interest on borrowings 380,820 592,516 ------------------- ----------------- Total interest expense 4,934,305 5,448,493 Net interest income 7,615,594 6,063,878 Less: Provision for loan losses 218,900 60,000 ------------------- ----------------- Net interest income after provision for loan losses 7,396,694 6,003,878 ------------------- ----------------- Noninterest income: Service charges on deposit accounts 1,127,031 543,194 Other operating income 712,841 553,593 ------------------- ----------------- Total noninterest income 1,839,872 1,096,787 Noninterest expense: Salaries and employee benefits 3,355,992 2,985,933 Occupancy expense 365,642 344,781 Equipment and furniture expense 465,744 436,528 Service and data processing fees 636,371 552,640 Office supplies 156,933 123,783 Other 2,002,972 1,484,148 ------------------- ----------------- Total noninterest expense 6,983,654 5,927,813 Income before provision for income taxes 2,252,912 1,172,852 Provision for income taxes: Current 560,114 283,879 Deferred 40,086 (67,380) ------------------- ----------------- Total provision for income taxes 600,200 216,499 ------------------- ----------------- Net income $1,652,712 $956,353 =================== ================= Basic EPS $0.84 $0.48 Basic average shares outstanding 1,962,228 1,978,165 Diluted EPS $0.82 $0.48 Diluted average shares outstanding 2,016,031 2,001,331 See notes to consolidated financial statements.
Greene County Bancorp, Inc. Consolidated Statements of Comprehensive Income For the Years Ended June 30, 2002 and 2001 2002 2001 ---- ---- Net income $1,652,712 $956,353 Other comprehensive income: Unrealized holding gain arising during the years ended June 30, 2002 and 2001, net of tax expense of $261,853 and $720,594, respectively. 392,788 1,040,419 Reclassification adjustment arising during the years ended June 30, 2002 and 2001, net of tax expense of $7,606 and $12,712, respectively. (11,409) (16,851) ------------- ------------ Total other comprehensive income 381,379 1,023,568 ------------- ------------ Comprehensive income $2,034,091 $1,979,921 ============= ============
See notes to consolidated financial statements.
Greene County Bancorp, Inc. Consolidated Statements of Changes in Shareholders' Equity For the Years Ended June 30, 2002 and 2001 Accumulatd Additional Other Capital Paid - In Retained Comprehensive Stock Capital Earnings Income Balance at June 30, 2000 $215,284 $10,319,859 $15,526,092 ($524,546) ESOP shares earned 1,652 MRP shares issued (115,928) Stock-based compensation earned Stock-based compensation forfeited (17,010) Common stock repurchased Dividends paid (489,420) Net income 956,353 Change in unrealized gain, net 1,023,568 ----------- ------------ ----------- ------------ Balance at June 30, 2001 215,284 10,188,573 15,993,025 499,022 =========== ============ =========== ============ ESOP shares earned 32,501 MRP shares issued (100,674) Options exercised (35,779) Stock-based compensation earned Common stock repurchased Dividends paid (481,334) Net income 1,652,712 Change in unrealized gain, net 381,379 ----------- ------------ ----------- ------------ Balance at June 30, 2002 $215,284 $10,084,621 $17,164,403 $880,401 =========== ============ =========== ============ Unearned Unearned Total Treasury Stock-based ESOP Shareholders' Stock Stock Shares Equity Balance at June 30, 2000 ($1,019,976) ($333,690) ($589,074) $23,593,949 ESOP shares earned 92,436 94,088 MRP shares issued 115,928 --- Stock-based compensation earned 86,927 86,927 Stock-based compensation forfeited 17,010 --- Common stock repurchased (171,875) (171,875) Dividends paid (489,420) Net income 956,353 Change in unrealized gain, net 1,023,568 ----------- ------------ ----------- ------------ Balance at June 30, 2001 (1,075,923) (229,753) (496,638) 25,093,590 =========== ============ =========== ============ ESOP shares earned 80,953 113,454 MRP shares issued 100,674 --- Options exercised 134,847 99,068 Stock-based compensation earned 72,962 72,962 Common stock repurchased (531,125) (531,125) Dividends paid (481,334) Net income 1,652,712 Change in unrealized gain, net 381,379 ----------- ------------ ----------- ------------ Balance at June 30, 2002 ($1,371,527) ($156,791) ($415,685) $26,400,706 =========== ============ =========== ============
See notes to consolidated financial statements.
Greene County Bancorp, Inc. Consolidated Statements of Cash Flows For the Years Ended June 30, 2002 and 2001 2002 2001 ---- ---- Cash flows from operating activities: Net Income $1,652,712 $956,353 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 475,844 427,359 Deferred income tax expense (benefit) 40,086 (67,380) Net amortization of premiums and discounts (38,303) 15,769 Provision for loan losses 218,900 60,000 ESOP and other stock-based compensation earned 186,416 164,005 Net (gain)loss on sale of investments (19,015) 9,437 Gain on sale of other real estate (22,259) (6,158) Net decrease in accrued income taxes (64,359) (28,921) Net increase in accrued interest receivable (94,865) (192,504) Net increase in prepaid and other assets (47,862) 66,836 Net increase in other liabilities 34,671 8,794 -------------- ----------- Net cash provided by operating activities 2,321,966 1,413,590 Cash flows from investing activities: Proceeds from maturities of securities 5,815,123 10,695,827 Proceeds from sale of securities 1,010,105 2,966,765 Purchases of securities and other investments (15,827,979) (14,353,814) Purchases of mortgage-backed securities (16,186,410) (5,998,960) Principal payments on securities 3,018,642 2,297,266 Principal payments on mortgage-backed securities 5,456,106 3,122,711 Proceeds from sale of other real estate 109,458 335,291 Net increase in loans receivable (18,922,372) (12,192,947) Purchases of premises and equipment (374,699) (365,947) -------------- ----------- Net cash used by investing activities (35,902,026) (13,493,808) Cash flows from financing activities: Borrowings from (payments to) FHLB 4,000,000 (5,000,000) Purchases of treasury stock (531,125) (171,875) Payment of cash dividend (481,334) (489,420) Proceeds from issuance of stock options 99,068 --- Net increase in deposits 29,521,114 20,732,266 -------------- ----------- Net cash provided by financing activities 32,607,723 15,070,971 Net (decrease) increase cash and cash equivalents (972,337) 2,990,753 Cash and cash equivalents at beginning of period 18,804,358 15,813,605 -------------- ----------- Cash and cash equivalents at end of period $17,832,021 $18,804,358 ============== =========== Cash paid during period for: Interest $4,922,558 $5,480,567 Income taxes $664,559 $215,420 Non-cash investing activities: Foreclosed loans transferred to other real estate $87,199 $194,564 Change in unrealized gain securities $650,838 $1,756,874
See notes to consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of significant accounting policies Basis of Presentation The consolidated financial statements include the accounts of Greene County Bancorp, Inc. (the "Company") and its subsidiary, The Bank of Greene County (the "Bank"). All material inter-company accounts and transactions have been eliminated. Amounts in the prior year's consolidated financial statements have been reclassified whenever necessary to conform to the current year's presentation. These reclassifications had no effect on net income or retained earnings as previously reported. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles. Nature of Operations The Bank has six full service offices and an operations center located in its market area consisting of Greene County and southern Albany County, New York. The Bank is primarily engaged in the business of attracting deposits from the general public in the Bank's market area, and investing such deposits, together with other sources of funds, in loans and investment securities. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and valuation of other real estate owned ("OREO"). While management uses available information to recognize losses on loans and OREO, future additions to the allowance for loan losses (the "Allowance"), or OREO write-downs, may be necessary based on changes in economic conditions, asset quality or other factors. In addition, various regulatory authorities, as an integral part of their examination process, periodically review the Company's Allowance and the carrying value of OREO and other assets. Such authorities may require the Company to recognize additions to the Allowance and/or write down the carrying value of OREO or other assets based on their judgments of information available to them at the time of their examination. Charter Conversion On August 15, 2000, the Board of Directors of the Company unanimously approved a plan to convert the Company's charter from a Delaware corporation regulated by the New York Superintendent of Banks and the Board of Governors of the Federal Reserve System to a Federal corporation regulated by the Office of Thrift Supervision (the "OTS"). On April 2, 2001, the OTS approved the charter conversion, which was approved by the stockholders of the Company on November 27, 2000. The mutual holding company (the "MHC") of the company also received OTS approval of its conversion from a state to federal charter on that date. Among other things, the charter conversions permitted the MHC to waive the receipt of dividends paid by the Company without causing dilution to the ownership interest of the Company's minority stockholders in the event of a conversion of the MHC to stock form. The waiving of dividends will increase Company resources available for stock repurchases, payment of dividends to minority stockholders, and investments. As a financial institution subsidiary of the Company following the charter conversion, the Bank must maintain at least 65% of its "portfolio assets" (total assets minus goodwill and other intangible assets, office property and specified liquid investments up to 20% of total assets) in certain "qualified thrift investments" (primarily loans to purchase, refinance, construct, improve or repair domestic residential housing, home equity loans, securities backed by or representing an interest in mortgages on domestic residential housing, and Federal Home Loan Bank stock) in at least 9 months out of every 12 month period. A savings institution that fails the qualified thrift lender test is subject to certain operating restrictions and may be required to convert to a bank charter. At June 30, 2002, the Bank maintained 71.7% of its portfolio assets in qualified thrift investments. Liquidation Account The Bank established a liquidation account, as of December 31, 1998, as a result of the conversion to capital stock form of organization from a mutual savings bank, in the amount of $15.7 million, equal to its net worth as of the date of the latest consolidated statements of financial condition appearing in the final prospectus. The liquidation account is maintained for the benefit of eligible pre-conversion account holders who continue to maintain their accounts at the Bank after the date of conversion. The liquidation account will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an eligible account holder's interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled, under New York State Law, to receive a distribution from the liquidation account in an amount equal to their current adjusted account balances for all such depositors then holding qualifying deposits in the Bank. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing deposits at other financial institutions, investments (with original maturity of three months or less), and overnight federal funds sold. The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. The amounts of interest bearing deposits included as cash equivalents at June 30, 2002 and 2001 were $10,573,000 and $13,895,000, respectively. Investment securities The Company has classified its investments in debt and equity securities as available for sale. Available for sale securities are reported at fair value, with net unrealized gains and losses reflected as a separate component of shareholders' equity, net of applicable income taxes. Realized gains or losses on investment security transactions are based on the specific identification method and are reported in earnings and computed using the specific identification cost basis. Fair values of investment securities are based on quoted market prices, where available. Amortization of bond premiums and accretion of bond discounts are amortized over the expected life of the investment. Any security for which there has been an other than temporary impairment of value is written down to estimated market value through a charge to earnings. Loans Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees and costs. Interest on loans is accrued and credited to income based upon the principal amount outstanding. Unearned discount on installment loans is recognized as income over the term of the loan, principally using a method that approximates the effective yield method. Nonrefundable loan fees and related direct costs are deferred and amortized over the life of the loan as an adjustment to loan yield using the effective interest method. Allowance for loan losses The allowance for loan losses is maintained by a provision for loan losses, charged to expense, and reduced by net charge-offs. The level of the allowance is based on management's evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. The Bank 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 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. Income Recognition on Impaired and Nonaccrual loans The Bank generally places a loan, including impaired loans, on nonaccrual status when it is specifically determined to be impaired or when principal and interest is delinquent for 90 days or more. Any unpaid interest previously accrued on these loans is reversed from income. When a loan is specifically determined to be impaired, collection of interest and principal are generally applied as a reduction to principal outstanding. Interest income on all nonaccrual loans is recognized on a cash basis. Other Real Estate Owned (OREO) OREO consists of properties acquired through mortgage loan foreclosure proceedings or in full or partial satisfaction of loans. OREO is initially recorded at the lower of cost or fair value (less estimated costs to sell) at the date the collateral is acquired and any difference is charged to the Allowance for loan loss at this time. Subsequently, management reviews the value of such collateral and write-downs, if any, are charged to expense. All expenses and income related to OREO are included in the net cost of operations and real estate owned in the Company's Consolidated Financial Statements. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using principally the straight-line method over the estimated useful lives of the related assets (39 years for building and improvements, 3-8 years for furniture and equipment). Maintenance and repairs are typically charged to expense when incurred. Gains and losses from sales or other dispositions of depreciable property are included in current operations. Treasury Stock Common stock repurchases are recorded at cost and then held as treasury stock for investment or subsequent issuance. From time to time, the Company may repurchase shares of common stock if, in its judgment, such shares are an attractive investment, in view of the current price at which the common stock is trading relative to the Company's earnings per share, book value per share and general market and economic factors. Common stock may also be acquired in order to have shares available for issuance under the Management Recognition and Retention Plan or the Stock Option Plan. During fiscal year 2002, the Company repurchased 37,500 shares of common stock at an average cost of $14.16. During fiscal year 2001, the Company repurchased 17,000 shares of stock at an average cost of $10.11. During fiscal year 2002, the Company issued 21,980 shares of stock from treasury shares, 12,580 due to options being exercised under the Stock Option Plan and 9,400 due to vesting under the Management Recognition and Retention Plan. Consequently, the number of treasury shares held by the Company at June 30, 2002 was 128,000. Income Taxes Provisions for income taxes are based on taxes currently payable or refundable and deferred income taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are reported in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. A valuation account was established during the fiscal year ended June 30, 2001, in connection with potential loss of a tax benefit associated with a past charitable contribution for which certain limitations and time restrictions are relevant. Earnings Per Share Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Shares of restricted stock are not considered outstanding for the calculation of basic earnings per share until they become fully vested. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options and unvested restricted stock) issued became vested during the period. Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for either the basic or diluted earnings per share calculations. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statement No. 141, "Business Combinations", which requires all business combinations to be accounted for under the purchase method of accounting, thus eliminating the pooling of interest method of accounting. The adoption of this statement in fiscal 2002 had no impact on the Company's consolidated financial statements. In July 2001, the Financial Accounting Standards Board issued Statement No. 142, "Goodwill and Other Intangible Assets", which requires acquired intangible assets (other than goodwill) to be amortized over their useful economic lives, while goodwill and any acquired intangible assets with an indefinite useful economic life would not be amortized, but would be reviewed for impairment on an annual basis based upon guidelines specified by the statement. The adoption of this statement in fiscal 2003 is expected to have no impact on the Company's consolidated financial statements. In August 2001, the Financial Accounting Standards Board issued Statement No. 143, "Accounting for Asset Retirement Obligations", which requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of long-lived assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently reviewing this statement to determine its effect on the Company's financial statements. In August 2001, the Financial Accounting Standards Board issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of ", and the accounting and reporting provisions of APB No. 30. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The adoption of this statement in fiscal 2002 had no impact on the Company's consolidated financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which replaces Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No. 146, liabilities for costs associated with an exit or disposal activity are to be recognized when the liability is incurred. Under EITF Issue No. 94-3, liabilities related to exit or disposal activities were recognized when an entity committed to an exit plan. In addition, Statement No. 146 establishes that the objective for the initial measurement of the liability is fair value. Statement No. 146 is effective for exit and disposal activities initiated after December 31, 2002. The Company is currently evaluating the impact the adoption of this statement will have on its financial statements but does not believe it will be material. Note 2. Balance at other banks The Bank is required to maintain certain reserves of vault cash and/or deposits with the Federal Reserve Bank. The amount of this daily average reserve requirement, included in cash and due from banks, was $828,000 and $590,000 at June 30, 2002 and 2001, respectively. Note 3. Investment Securities Securities available-for-sale at June 30, 2002, consisted of the following:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value U.S. Treasury $--- $--- $--- $--- U.S. Government agencies 14,774,727 88,222 1,436 14,861,513 State and political subdivisions 8,501,654 308,846 --- 8,810,500 Mortgage-backed securities 19,358,992 213,242 8,482 19,563,752 Asset-backed securities 804,773 13,647 336 818,084 Corporate debt securities 19,909,569 887,135 36,218 20,760,486 ----------- ------------ ----------- ------------ Total debt securities 63,349,715 1,511,092 46,472 64,814,335 Other securities 1,273,895 300 --- 1,274,195 ----------- ------------ ----------- ------------ Total securities available-for-sale $64,623,610 $1,511,392 $46,472 $66,088,530 =========== ============ =========== ============
Securities available-for-sale at June 30, 2001, consisted of the following:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ------------ ------------ ----------- U.S. Treasury $1,000,073 $4,617 $--- $1,004,690 U.S. Government agencies 1,751,099 43,326 --- 1,794,425 State and political subdivisions 9,247,047 172,651 --- 9,419,698 Mortgage-backed securities 8,673,758 112,720 3,035 8,783,443 Asset-backed securities 3,263,525 36,612 37 3,300,100 Corporate debt securities 22,969,600 474,370 11,928 23,432,042 ----------- ------------ ------------ ------------ Total debt securities 46,905,102 844,296 15,000 47,734,398 Other securities 1,140,831 --- --- 1,140,831 ----------- ------------ ------------ ------------ Total securities available-for-sale $48,045,933 $844,296 $15,000 $48,875,229 =========== ============ ============ ============
The estimated fair value of debt securities at June 30, 2002 by contractual maturity are shown below. Expected maturities may differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
After After In One Year Five Years One Year Through Through After Or Less Five Years Ten Years Ten Years Total ------------- ------------- -------------- -------------- ------------ U.S. Treasury $--- $--- $--- $--- $--- U.S. Government agencies --- 14,861,513 --- --- 14,861,513 State and political subdivisions 1,073,583 5,860,047 1,876,870 --- 8,810,500 Mortgage-backed securities 27,834 1,349,798 2,880,093 15,306,027 19,563,752 Asset-backed securities 74,603 --- --- 743,481 818,084 Corporate debt securities 4,931,443 15,829,043 --- --- 20,760,486 ------------ ------------- -------------- -------------- ------------ Total debt securities 6,107,463 37,900,401 4,756,963 16,049,508 64,814,335 Other securities 215,909 1,058,286 --- --- 1,274,195 -------------- ------------- -------------- -------------- ------------ Total securitiesavailable-for-sale $6,323,372 $38,958,687 $4,756,963 $16,049,508 $66,088,530 ============== ============= ============== ============== ============ Weighted average yield 5.82% 5.00% 5.16% 3.65% 4.76%
During fiscal year 2002, the proceeds from sales of available-for-sale securities were $1,010,000. The gross realized gain was $19,015. During fiscal year 2001, the proceeds from sales of available-for-sale securities were $1,917,765. The gross realized loss was $14,709 and gross realized gain was $44,272. During fiscal year 2001, purchased mortgage servicing rights sales amounted to $1,049,000 at a loss of $39,000. As of June 30, 2002, the Company no longer carries any investment in purchased mortgage servicing rights and does not intend, at this time, to acquire any mortgage servicing rights or sell mortgages with servicing retained in the future. As of June 30, 2002, securities worth $200,000 were pledged as collateral for deposits in excess of $100,000 of a local not-for-profit organization. There were no pledged securities at June 30, 2001. The Company did not participate in any securities lending programs during the fiscal years ended June 30, 2002 or 2001. Note 4. Loans Major classifications of loans at June 30, 2002 and 2001 are summarized as follows: 2002 2001 Real estate mortgage loans: Residential $103,494,360 $89,527,698 Commercial 8,763,563 5,239,299 Home equity loans 6,957,116 6,138,758 Commercial loans 4,356,299 3,290,951 Installment loans to individuals 5,611,090 6,127,609 Passbook loans to individuals 544,722 596,054 -------------- -------------- Total loans $129,727,150 $110,920,369 ============== ==============
At June 30, 2002 and 2001, loans to officers and directors were not significant. Changes in the allowance for loan losses for the respective periods ended June 30 were as follows: 2002 2001 Balance, beginning of year $886,081 $866,443 Provision charged to expense 218,900 60,000 Loans charged off (52,257) (76,915) Recoveries 16,010 36,553 -------------- --------------- Balance, at end of year $1,068,734 $886,081 ============== ===============
During fiscal years 2002 and 2001, the Bank had no impaired loans, accordingly no specific valuation for impaired loans was recorded. Nonaccrual loans amounted to $363,000 at June 30, 2002 and $774,000 at June 30, 2001. Note 5. Premises and Equipment A summary of premises and equipment at June 30, 2002 and 2001, is as follows: 2002 2001 Land $655,735 $608,738 Building and improvements 4,043,799 4,034,337 Furniture and equipment 3,093,194 3,127,983 -------------- --------------- Less: accumulated depreciation (2,829,107) (2,718,850) -------------- -------------- Total premises and equipment $4,963,621 $5,052,208 ============== ===============
During the fiscal year ended June 30, 2002, the Company disposed of $366,000 of fixed assets. There were no corresponding gains or losses on such disposals. Note 6. Deposits Major classifications of deposits at June 30, 2002 and 2001 are summarized as follows: 2002 2001 Noninterest bearing checking $22,067,347 $18,418,308 -------------- -------------- Interest bearing deposits: Certificates of deposit 62,644,550 58,112,695 Savings accounts 70,824,754 57,021,446 Money market deposit accounts 13,883,447 9,193,801 NOW accounts 14,293,530 11,446,264 -------------- -------------- Total interest bearing deposits 161,646,281 135,774,206 Total deposits $183,713,628 $154,192,514 ============== ==============
The following indicates the amount of the Bank's certificates of deposit by time remaining to maturity as of June 30, 2002 and June 30, 2001.
3months 3 to 6 7 to 12 Over 12 Or less Months Months Months Total (Dollars in thousands) As of June 30, 2002 Certificates of deposit less than $100,000 $14,084 $14,804 $14,133 $12,044 $55,065 Certificates of deposit $100,000 or more 2,971 2,210 923 1,476 7,580 ---------- -------- --------- -------- --------- Total certificates of deposit $17,055 $17,014 $15,056 $13,520 $62,645 ========== ======== ========= ======== ========== As of June 30, 2001 Certificates of deposit less than $100,000 $11,870 $14,449 $15,533 $10,463 $52,315 Certificates of deposit $100,000 or more 1,551 1,004 1,193 2,050 5,798 ---------- -------- --------- -------- --------- Total certificates of deposit $13,421 $15,453 $16,726 $12,513 $58,113 ========== ======== ========= ======== =========
Note 7. Borrowings At June 30, 2002, the Bank had available an Overnight Line of Credit and a One-Month Overnight Repricing Line of Credit, each in the amount of $8,512,800 with the Federal Home Loan Bank. No amounts were outstanding on these lines at June 30, 2002. Interest on these lines is determined at the time of borrowing. In addition to the overnight line of credit program, the Bank also has access to the FHLB's Term Advance Program under which it can borrow at various terms and interest rates. The Bank pledges residential mortgages as collateral for these lines of credit and term borrowings.
At June 30, 2002, the Bank had the following borrowings: Amount Rate Maturity Date $4,000,000 2.19% -Fixed 1/14/2003 2,500,000 6.82% -Fixed 09/02/2004 2,500,000 6.80% -Fixed 10/04/2005 - ------------------ $9,000,000 ==================
At June 30, 2001, the Bank had the following borrowings: Amount Rate Maturity Date $2,500,000 6.82% -Fixed 09/02/2004 2,500,000 6.80% -Fixed 10/04/2005 - ------------------ $5,000,000 ==================
Note 8. Employee Benefits Plans Defined Benefit Pension Plan Substantially all Bank employees who have completed one year of service and attained the age of 21 are covered by a noncontributory, multi-employer, defined benefit pension plan. Under the plan, retirement benefits are primarily a function of both years of service and level of compensation. The Bank recognized pension expense in the amount of $157,100 and $115,300 during fiscal year 2002 and 2001, respectively. Defined Contribution Plan The Bank also participates in a multi-employer, defined contribution plan covering substantially all employees who have completed three months of service. The plan includes Section 401(k) and thrift provisions as defined under the Internal Revenue Code. The provisions permit employees to contribute up to 15% of their total compensation on a pre-tax basis. The Bank matches 50% of the first six percent of employee contributions for employees who have completed one year of service. Company contributions associated with the plan amounted to $50,400 and $43,400 in fiscal 2002 and 2001, respectively. ESOP All Bank employees meeting the age and service requirements are eligible to participate in the ESOP. Acquisitions of unearned ESOP shares by the Bank were funded internally through a borrowing from the Company, which is repayable annually with interest at the prime rate over ten years. Shares are committed for release upon repayment of the borrowing and are allocated to participants based on compensation. Participant's benefits become fully vested after five years of service. ESOP expense was $113,500 and $94,100 for the years ended June 30, 2002 and 2001, respectively. At June 30, 2002 and 2001, there were 49,972 and 58,516 shares unearned, respectively. At December 31, 2001 and December 31, 2000, the ESOP plan year-end, 8,544 and 9,992 shares were released for allocation, respectively. Note 9. Stock-based Compensation Plans Recognition and Retention Plan On March 28, 2000, shareholders approved the Greene County Bancorp, Inc. Recognition and Retention Plan ("Recognition Plan"), which authorized the Board Directors to award up to 45,474 shares of Common Stock. On March 28, 2000, the Board of Directors granted 45,400 shares under the Recognition Plan to members of management and nonemployee directors. The market value of the shares award amounted to $357,525 and has been recognized in the accompanying statement of condition as unearned stock-based compensation. The market value of the shares awarded will be recognized as compensation expense ratably over the 5-year vesting period. One fifth of each grant vests at the end of the year for five years. The first awards vested on March 28, 2001. During fiscal year 2001, 2,160 shares were forfeited and no shares were forfeited in fiscal year 2002. Compensation expense in association with the Recognition Plan amounted to $73,000 and $87,000 for fiscal years 2002 and 2001. During fiscal year ended June 30, 2002, an officer of the Company retired and two members of the Board of Directors and one eligible employee retired during fiscal year 2001; consequently, vesting in all their eligible shares and compensation expense associated with such vesting was recognized during the fiscal year. Stock Option Plan On March 28, 2000, shareholders approved the Greene County Bancorp, Inc. 2000 Stock Option Plan ("Option Plan"), which authorized the Board of Directors to grant up to 90,949 shares of Common Stock. On March 28, 2000, the Board of Directors granted 90,940 options to buy stock under the Option Plan at an exercise price of $7.875, the fair value of the stock on that date. These options have a 10-year term and vest ratably over the 5-year vesting period. On March 19, 2002, the Board of Directors granted 6,000 options that were previously forfeited by a former employee. These options have an exercise price of $18.40, the fair value of the stock on March 19, 2002 and have cumulative vesting periods of four years, 20% immediately and 20% per year thereafter and term of 10 years. During fiscal year 2002, 12,580 options were exercised, 6,000 of which were exercised by a former Company officer upon normal retirement. No options were forfeited during fiscal 2002. During fiscal year 2001, no options were exercised and 6,000 were forfeited. The following table summarizes stock option activity.
2002 2001 -------------------------------- ------------------------------ Weighted average Weighted average Exercise Exercise Price Price Shares Per Share Shares Per Share ---------- ------------ ---------- --------------- Outstanding at beginning of year 84,400 $7.875 90,400 $7.875 Shares granted 6,000 $18.40 --- --- Exercised (12,580) $7.875 --- --- Forfeited --- --- (6,000) $7.875 ---------- ---------- Outstanding at year end 77,820 $8.69 84,400 $7.875 Exercisable at year end 20,330 $8.50 22,820 $7.875
The following table represents stock options out standing and exercisable at June 30, 2002:
Options Outstanding Options Exercisable - --------------------------------------------------------------------------------- -------------------------- Weighted Average Weighted Weighted Range of Exercise Number Remaining Average Number Average Prices Outstanding Contractual Life Exercise Price Outstanding Exercise Price $7.875 71,820 7.75 years $7.875 19,130 $7.875 $18.40 6,000 9.75 years 1,200 $18.40 ------------ ---------- $7.875-$18.40 77,820 7.9 years $8.69 20,330 $8.50
The Company applies provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and financial statement disclosure of Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based Compensation". Since the exercise price is equal to the fair market value on the day of grant no compensation expense needs to be recognized for the Option Plan on the day of grant per the guidance of APB 25. SFAS No. 123 requires companies not using a fair value based method of accounting for stock options or similar plans, to provide pro forma disclosure of net income and earnings per share as if that method of accounting had been applied.
2002 2001 ---------------------------------- ------------------------------------ Basic Diluted Basic Diluted Earnings Earnings Earnings Earnings Net Income Per Share Per Share Net Income Per Share Per Share As reported $1,652,712 $0.84 $0.82 $956,353 $0.48 $0.48 Pro Forma $1,589,911 $0.81 $0.79 $885,339 $0.45 $0.44
The fair value of each option grant is estimated on the dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants made March 28, 2000 as follows for fiscal year ended June 30, 2002. No options were granted during fiscal 2001.
2002 Weighted average risk-free interest rate 4.78% Weighted average expected term 5 Weighted average expected volatility 29.54%
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Therefore, the forgoing pro forma results are not likely to be representative of the effects of reported net income of future periods due to additional years of vesting. Consequently, the weighted average fair market value was $4.62 for options whose stock price on the date of grant, March 19, 2002. Pro forma disclosures for the Company for the years ended June 30, 2002 and 2001 utilized the estimated fair value of the options granted and were adjusted to reflect actual forfeitures and accelerated vesting for employees who retired during the 2002 or 2001 fiscal year. Note 10. Earnings Per Share The reconciliation of earnings per share is as follows:
Weighted Average Number Net Income Of Shares Outstanding Earnings per share Fiscal year ended June 30, 2002 $1,652,712 Basic EPS 1,962,228 $0.84 Diluted EPS 2,016,031 $0.82 Fiscal year ended June 30, 2001 $956,353 Basic EPS 1,978,165 $0.48 Diluted EPS 2,001,331 $0.48
Note 11. Income Taxes The provision for income taxes consists of the following:
2002 2001 Current: Federal $472,076 $248,095 State 88,038 35,784 ----------- ------------- Total current 560,114 283,879 Deferred 40,086 (67,380) ----------- ------------- Total income tax expense $600,200 $216,499 =========== =============
The Bank's effective tax rate differs from the federal statutory rate for fiscal years ended June 30:
2002 2001 Tax based on federal statutory rate 34.00% 34.00% Sate income taxes, net of federal benefit 2.84 1.76 Tax-exempt income (6.91) (12.36) Stock Compensation (2.13) (2.84) Change in valuation allowance --- 2.56 Other, net (1.16) (4.66) ---------- ----------- Total income tax expense 6.64% 18.46% ========== ===========
The components of the deferred tax assets and liabilities at June 30 were as follows:
2002 2001 Deferred tax assets: Allowance for loan loss $406,963 $346,634 Charitable contribution carryover 64,205 113,267 Capital loss carryover 19,087 19,108 Non-accruing interest 3,761 12,186 ---------- ----------- Total deferred tax assets 494,016 491,195 Deferred tax liabilities: Depreciation 240,155 198,065 Investments 625,234 365,481 ESOP contribution 24,887 27,160 Other 853 3,267 ---------- ----------- Total deferred tax liabilities 891,129 593,973 ---------- ----------- Net deferred tax liability (397,113) (102,778) Valuation allowance (30,000) (30,000) ---------- ----------- Net deferred tax liability ($427,113) ($132,778) ========== ===========
A portion of the change in the net deferred tax liability at June 30, 2002 and 2001 and net deferred tax asset at June 30, 2000 related to the unrealized gains and losses on securities available-for-sale. The related deferred tax expense of $261,853 and $720,594 was recorded directly to shareholders' equity in 2002 and 2001, respectively. The Company has determined that it is more likely than not that a portion of the deferred tax asset for the charitable contribution carryover will not be realized. As such, a $30,000 valuation allowance was deemed necessary for fiscal years ended June 30, 2002 and 2001. Note 12. Commitments and Contingent Liabilities In the normal course of business there are various commitments and contingent liabilities outstanding pertaining to the granting of loans and the lines of credit, which are not reflected in the accompanying financial statements. The Bank's loan commitments are as follows at June 30, 2002: Commercial loan commitments $340,000 Mortgage loan commitments 3,681,000 Unused portion of overdraft lines of credit 774,000 Unused portion of home equity lines of credit 1,191,000 Unused portion of commercial lines of credit 1,368,000 ----------- Total commitments $7,354,000 ===========
Commitments to extend credit in the form of loan commitments and lines of credit are agreements to lend to a customer 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. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral, if any, required by the Bank upon the extension of credit is based on management's credit evaluation of the customer. Commitments to extend mortgage credit are primarily collateralized by first liens on real estate. Collateral on extensions of commercial lines of credit vary but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial property. Note 13. Operating Leases The Bank entered into an operating lease in connection with the opening of the Westerlo branch. The term of the lease began December 1, 2000 and expires on November 30, 2005. Under the current terms of the lease the Bank is required to pay $800 per month. Consequently, the operating lease expense for fiscal year 2002 amounted to $9,600. There is an option to extend the term of the lease from December 1, 2005 to November 30, 2010. The intent to exercise this option must be made by the Bank in writing at least six months prior to the expiration of the initial term. The renewal terms shall be the same except the monthly rental shall increase to $900 per month or $10,800 per annum. Fiscal year end Annual Lease Payments 2003 $9,600 2004 9,600 2005 4,000 ------------------------- Total payments $23,200 =========================
Note 14. Concentrations of Credit Risk The Bank grants residential, consumer and commercial loans to customers primarily located in Greene County, New York and to a limited extent in the contiguous counties. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent upon employment and other economic factors throughout Greene County. Note 15. Fair Value of Financial Instruments The Company determines fair values based on quoted market values, where available, or on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Statement of Financial Accounting Standards No. 107 "Disclosure About Fair Value of Financial Instruments," excludes certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Cash and cash equivalents carrying amounts reported in the balance sheet approximate those assets' fair value. Fair values of investment securities are based on quoted market prices, where available. Fair values for variable rate loans that reprice frequently, with no significant credit risk, are based on carrying value. Fair value for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values disclosed for demand and savings deposits are equal to carrying amounts at the reporting date. The carrying amounts for variable rate money market and certificates of deposit approximate fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using discounted cash flows and interest rates currently being offered on similar certificates. The carrying amount of Federal Home Loan Bank stock and borrowings approximately fair value. The carrying amounts and estimated fair value of financial instruments as of June 30, 2002 and 2001 are as follows:
June 30, 2002 June 30, 2001 Carrying Fair Carrying Fair Amount Value Amount Value (Dollars in thousands) Cash and cash equivalents $17,832 $17,832 $18,804 $18,804 Investment securities 66,089 66,089 48,875 48,875 Federal Home Loan Bank stock 1,121 1,121 940 940 Net loans 128,373 126,875 109,757 108,406 Deposits 183,714 184,031 154,193 152,449 Federal Home Loan Bank borrowings 9,000 9,000 5,000 5,000
Note 16. Regulatory Matters The Bank is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material impact on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 Capital (as defined) to average assets (as defined). Management believes, as of June 30, 2002, that the Bank meets all capital adequacy requirements to which it is subject.
To Be Well Capitalized Under Prompt Corrective Action Provisions For Capital Adequacy Purposes Actual Amount Ratio Amount Ratio Amount Ratio As of June 30, 2002 Total risk-based capital ratio $22,145 19.1% $9,252 8.0% $11,565 10.0% Tier 1 capital (to risk weighted assets) $21,076 18.2% $4,626 4.0% $6,939 6.0% Tier 1 capital (to average assets) $21,076 10.1% $8,349 4.0% $10,437 5.0% As of June 30, 2001 Total capital (to risk weighted assets) $20,417 18.8% $8,709 8.0% $10,887 10.0% Tier 1 capital (to risk weighted assets) $19,531 17.9% $4,355 4.0% $6,532 6.0% Tier 1 capital (to average assets) $19,531 11.4% $6,869 4.0% $8,586 5.0%
Note 17. Subsequent events The Board of Directors declared a semi-annual dividend of $0.32 per share of the Company's common stock. The dividend reflects an annual cash dividend rate of $0.64 per share, which represents an increase from the current annual cash dividend rate of $0.56 per share. The dividend will be payable to stockholders of record as of August 15, 2002, and will be paid on September 1, 2002. It should be noted that the Company's mutual holding company continued to waive receipt of dividends for the current period. Note 18. Condensed Financial Statements of Greene County Bancorp, Inc. The following condensed financial statements summarize the financial positions and the results of operations and cash flows of Greene County Bancorp, Inc. as of and for the fiscal years ended June 30, 2002 and 2001.
Greene County Bancorp, Inc. Condensed Statements of Financial Condition As of June 30, 2002 and 2001 ASSETS June 30, 2002 June 30, 2001 Cash and due from banks $143,614 $131,664 Federal funds sold 800,000 1,500,000 ------------- ----------------- Total cash and cash equivalents 943,614 1,631,664 Investment in subsidiary 21,870,201 19,971,437 State and political subdivision securities, at fair value 3,606,106 3,520,679 Accrued interest receivable 10,761 10,761 Prepaid expenses and other assets 60,749 2,577 ------------ ------------------ Total assets $26,491,431 $25,137,118 ============= ================== LIABILITIES AND SHAREHOLDERS' EQUITY Accrued expenses and other liabilities 90,725 43,528 ------------- ------------------ Total liabilities 90,725 43,528 Shareholders' equity Total shareholders' equity $26,400,706 $25,093,590 ------------ ----------------- Total liabilities and shareholders' equity $26,491,431 $25,137,118 ============= ==================
Greene County Bancorp, Inc. Condensed Statements of Income For the Years Ended June 30, 2002 and 2001 2002 2001 _____ ______ Income: Dividends from subsidiary $--- $1,000,000 Equity in undistributed (distributed) income of subsidiary 1,574,684 (151,640) Tax free securities 154,970 154,970 Interest bearing deposits and federal funds sold 22,596 57,218 ------------- ------------------ Total income 1,752,250 1,060,548 Operating expenses: Legal fees 33,230 23,896 Other 66,308 80,299 ------------- ------------------ Total operating expenses 99,538 104,195 Net income $1,652,712 $956,353 ============= ==================
Greene County Bancorp, Inc. Condensed Statements of Cash Flows For the Years Ended June 30, 2002 and 2001 2002 2001 _______ _______ Cash flows from operating activities: Net Income $1,652,712 $956,353 Adjustments to reconcile net income to cash provided by operating activities: (Undistributed) distributed earnings of subsidiary (1,574,684) 151,640 ESOP and other stock-based compensation 186,416 164,005 Net amortization of premiums 10,072 9,073 Net increase (decrease) in prepaid and other assets (58,172) 126,830 Net increase in other liabilities 8,997 18,858 ------------ ----------------- Net cash provided by operating activities 225,341 1,426,759 Cash flows from financing activities: Purchases of treasury stock (531,125) (171,875) Payment of cash dividend (481,334) (489,420) Proceeds from issuance of stock options 99,068 --- ------------ ------------------ Net cash provided by financing activities (913,391) (661,295) Net (decrease) increase cash and cash equivalents (688,050) 765,464 Cash and cash equivalents at beginning of period 1,631,664 866,200 ------------ ------------------ Cash and cash equivalents at end of period $943,614 $1,631,664
SHAREHOLDER INFORMATION Annual Meeting The Annual Meeting of Shareholders will be held at 5:30 p.m. on October 23, 2002, at the Bank's main branch located at 425 Main Street in Catskill, New York. Stock Listing The NASDAQ Small-Cap Market under the symbol GCBC. Special Counsel - --------------- Luse Gorman Pomerenk & Schick, P.C. 5335 Wisconsin Avenue, N.W., Suite 400 Washington, D.C. 20015 Independent Accountants PricewaterhouseCoopers LLP State Street Centre 80 State Street Albany, New York 12207 Transfer Agent and Registrar ComputerShare Investor Services Golden, Colorado 303-262-0600 Annual Report on Form 10-KSB A copy of the Company's Form 10-KSB for the fiscal year ended June 30, 2002, will be furnished without charge to shareholders upon written request to the Secretary Greene County Bancorp, Inc. 302 Main Street Catskill, New York 12414 Branch locations Catskill Main & Church Streets Catskill, NY 12414 Telephone: 518-943-3700 Fax: 518-943-3756 Cairo Main Street Cairo, NY 12413 Telephone: 518-622-2662 Fax: 518-622-2663 Coxsackie Route 385 Coxsackie, NY 12051 Telephone: 518-731-2731 Fax: 518-731-2733 Greenville Route 32 Greenville, NY 12083 Telephone: 518-966-5200 Tannersville 6226 Main Street Tannersville, NY 12485 Telephone: 518-589-0800 Fax: 518-589-5649 Westerlo Routes 141 & 143 Westerlo, NY 12193 Telephone: 518-797-3934 Fax: 518-797-3871 Operations Center 302 Main Street Catskill, NY 12414 Telephone: 518-943-2600 Fax: 518-943-4431 Board of Directors Walter Ingalls Chairman of the Board Retired, former President of GNH Lumber Co. J. Bruce Whittaker, President and CEO David Jenkins, DVM Owner of Catskill Animal Hospital Raphael Klein Retired, former Co-owner of Klein Theaters Dennis O'Grady Pharmacist, former owner of Mikhitarian Pharmacy Paul Slutzky General Manager of I.&O.A. Slutzky Construction Company Martin Smith Consultant to Main Bros. Oil Co., Inc.
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