UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2022
OR
Commission File Number: 0-25165
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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(Address of principal executive office)
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(Zip code)
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Registrant’s telephone number, including area code: (518 )
943-2600
Securities registered pursuant to Section 12(b) of the Act:
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Title of class
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Trading symbol
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Name of exchange on which registered
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The
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Securities Registered Pursuant to Section 12(g) of the Act:
None
(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 preceding 12
months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Emerging Growth Company
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Smaller reporting company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YES ☐ NO ☒
As of February 9, 2023, the registrant had 8,513,414 shares of common stock
outstanding at $0.10 par value per share.
GREENE COUNTY BANCORP, INC.
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PART I.
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FINANCIAL INFORMATION
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Page
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Item 1.
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Financial Statements (unaudited)
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3
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4
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5
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6
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7
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8-30
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Item 2.
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31-45
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Item 3.
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46
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Item 4.
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46
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PART II.
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46 |
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Item 1.
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46
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Item 1A.
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46
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Item 2.
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46
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Item 3.
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46
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Item 4.
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46
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Item 5.
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46
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Item 6.
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47
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48
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Greene County Bancorp, Inc.
At December 31, 2022 and June 30, 2022
(Unaudited)
(In thousands, except share and per share amounts)
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ASSETS
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December 31, 2022
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June 30, 2022
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Total cash and cash equivalents
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Long-term certificates of deposit
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Securities available-for-sale, at fair value
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Securities held-to-maturity, at amortized cost (fair value $
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Equity securities, at fair value
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Federal Home Loan Bank stock, at cost
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Loans
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Allowance for loan losses
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(
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(
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Unearned origination fees and costs, net
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Net loans receivable
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Premises and equipment, net
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Bank-owned life insurance
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Accrued interest receivable
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Foreclosed real estate
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Prepaid expenses and other assets
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Total assets
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$
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$
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Noninterest-bearing deposits
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$
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$
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Interest-bearing deposits
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Total deposits
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| Borrowings from Federal Home Loan Bank, short-term |
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Subordinated notes payable, net
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Accrued expenses and other liabilities
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Total liabilities
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SHAREHOLDERS’ EQUITY
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Preferred stock, Authorized -
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Common stock, par value $
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Additional paid-in capital
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Retained earnings
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Accumulated other comprehensive loss
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(
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(
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Treasury stock, at cost
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(
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(
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Total shareholders’ equity
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Total liabilities and shareholders’ equity
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$
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$
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See notes to consolidated financial statements
Greene County Bancorp, Inc.
For the Three and Six Months Ended December 31, 2022 and 2021
(Unaudited)
(In thousands, except share and per share amounts)
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For the three months ended
December 31,
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For the six months ended
December 31,
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2022
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2021
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2022
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2021
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Interest income:
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Loans
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$
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$
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$
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$
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Investment securities - taxable
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Mortgage-backed securities
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Investment securities - tax exempt
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Interest-bearing deposits and federal funds sold
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Total interest income
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Interest expense:
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Interest on deposits
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Interest on borrowings
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Total interest expense
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Net interest income
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Provision for loan losses
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(
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Net interest income after provision for loan losses
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Noninterest income:
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Service charges on deposit accounts
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Debit card fees
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Investment services
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E-commerce fees
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Bank-owned life insurance
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Net loss on sale of available-for-sale securities
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( |
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Other operating income
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Total noninterest income
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Noninterest expense:
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Salaries and employee benefits
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Occupancy expense
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Equipment and furniture expense
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Service and data processing fees
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Computer software, supplies and support
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Advertising and promotion
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FDIC insurance premiums
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Legal and professional fees
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Other
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Total noninterest expense
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Income before provision for income taxes
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Provision for income taxes
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Net income
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$
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$
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$
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$
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Basic and diluted earnings per share
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$
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$
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$ | $ | ||||||||||
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Basic and diluted average shares outstanding
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Dividends per share
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$
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$ | $ |
$
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See notes to consolidated financial statements
Greene County Bancorp, Inc.
For the Three and Six Months Ended December 31, 2022 and 2021
(Unaudited)
(In thousands)
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For the three months ended
December 31,
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For the six months ended
December 31,
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2022
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2021
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2022
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2021
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Net Income
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$
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$
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$
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$
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Other comprehensive income (loss):
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Unrealized holding gains (losses) on available-for-sale securities, gross
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(
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(
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(
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Tax effect
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(
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(
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(
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Unrealized holding gains (losses) on available-for-sale securities, net
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( |
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Reclassification adjustment for loss on sale of available-for-sale securities realized in net income, gross
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Tax effect
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Reclassification adjustment for loss on sale of available-for-sale securities realized in net income, net
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Total other comprehensive income (loss), net of taxes
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(
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)
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(
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)
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(
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)
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|||||||||
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Comprehensive income
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$
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$
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$
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$
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See notes to consolidated financial statements.
Greene County Bancorp, Inc.
For the Three Months Ended December 31, 2022 and 2021
(Unaudited)
(In thousands)
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Common
Stock
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Additional
Paid-In
Capital |
Retained
Earnings
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Accumulated
Other
Comprehensive
Loss
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Treasury
Stock
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Total
Shareholders’
Equity |
|||||||||||||||||||
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Balance at September 30, 2021
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$
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$
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$
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$ | ( |
) |
$
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(
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)
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$
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Dividends declared
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(
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)
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(
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Net income
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Other comprehensive loss, net of taxes
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(
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)
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( |
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Balance at December 31, 2021
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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||||||||||
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Common
Stock
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Additional
Paid-In
Capital |
Retained
Earnings
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Accumulated
Other
Comprehensive
Loss
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Treasury
Stock
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Total
Shareholders’
Equity |
|||||||||||||||||||
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Balance at September 30, 2022
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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||||||||||
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Dividends declared
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(
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)
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(
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)
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||||||||||||||||||||
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Net income
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||||||||||||||||||||||
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Other comprehensive income, net of taxes
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Balance at December 31, 2022
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended December 31, 2022 and 2021
(Unaudited)
(In thousands)
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Common
Stock
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Additional
Paid-In
Capital
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Retained
Earnings
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Accumulated
Other
Comprehensive
Loss
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Treasury
Stock
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Total
Shareholders’
Equity |
|||||||||||||||||||
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Balance at June 30, 2021
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$
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$
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$ |
$
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(
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)
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$
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(
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)
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$
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|||||||||||
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Dividends declared
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(
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)
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(
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)
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Net income
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Other comprehensive loss, net of taxes
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(
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)
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(
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)
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Balance at December 31, 2021
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$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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||||||||||
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Common
Stock
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Additional
Paid-In
Capital
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Retained
Earnings
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Accumulated
Other
Comprehensive
Loss
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Treasury
Stock
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Total
Shareholders’
Equity |
|||||||||||||||||||
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Balance at June 30, 2022
|
$
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$
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$
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$
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(
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)
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$
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(
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)
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$
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||||||||||
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Dividends declared
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(
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)
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(
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)
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||||||||||||||||||||
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Net income
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Other comprehensive loss, net of taxes
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(
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)
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(
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)
|
||||||||||||||||||||
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Balance at December 31, 2022
|
$
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|
$
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$
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$
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(
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)
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$
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(
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)
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$
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See notes
to consolidated financial statements.
Greene County Bancorp, Inc.
For the Six Months Ended December 31, 2022 and 2021
(Unaudited)
(In thousands)
| 2022 |
2021 |
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Cash flows from operating activities:
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Net Income
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$
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$
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation
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Deferred income tax benefit
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Net amortization of investment premiums and discounts
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Net amortization (accretion) of deferred loan costs and fees
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(
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)
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Amortization of subordinated debt issuance costs
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Provision for loan losses
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(
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)
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Bank-owned life insurance income
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(
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)
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(
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)
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||||
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Net loss on sale of available-for-sale securities
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Net (gain) loss on equity securities
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(
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)
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|||||
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Net loss (gain) on sale of foreclosed real estate
|
( |
) | ||||||
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Net decrease in accrued income taxes
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(
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)
|
(
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)
|
||||
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Net increase in accrued interest receivable
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(
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)
|
(
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)
|
||||
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Net increase in prepaid expenses and other assets
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(
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)
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(
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)
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||||
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Net decrease in accrued expense and other liabilities
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(
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)
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(
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)
|
||||
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Net cash provided by operating activities
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Cash flows from investing activities:
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Securities available-for-sale:
|
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Proceeds from maturities
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Proceeds from sale of securities
|
||||||||
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Purchases of securities
|
(
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)
|
(
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)
|
||||
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Proceeds from principal payments on securities
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||||||
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Securities held-to-maturity:
|
||||||||
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Proceeds from maturities
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|
||||||
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Purchases of securities
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from principal payments on securities
|
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|
||||||
|
Net redemption (purchase) of Federal Home Loan Bank Stock
|
|
(
|
)
|
|||||
|
Purchase of long-term certificates of deposit
|
( |
) | ||||||
|
Maturity of long-term certificates of deposit
|
|
|
||||||
|
Purchase of bank-owned life insurance
|
|
(
|
)
|
|||||
|
Net increase in loans receivable
|
(
|
)
|
(
|
)
|
||||
|
Proceeds from sale of foreclosed real estate
|
||||||||
|
Purchases of premises and equipment
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
|
Cash flows from financing activities
|
||||||||
|
Net (decrease) increase in short-term FHLB advances
|
( |
) | ||||||
|
Net decrease in short-term advances other banks
|
|
(
|
)
|
|||||
|
Net proceeds from subordinated notes payable
|
|
|
||||||
|
Payment of cash dividends
|
(
|
)
|
(
|
)
|
||||
|
Net increase in deposits
|
|
|
||||||
|
Net cash provided by financing activities
|
|
|
||||||
|
Net decrease in cash and cash equivalents
|
(
|
)
|
(
|
)
|
||||
|
Cash and cash equivalents at beginning of period
|
|
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
|
Cash paid during period for:
|
||||||||
|
Interest
|
$
|
|
$
|
|
||||
|
Income taxes
|
$
|
|
$
|
|
||||
See notes to consolidated financial statements
Greene County Bancorp, Inc.
At and for the Three and Six Months Ended December 31, 2022 and 2021
(1) Basis of Presentation
Within the accompanying unaudited consolidated statements of financial condition, and related notes to the consolidated financial statements, June 30, 2022 data were
derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, The Bank of Greene County (the “Bank”) and Greene Risk Management, Inc., and the Bank’s wholly owned
subsidiaries, Greene County Commercial Bank (the “Commercial Bank”) and Greene Property Holdings, Ltd. The consolidated financial statements at and for the three and six months ended December 31, 2022 and 2021 are unaudited.
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim
financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. To the extent that information
and notes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-K for the year ended June
30, 2022, such information and notes have not been duplicated herein. In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations
and cash flows at and for the periods presented have been included. The Company had no material reclassifications from amounts in the prior year’s consolidated financial statements to conform to the current year’s presentation. All material
inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three and six months ended December 31, 2022 are not necessarily indicative of results that may be expected for
the entire fiscal year ending June 30, 2023. These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued and should be read in conjunction with the audited consolidated
financial statements and notes included in the Company’s Annual Report on Form 10-K.
(2) Nature of Operations
The Company’s primary business is the ownership and operation of its subsidiaries. At December 31, 2022, the Bank has 17 full-service banking offices, an operations center, customer call center and lending center located in its market area consisting of the Hudson Valley and Capital District
Regions of New York State. 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. The Commercial Bank’s primary business is to attract deposits from, and provide banking services to, local municipalities. Greene Property Holdings, Ltd. was formed as a New York corporation that has elected under the Internal Revenue
Code to be a real estate investment trust. Currently, certain mortgages and loan notes held by the Bank are transferred and beneficially owned by Greene Property Holdings, Ltd. The Bank continues to service these loans. Greene Risk Management,
Inc. was formed in December 2014 as a pooled captive insurance company subsidiary of the Company, incorporated in the State of Nevada. The purpose of this company is to provide additional insurance coverage for the Company and its subsidiaries
related to the operations of the Company for which insurance may not be economically feasible.
(3) 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 materially 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 the
assessment of other-than-temporary security impairment.
While management uses available information to recognize losses on loans, future additions to the allowance for loan losses (the “Allowance”) 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 Allowance. Such authorities may require the Company to
recognize additions to the Allowance based on their judgments of information available to them at the time of their examination.
The Company makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized
loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a
recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss is expected,
external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value through earnings.
(4) Securities
Securities at December 31, 2022 consisted of the following:
|
(In thousands)
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Estimated
Fair Value
|
||||||||||||
|
Securities available-for-sale:
|
||||||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
U.S. treasury securities
|
|
|
|
|
||||||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
||||||||||||
|
Corporate debt securities
|
|
|
|
|
||||||||||||
|
Total securities available-for-sale
|
|
|
|
|
||||||||||||
|
Securities held-to-maturity:
|
||||||||||||||||
|
U.S. treasury securities
|
||||||||||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
||||||||||||
|
Corporate debt securities
|
|
|
|
|
||||||||||||
|
Other securities
|
|
|
|
|
||||||||||||
|
Total securities held-to-maturity
|
|
|
|
|
||||||||||||
|
Total securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Securities at June 30, 2022 consisted of the following:
|
(In thousands)
|
Amortized Cost
|
Gross Unrealized
Gains |
Gross Unrealized
Losses |
Estimated
Fair Value
|
||||||||||||
|
Securities available-for-sale:
|
||||||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| U.S. treasury securities | ||||||||||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
||||||||||||
|
Corporate debt securities
|
|
|
|
|
||||||||||||
|
Total securities available-for-sale
|
|
|
|
|
||||||||||||
|
Securities held-to-maturity:
|
||||||||||||||||
|
U.S. treasury securities
|
|
|
|
|
||||||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
||||||||||||
|
Corporate debt securities
|
|
|
|
|
||||||||||||
|
Other securities
|
|
|
|
|
||||||||||||
|
Total securities held-to-maturity
|
|
|
|
|
||||||||||||
|
Total securities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The Company’s current policies generally limit securities investments to U.S. Government and securities of government sponsored enterprises, federal funds sold,
municipal bonds, corporate debt obligations, subordinated debt of banks and certain mutual funds. In addition, the Company’s policies permit investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae,
Freddie Mac, and GNMA, and collateralized mortgage obligations issued by these entities. As of December 31, 2022, all mortgage-backed securities including collateralized mortgage obligations were securities of government sponsored enterprises,
no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio. The Company’s investments in state and political subdivisions securities generally are
municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured. The obligations issued by school districts are supported by state aid. Primarily, these investments are
issued by municipalities within New York State.
The Company’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 Company will only invest in high quality securities as determined by management’s analysis at the time of purchase. The Company generally does not engage in any derivative or hedging transactions, such as interest rate swaps or caps.
The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a
continuous unrealized loss position, at December 31, 2022.
|
Less Than 12 Months
|
More Than 12 Months
|
Total
|
||||||||||||||||||||||||||||||||||
|
(In thousands, except number of securities)
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Securities
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Securities
|
Fair
Value
|
Unrealized
Losses |
Number
of
Securities |
|||||||||||||||||||||||||||
|
Securities available-for-sale:
|
||||||||||||||||||||||||||||||||||||
|
U.S. government sponsored enterprises
|
$
|
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
$
|
|
|
|||||||||||||||||||||
|
U.S. treasury securities
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
State and political subdivisions
|
||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Corporate debt securities
|
||||||||||||||||||||||||||||||||||||
|
Total securities available-for-sale
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Securities held-to-maturity:
|
||||||||||||||||||||||||||||||||||||
|
U.S. treasury securities
|
||||||||||||||||||||||||||||||||||||
|
State and political subdivisions
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total securities held-to-maturity
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Total securities
|
$
|
|
$
|
|
|
$
|
|
$
|
|
|
$
|
|
$
|
|
|
|||||||||||||||||||||
The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a
continuous unrealized loss position, at June 30, 2022.
|
Less Than 12 Months
|
More Than 12 Months
|
Total
|
||||||||||||||||||||||||||||||||||
|
(In thousands, except number of securities)
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Securities
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Securities
|
Fair
Value
|
Unrealized
Losses
|
Number
of
Securities
|
|||||||||||||||||||||||||||
|
Securities available-for-sale:
|
||||||||||||||||||||||||||||||||||||
|
U.S. government sponsored enterprises
|
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
|
U.S. treasury securities
|
||||||||||||||||||||||||||||||||||||
|
State and political subdivisions
|
||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities-residential
|
||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Total securities available-for-sale
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Securities held-to-maturity:
|
||||||||||||||||||||||||||||||||||||
|
U.S. treasury securities
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
State and political subdivisions
|
||||||||||||||||||||||||||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Corporate debt securities
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Total securities held-to-maturity
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||
|
Total securities
|
$ |
$
|
|
|
|
$
|
|
$
|
|
|
|
$
|
|
$
|
|
|
|
|||||||||||||||||||
When the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis, an assessment is made as to whether
other-than-temporary impairment (“OTTI”) is present. The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover. The principal factors considered
are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry
or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the
guarantee of the federal government or any of its agencies.
OTTI is considered to have occurred if (1) the Company intends to sell the security before recovery of its amortized cost basis, (2) it is more likely than not the
Company will be required to sell the security before recovery of its amortized cost basis, or (3) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis. In determining the present value of
expected cash flows, the Company discounts the expected cash flows at the effective interest rate implicit in the security at the date of acquisition. In estimating cash flows expected to be collected, the Company uses available information with
respect to security prepayment speeds, default rates and severity.
Credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in other comprehensive income/loss
(“OCI”). Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis. Noncredit-related OTTI is measured as the difference between the fair value of the
security and its amortized cost less any credit-related losses recognized. For securities classified as held-to-maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over
future periods. During the six months ended December 31, 2022, interest rates have increased, causing the unrealized loss on debt securities to increase, which does not indicate OTTI. Management has evaluated securities considering the other
factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2022.
There were no 251 one sale of an
available-for-sale security. The proceeds were used to fund higher yielding loans. During the three and six months ended December 31, 2021, there were no no no
The estimated fair values of debt securities at December 31, 2022, 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.
(In thousands)
|
Available-for-sale debt securities
|
Amortized Cost
|
Fair Value
|
||||||
|
Within one year
|
$
|
|
$
|
|
||||
|
After one year through five years
|
|
|
||||||
|
After five years through ten years
|
|
|
||||||
|
After ten years
|
|
|
||||||
|
Total
|
|
|
||||||
|
Mortgage-backed securities
|
|
|
||||||
|
Total available-for-sale securities
|
|
|
||||||
|
Held-to-maturity debt securities
|
||||||||
|
Within one year
|
|
|
||||||
|
After one year through five years
|
|
|
||||||
|
After five years through ten years
|
|
|
||||||
|
After ten years
|
|
|
||||||
|
Total
|
|
|
||||||
|
Mortgage-backed securities
|
|
|
||||||
|
Total held-to-maturity securities
|
|
|
||||||
|
Total debt securities
|
$
|
|
$
|
|
||||
At December 31, 2022 and June 30, 2022, securities with an aggregate fair value of $843.3 million and $892.9 million, respectively, were pledged as collateral
for deposits in excess of FDIC insurance limits for various municipalities placing deposits with the Commercial Bank. At December 31, 2022 and June 30, 2022, securities with an aggregate fair value of $16.8 million and $17.4 million, respectively, were pledged as
collateral for potential borrowings at the Federal Reserve Bank discount window. The Company did not participate in any securities lending programs during the three and six months ended December 31, 2022 or 2021.
Federal Home Loan Bank Stock
Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula. This
stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, FHLB stock is carried at cost. FHLB stock is held as a long-term
investment and its value is determined based on the ultimate recoverability of the par value. Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance,
which includes factors such as the following: its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation
and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position. After evaluating these
considerations, the Company concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no
(5) Loans and Allowance for Loan Losses
Loan segments and classes at December 31, 2022 and June 30, 2022 are summarized as follows:
|
(In thousands)
|
December 31, 2022
|
June 30, 2022
|
||||||
|
Residential real estate:
|
||||||||
|
Residential real estate
|
$
|
|
$
|
|
||||
|
Residential construction and land
|
|
|
||||||
|
Multi-family
|
|
|
||||||
|
Commercial real estate:
|
||||||||
|
Commercial real estate
|
|
|
||||||
|
Commercial construction
|
|
|
||||||
|
Consumer loan:
|
||||||||
|
Home equity
|
|
|
||||||
|
Consumer installment
|
|
|
||||||
|
Commercial loans
|
|
|
||||||
|
Total gross loans
|
|
|
||||||
|
Allowance for loan losses
|
(
|
)
|
(
|
)
|
||||
|
Deferred fees and cost, net
|
|
|
||||||
|
Loans receivable, net
|
$
|
|
$
|
|
||||
Management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality and profitability of the
Company’s loan portfolio. The credit quality grade helps management make a consistent assessment of each loan relationship’s credit risk. Consistent with regulatory guidelines, the Company provides for the classification of loans considered
being 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 full loss
reserve and/or charge-off is not warranted. Assets that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated “Special Mention.”
When
the Company classifies problem assets as either Substandard or Doubtful, it generally establishes a specific valuation allowance or “loss reserve” 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 loans. When the Company identifies problem loans as being impaired, it is
required to evaluate whether the Company will be able to collect all amounts due either through repayments or the liquidation of the underlying collateral. If it is determined that impairment exists, the Company is required either to
establish a specific allowance for losses equal to the amount of impairment of the assets, or to charge-off such amount. The Company’s determination as to the classification of its loans 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 Company reviews its portfolio quarterly to determine whether any assets require classification in accordance with
applicable regulations.
The Company primarily has four segments within its
loan portfolio that it considers when measuring credit quality: residential real estate loans, commercial real estate loans, consumer loans and commercial loans. The residential real estate portfolio consists of residential, construction, and
multi-family loan classes. Commercial real estate loans consist of commercial real estate and commercial construction loan classes. Consumer loans consist of home equity loan and consumer installment loan classes. The inherent risk within the
loan portfolio varies depending upon each of these loan types.
Residential mortgage loans, including home equity loans, which are collateralized by residences are generally made in amounts up to 85.0 % of the appraised value of the property. In the event of default by the borrower the Company will acquire and liquidate the underlying
collateral. By originating the loan at a loan-to-value ratio of 85.0 % or less, the Company limits its risk of loss in the event of
default. However, the market values of the collateral may be adversely impacted by declines in the economy. Home equity loans may have an additional inherent risk if the Company does not hold the first mortgage. The Company may stand in a
secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.
Construction lending generally involves a greater degree of risk than other residential 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 within specified cost limits. The Company completes inspections during the construction phase prior to any disbursements. The Company limits
its risk during the construction as disbursements are not made until the required work for each advance has been completed. Construction delays may further impair the borrower’s ability to repay the loan.
Loans collateralized by commercial real estate, and multi-family dwellings, such as apartment buildings generally are larger than residential loans and involve a
greater degree of risk. Commercial real estate 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
management to monitor and evaluate.
Consumer loans generally have shorter terms and higher interest rates than residential mortgage loans. In addition, consumer loans expand the products and services
offered by the Company 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 nature of 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.
Commercial lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and
commercial real estate mortgage lending. Real estate lending is generally considered to be collateral-based, with loan amounts based on fixed 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 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 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. The Company has formed relationships with other community banks within our region to participate in larger commercial loan relationships. These types of loans
are generally considered to be riskier due to the size and complexity of the loan relationship. By entering into a participation agreement with the other bank, the Company can obtain the loan relationship while limiting its exposure to credit
loss. Management completes its due diligence in underwriting these loans and monitors the servicing of these loans.
Loan balances by internal credit quality indicator at December 31, 2022 are shown below.
|
(In thousands)
|
Performing
|
Special
Mention
|
Substandard
|
Total
|
||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Residential construction and land
|
|
|
|
|
||||||||||||
|
Multi-family
|
|
|
|
|
||||||||||||
|
Commercial real estate
|
|
|
|
|
||||||||||||
|
Commercial construction
|
|
|
|
|
||||||||||||
|
Home equity
|
|
|
|
|
||||||||||||
|
Consumer installment
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Total gross loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Loan balances by internal credit quality indicator at June 30, 2022 are shown below.
|
(In thousands)
|
Performing
|
Special
Mention
|
Substandard
|
Total
|
||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Residential construction and land
|
|
|
|
|
||||||||||||
|
Multi-family
|
|
|
|
|
||||||||||||
|
Commercial real estate
|
|
|
|
|
||||||||||||
|
Commercial construction
|
|
|
|
|
||||||||||||
|
Home equity
|
|
|
|
|
||||||||||||
|
Consumer installment
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Total gross loans
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The Company had no one commercial loan
relationship from special mention to pass, and one from substandard to special mention, due to improvements in borrower cash flows
and improving financial performance. There were also loan payoffs during the quarter ended December 31, 2022, comprised of one
commercial real estate loan and one commercial loan that were classified as substandard. This was offset by one commercial real estate loan relationship and one
commercial loan relationship downgraded to substandard, and one commercial real estate loan relationship downgraded to special
mention during the current quarter. At December 31, 2022, these loans were all performing. Management continues to monitor these loan relationships closely.
Nonaccrual Loans
Management places loans on nonaccrual status once the loans have become 90 days or more delinquent. A nonaccrual loan is defined as a loan in which collectability is
questionable and therefore interest on the loan will no longer be recognized on an accrual basis. A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan. A
loan does not have to be 90 days delinquent in order to be classified as nonaccrual. Loans on nonaccrual status totaled $5.4 million at
December 31, 2022 of which $669 ,000 were in process of foreclosure. At December 31, 2022, there were five residential loans totaling $567 ,000
and one commercial real estate loan for $102 ,000
in the process of foreclosure. Included in nonaccrual loans were $3.1 million of loans which were less than 90 days past due at
December 31, 2022, but have a recent history of delinquency greater than 90 days past due. These loans will be returned to accrual status once they have demonstrated a history of timely payments. Loans on nonaccrual status totaled $6.3 million at June 30, 2022 of which $528 ,000
were in the process of foreclosure. At June 30, 2022, there were three residential loans in the process of foreclosure totaling $426 ,000 and one commercial real estate
loan for $102 ,000 in the process of foreclosure. Included in nonaccrual loans were $4.4 million of loans which were less than 90 days past due at June 30, 2022, but have a recent history of delinquency greater than 90 days past due. The decrease in
nonperforming loans during the period was primarily due to $1.1 million in loan repayments, $134 ,000 in loans returning to performing status, and $7 ,000 in
charge-offs, partially offset by $277 ,000 of loans placed into nonperforming status.
The following table sets forth information regarding delinquent and/or nonaccrual loans at December 31, 2022:
|
(In thousands)
|
30-59
days
past due
|
60-89
days
past due
|
90 days
or more
past due
|
Total
past due
|
Current
|
Total Loans
|
Loans on
Non-
accrual
|
|||||||||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Residential construction and land
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Multi-family
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Consumer installment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total gross loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The following table sets forth information regarding delinquent and/or nonaccrual loans at June 30, 2022:
|
(In thousands)
|
30-59
days
past due
|
60-89
days
past due
|
90 days
or more
past due |
Total
past due
|
Current
|
Total Loans
|
Loans on
Non-
accrual
|
|||||||||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Residential construction and land
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Multi-family
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Consumer installment
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total gross loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The Company had no
Impaired Loan Analysis
The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.” Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original
contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring. It should be noted that management does not evaluate all loans individually for impairment. Generally, the Company considers residential
mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors. In contrast, large commercial mortgage, construction,
multi-family, business loans and select larger balance residential mortgage loans or nonaccrual loans that are over $250 thousand and
all trouble debt restructured loans are reviewed individually and considered impaired if it is probable that the Company will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the
loan agreement. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The majority of the Company’s loans, including most nonaccrual loans, are small homogeneous loan types adequately supported by
collateral. Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors. Based on this evaluation, a delinquent loan’s risk rating may be downgraded to either
pass-watch, special mention, or substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation.
The tables below detail additional information on impaired loans at the date or periods indicated:
|
At December 31, 2022
|
For the three months ended
December 31, 2022
|
For the six months ended
December 31, 2022
|
||||||||||||||||||||||||||
|
(In thousands)
|
Recorded
Investment
|
Unpaid
Principal
|
Related
Allowance
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
Average
Recorded
Investment |
Interest
Income
Recognized
|
|||||||||||||||||||||
|
With no related allowance recorded:
|
||||||||||||||||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
-
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Commercial real estate
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
| Consumer installment |
- | |||||||||||||||||||||||||||
|
Commercial loans
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
Impaired loans with no allowance
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
With an allowance recorded:
|
||||||||||||||||||||||||||||
|
Residential real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Impaired loans with allowance
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total impaired:
|
||||||||||||||||||||||||||||
|
Residential real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Consumer installment |
||||||||||||||||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total impaired loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
At June 30, 2022
|
For the three months ended
December 31, 2021
|
For the six months ended
December 31, 2021
|
||||||||||||||||||||||||||
|
(In thousands)
|
Recorded
Investment
|
Unpaid
Principal
|
Related
Allowance
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
Average
Recorded
Investment
|
Interest
Income
Recognized
|
|||||||||||||||||||||
|
With no related allowance recorded:
|
||||||||||||||||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
-
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
|
Commercial real estate
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
| Consumer Installment |
- | |||||||||||||||||||||||||||
|
Commercial loans
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
Impaired loans with no allowance
|
|
|
-
|
|
|
|
|
|||||||||||||||||||||
|
With an allowance recorded:
|
||||||||||||||||||||||||||||
|
Residential real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Impaired loans with allowance
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total impaired:
|
||||||||||||||||||||||||||||
|
Residential real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Home equity
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Consumer Installment | ||||||||||||||||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Total impaired loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
The table below details loans that have been modified as a troubled debt restructuring during the periods indicated.
|
(Dollars in thousands)
|
Number of
Contracts
|
Pre-Modification
Outstanding
Recorded
Investment
|
Post-
Modification
Outstanding
Recorded
Investment
|
Current
outstanding
Recorded
Investment
|
||||||||||||
|
For the six months ended December 31, 2022
|
||||||||||||||||
|
Residential real estate
|
|
$
|
|
$
|
|
$ | ||||||||||
|
Commercial real estate
|
|
$ |
|
$ |
|
$ | ||||||||||
|
Commercial loans
|
|
$ |
|
$ |
|
$ | ||||||||||
| For the year ended June 30, 2022 | ||||||||||||||||
| Consumer Installment | $ | $ |
$ |
|||||||||||||
There were no loans that had been modified as a
troubled debt restructuring during the six months ended December 31, 2021. There were no
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 certain identified loans on which full collectability may not be reasonably assured, considers among other
matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for the loan loss
allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance
based on their judgment about information available to them at the time of their examination. The Company disaggregates its loan portfolio as noted in the below allowance for loan losses tables to evaluate for impairment collectively based on
historical loss experience. The Company evaluates nonaccrual loans that are over $250 thousand and all trouble debt restructured loans
individually for impairment, if it is probable that the Company will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements. Loans that are guaranteed, such as SBA
loans, are excluded from the homogeneous pool of loans and no allowance is allocated to this segment of the portfolio. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Company charges loans
off against the allowance for credit losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Company more than it will receive, and all possible avenues of repayment have been
analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers. Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 60 days. With continued growth in the number of
deposit accounts, charge-off activity within this category has also grown, as can be seen from the tables below. For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan
may not be collected and the amount of that loss can be reasonably estimated. The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is
reduced by charge-offs.
The following tables set forth the activity and allocation of the allowance for loan losses by loan class during and at the periods indicated. The allowance is
allocated to each loan class based on historical loss experience, current economic conditions, and other considerations.
|
Activity for the three months ended December 31, 2022
|
||||||||||||||||||||
|
(In thousands)
|
Balance at
September 30, 2022
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
December 31, 2022
|
|||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Residential construction and land
|
|
|
|
|
|
|||||||||||||||
|
Multi-family
|
|
|
|
|
|
|||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|||||||||||||||
|
Home equity
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Consumer installment
|
|
|
|
|
|
|||||||||||||||
|
Commercial loans
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Activity for the six months ended December 31, 2022
|
||||||||||||||||||||
|
(In thousands)
|
Balance at
June 30, 2022
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
December 31, 2022
|
|||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Residential construction and land
|
|
|
|
|
|
|||||||||||||||
|
Multi-family
|
|
|
|
|
|
|||||||||||||||
|
Commercial real estate
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Commercial construction
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Home equity
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Consumer installment
|
|
|
|
|
|
|||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Allowance for Loan Losses
|
Loans Receivable
|
|||||||||||||||
|
Ending Balance At December 31, 2022
Impairment Analysis
|
Ending Balance At December 31, 2022
Impairment Analysis
|
|||||||||||||||
|
(In thousands)
|
Individually
Evaluated
|
Collectively
Evaluated
|
Individually
Evaluated
|
Collectively
Evaluated
|
||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Residential construction and land
|
|
|
|
|
||||||||||||
|
Multi-family
|
|
|
|
|
||||||||||||
|
Commercial real estate
|
|
|
|
|
||||||||||||
|
Commercial construction
|
|
|
|
|
||||||||||||
|
Home equity
|
|
|
|
|
||||||||||||
|
Consumer installment
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Activity for the three months ended December 31, 2021
|
||||||||||||||||||||
|
(In thousands)
|
Balance at
September 30, 2021
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
December 31, 2021
|
|||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Residential construction and land
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Multi-family
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|||||||||||||||
|
Commercial construction
|
|
|
|
|
|
|||||||||||||||
|
Home equity
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Consumer installment
|
|
|
|
|
|
|||||||||||||||
|
Commercial loans
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Activity for the six months ended December 31, 2021
|
||||||||||||||||||||
|
(In thousands)
|
Balance at
June 30, 2021
|
Charge-offs
|
Recoveries
|
Provision
|
Balance at
December 31, 2021
|
|||||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Residential construction and land
|
|
|
|
|
|
|||||||||||||||
|
Multi-family
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Commercial real estate
|
|
|
|
|
|
|||||||||||||||
|
Commercial construction
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Home equity
|
|
|
|
(
|
)
|
|
||||||||||||||
|
Consumer installment
|
|
|
|
|
|
|||||||||||||||
|
Commercial loans
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Allowance for Loan Losses
|
Loans Receivable
|
|||||||||||||||
|
Ending Balance June 30, 2022
Impairment Analysis
|
Ending Balance June 30, 2022
Impairment Analysis
|
|||||||||||||||
|
(In thousands)
|
Individually
Evaluated
|
Collectively
Evaluated
|
Individually
Evaluated
|
Collectively
Evaluated
|
||||||||||||
|
Residential real estate
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Residential construction and land
|
|
|
|
|
||||||||||||
|
Multi-family
|
|
|
|
|
||||||||||||
|
Commercial real estate
|
|
|
|
|
||||||||||||
|
Commercial construction
|
|
|
|
|
||||||||||||
|
Home equity
|
|
|
|
|
||||||||||||
|
Consumer installment
|
|
|
|
|
||||||||||||
|
Commercial loans
|
|
|
|
|
||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Foreclosed real estate (FRE)
FRE consists of properties acquired through mortgage loan foreclosure proceedings or in full or partial satisfaction of loans. The following table sets
forth information regarding FRE at:
|
(in thousands)
|
December 31, 2022
|
June 30, 2022
|
||||||
|
Residential real estate
|
$
|
|
$
|
|
||||
|
Total foreclosed real estate
|
$
|
|
$
|
|
||||
(6) Fair Value Measurements and Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair
value amounts have been measured as of December 31, 2022 and June 30, 2022 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values
of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not
be meaningful.
The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation
techniques used to measure fair value. The fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements
are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities.
Level 2: Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are
observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:
|
Fair Value Measurements Using
|
||||||||||||||||
|
Quoted Prices
In Active
Markets For
Identical
Assets
|
Significant
Other
Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||||
|
(In thousands)
|
December 31, 2022
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
U.S. Government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
U.S. Treasury securities
|
|
|
|
|
||||||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
||||||||||||
|
Corporate debt securities
|
|
|
|
|
||||||||||||
|
Securities available-for-sale
|
|
|
$
|
|
|
|
|
|
||||||||
|
Equity securities
|
|
|
|
|
||||||||||||
|
Total securities measured at fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Fair Value Measurements Using
|
||||||||||||||||
|
Quoted Prices
In Active
Markets For
Identical
Assets
|
Significant
Other Observable
Inputs
|
Significant
Unobservable
Inputs
|
||||||||||||||
|
(In thousands)
|
June 30, 2022
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
U.S. Government sponsored enterprises
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
| U.S. Treasury securities | ||||||||||||||||
|
State and political subdivisions
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-residential
|
|
|
|
|
||||||||||||
|
Mortgage-backed securities-multi-family
|
|
|
|
|
||||||||||||
|
Corporate debt securities
|
|
|
|
|
||||||||||||
|
Securities available-for-sale
|
|
|
|
|
||||||||||||
|
Equity securities
|
|
|
|
|
||||||||||||
|
Total securities measured at fair value
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Certain investments that are actively traded and have quoted market prices have been classified as Level 1 valuations. Other available-for-sale investment
securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.
In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement”
requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed. Loans are generally not recorded at fair value on a
recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also
include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses.
Impaired loans are those loans in which the Company has measured impairment based on the fair value of the loan’s collateral or the discounted value of expected future cash flows. Fair value is generally determined based upon market value
evaluations by third parties of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds. These appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property), and the cost approach. Management modifies the appraised
values, if needed, to take into account recent developments in the market or other factors, such as, changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management’s plans for
disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3
within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such
loans is deemed to be less than the unpaid balance.
Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). Any
write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses. Values are derived from appraisals,
similar to impaired loans, of underlying collateral or discounted cash flow analysis. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis. In the
determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as, changes in absorption rates and market conditions from the time of valuation and anticipated sales values considering
management’s plans for disposition. Either change could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the fair value hierarchy.
|
Fair Value Measurements Using
|
||||||||||||||||||||||||
|
(In thousands)
|
Recorded
Investment
|
Related
Allowance
|
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||||||||
|
December 31, 2022
|
||||||||||||||||||||||||
|
Impaired loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
June 30, 2022
|
||||||||||||||||||||||||
|
Impaired loans
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
| Foreclosed real estate | ||||||||||||||||||||||||
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were
utilized to determine fair value:
|
(Dollars in thousands)
|
Fair Value
|
Valuation Technique
|
Unobservable Input
|
Range
|
Weighted
Average
|
|||||||||
|
December 31, 2022
|
||||||||||||||
|
Impaired Loans
|
$
|
|
Appraisal of collateral(1)
|
Appraisal adjustments(2)
|
|
%
|
|
%
|
||||||
|
Liquidation expenses(3)
|
|
%
|
|
%
|
||||||||||
|
|
Discounted cash flow
|
Discount rate
|
|
%
|
|
%
|
||||||||
|
June 30, 2022
|
||||||||||||||
|
Impaired loans
|
$
|
|
Appraisal of collateral(1)
|
Appraisal adjustments(2)
|
|
%
|
|
%
|
||||||
|
Liquidation expenses(3)
|
|
%
|
|
%
|
||||||||||
|
|
Discounted cash flow
|
Discount rate
|
|
%
|
|
%
|
||||||||
| Foreclosed real estate | Appraisal of collateral(1) | Appraisal adjustments(2) | % | % | ||||||||||
| (1) |
|
| (2) |
|
| (3) |
|
No other financial
assets or liabilities were re-measured during the year on a nonrecurring basis.
The carrying amounts reported in the statements of financial condition for total cash and cash equivalents, long term certificates of deposit, accrued interest
receivable and accrued interest payable approximate their fair values. Fair values of securities are based on quoted market prices (Level 1), where available, or matrix pricing (Level 2), which is a mathematical technique, used widely in the
industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. The carrying amount of Federal Home Loan
Bank stock approximates fair value due to its restricted nature. The fair values for loans are measured using the “exit price” notion which is a reasonable estimate of what another party might pay in an orderly transaction. Fair values for
variable rate loans that reprice frequently, with no significant credit risk, are based on carrying value. Fair values 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 deposits approximate fair
values at the reporting date. Fair values for long term certificates of deposit are estimated using discounted cash flows and interest rates currently being offered in the market on similar certificates. Fair value for Federal Home Loan Bank
long term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings. The carrying value of short-term Federal Home Loan Bank borrowings approximates its fair value. Fair value for
subordinated notes payable is estimated based on a discounted cash flow methodology or observations of recent highly-similar transactions.
The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions,
considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At December 31, 2022 and June 30, 2022, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are
therefore excluded from the table below.
The carrying amounts and estimated fair value of financial instruments are as follows:
|
|
December 31, 2022
|
Fair Value Measurements Using
|
||||||||||||||||||
| (In thousands) |
Carrying
Amount |
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Long term certificates of deposit
|
|
|
|
|
|
|||||||||||||||
|
Securities available-for-sale
|
|
|
|
|
|
|||||||||||||||
|
Securities held-to-maturity
|
|
|
|
|
|
|||||||||||||||
|
Equity securities
|
|
|
|
|
|
|||||||||||||||
|
Federal Home Loan Bank stock
|
|
|
|
|
|
|||||||||||||||
|
Net loans receivable
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Deposits
|
|
|
|
|
|
|||||||||||||||
| Borrowings | ||||||||||||||||||||
|
Subordinated notes payable, net
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest payable
|
|
|
|
|
|
|||||||||||||||
|
|
June 30, 2022
|
Fair Value Measurements Using
|
||||||||||||||||||
| (In thousands) |
Carrying
Amount |
Fair Value
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Long term certificates of deposit
|
|
|
|
|
|
|||||||||||||||
|
Securities available-for-sale
|
|
|
|
|
|
|||||||||||||||
|
Securities held-to-maturity
|
|
|
|
|
|
|||||||||||||||
|
Equity securities
|
|
|
|
|
|
|||||||||||||||
|
Federal Home Loan Bank stock
|
|
|
|
|
|
|||||||||||||||
|
Net loans receivable
|
|
|
|
|
|
|||||||||||||||
|
Accrued interest receivable
|
|
|
|
|
|
|||||||||||||||
|
Deposits
|
|
|
|
|
|
|||||||||||||||
|
Borrowings
|
|
|
|
|
|
|||||||||||||||
| Subordinated notes payable, net | ||||||||||||||||||||
|
Accrued interest payable
|
|
|
|
|
|
|||||||||||||||
(7) Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. 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) issued became vested during the period. There were no
|
For the three months
ended December 31,
|
For the six months
ended December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022 | 2021 | |||||||||||||
|
Net Income
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Weighted Average Shares – Basic
|
|
|
||||||||||||||
|
Weighted Average Shares - Diluted
|
|
|
||||||||||||||
|
Earnings per share - Basic
|
$
|
|
$
|
|
$ | $ | ||||||||||
|
Earnings per share - Diluted
|
$
|
|
$
|
|
$ | $ | ||||||||||
(8) Dividends
On October 19, 2022 , the Company announced that its
Board of Directors has approved a quarterly cash dividend of $0.14 per share on the Company’s common stock. The dividend reflects an
annual cash dividend rate of $0.56 per share, which was the same rate as the dividend declared during the previous quarter. The
dividend was payable to stockholders of record as of November 15, 2022 , and was paid on November 30, 2022 . Greene County Bancorp, MHC waived its right to receive this dividend.
(9) Impact of Recent Accounting Pronouncements
Accounting Pronouncements to be adopted
in future periods
In June 2016, the FASB issued an Update (ASU 2016-13) to its guidance on “Financial Instruments –
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit
loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected
extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU also replaces the current accounting model for purchased credit impaired loans
and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial
assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for
PCD financial assets is the same expected loss model described above. Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is
neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. An entity will apply the amendments in this Update through a
cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). In November 2018, the FASB issued ASU 2018-19, Codification
Improvements to Topic 326, Financial Instruments-Credit Losses, which aligns the implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements and clarifies the
scope of the guidance in the amendments in ASU 2016-13. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments. The amendments to Topic 326 and other topics in ASU 2019-04 include items related to the amendments in ASU 2016-13 discussed at the June 2018 and November 2018 Credit Losses TRG meetings. The amendments clarify or address
stakeholders’ specific issues about certain aspects of the amendments in ASU 2016-13 on a number of different topics, including the following: accrued interest, transfers between classifications or categories for loans and debt securities,
recoveries, consideration of prepayments in determining the effective interest rate, consideration of estimated costs to sell when foreclosure is probable, vintage disclosures— line-of-credit arrangements converted to term loans, and
contractual extensions and renewals. The effective dates and transition requirements for the amendments related to this Update are the same as the effective dates and transition requirements in ASU 2016-13. In November 2019, the FASB issued
ASU 2019-11 Codification Improvements to Topic 326 Financial Instruments Credit Losses provides additional clarification to specific issues about certain aspects of the amendments in ASU 2016-13 related to measuring the allowance for loan
losses under the new guidance. The Company is currently evaluating the potential impact on our consolidated results of operations or financial position. The initial adjustment will not be reported in earnings and therefore will not have any
material impact on our consolidated results of operations, but it is expected that it will have an impact on our consolidated financial position at the date of adoption. At this time, we have not calculated the estimated impact that this
Update will have on our allowance for credit losses, however, we anticipate it will have a significant impact on the methodology process we utilize to calculate the allowance. To date, the Company has implemented a detailed project plan,
established a governance structure, selected a software vendor, hired resources to support the CECL modeling, incorporated data requirements and enhancements into our standard processes, selected portfolio segmentations, determined the credit
loss methodology for each
portfolio, started to perform parallel
calculations for certain elements of the model, selected a model validation firm and have finalized the methodology and reserve processes for the CECL related to HTM investment and the CECL related to off-balance sheet credit exposures. We are in process of documenting
accounting policy elections, processes and controls. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, excluding small reporting companies such as the Company, the amendments in this Update are
effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, FASB issued ASU 2019-10, Financial Instruments – Credit Losses which amends the implementation effective date
for small reporting companies, such as the Company, and non-public business entities, for fiscal years beginning after December 15, 2022. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. The Company will implement this standard for the fiscal year beginning July 1, 2023.
In March 2020, the FASB issued an Update (ASU 2020-04), Reference Rate Reform (Topic 848). On January 7, 2021, the FASB issued (ASU 2021-01), which refines the
scope of ASC 848 and clarifies some of its guidance. The ASU and related amendments provide temporary optional expedients and exceptions to the existing guidance for applying GAAP to affected contract modifications and hedge accounting
relationships in the transition away from the London Interbank Offered Rate (“LIBOR”) or other interbank offered rate on financial reporting. The guidance also allows a one-time election to sell and/or reclassify to AFS or trading HTM debt
securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective March 12, 2020 through December 31, 2022 and permits relief solely for reference rate reform actions and permits different
elections over the effective date for legacy and new activity. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022,
except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company does not expect the impact of adopting
the new guidance to have a material impact on the consolidated financial statements. The Company’s LIBOR exposure is minimal and limited to a couple of participation loans and risk participation agreements. The Company is working with the lead
lenders to execute the required contract modifications.
In March 2022, the FASB issued ASU No. 2022-02, amendments related to Troubled Debt Restructurings
(TDRs) for all entities after they adopt ASU 2016-13 and amendments related to vintage disclosures that affect public business entities with investments in financing receivables, under Financial Instruments-Credit Losses (Topic 326). The ASU
eliminates the guidance on TDRs and requires an evaluation on all loan modifications to determine if they result in a new loan or a continuation of the existing loan. The ASU also requires that entities disclose current-period gross
charge-offs by year of origination and eliminates the recognition and measurement guidance for TDRs in Subtopic 310-40. The effective dates for the amendments in this Update are the same as the effective dates in ASU 2016-13. The amendments
in this Update should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a
cumulative-effect adjustment to retained earnings in the period of adoption. The Company will implement the Update with the adoption of ASU 2016-13.
(10) Employee Benefit Plans
Defined Benefit Plan
The components of net periodic pension cost related to the defined benefit pension plan for the three and six months ended December 31, 2022 and 2021 were as
follows:
|
Three months ended
December 31,
|
Six months ended
December 31,
|
|||||||||||||||
|
(In thousands)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Interest cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Amortization of net loss
|
|
|
|
|
||||||||||||
|
Net periodic pension cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The interest cost, expected return on plan assets and amortization of net loss components are included in other noninterest expense on the consolidated statements of
income. On an annual basis, upon the completion of the third-party actuarial valuation related
to the defined benefit pension plan, the Company records adjustments to accumulated other comprehensive income. The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan
during fiscal 2023.
SERP
The Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP”), effective as of July 1,
2010. The SERP benefits certain key senior executives of the Bank who have been selected by the Board to participate. The SERP is intended to provide a benefit from the Bank upon vested retirement, death or disability or voluntary or involuntary
termination of service (other than “for cause”). The SERP is more fully described in Note 9 of the consolidated financial statements for the year ended June 30, 2022.
The net periodic pension costs related to the SERP for the three and six months ended December 31, 2022 were $390 ,000 and $761 ,000, respectively, included within salaries
and benefits expense on the consolidated statements of income. The total liability for the SERP was $11.1 million at December 31, 2022 and $9.9 million at June 30, 2022, and is included in accrued expenses and other
liabilities. The total liability for the SERP includes both accumulated net periodic pension costs and participant contributions.
(11) Stock-Based Compensation
Phantom Stock Option Plan and Long-term Incentive Plan
The Greene County Bancorp, Inc. 2011 Phantom Stock Option and Long-term Incentive Plan (the “Plan”) was adopted effective July 1, 2011, to promote the long-term
financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s shareholders. The Plan is
intended to provide benefits to employees and directors of the Company or any subsidiary as designated by the Compensation Committee of the Board of Directors of the Company (“Committee”). A phantom stock option represents the right to receive a
cash payment on the date the award vests. The Plan is more fully described in Note 10 of the consolidated financial statements for the year ended June 30, 2022.
A summary of the Company’s phantom stock option activity and related information for the Plan for the three and six months ended December 31, 2022 and 2021 were as
follows:
|
Three months ended December 31,
|
Six months ended December 31,
|
|||||||||||||||
|
2022
|
2021
|
2022
|
2021
|
|||||||||||||
|
Number of options outstanding, beginning of period
|
|
|
|
|
||||||||||||
|
Options Granted
|
|
|
|
|
||||||||||||
|
Options Paid in Cash
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Number of options outstanding, end of period
|
|
|
|
|
||||||||||||
|
Three months ended December 31,
|
Six months ended December 31,
|
|||||||||||||||
|
(In thousands)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Cash paid out on options vested
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Compensation costs recognized
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
The total liability for the Plan was $4.0 million and
$6.1 million at December 31, 2022 and June 30, 2022, respectively, and is included in accrued expenses and other liabilities on the
consolidated statements of financial condition.
(12) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss at December 31, 2022 and 2021 are presented as follows:
Activity for the three months ended December 31, 2022 and 2021
|
(In thousands)
|
Unrealized
gain (losses)
on securities
available-for-
sale
|
Pension
benefits |
Total
|
|||||||||
|
Balance - September 30, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive loss before reclassification
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other comprehensive loss for the three months ended December 31, 2021
|
(
|
)
|
|
(
|
)
|
|||||||
|
Balance - December 31, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Balance - September 30, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive income before reclassification
|
|
|
|
|||||||||
| Amounts reclassified to net loss on sale of available-for-sale securities non-interest income |
||||||||||||
| Tax expense effect |
||||||||||||
|
Net of tax
|
||||||||||||
|
Other comprehensive income for the three months ended December 31, 2022
|
|
|
|
|||||||||
|
Balance - December 31, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Activity for the six months
ended December 31, 2022 and 2021
|
(In thousands)
|
Unrealized
gain (losses)
on securities
available-for-
sale
|
Pension
benefits |
Total
|
|||||||||
|
Balance at June 30, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive loss before reclassification
|
(
|
)
|
|
(
|
)
|
|||||||
|
Other comprehensive loss for the six months ended December 31, 2021
|
(
|
)
|
|
(
|
)
|
|||||||
|
Balance at December 31, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Balance - June 30, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Other comprehensive loss before reclassification
|
(
|
)
|
|
(
|
)
|
|||||||
| Amounts reclassified to net loss on sale of available-for-sale securities non-interest income | ||||||||||||
| Tax expense effect | ||||||||||||
|
Net of tax
|
||||||||||||
|
Other comprehensive loss for the six months ended December 31, 2022
|
(
|
)
|
|
(
|
)
|
|||||||
|
Balance at December 31, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
(13) Operating leases
The Company leases certain branch properties under long-term, operating lease agreements. The Company’s operating lease agreements contain non-lease components,
which are accounted for separately. The Company’s lease agreements do not contain any residual value guarantee.
The following includes quantitative data related to the Company’s operating leases as of December 31, 2022 and June 30, 2022, and for the three and six months ended
December 31, 2022 and 2021:
|
(In thousands, except weighted-average information).
|
||||||||
|
Operating lease amounts:
|
December 31, 2022
|
June 30, 2022
|
||||||
|
Right-of-use assets
|
$
|
|
$
|
|
||||
|
Lease liabilities
|
$
|
|
$
|
|
||||
|
For the three months ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
(In thousands)
|
||||||||
|
Other information:
|
||||||||
|
Operating outgoing cash flows from operating leases
|
$
|
|
$
|
|
||||
| Right-of-use assets obtained in exchange for new operating lease liabilities |
$ |
$ |
||||||
|
Lease costs:
|
||||||||
|
Operating lease cost
|
$
|
|
$
|
|
||||
|
Variable lease cost
|
$
|
|
$
|
|
||||
|
For the six months ended
December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
(In thousands)
|
||||||||
|
Other information:
|
||||||||
|
Operating outgoing cash flows from operating leases
|
$
|
|
$
|
|
||||
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
|
$
|
|
||||
|
Lease costs:
|
||||||||
|
Operating lease cost
|
$
|
|
$
|
|
||||
|
Variable lease cost
|
$
|
|
$
|
|
||||
The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, as of December 31, 2022:
|
(in thousands)
|
||||
|
Within the twelve months ended December 31,
|
||||
|
2023
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Thereafter
|
|
|||
|
Total undiscounted cash flow
|
|
|||
|
Less net present value adjustment
|
(
|
)
|
||
|
Lease Liability
|
$
|
|
||
|
Weighted-average remaining lease term (Years)
|
|
|||
|
Weighted-average discount rate
|
|
%
|
||
Right-of-use assets are included in , and lease liabilities are included in within the Company’s
consolidated statements of financial condition.
(14) 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 consolidated financial statements.
The Company’s unfunded loan commitments and unused lines of credit are as follows:
|
(In thousands)
|
December 31, 2022
|
June 30, 2022
|
||||||
|
Unfunded loan commitments
|
$
|
|
$
|
|
||||
|
Unused lines of credit
|
|
|
||||||
|
Standby letters of credit
|
|
|
||||||
|
Total commitments
|
$
|
|
$
|
|
||||
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 Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, if any, required upon an
extension of credit is based on management’s evaluation of customer credit. 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.
The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their
businesses. Except as noted below, management believes there are no such legal proceedings pending or threatened against the Company or its subsidiaries, if determined adversely, would have a material adverse effect on the business, consolidated
financial condition, results of operations or cash flows of the Company or any of its subsidiaries.
On April 26, 2022, Andrew Broockmann, a customer of The Bank of Greene County (the “Bank”), filed a putative class action
complaint against the Bank in the United States District Court for the Northern District of New York. The complaint alleges that the Bank improperly assessed overdraft fees on debit-card transactions that were authorized on a positive account
balance but settled on a negative balance. Mr. Broockmann, on behalf of the putative class, seeks compensatory damages, punitive damages, enjoinment of the conduct complained of, and costs and fees. The complaint is similar to complaints filed
against other financial institutions pertaining to overdraft fees. The Bank denies that it improperly assessed overdraft fees or breached any agreement with Mr. Broockmann or with members of the putative class. The parties have reached an agreement
in principle to settle the lawsuit, which remains subject to court approval. The Company reserved $1.15 million in the quarter ended
December 31, 2022 in connection with the matter, which is included in accrued expenses and other liabilities on the consolidated statements of financial condition.
(15) Subsequent events
On January 18, 2023 , the Board of Directors announced
a cash dividend for the quarter ended December 31, 2022 of $0.14 per share on Greene County Bancorp, Inc.’s common stock. The dividend
reflects an annual cash dividend rate of $0.56 per share, which was the same rate as the dividend declared during the previous
quarter. The dividend will be payable to stockholders of record as of February 13, 2023 , and is expected to be paid on February 27, 2023 . The Greene County Bancorp, MHC intends to waive its receipt of this dividend.
As previously disclosed to, and approved by, the Company’s shareholders at the Company’s Annual Meeting held on November 5, 2022, the Company’s charter was amended, effective January 19, 2023, to increase the
number of authorized shares of common stock from 12,000,000 to 36,000,000 .
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operation
|
Overview of the Company’s Activities and Risks
The Company’s results of operations 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, 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.
To operate successfully, the Company must manage various types of risk, including but not limited to, market or interest rate risk, credit risk, transaction risk, liquidity risk, security risk, strategic risk,
reputation risk and compliance risk. While all of these risks are important, the risks of greatest significance to the Company relate to market or interest rate risk and credit risk.
Market risk is the risk of loss from adverse changes in market prices and/or interest rates. Since net interest income (the difference between interest earned on loans and investments and interest paid on deposits
and borrowings) is the Company’s primary source of revenue, interest rate risk is the most significant non-credit related market risk to which the Company is exposed. Net interest income is affected by changes in interest rates as well as
fluctuations in the level and duration of the Company’s assets and liabilities.
Interest rate risk is the exposure of the Company’s net interest income to adverse movements in interest rates. In addition to directly impacting net interest income, changes in interest rates can also affect the
amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancing, and the flow and mix of deposits.
Credit risk is the risk to the Company’s earnings and shareholders’ equity that results from customers, to whom loans have been made and to the issuers of debt securities in which the Company has invested, failing
to repay their obligations. The magnitude of risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased.
Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or systems, the misconduct or errors of people, and adverse external events.
Operational losses result from internal fraud; external fraud; employment practices and workplace safety, clients, products, and business practices; damage to physical assets; business disruption and system failures; and execution, delivery, and
process management.
Special Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements. Greene County Bancorp, Inc. desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is
including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all such forward-looking statements. These forward-looking statements, which are included in this Management’s Discussion
and Analysis and elsewhere in this quarterly report, describe future plans or strategies and include Greene County Bancorp, Inc.’s expectations of future financial results. The words “believe,” “expect,” “anticipate,” “project,” and similar
expressions identify forward-looking statements. Greene County Bancorp, Inc.’s ability to predict results or the effect of future plans or strategies or qualitative or quantitative changes based on market risk exposure is inherently uncertain.
Factors that could affect actual results include but are not limited to:
| (a) |
changes in general market interest rates,
|
| (b) |
general economic conditions,
|
| (c) |
legislative and regulatory changes,
|
| (d) |
monetary and fiscal policies of the U.S. Treasury and the Federal Reserve,
|
| (e) |
changes in the quality or composition of Greene County Bancorp, Inc.’s loan and investment portfolios,
|
| (f) |
deposit flows,
|
| (g) |
competition, and
|
| (h) |
demand for financial services in Greene County Bancorp, Inc.’s market area.
|
These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements, since results in future periods may differ materially from those
currently expected because of various risks and uncertainties.
Non-GAAP Financial Measures
Regulation G, a rule adopted by the Securities and Exchange Commission (SEC), applies to certain SEC filings, including earnings releases, made by registered companies that contain “non-GAAP financial measures.”
GAAP is generally accepted accounting principles in the United States of America. Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure,
certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure (if a comparable GAAP measure exists) and a statement of the Company’s reasons for utilizing the
non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are
included in public disclosures, supplemental information is not required. Financial institutions like the Company and its subsidiary banks are subject to an array of bank regulatory capital measures that are financial in nature but are not based
on GAAP and are not easily reconcilable to the closest comparable GAAP financial measures, even in those cases where a comparable measure exists. The Company follows industry practice in disclosing its financial condition under these various
regulatory capital measures, including period-end regulatory capital ratios for itself and its subsidiary banks, in its periodic reports filed with the SEC, and it does so without compliance with Regulation G, on the widely-shared assumption that
the SEC regards such non-GAAP measures to be exempt from Regulation G. The Company uses in this Report additional non-GAAP financial measures that are commonly utilized by financial institutions and have not been specifically exempted by the SEC
from Regulation G. The Company provides, as supplemental information, such non-GAAP measures included in this Report as described immediately below.
Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income, as a component of the tabular presentation by financial institutions of Selected Financial
Information regarding their recently completed operations, as well as disclosures based on that tabular presentation, is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest
income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is
added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of another institution or in analyzing any institution’s net interest income
trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single
institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial
institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to
provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. While we present net interest income and net interest margin utilizing GAAP measures (no tax-equivalent
adjustments) as a component of the tabular presentation within our disclosures, we do provide as supplemental information net interest income and net interest margin on a tax-equivalent basis.
Critical Accounting Policies
The Company’s critical accounting policies relate to the allowance for loan losses. The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing
portfolio. 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 portfolio, specific impaired loans and current
economic conditions. Such evaluation, which includes a review of all loans for which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying
collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses. However, this evaluation involves a high
degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters. This critical accounting policy and its application are periodically reviewed with the Audit
Committee and the Board of Directors.
Comparison of Financial Condition at December 31, 2022 and June 30, 2022
ASSETS
Total assets of the Company were $2.6 billion at December 31, 2022 and $2.6 billion at June 30, 2022, an increase of $44.6 million, or 1.7%. Securities available-for-sale and held-to-maturity decreased $92.3
million, or 7.9%, to $1.1 billion at December 31, 2022 as compared to $1.2 billion at June 30, 2022. Net loans receivable increased $138.5 million, or 11.3%, to $1.4 billion at December 31, 2022 from $1.2 billion at June 30, 2022.
CASH AND CASH EQUIVALENTS
Total cash and cash equivalents decreased $8.2 million to $60.8 million at December 31, 2022 from $69.0 million at June 30, 2022. The level of cash and cash equivalents is a function of the daily account clearing
needs and deposit levels as well as activities associated with securities transactions and loan funding. All of these items can cause cash levels to fluctuate significantly on a daily basis.
SECURITIES
Securities available-for-sale and held-to-maturity decreased $92.3 million, or 7.9%, to $1.1 billion at December 31, 2022 as compared to $1.2 billion at June 30, 2022. The decrease was the result of utilizing
maturing investments to fund loan growth during the period and due to the increase in unrealized loss on securities of $6.3 million. Securities purchases totaled $107.5 million during the six months ended December 31, 2022 and consisted primarily
of $105.8 million of state and political subdivision securities. Principal pay-downs and maturities during the six months ended December 31, 2022 amounted to $190.2 million, primarily consisting of $166.2 million of state and political
subdivision securities, and $22.3 million of mortgage-backed securities. At December 31, 2022, 63.2% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promote Company’s
participation in the communities in which it operates. Mortgage-backed securities, which represent 27.7% of our securities portfolio at December 31, 2022, do not contain sub-prime loans and are not exposed to the credit risk associated with such
lending.
|
December 31, 2022
|
June 30, 2022
|
|||||||||||||||
|
(Dollars in thousands)
|
Balance
|
Percentage of
portfolio
|
Balance
|
Percentage of
portfolio
|
||||||||||||
|
Securities available-for-sale:
|
||||||||||||||||
|
U.S. Government sponsored enterprises
|
$
|
10,729
|
1.0
|
%
|
$
|
11,319
|
0.9
|
%
|
||||||||
|
U.S. Treasury securities
|
16,106
|
1.5
|
18,427
|
1.6
|
||||||||||||
|
State and political subdivisions
|
193,897
|
18.0
|
248,076
|
21.2
|
||||||||||||
|
Mortgage-backed securities-residential
|
26,696
|
2.5
|
29,897
|
2.6
|
||||||||||||
|
Mortgage-backed securities-multifamily
|
71,631
|
6.6
|
83,709
|
7.2
|
||||||||||||
|
Corporate debt securities
|
16,059
|
1.5
|
16,634
|
1.4
|
||||||||||||
|
Total securities available-for-sale
|
335,118
|
31.1
|
408,062
|
34.9
|
||||||||||||
|
Securities held-to-maturity:
|
||||||||||||||||
|
U.S. treasury securities
|
33,664
|
3.1
|
33,623
|
2.9
|
||||||||||||
|
State and political subdivisions
|
487,495
|
45.2
|
493,897
|
42.2
|
||||||||||||
|
Mortgage-backed securities-residential
|
39,530
|
3.7
|
42,461
|
3.6
|
||||||||||||
|
Mortgage-backed securities-multifamily
|
160,100
|
14.9
|
171,921
|
14.7
|
||||||||||||
|
Corporate debt securities
|
21,641
|
2.0
|
19,900
|
1.7
|
||||||||||||
|
Other securities
|
40
|
0.0
|
50
|
0.0
|
||||||||||||
|
Total securities held-to-maturity
|
742,470
|
68.9
|
761,852
|
65.1
|
||||||||||||
|
Total securities
|
$
|
1,077,588
|
100.0
|
%
|
$
|
1,169,914
|
100.0
|
%
|
||||||||
LOANS
Net loans receivable increased $138.5 million, or 11.3%, to $1.4 billion at December 31, 2022 from $1.2 billion at June 30, 2022. The loan growth experienced during the six months consisted primarily of $110.0
million in commercial real estate loans, $10.8 million in residential real estate loans, $5.0 million in residential construction and land loans, $3.9 million in multi-family loans, and $3.5 million in commercial construction loans. The Company
continues to experience loan growth as a result of continued growth in its customer base and its relationships with other financial institutions in originating loan participations. The Company continues to use a conservative underwriting policy
in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products. Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to
repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.
|
December 31, 2022
|
June 30, 2022
|
|||||||||||||||
|
(Dollars in thousands)
|
Balance
|
Percentage of
Portfolio
|
Balance
|
Percentage of
Portfolio
|
||||||||||||
|
Residential real estate
|
$
|
371,646
|
26.7
|
%
|
$
|
360,824
|
28.8
|
%
|
||||||||
|
Residential construction and land
|
20,334
|
1.4
|
15,298
|
1.2
|
||||||||||||
|
Multi-family
|
67,733
|
4.9
|
63,822
|
5.1
|
||||||||||||
|
Commercial real estate
|
705,649
|
50.8
|
595,635
|
47.6
|
||||||||||||
|
Commercial construction
|
87,267
|
6.3
|
83,748
|
6.7
|
||||||||||||
|
Home equity
|
20,669
|
1.5
|
17,877
|
1.4
|
||||||||||||
|
Consumer installment
|
4,588
|
0.3
|
4,512
|
0.4
|
||||||||||||
|
Commercial loans
|
112,169
|
8.1
|
110,271
|
8.8
|
||||||||||||
|
Total gross loans
|
1,390,055
|
100.0
|
%
|
1,251,987
|
100.0
|
%
|
||||||||||
|
Allowance for loan losses
|
(22,289
|
)
|
(22,761
|
)
|
||||||||||||
|
Deferred fees and costs, net
|
100
|
129
|
||||||||||||||
|
Total net loans
|
$
|
1,367,866
|
$
|
1,229,355
|
||||||||||||
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 certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair
value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgment about information
available to them at the time of their examination. The Company disaggregates its loan portfolio as noted in the below allocation of allowance for loan losses table to evaluate for impairment collectively based on historical loss experience.
The Company evaluates nonaccrual loans that are over $250 thousand and all trouble debt restructured loans individually for impairment, if it is probable that the Company will not be able to collect scheduled payments of principal and interest
when due, according to the contractual terms of the loan agreements. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Company charges loans off against the allowance for loan losses when it
becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Company more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow,
the value of the underlying collateral, and strength of any guarantors or co-borrowers. Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses,
unless equitable arrangements are made. For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably
estimated. The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged-off and is reduced by charge-offs.
Analysis of allowance for loan losses activity
|
At or for the six months ended
December 31,
|
||||||||
|
(Dollars in thousands)
|
2022
|
2021
|
||||||
|
Balance at the beginning of the period
|
$
|
22,761
|
$
|
19,668
|
||||
|
Charge-offs:
|
||||||||
|
Consumer installment
|
304
|
211
|
||||||
|
Commercial loans
|
11
|
107
|
||||||
|
Total loans charged off
|
315
|
318
|
||||||
|
Recoveries:
|
||||||||
|
Residential real estate
|
5
|
7
|
||||||
|
Consumer installment
|
75
|
57
|
||||||
|
Commercial loans
|
18
|
2
|
||||||
|
Total recoveries
|
98
|
66
|
||||||
|
Net charge-offs
|
217
|
252
|
||||||
|
Provisions charged to operations
|
(255
|
)
|
2,268
|
|||||
|
Balance at the end of the period
|
$
|
22,289
|
$
|
21,684
|
||||
|
Net charge-offs to average loans outstanding (annualized)
|
0.03
|
%
|
0.05
|
%
|
||||
|
Net charge-offs to nonperforming assets (annualized)
|
8.07
|
%
|
13.01
|
%
|
||||
|
Allowance for loan losses to nonperforming loans
|
414.52
|
%
|
559.59
|
%
|
||||
|
Allowance for loan losses to total loans receivable
|
1.60
|
%
|
1.89
|
%
|
||||
Nonaccrual Loans and Nonperforming Assets
Loans are reviewed on a regular basis to assess collectability of all principal and interest payments due. Management determines that a loan is impaired or nonperforming when it is probable at least a portion of
the principal or interest will not be collected in accordance with contractual terms of the note. 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.
Generally, management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable
and, therefore, interest on the loan will no longer be recognized on an accrual basis. The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.” Management may
consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled
debt restructuring. A loan does not have to be 90 days delinquent in order to be classified as nonperforming. Foreclosed real estate is considered to be a nonperforming asset. For further discussion and detail regarding impaired loans please
refer to Part I, Financial Statements (unaudited), Note 5 Loans and Allowance for Loan Losses of this Report.
Analysis of Nonaccrual Loans and Nonperforming Assets
|
(Dollars in thousands)
|
December 31, 2022
|
June 30, 2022
|
||||||
|
Nonaccruing loans:
|
||||||||
|
Residential real estate
|
$
|
2,685
|
$
|
2,948
|
||||
|
Residential construction and land
|
-
|
1
|
||||||
|
Commercial real estate
|
828
|
1,269
|
||||||
|
Home equity
|
185
|
188
|
||||||
|
Consumer installment
|
-
|
7
|
||||||
|
Commercial
|
1,679
|
1,904
|
||||||
|
Total nonaccruing loans
|
$
|
5,377
|
$
|
6,317
|
||||
|
Foreclosed real estate:
|
||||||||
|
Residential real estate
|
-
|
68
|
||||||
|
Total foreclosed real estate
|
-
|
68
|
||||||
|
Total nonperforming assets
|
$
|
5,377
|
$
|
6,385
|
||||
|
Troubled debt restructuring:
|
||||||||
|
Nonperforming (included above)
|
$
|
3,136
|
$
|
2,707
|
||||
|
Performing (accruing and excluded above)
|
2,600
|
2,336
|
||||||
|
Total nonperforming assets as a percentage of total assets
|
0.21
|
%
|
0.25
|
%
|
||||
|
Total nonperforming loans to net loans
|
0.39
|
%
|
0.50
|
%
|
||||
At December 31, 2022 and June 30, 2022, there were no loans greater than 90 days and accruing.
Nonperforming assets amounted to $5.4 million and $6.4 million at December 31, 2022 and June 30, 2022, respectively. Loans on nonaccrual status totaled $5.4 million at December 31, 2022 of which $669,000 were in
process of foreclosure. At December 31, 2022, there were five residential loans totaling $567,000 and one commercial real estate loan for $102,000 in the process of foreclosure. Included in nonaccrual loans were $3.1 million of loans which were
less than 90 days past due at December 31, 2022, but have a recent history of delinquency greater than 90 days past due. These loans will be returned to accrual status once they have demonstrated a history of timely payments. Loans on nonaccrual
status totaled $6.3 million at June 30, 2022 of which $528,000 were in the process of foreclosure. At June 30, 2022, there were three residential loans in the process of foreclosure totaling $426,000 and one commercial real estate loan totaling
$102,000 in the process of foreclosure. Included in nonaccrual loans were $4.4 million of loans which were less than 90 days past due at June 30, 2022, but have a recent history of delinquency greater than 90 days past due.
Impaired Loans
The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.” A loan is considered impaired when it
is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.
The table below details additional information on impaired loans at December 31, 2022 and June 30, 2022:
|
(In thousands)
|
December 31, 2022
|
June 30, 2022
|
||||||
|
Balance of impaired loans, with a valuation allowance
|
$
|
8,614
|
$
|
9,235
|
||||
|
Allowances relating to impaired loans included in allowance for loan losses
|
2,617
|
2,347
|
||||||
|
Balance of impaired loans, without a valuation allowance
|
1,628
|
1,536
|
||||||
|
Total impaired loans
|
10,242
|
10,771
|
||||||
|
For the three months
ended December 31,
|
For the six months
ended December 31,
|
|||||||||||||||
|
(In thousands)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Average balance of impaired loans for the periods ended
|
$
|
10,567
|
$
|
7,988
|
$
|
10,346
|
$
|
7,014
|
||||||||
|
Interest income recorded on impaired loans during the periods ended
|
69
|
103
|
130
|
164
|
||||||||||||
Residential real estate average balance of impaired loans with a valuation allowance amounted to $2.3 million for the three months ended December 31, 2022, as compared to $2.0 million for the three months ended
June 30, 2022, an increase of $300,000. The increase in residential real estate impaired loans was primarily the result of two loan relationships moving into impairment status during the quarter end December 31, 2022. Commercial loans average
balance of impaired loans with a valuation allowance amounted to $2.6 million for the three months ended December 31, 2022, as compared to $3.4 million for the three months ended June 30, 2022, a decrease of $800,000. The decrease was primarily
the result of one loan paying off during the quarter end December 31, 2022.
DEPOSITS
Deposits totaled $2.3 billion at December 31, 2022 and $2.2 billion at June 30, 2022, an increase of $52.8 million, or 2.4%. NOW deposits increased $36.3 million, or 2.4%, and certificates of deposits increased
$61.9 million, or 151.6% when comparing December 31, 2022 and June 30, 2022. Included within certificates of deposits at December 31, 2022 and June 30, 2022 were $68.6 million and $7.2 million in brokered certificates of deposit, respectively.
Money market deposits decreased $20.4 million, or 12.9%, savings deposits decreased $3.6 million, or 1.0%, and noninterest-bearing deposits decreased $21.4 million, or 11.4% when comparing December 31, 2022 and June 30, 2022. Deposits increased
during the six months ended December 31, 2022 as a result of an increase in municipal deposits at Greene County Commercial Bank, primarily from tax collection, and new account relationships.
Major classifications of deposits at December 31, 2022 and June 30, 2022 are summarized as follows:
|
(In thousands)
|
December 31, 2022
|
Percentage
of Portfolio
|
June 30, 2022
|
Percentage
of Portfolio
|
||||||||||||
|
Noninterest-bearing deposits
|
$
|
166,295
|
7.3
|
%
|
$
|
187,697
|
8.5
|
%
|
||||||||
|
Certificates of deposit
|
102,670
|
4.5
|
40,801
|
1.9
|
||||||||||||
|
Savings deposits
|
340,150
|
15.0
|
343,731
|
15.5
|
||||||||||||
|
Money market deposits
|
137,269
|
6.1
|
157,623
|
7.1
|
||||||||||||
|
NOW deposits
|
1,519,010
|
67.1
|
1,482,752
|
67.0
|
||||||||||||
|
Total deposits
|
$
|
2,265,394
|
100.0
|
%
|
$
|
2,212,604
|
100.0
|
%
|
||||||||
BORROWINGS
At December 31, 2022, the Bank had pledged approximately $549.4 million of its residential and commercial mortgage portfolio as collateral for borrowing and irrevocable municipal letters of credit at the Federal
Home Loan Bank of New York (“FHLB”). The maximum amount of funding available from the FHLB was $363.4 million at December 31, 2022, of which there were no term borrowings and $65.0 million irrevocable municipal letters of credit outstanding at
December 31, 2022. There were $107.6 million and $123.7 million in overnight borrowings at December 31, 2022 and June 30, 2022, respectively. Interest rates on overnight borrowings are determined at the time of borrowing. There were no long-term
fixed rate, fixed term advances at December 31, 2022 and June 30, 2022. The $65.0 million of irrevocable municipal letters of credit with the FHLB have been issued to secure municipal transactional deposit accounts, on behalf of Greene County
Commercial Bank.
The Bank also pledges securities and certificates of deposit as collateral at the Federal Reserve Bank discount window for overnight borrowings. At December 31, 2022, approximately $16.8 million of collateral was
available to be pledged against potential borrowings at the Federal Reserve Bank discount window. There were no balances outstanding with the Federal Reserve Bank at December 31, 2022.
The Bank has established unsecured lines of credit with Atlantic Central Bankers Bank for $15.0 million and two other financial institutions for $50.0 million. The Company has also established an unsecured line of
credit with Atlantic Central Bankers Bank for $7.5 million. The lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing. There were no borrowings outstanding with these lines of credit for
both the Company and the Bank at December 31, 2022 and June 30, 2022.
On September 17, 2020, the Company entered into Subordinated Note Purchase Agreements with 14 qualified institutional investors, issued at 4.75% Fixed-to-Floating Rate due September 17, 2030, in the aggregate
principal amount of $20.0 million, carried net of issuance costs of $424,000 amortized over a period of 60 months. These notes are callable on September 15, 2025. At December 31, 2022, there were $19.8 million of these Subordinated Note
Purchases Agreements outstanding, net of issuance costs.
On September 15, 2021, the Company entered into Subordinated Note Purchase Agreements with 18 qualified institutional investors, issued at 3.00% Fixed-to-Floating Rate due September 15, 2031, in the aggregate
principal amount of $30.0 million, carried net of issuance costs of $499,000 amortized over a period of 60 months. These notes are callable on September 15, 2026. At September 30, 2022, there were $29.6 million of these Subordinated Note
Purchases Agreements outstanding, net of issuance costs.
At December 31, 2022, there were no other long-term borrowings and therefore no scheduled maturities of long-term borrowings.
EQUITY
Shareholders’ equity increased to $168.2 million at December 31, 2022 from $157.7 million at June 30, 2022, resulting primarily from net income of $16.2 million, partially offset by dividends declared and paid of
$1.1 million and an increase in accumulated other comprehensive loss of $4.6 million. Unrealized loss on available for sale securities increased at December 31, 2022 compared to June 30, 2022, but decreased compared to September 30, 2022 as the
yields on bonds increased during the current three months ended December 31, 2022.
On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to 200,000 shares of its common stock. Repurchases will
be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the
stock, alternative uses for capital, and the Company’s financial performance. For the three and six months ending December 31, 2022, the Company did not repurchase any shares.
|
Selected Equity Data:
|
||||||||
|
December 31, 2022
|
June 30, 2022
|
|||||||
|
Shareholders’ equity to total assets, at end of period
|
6.43
|
%
|
6.13
|
%
|
||||
|
Book value per share
|
$
|
19.76
|
$
|
18.53
|
||||
|
Closing market price of common stock
|
$
|
57.42
|
$
|
45.29
|
||||
|
For the six months ended December 31,
|
||||||||
|
2022
|
2021
|
|||||||
|
Average shareholders’ equity to average assets
|
6.35
|
%
|
6.80
|
%
|
||||
|
Dividend payout ratio1
|
14.66
|
%
|
15.85
|
%
|
||||
|
Actual dividends paid to net income2
|
6.76
|
%
|
7.29
|
%
|
||||
1The dividend payout ratio has been calculated based on the dividends declared per share divided by basic earnings per share. No
adjustments have been made for dividends waived by Greene County Bancorp, MHC (“MHC”), the owner of 54.1% of the Company’s shares outstanding.
2 Dividends declared divided by net income. The MHC waived its right to receive dividends declared during the three months ended
June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022, September 30, 2022, and December 31, 2022. Dividends declared during the three months ended March 31, 2021 and June 30, 2022 were paid to the MHC. The MHC’s ability to waive
the receipt of dividends is dependent upon annual approval of its members as well as receiving the non-objection of the Federal Reserve Board.
Comparison of Operating Results for the Three and Six Months Ended December 31, 2022 and 2021
Average Balance Sheet
The following table sets forth certain information relating to the Company for the three and six months ended December 31, 2022 and 2021. For the periods indicated, the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, are expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances were based on
daily averages. Average loan balances include nonperforming loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.
|
Three months ended December 31,
|
||||||||||||||||||||||||
|
2022
|
2021
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Average
Outstanding
Balance
|
Interest
Earned /
Paid
|
Average
Yield /
Rate
|
Average
Outstanding
Balance
|
Interest
Earned /
Paid
|
Average
Yield /
Rate
|
||||||||||||||||||
|
Interest-earning Assets:
|
||||||||||||||||||||||||
|
Loans receivable, net1
|
$
|
1,367,759
|
$
|
14,801
|
4.33
|
%
|
$
|
1,126,568
|
$
|
11,990
|
4.26
|
%
|
||||||||||||
|
Securities non-taxable
|
683,294
|
3,504
|
2.05
|
636,062
|
2,253
|
1.42
|
||||||||||||||||||
|
Securities taxable
|
407,916
|
1,999
|
1.96
|
407,193
|
1,517
|
1.49
|
||||||||||||||||||
|
Interest-bearing bank balances and federal funds
|
21,195
|
169
|
3.19
|
97,611
|
39
|
0.16
|
||||||||||||||||||
|
FHLB stock
|
2,812
|
55
|
7.82
|
1,114
|
12
|
4.31
|
||||||||||||||||||
|
Total interest-earning assets
|
2,482,976
|
20,528
|
3.31
|
%
|
2,268,548
|
15,811
|
2.79
|
%
|
||||||||||||||||
|
Cash and due from banks
|
11,790
|
12,495
|
||||||||||||||||||||||
|
Allowance for loan losses
|
(22,369
|
)
|
(20,952
|
)
|
||||||||||||||||||||
|
Other noninterest-earning assets
|
95,110
|
80,126
|
||||||||||||||||||||||
|
Total assets
|
$
|
2,567,507
|
$
|
2,340,217
|
||||||||||||||||||||
|
Interest-Bearing Liabilities:
|
||||||||||||||||||||||||
|
Savings and money market deposits
|
$
|
477,179
|
$
|
207
|
0.17
|
%
|
$
|
446,953
|
$
|
200
|
0.18
|
%
|
||||||||||||
|
NOW deposits
|
1,583,966
|
3,200
|
0.81
|
1,440,348
|
575
|
0.16
|
||||||||||||||||||
|
Certificates of deposit
|
62,273
|
331
|
2.13
|
34,811
|
74
|
0.85
|
||||||||||||||||||
|
Borrowings
|
82,058
|
867
|
4.23
|
49,699
|
509
|
4.10
|
||||||||||||||||||
|
Total interest-bearing liabilities
|
2,205,476
|
4,605
|
0.84
|
%
|
1,971,811
|
1,358
|
0.28
|
%
|
||||||||||||||||
|
Noninterest-bearing deposits
|
175,391
|
189,830
|
||||||||||||||||||||||
|
Other noninterest-bearing liabilities
|
23,393
|
21,393
|
||||||||||||||||||||||
|
Shareholders' equity
|
163,247
|
157,183
|
||||||||||||||||||||||
|
Total liabilities and equity
|
$
|
2,567,507
|
$
|
2,340,217
|
||||||||||||||||||||
|
Net interest income
|
$
|
15,923
|
$
|
14,453
|
||||||||||||||||||||
|
Net interest rate spread
|
2.47
|
%
|
2.51
|
%
|
||||||||||||||||||||
|
Net earnings assets
|
$
|
277,500
|
$
|
296,737
|
||||||||||||||||||||
|
Net interest margin
|
2.57
|
%
|
2.55
|
%
|
||||||||||||||||||||
|
Average interest-earning assets to average interest-bearing liabilities
|
112.58
|
% |
115.05
|
% | ||||||||||||||||||||
1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
|
Taxable-equivalent net interest income and net interest margin
|
For the three months ended
December 31,
|
|||||||
|
(Dollars in thousands)
|
2022
|
2021
|
||||||
|
Net interest income (GAAP)
|
$
|
15,923
|
$
|
14,453
|
||||
|
Tax-equivalent adjustment(1)
|
1,283
|
816
|
||||||
|
Net interest income (fully taxable-equivalent)
|
$
|
17,206
|
$
|
15,269
|
||||
|
Average interest-earning assets
|
$
|
2,482,976
|
$
|
2,268,548
|
||||
|
Net interest margin (fully taxable-equivalent)
|
2.77
|
%
|
2.69
|
%
|
||||
1Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if
the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. The rate used for this adjustment was 21% for federal income taxes and 4.44% for New York
State income taxes for the periods ended December 31, 2022 and 2021, respectively.
|
Six months ended December 31,
|
||||||||||||||||||||||||
|
2022
|
2021
|
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Average
Outstanding
Balance
|
Interest
Earned /
Paid
|
Average
Yield /
Rate
|
Average
Outstanding
Balance
|
Interest
Earned /
Paid
|
Average
Yield /
Rate
|
||||||||||||||||||
|
Interest-earning Assets:
|
||||||||||||||||||||||||
|
Loans receivable, net1
|
$
|
1,340,927
|
$
|
28,183
|
4.20
|
%
|
$
|
1,115,578
|
$
|
24,057
|
4.31
|
%
|
||||||||||||
|
Securities non-taxable
|
690,716
|
6,581
|
1.91
|
607,722
|
4,344
|
1.43
|
||||||||||||||||||
|
Securities taxable
|
420,718
|
4,118
|
1.96
|
387,488
|
2,917
|
1.51
|
||||||||||||||||||
|
Interest-bearing bank balances and federal funds
|
13,333
|
196
|
2.94
|
100,411
|
81
|
0.16
|
||||||||||||||||||
|
FHLB stock
|
3,033
|
90
|
5.93
|
1,103
|
25
|
4.53
|
||||||||||||||||||
|
Total interest-earning assets
|
2,468,727
|
39,168
|
3.17
|
%
|
2,212,262
|
31,424
|
2.84
|
%
|
||||||||||||||||
|
Cash and due from banks
|
12,348
|
12,327
|
||||||||||||||||||||||
|
Allowance for loan losses
|
(22,707
|
)
|
(20,338
|
)
|
||||||||||||||||||||
|
Other noninterest-earning assets
|
92,906
|
77,511
|
||||||||||||||||||||||
|
Total assets
|
$
|
2,551,274
|
$
|
2,281,762
|
||||||||||||||||||||
|
Interest-Bearing Liabilities:
|
||||||||||||||||||||||||
|
Savings and money market deposits
|
$
|
488,173
|
$
|
410
|
0.17
|
%
|
$
|
447,248
|
$
|
406
|
0.18
|
%
|
||||||||||||
|
NOW deposits
|
1,541,588
|
4,787
|
0.62
|
1,397,923
|
1,140
|
0.16
|
||||||||||||||||||
|
Certificates of deposit
|
66,030
|
551
|
1.67
|
34,775
|
151
|
0.87
|
||||||||||||||||||
|
Borrowings
|
88,094
|
1,663
|
3.78
|
38,612
|
875
|
4.53
|
||||||||||||||||||
|
Total interest-bearing liabilities
|
2,183,885
|
7,411
|
0.68
|
%
|
1,918,558
|
2,572
|
0.27
|
%
|
||||||||||||||||
|
Noninterest-bearing deposits
|
179,803
|
185,911
|
||||||||||||||||||||||
|
Other noninterest-bearing liabilities
|
25,489
|
22,174
|
||||||||||||||||||||||
|
Shareholders' equity
|
162,097
|
155,119
|
||||||||||||||||||||||
|
Total liabilities and equity
|
$
|
2,551,274
|
$
|
2,281,762
|
||||||||||||||||||||
|
Net interest income
|
$
|
31,757
|
$
|
28,852
|
||||||||||||||||||||
|
Net interest rate spread
|
2.49
|
%
|
2.57
|
%
|
||||||||||||||||||||
|
Net earnings assets
|
$
|
284,842
|
$
|
293,704
|
||||||||||||||||||||
|
Net interest margin
|
2.57
|
%
|
2.61
|
%
|
||||||||||||||||||||
|
Average interest-earning assets to average interest-bearing liabilities
|
113.04
|
%
|
115.31
|
%
|
||||||||||||||||||||
1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2Includes tax-free securities, mortgage-backed securities, and asset-backed securities.
|
Taxable-equivalent net interest income and net interest margin
|
For the six months ended
December 31,
|
|||||||
|
(Dollars in thousands)
|
2022
|
2021
|
||||||
|
Net interest income (GAAP)
|
$
|
31,757
|
$
|
28,852
|
||||
|
Tax-equivalent adjustment(1)
|
2,407
|
1,582
|
||||||
|
Net interest income (fully taxable-equivalent)
|
$
|
34,164
|
$
|
30,434
|
||||
|
Average interest-earning assets
|
$
|
2,468,727
|
$
|
2,212,262
|
||||
|
Net interest margin (fully taxable-equivalent)
|
2.77
|
%
|
2.75
|
%
|
||||
1Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if
the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. The rate used for this adjustment was 21% for federal income taxes and 4.44% for New York
State income taxes for the periods ended December 31, 2022 and 2021, respectively.
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.
|
Three Months Ended December 31,
2022 versus 2021 |
Six Months Ended December 31,
2022 versus 2021 |
|||||||||||||||||||||||
|
(Dollars in thousands)
|
Increase/(Decrease)
Due To |
Total
Increase/ |
Increase/(Decrease)
Due To |
Total
Increase/ |
||||||||||||||||||||
|
Volume
|
Rate
|
(Decrease)
|
Volume
|
Rate
|
(Decrease)
|
|||||||||||||||||||
|
Interest Earning Assets:
|
||||||||||||||||||||||||
|
Loans receivable, net1
|
$
|
2,611
|
$
|
200
|
$
|
2,811
|
$
|
4,753
|
$
|
(627
|
)
|
$
|
4,126
|
|||||||||||
|
Securities non-taxable
|
179
|
1,072
|
1,251
|
647
|
1,590
|
2,237
|
||||||||||||||||||
|
Securities taxable
|
3
|
479
|
482
|
269
|
932
|
1,201
|
||||||||||||||||||
|
Interest-bearing bank balances and federal funds
|
(54
|
)
|
184
|
130
|
(127
|
)
|
242
|
115
|
||||||||||||||||
|
FHLB stock
|
28
|
15
|
43
|
55
|
10
|
65
|
||||||||||||||||||
|
Total interest-earning assets
|
2,767
|
1,950
|
4,717
|
5,597
|
2,147
|
7,744
|
||||||||||||||||||
|
Interest-Bearing Liabilities:
|
||||||||||||||||||||||||
|
Savings and money market deposits
|
16
|
(9
|
)
|
7
|
30
|
(26
|
)
|
4
|
||||||||||||||||
|
NOW deposits
|
63
|
2,562
|
2,625
|
126
|
3,521
|
3,647
|
||||||||||||||||||
|
Certificates of deposit
|
88
|
169
|
257
|
198
|
202
|
400
|
||||||||||||||||||
|
Borrowings
|
341
|
17
|
358
|
954
|
(166
|
)
|
788
|
|||||||||||||||||
|
Total interest-bearing liabilities
|
508
|
2,739
|
3,247
|
1,308
|
3,531
|
4,839
|
||||||||||||||||||
|
Net change in net interest income
|
$
|
2,259
|
$
|
(789
|
)
|
$
|
1,470
|
$
|
4,289
|
$
|
(1,384
|
)
|
$
|
2,905
|
||||||||||
1 Calculated net of deferred loan fees, loan discounts, and loans in process.
GENERAL
Return on average assets and return on average equity are common methods of measuring operating results. Annualized return on average assets decreased to 1.12% from 1.18% for the three months ended December 31,
2022 and 2021, respectively, and increased to 1.27% from 1.23% for the six months ended December 31, 2022 and 2021, respectively. Annualized return on average equity increased to 17.64% for the three months and increased to 20.03% for the six
months ended December 31, 2022 as compared to 17.50% for the three months and 18.04% for the six months ended December 31, 2021. The decrease in return on average assets for the three months ended December 31, 2022 was due to a decrease in net
income, due to an increase in noninterest expense of $1.6 million for the quarter as discussed below. The increase in return on average assets for the six months ended December 31, 2022 and increase in return on average equity for the three and
six months ended December 31, 2022 was primarily the result of net income outpacing growth in the balance sheet. Net income amounted to $7.2 million and $6.9 million for the three months ended December 31, 2022 and 2021, respectively, an increase
of $321,000, or 4.7%, and amounted to $16.2 million and $14.0 million for the six months ended December 31, 2022 and 2021, respectively, an increase of $2.2 million, or 16.0%. Average assets increased $227.3 million, or 9.7%, to $2.6 billion for
the three months ended December 31, 2022 as compared to $2.3 billion for the three months ended December 31, 2021. Average equity increased $6.1 million, or 3.9%, to $163.2 million for the three months ended December 31, 2022 as compared to
$157.2 million for the three months ended December 31, 2021. Average assets increased $269.5 million, or 11.8%, to $2.6 billion for the six months ended December 31, 2022 as compared to $2.3 billion for the six months ended December 31, 2021.
Average equity increased $7.0 million, or 4.5%, to $162.1 million for the six months ended December 31, 2022 as compared to $155.1 million for the six months ended December 31, 2021.
INTEREST INCOME
Interest income amounted to $20.5 million for the three months ended December 31, 2022 as compared to $15.8 million for the three months ended December 31, 2021, an increase of $4.7 million, or 29.8%. Interest
income amounted to $39.2 million for the six months ended December 31, 2022 as compared to $31.4 million for the six months ended December 31, 2021, an increase of $7.7 million, or 24.6%. The increase in average balances on loans and securities
had the greatest impact on interest income. The rates earned on securities also increased during the quarter contributing to higher interest income.
Average loan balances increased $241.2 million and $225.3 million and the yield on loans increased 7 basis points and decreased 11 basis points when comparing the three and six months ended December 31, 2022 and
2021, respectively. The yield on loans decreased for the six months ended December 31, 2022 due to the fee income recognized on Paycheck Protection Program (“PPP”) loans for the six months ended December 31, 2021. Excluding PPP loan fees, loan
yields increased 33 basis points when comparing the six months ended December 31, 2022 and 2021. Average securities increased $48.0 million and $116.3 million and the yield on such securities increased 29 and 47 basis points when comparing the
three and six months ended December 31, 2022 and 2021, respectively. Average interest-bearing bank balances and federal funds decreased $76.4 million and $87.1 million, and the yield increased 303 and 278 basis points when comparing the three
and six months ended December 31, 2022 and 2021, respectively.
INTEREST EXPENSE
Interest expense amounted to $4.6 million for the three months ended December 31, 2022 as compared to $1.4 million for the three months ended December 31, 2021, an increase of $3.2 million or 239.1%. Interest
expense amounted to $7.4 million for the six months ended December 31, 2022 as compared to $2.6 million for the six months ended December 31, 2021, an increase of $4.8 million or 188.1%. The increase in average cost of NOW deposits and
certificates of deposit had the greatest impact on interest expense during the three and six months ended December 31, 2022.
Cost of interest-bearing liabilities increased 56 and 41 basis points when comparing the three and six months ended December 31, 2022 and 2021. The cost of NOW deposits increased 65 and 46 basis points, the cost of
certificates of deposit increased 128 and 80 basis points, and the cost of savings and money market deposits remained flat when comparing the three and six months ended December 31, 2022 and 2021, respectively. The increase in the cost of
interest-bearing liabilities was also due to growth in the average balance of interest-bearing liabilities of $233.7 million and $265.3 million, most notably due to an increase in NOW deposits of $143.6 million and $143.7 million, an increase in
average savings and money market deposits of $30.2 million and $40.9 million, an increase in average borrowings of $32.4 million and $49.5 million, and an increase in average certificates of deposits of $27.5 million and $31.3 million, when
comparing the three and six months ended December 31, 2022 and 2021, respectively. Yields on interest-earning assets and costs of interest-bearing deposits increased for the three and six months ended December 31, 2022, as the Federal Reserve
Board raised interest rates throughout the calendar year 2022.
NET INTEREST INCOME
Net interest income increased $1.4 million to $15.9 million for the three months ended December 31, 2022 from $14.5 million for the three months ended December 31, 2021. Net interest income increased $2.9 million
to $31.8 million for the six months ended December 31, 2022 from $28.9 million for the six months ended December 31, 2021. The increase in net interest income was the result of growth in the average balance of interest-earning assets, and
increases in interest rates on interest-earning assets, which increased 52 and 33 basis points when comparing the three and six months ended December 31, 2022 and 2021, respectively. The increase in net interest income was offset by increases in
the average balance of interest-bearing liabilities, and increases in rates paid on interest-bearing liabilities.
Net interest rate spread and margin both decreased when comparing the six months ended December 31, 2022 and 2021. Net interest rate spread decreased 4 and 8 basis points to 2.47% and 2.49% for the three and six
months ended December 31, 2022 compared to 2.51% and 2.57% for the three and six months ended December 31, 2021, respectively. Net interest margin increased 2 basis points to 2.57%, for the three months ended December 31, 2022 compared to 2.55%
for the three months ended December 31, 2021. Net interest margin decreased 4 basis points to 2.57%, for the six months ended December 31, 2022 compared to 2.61% for the six months ended December 31, 2021. The decrease during the current quarter
was due to the higher interest rate environment, which resulted in higher rates paid on deposits, resulting in higher interest expense. This was partially offset by increases in interest income on loans and securities, as they are being repriced
at higher yields and the interest rates earned on new balances are higher than the historic low levels.
Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to
federal and New York State income taxes yielding the same after-tax income. Tax equivalent net interest margin was 2.77% and 2.69% for the three months ended December 31, 2022 and 2021, respectively, and was 2.77% and 2.75% for the six months
ended December 31, 2022 and 2021, respectively.
Due to the large portion of fixed-rate residential mortgages in the Company’s portfolio, the Company closely monitors its interest rate risk, and the Company will continue to monitor and adjust the asset and
liability mix as much as possible to take advantage of the benefits and reduce the risks or potential negative effects of changes in interest rates. Management attempts to mitigate the interest rate risk through balance sheet composition.
Several strategies are used to help manage interest rate risk such as maintaining a high level of liquid assets such as short-term federal funds sold and various investment securities and maintaining a high concentration of less interest-rate
sensitive and lower-costing core deposits.
The Federal Reserve Board has taken a number of measures in an attempt to slow inflation. The Federal Reserve Board changed its Monetary Policy to raise rates in recent quarters. The rise in the federal funds rate
has and is expected to continue to have a positive impact to the Company’s interest spread and margin as the rates on new loans and securities purchased are at a higher rate than in the prior year, however given how quickly the rate rise has
been, it has not allowed the Company to reprice assets as quickly as deposits.
PROVISION FOR LOAN LOSSES
Provision for loan losses amounted to $244,000 and $1.3 million for the three months ended December 31, 2022 and 2021, respectively, and amounted to a benefit of $255,000 and a charge of $2.3 million for the six
months ended December 31, 2022 and 2021, respectively. The provision for loan losses for the three months ended December 31, 2022 was due to the growth in gross loans partially offset by the decrease in loans classified as substandard. The
benefit for the six months ended December 31, 2022 was due to a decrease in the balance and reserve percentage on loans adversely classified, partially offset by the growth in gross loans. Loans classified as substandard or special mention
totaled $44.9 million at December 31, 2022 and $52.1 million at June 30, 2022, a decrease of $7.2 million. Reserves on loans classified as substandard or special mention totaled $6.7 million at December 31, 2022 compared to $9.6 million at June
30, 2022, a decrease of $2.9 million. There were no loans classified as doubtful or loss at December 31, 2022 or June 30, 2022. Allowance for loan losses to total loans receivable was 1.60% at December 31, 2022 compared to 1.82% at June 30, 2022.
Net charge-offs amounted to $102,000 and $89,000 for the three months ended December 31, 2022 and 2021, respectively, an increase of $13,000. Net charge-offs totaled $217,000 and $252,000 for the six months ended
December 31, 2022 and 2021, respectively, a decrease of $35,000. There were no significant charge offs in each loan segment during the three and six months ended December 31, 2022.
Nonperforming loans amounted to $5.4 million and $6.3 million at December 31, 2022 and June 30, 2022, respectively. The decrease in nonperforming loans during the period was primarily due to $1.1 million in loan
repayments, $134,000 in loans returning to performing status, and $7,000 in charge-offs, partially offset by $277,000 of loans placed into nonperforming status. At December 31, 2022 nonperforming assets were 0.21% of total assets compared to
0.25% at June 30, 2022. Nonperforming loans were 0.39% and 0.50% of net loans at December 31, 2022 and June 30, 2022, respectively.
NONINTEREST INCOME
|
(In thousands)
|
For the three months
ended December 31,
|
Change from Prior Year
|
For the six months
ended December 31,
|
Change from Prior Year
|
||||||||||||||||||||||||||||
|
Noninterest income:
|
2022
|
2021
|
Amount
|
Percent
|
2022
|
2021
|
Amount
|
Percent
|
||||||||||||||||||||||||
|
Service charges on deposit accounts
|
$
|
1,234
|
$
|
1,158
|
$
|
76
|
6.56
|
%
|
$
|
2,451
|
$
|
2,227
|
$
|
224
|
10.06
|
%
|
||||||||||||||||
|
Debit card fees
|
1,138
|
1,107
|
31
|
2.80
|
2,280
|
2,190
|
90
|
4.11
|
||||||||||||||||||||||||
|
Investment services
|
198
|
278
|
(80
|
)
|
(28.78
|
)
|
378
|
491
|
(113
|
)
|
(23.01
|
)
|
||||||||||||||||||||
|
E-commerce fees
|
29
|
27
|
2
|
7.41
|
55
|
60
|
(5
|
)
|
(8.33
|
)
|
||||||||||||||||||||||
|
Bank-owned life insurance
|
340
|
315
|
25
|
7.94
|
680
|
616
|
64
|
10.39
|
||||||||||||||||||||||||
|
Net loss on available-for-sale securities
|
(251
|
)
|
-
|
(251
|
)
|
(100.00
|
)
|
(251
|
)
|
-
|
(251
|
)
|
(100.00
|
)
|
||||||||||||||||||
|
Other operating income
|
207
|
353
|
(146
|
)
|
(41.36
|
)
|
400
|
583
|
(183
|
)
|
(31.39
|
)
|
||||||||||||||||||||
|
Total noninterest income
|
$
|
2,895
|
$
|
3,238
|
$
|
(343
|
)
|
(10.59
|
)%
|
$
|
5,993
|
$
|
6,167
|
$
|
(174
|
)
|
(2.82
|
)%
|
||||||||||||||
Noninterest income decreased $343,000, or 10.6%, to $2.9 million for the three months ended December 31, 2022 compared to $3.2 million for the three months ended December 31, 2021. Noninterest income decreased
$174,000, or 2.8%, to $6.0 million for the six months ended December 31, 2022 compared to $6.2 million for the six months ended December 31, 2021. The decrease was primarily due to a decrease in investment service income and a net loss on sale of
available for sale securities. This was partially offset by an increase in debit card fees and service charges on deposit accounts resulting from continued growth in the number of checking accounts with debit cards and the number of deposit
accounts, and the income from bank-owned life insurance.
NONINTEREST EXPENSE
|
(In thousands)
|
For the three months
ended December 31,
|
Change from Prior Year
|
For the six months
ended December 31,
|
Change from Prior Year
|
||||||||||||||||||||||||||||
|
Noninterest expense:
|
2022
|
2021
|
Amount
|
Percent
|
2022
|
2021
|
Amount
|
Percent
|
||||||||||||||||||||||||
|
Salaries and employee benefits
|
$
|
5,449
|
$
|
5,034
|
$
|
415
|
8.24
|
%
|
$
|
10,877
|
$
|
9,771
|
$
|
1,106
|
11.32
|
%
|
||||||||||||||||
|
Occupancy expense
|
513
|
573
|
(60
|
)
|
(10.47
|
)
|
1,037
|
1,078
|
(41
|
)
|
(3.80
|
)
|
||||||||||||||||||||
|
Equipment and furniture expense
|
221
|
231
|
(10
|
)
|
(4.33
|
)
|
379
|
387
|
(8
|
)
|
(2.07
|
)
|
||||||||||||||||||||
|
Service and data processing fees
|
664
|
650
|
14
|
2.15
|
1,366
|
1,288
|
78
|
6.06
|
||||||||||||||||||||||||
|
Computer software, supplies and
support
|
369
|
394
|
(25
|
)
|
(6.35
|
)
|
750
|
772
|
(22
|
)
|
(2.85
|
)
|
||||||||||||||||||||
|
Advertising and promotion
|
145
|
98
|
47
|
47.96
|
221
|
199
|
22
|
11.06
|
||||||||||||||||||||||||
|
FDIC insurance premiums
|
205
|
201
|
4
|
1.99
|
447
|
421
|
26
|
6.18
|
||||||||||||||||||||||||
|
Legal and professional fees
|
1,697
|
421
|
1,276
|
303.09
|
2,148
|
817
|
1,331
|
162.91
|
||||||||||||||||||||||||
|
Other
|
688
|
735
|
(47
|
)
|
(6.39
|
)
|
1,523
|
1,565
|
(42
|
)
|
(2.68
|
)
|
||||||||||||||||||||
|
Total noninterest expense
|
$
|
9,951
|
$
|
8,337
|
$
|
1,614
|
19.36
|
%
|
$
|
18,748
|
$
|
16,298
|
$
|
2,450
|
15.03
|
%
|
||||||||||||||||
Noninterest expense increased $1.6 million or 19.4%, to $9.9 million for the three months ended December 31, 2022 compared to $8.3 million for the three months ended December 31, 2021. Noninterest expense increased
$2.4 million, or 15.0%, to $18.7 million for the six months ended December 31, 2022, compared to $16.3 million for the six months ended December 31, 2021. The increase during the three and six months ended December 31, 2022 was primarily due a
non-recurring litigation reserve expense of $1.2 million and increases in salaries and employee benefits expense due to new positions created during the period to support the Company’s growth.
INCOME TAXES
Provision for income taxes reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements. The effective tax rate was 16.5% and 15.7% for the three and
six months ended December 31, 2022 and 14.8% and 15.0% for the three and six months ended December 31, 2021. The statutory tax rate is impacted by the benefits derived from tax-exempt bond and loan income, the Company’s real estate investment
trust subsidiary income, income received on the bank-owned life insurance, as well as the tax benefits derived from premiums paid to the Company’s pooled captive insurance subsidiary to arrive at the effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The
Company’s most significant form of market risk is interest rate risk since the majority of Company’s assets and liabilities are sensitive to changes in interest rates. The Company’s primary sources of funds are deposits and proceeds from
principal and interest payments on loans, mortgage-backed securities and debt securities, with lines of credit available through the Federal Home Loan Bank and Atlantic Central Bankers Bank as needed. While maturities and scheduled amortization
of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and lending activities are greatly influenced by general interest rates, economic conditions and competition. At December 31, 2022, the Company had
$60.8 million in cash and cash equivalents, representing 2.3% of total assets, and had $280.1 million available in unused lines of credit.
At December 31, 2022, liquidity measures were as follows:
|
Cash equivalents/(deposits plus short term borrowings)
|
2.56
|
%
|
||
|
(Cash equivalents plus unpledged securities)/(deposits plus short term borrowings)
|
8.34
|
%
|
||
|
(Cash equivalents plus unpledged securities plus additional borrowing capacity)/(deposits plus short term borrowings)
|
20.15
|
%
|
The Company’s unfunded loan commitments and unused lines of credit are as follows at December 31, 2022:
|
(In thousands)
|
||||
|
Unfunded loan commitments
|
$
|
118,242
|
||
|
Unused lines of credit
|
93,697
|
|||
|
Standby letters of credit
|
889
|
|||
|
Total commitments
|
$
|
212,828
|
||
The Company anticipates that it will have sufficient funds available to meet current loan commitments based on the level of cash and cash equivalents as well as the available-for-sale investment portfolio and
borrowing capacity.
Risk Participation Agreements
Risk participation agreements (“RPAs”) are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party.
Under the terms of these agreements, the “participating bank” receives a fee from the “lead bank” in exchange for the guarantee of reimbursement if the customer defaults on an interest rate swap. The interest rate swap is transacted such that any
and all exchanges of interest payments (favorable and unfavorable) are made between the lead bank and the customer. In the event that an early termination of the swap occurs and the customer is unable to make a required close out payment, the
participating bank assumes that obligation and is required to make this payment.
RPAs in which the Company acts as the lead bank are referred to as “participations-out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company.
Participations-out generally occur concurrently with the sale of new customer derivatives. The Company had no participations-out at December 31, 2022 or June 30, 2022. RPAs where the Company acts as the participating bank are referred to as
“participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced
interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivables from the customer. There was no credit exposure associated with risk participations-in as of
December 31, 2022 and June 30, 2022 due to the recent rise in interest rate. The RPAs participations-ins are spread out over four financial institution counterparties and terms range between 5 to 14 years.
The Bank of Greene County and its wholly-owned subsidiary, Greene County Commercial Bank, met all applicable regulatory capital requirements at December 31, 2022 and June 30, 2022.
|
(Dollars in thousands)
|
Actual
|
For Capital
Adequacy |
To Be Well
Capitalized Under |
Capital Conservation
Buffer |
||||||||||||||||||||||||||||
|
The Bank of Greene County
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
Actual
|
Required
|
||||||||||||||||||||||||
|
As of December 31, 2022:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$
|
239,371
|
15.9
|
%
|
$
|
120,406
|
8.0
|
%
|
$
|
150,508
|
10.0
|
%
|
7.90
|
%
|
2.50
|
%
|
||||||||||||||||
|
Tier 1 risk-based capital
|
220,515
|
14.7
|
90,305
|
6.0
|
120,406
|
8.0
|
8.65
|
2.50
|
||||||||||||||||||||||||
|
Common equity tier 1 capital
|
220,515
|
14.7
|
67,728
|
4.5
|
97,830
|
6.5
|
10.15
|
2.50
|
||||||||||||||||||||||||
|
Tier 1 leverage ratio
|
220,515
|
8.5
|
103,859
|
4.0
|
129,824
|
5.0
|
4.49
|
2.50
|
||||||||||||||||||||||||
|
As of June 30, 2022:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$
|
221,236
|
16.0
|
%
|
$
|
110,294
|
8.0
|
%
|
$
|
137,867
|
10.0
|
%
|
8.05
|
%
|
2.50
|
%
|
||||||||||||||||
|
Tier 1 risk-based capital
|
203,935
|
14.8
|
82,720
|
6.0
|
110,294
|
8.0
|
8.79
|
2.50
|
||||||||||||||||||||||||
|
Common equity tier 1 capital
|
203,935
|
14.8
|
62,040
|
4.5
|
89,614
|
6.5
|
10.29
|
2.50
|
||||||||||||||||||||||||
|
Tier 1 leverage ratio
|
203,935
|
8.1
|
100,193
|
4.0
|
125,242
|
5.0
|
4.14
|
2.50
|
||||||||||||||||||||||||
|
Greene County Commercial Bank
|
||||||||||||||||||||||||||||||||
|
As of December 31, 2022:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$
|
102,602
|
45.5
|
%
|
$
|
18,036
|
8.0
|
%
|
$
|
22,545
|
10.0
|
%
|
37.51
|
%
|
2.50
|
%
|
||||||||||||||||
|
Tier 1 risk-based capital
|
102,602
|
45.5
|
13,527
|
6.0
|
18,036
|
8.0
|
39.51
|
2.50
|
||||||||||||||||||||||||
|
Common equity tier 1 capital
|
102,602
|
45.5
|
10,145
|
4.5
|
14,655
|
6.5
|
41.01
|
2.50
|
||||||||||||||||||||||||
|
Tier 1 leverage ratio
|
102,602
|
8.7
|
47,019
|
4.0
|
58,774
|
5.0
|
4.73
|
2.50
|
||||||||||||||||||||||||
|
As of June 30, 2022:
|
||||||||||||||||||||||||||||||||
|
Total risk-based capital
|
$
|
94,408
|
41.5
|
%
|
$
|
18,195
|
8.0
|
%
|
$
|
22,744
|
10.0
|
%
|
33.51
|
%
|
2.50
|
%
|
||||||||||||||||
|
Tier 1 risk-based capital
|
94,408
|
41.5
|
13,646
|
6.0
|
18,195
|
8.0
|
35.51
|
2.50
|
||||||||||||||||||||||||
|
Common equity tier 1 capital
|
94,408
|
41.5
|
10,235
|
4.5
|
14,783
|
6.5
|
37.01
|
2.50
|
||||||||||||||||||||||||
|
Tier 1 leverage ratio
|
94,408
|
8.1
|
46,874
|
4.0
|
58,593
|
5.0
|
4.06
|
2.50
|
||||||||||||||||||||||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
Not applicable to smaller reporting companies.
Under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation
of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and in timely altering them to material information relating to the Company (or its
consolidated subsidiaries) required to be filed in its periodic SEC filings.
There has been no change in the Company's internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company's last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control over financial reporting.
| Part II. |
Other Information
|
The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Except as noted below, management believes there are no such legal
proceedings pending or threatened against the Company or its subsidiaries, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company or any
of its subsidiaries. See Note 14 – Commitments and Contingent Liabilities to the Notes to the unaudited financial statements for a description of a current lawsuit in which the Company has been named a party.
Not applicable to smaller reporting companies.
|
a)
|
Not applicable
|
|
b)
|
Not applicable
|
|
c)
|
On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program. Under the repurchase program, the Company is authorized to repurchase up to 200,000 shares of its common
stock. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market
conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. There were no additional share repurchases during the quarter ended December 31, 2022.
|
Not applicable.
Not applicable.
| a) |
Not applicable
|
| b) |
There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.
|
|
Exhibits
|
||
|
Greene County Bancorp, Inc. Stock Holding Company Charter as amended on January 19, 2023.
|
||
|
Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
|
||
|
Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
|
||
|
Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
|
||
|
Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350
|
||
|
101
|
The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended December 31, 2022, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated
Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash
Flows and (iv) Notes to Consolidated Financial Statements, (detail tagged).
|
|
|
104
|
Cover Page Integrative Data File (formatted in iXBRL and included in exhibit 101).
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.
Greene County Bancorp, Inc.
Date: February 10, 2023
By: /s/ Donald E. Gibson
Donald E. Gibson
President and Chief Executive Officer
Date: February 10, 2023
By: /s/ Michelle M. Plummer
Michelle M. Plummer, CPA, CGMA
Senior Executive Vice President, Chief Financial Officer, and Chief Operating Officer
48