GREENE COUNTY BANCORP, INC. Overview of the Company's Activities and Risks
Greene County Bancorp, Inc.'s results of operations depend primarily on its net interest income, which is the difference between the income earned onGreene County Bancorp, Inc.'s loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected byGreene County Bancorp, Inc.'s provision for loan losses, gains and losses from sales of securities, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges.Greene County Bancorp, Inc.'s noninterest expense consists principally of compensation and employee benefits, occupancy, equipment and data processing, and other operating expenses. Results of operations are also significantly affected by general economic and competitive conditions, changes in interest rates, as well as government policies and actions of regulatory authorities. Additionally, future changes in applicable law, regulations or government policies may materially affectGreene County Bancorp, Inc. To operate successfully, the Company must manage various types of risk, including but not limited to, market or interest rate risk, credit risk, transaction risk, liquidity risk, security risk, strategic risk, reputation risk and compliance risk. While all of these risks are important, the risks of greatest significance to the Company relate to market or interest rate risk and credit risk. Market risk is the risk of loss from adverse changes in market prices and/or interest rates. Since net interest income (the difference between interest earned on loans and investments and interest paid on deposits and borrowings) is the Company's primary source of revenue, interest rate risk is the most significant non-credit related market risk to which the Company is exposed.
Net
interest income is affected by changes in interest rates as well as fluctuations in the level and duration of the Company's assets and liabilities.
Interest rate risk is the exposure of the Company's net interest income to adverse movements in interest rates. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancings, and the flow and mix of deposits. Credit risk is the risk to the Company's earnings and shareholders' equity that results from customers, to whom loans have been made and to the issuers of debt securities in which the Company has invested, failing to repay their obligations. The magnitude of risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased. 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. COVID-19 has had an impact on operations during the quarter endedMarch 31, 2020 with the closing of branch lobbies and with some staff operating remotely. These changes to operations have not had a significant impact on the Company's ability to provide services to our customers. While COVID-19 has resulted in our staff operating remotely, we believe that our established internal control structure is not impacted. As we continue to monitor and adapt to the changing environment due to COVID-19, we will continue to evaluate our internal controls over financial reporting.
Special Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements.Greene County Bancorp, Inc. , (the "Company") desires to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all such forward-looking statements. These forward-looking statements, which are included in this Management's Discussion and Analysis and elsewhere in this quarterly report, describe future plans or strategies and includeGreene County Bancorp, Inc.'s expectations of future financial results. The words "believe," "expect," "anticipate," "project," and similar expressions identify forward-looking statements.Greene County Bancorp, Inc.'s ability to predict results or the effect of future plans or strategies or qualitative or quantitative changes based on market risk exposure is inherently uncertain. Factors that could affect actual results include but are not limited to:
(a) changes in general market interest rates,
(b) general economic conditions, including unemployment rates and real estate
values,
(c) legislative and regulatory changes,
(d) monetary and fiscal policies of the
(e) changes in the quality or composition of
portfolio or the consolidated investment portfolios of
County andGreene County Bancorp, Inc. , 34
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Index (f) deposit flows, (g) competition,
(h) economic and/or policy changes related to the COVID-19 pandemic, and
(i) demand for financial services in
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 theSecurities and Exchange Commission (SEC), applies to certainSEC filings, including earnings releases, made by registered companies that contain "non-GAAP financial measures." GAAP is generally accepted accounting principles inthe 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. TheSEC 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 in its periodic reports filed with theSEC , including period-end regulatory capital ratios for itself and its subsidiary banks, and does so without compliance with Regulation G, on the widely-shared assumption that theSEC 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 theSEC from RegulationG. 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 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. 35
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Comparison of Financial Condition at
ASSETS
Total assets of the Company were$1.6 billion atMarch 31, 2020 and$1.3 billion atJune 30, 2019 , an increase of$315.0 million , or 24.8%. Securities available-for-sale and held-to-maturity amounted to$591.7 million atMarch 31, 2020 as compared to$426.9 million atJune 30, 2019 , an increase of$164.8 million , or 38.6%. Net loans grew by$98.0 million , or 12.5%, to$883.7 million atMarch 31, 2020 as compared to$785.7 million atJune 30, 2019 .
CASH AND CASH EQUIVALENTS
Total cash and cash equivalents increased$48.3 million to$77.8 million atMarch 31, 2020 from$29.5 million atJune 30, 2019 . 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 increased$164.8 million , or 38.6%, to$591.7 million atMarch 31, 2020 as compared to$426.9 million atJune 30, 2019 . Securities purchases totaled$286.1 million during the nine months endedMarch 31, 2020 , and consisted of$194.1 million of state and political subdivision securities and$84.7 million of mortgage-backed securities,$3.8 million of other securities, and$3.5 million of corporate securities. Principal pay-downs and maturities during the nine months amounted to$120.9 million , of which$27.1 million were mortgage-backed securities,$83.1 million were state and political subdivision securities,$10.3 million wereU.S. government sponsored enterprises and$0.3 million were other securities. AtMarch 31, 2020 , 60.7% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promoteGreene County Bancorp, Inc.'s participation in the communities in which it operates. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending. March 31, 2020 June 30, 2019 (Dollars in thousands) Percentage of Percentage of Balance portfolio Balance portfolio Securities available-for-sale: U.S. government sponsored enterprises$ 2,522 0.4 %$ 5,553 1.3 % State and political subdivisions 168,015 28.4 96,570 22.6 Mortgage-backed securities-residential 10,127 1.7 2,645 0.6 Mortgage-backed securities-multifamily 23,998 4.1 16,410 3.8 Corporate debt securities 4,460 0.7 1,550 0.4 Total securities available-for-sale 209,122 35.3 122,728 28.7 Securities held-to-maturity: U.S. government sponsored enterprises 2,000 0.3 9,249 2.2 State and political subdivisions 191,244 32.3 152,358 35.7 Mortgage-backed securities-residential 41,525 7.0 4,570 1.1 Mortgage-backed securities-multifamily 140,738 23.8 134,970 31.6 Corporate debt securities 1,993 0.3 1,478 0.3 Other securities 5,032 1.0 1,583 0.4 Total securities held-to-maturity 382,532 64.7 304,208 71.3 Total securities$ 591,654 100.0 %$ 426,936 100.0 % 36
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LOANS
Net loans receivable increased$98.0 million , or 12.5%, to$883.7 million atMarch 31, 2020 from$785.7 million atJune 30, 2019 . The loan growth experienced during the nine months endedMarch 31, 2020 consisted primarily of$34.0 million in commercial construction loans,$44.5 million in commercial real estate loans,$10.1 million in commercial loans,$10.1 million in residential mortgages,$1.0 million in multi-family loans and$1.6 million in residential construction and land loans. This growth was partially offset by a$1.0 million decrease in home equity loans, and$2.0 million increase in allowance for loan losses. We believe that the continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growthThe Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products. A significant decline in home values, however, in the Company's markets could have a negative effect on the consolidated results of operations, as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios. Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower's ability to repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy. (Dollars in thousands) March 31, 2020 June 30, 2019 Percentage of Percentage of Balance Portfolio Balance Portfolio Residential real estate$ 277,891 30.9 %$ 267,802 33.6 % Residential construction and land 9,097 1.0 7,462 0.9 Multi-family 25,370 2.8 24,592 3.1 Commercial real estate 374,155 41.7 329,668 41.3 Commercial construction 70,348 7.8 36,361 4.5 Home equity 22,179 2.5 23,185 2.9 Consumer installment 5,280 0.6 5,481 0.7 Commercial loans 113,641 12.7 103,554 13.0 Total gross loans 897,961 100.0 % 798,105 100.0 %
Allowance for loan losses (15,205 ) (13,200 ) Deferred fees and costs 979 833 Total net loans$ 883,735 $ 785,738 The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law onMarch 27, 2020 , and provides over$2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES act authorized theSmall Business Administration ("SBA") to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program ("PPP"). Although we were not already a qualified SBA lender, we enrolled in the PPP by completing the required documentation. An eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly "payroll costs"; or (2)$10.0 million . PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity, and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower's PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and at least 75% of the loan proceeds are used for payroll expenses, with the remaining 25%, or less, of the loan proceeds used for other qualifying expenses. OnApril 27, 2020 , the SBA resumed accepting PPP loan applications as a result of the Paycheck Protection Program and Health Care Enhancement Act which was passed onApril 24, 2020 . As ofMay 6, 2020 , we had received SBA approval for approximately, 1,088 applications for up to$95.1 million of loans under the PPP. 37
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ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses based on management's evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of 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 reviewThe Bank of Greene County's allowance for loan losses. Such agencies may requireThe Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.The Bank of Greene County considers smaller balance residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Larger balance residential and commercial mortgage and business loans are viewed individually and considered impaired if it is probable thatThe Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements. The measurement of impaired loans is generally based on the fair value of the underlying collateral.The Bank of Greene County 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 Bank 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 nine months ended
March 31,
(Dollars in thousands) 2020 2019
Balance at the beginning of the period $ 13,200 $ 12,024
Charge-offs:
Residential real estate 101 96
Commercial real estate - 74
Consumer installment 359 284
Commercial loans 333 51
Total loans charged off 793 505
Recoveries:
Residential real estate mortgages 13 13
Consumer installment 83 103
Commercial loans 36 153
Total recoveries 132 269
Net charge-offs 661 236
Provisions charged to operations 2,666 1,058
Balance at the end of the period $
15,205
Net charge-offs to average loans outstanding (annualized) 0.11 % 0.04 % Net charge-offs to nonperforming assets (annualized) 22.69 % 10.34 % Allowance for loan losses to nonperforming loans 391.38 % 429.92 % Allowance for loan losses to total loans receivable 1.69 % 1.66 %
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.
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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. It should be noted that management does not evaluate all loans individually for impairment. Generally,The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors. In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are viewed individually and considered impaired if it is probable thatThe Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The majority ofThe Bank of Greene County loans, including most nonaccrual loans, are small homogenous 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. 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.
Analysis of Nonaccrual Loans and Nonperforming Assets
March 31, June 30,
(Dollars in thousands) 2020 2019
Nonaccruing loans:
Residential real estate $ 2,438 $ 2,474
Multi-family 127 -
Commercial real estate 765 598
Home equity 305 452
Consumer installment - 6
Commercial 250 108
Total nonaccruing loans 3,885 3,638
90 days & accruing
Residential real estate - -
Total 90 days & accruing - -
Total nonperforming loans 3,885 3,638
Foreclosed real estate:
Residential real estate - 53
Total foreclosed real estate - 53
Total nonperforming assets $ 3,885 Troubled debt restructuring: Nonperforming (included above)$ 315 $ 531 Performing (accruing and excluded above) 913
1,368
Total nonperforming assets as a percentage of total assets 0.25 % 0.29 % Total nonperforming loans to net loans 0.44
% 0.46 %
The table below details additional information related to nonaccrual loans for
the three and nine months ended
For the three months For the nine months
ended March 31, Ended March 31,
(In thousands) 2020 2019 2020 2019
Interest income that would have been
recorded if loans had been performing in
accordance with original terms $ 64 $ 31 $ 218 $ 160
Interest income that was recorded on
nonaccrual loans 51 26 143 81
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Nonperforming assets amounted to$3.9 million atMarch 31, 2020 and$3.7 million atJune 30, 2019 . Nonaccrual loans consisted primarily of loans secured by real estate atMarch 31, 2020 andJune 30, 2019 . Loans on nonaccrual status totaled$3.9 million atMarch 31, 2020 of which$1.3 million were in the process of foreclosure. AtMarch 31, 2020 , there were eight residential loans in the process of foreclosure totaling$1.0 million . Included in nonaccrual loans were$1.6 million of loans which were less than 90 days past due atMarch 31, 2020 , 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$3.6 million atJune 30, 2019 of which$1.6 million were in the process of foreclosure. AtJune 30, 2019 , there were 12 residential loans in the process of foreclosure totaling$1.5 million . Included in nonaccrual loans were$1.8 million of loans which were less than 90 days past due atJune 30, 2019 , but have a recent history of delinquency greater than 90 days past due. During the three months endedMarch 31, 2020 , the novel coronavirus ("COVID-19") had spread world-wide and the Federal and state governments have been diligently working to contain its spread. The result of these containment strategies has had an enormous impact on the economy and will have a negative impact on borrowers' ability to make timely loan payments as many businesses are forced to temporarily shut down.The Federal Reserve System along with the other various regulatory agencies have issued joint guidance to financial institutions who are working with borrowers affected by the coronavirus.The Bank of Greene County is working with borrowers, instituting a loan deferment program whereby short-term deferral of payments will be provided. As ofMay 6, 2020 , we had received requests to modify 688 loans aggregating$196.1 million , primarily consisting of the deferral of principal and/or interest payments. We will not report these loans as delinquent and will continue to recognize interest income during the deferral period. These loans will be closely monitored to determine collectability and accrual and delinquency status will be updated as deemed appropriate. Under Section 4013 of the CARES Act, loans less than 30 days past due as ofDecember 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring ("TDR"), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made betweenMarch 1, 2020 and the earlier of eitherDecember 31, 2020 or the 60th day after the end of the COVID-19 national emergency. Similarly, theFinancial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. Lastly, prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act. Based on this guidance, the Company does not believe that TDRs will significantly change as a result of the modifications granted. 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 atMarch 31, 2020 andJune 30, 2019 : (In thousands) March 31, 2020 June 30, 2019 Balance of impaired loans, with a valuation allowance $ 1,800 $ 2,000 Allowances relating to impaired loans included in allowance for loan losses 241 262 Balance of impaired loans, without a valuation allowance 1,825 1,894 Total impaired loans 3,625 3,894 For the three months For the nine months ended March 31, ended March 31, (In thousands) 2020 2019 2020 2019 Average balance of impaired loans for the periods ended$ 3,382 $ 4,178 $ 3,520 $ 4,018 Interest income recorded on impaired loans during the periods ended 31 57 139 120 40
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DEPOSITS
Deposits totaled$1.4 billion atMarch 31, 2020 and$1.1 billion atJune 30, 2019 , an increase of$309.0 million , or 27.6%. NOW deposits increased$292.2 million , or 45.2%, money market deposits increased$15.0 million , or 13.1%, and savings deposits increased$3.0 million , or 1.4% when comparingMarch 31, 2020 andJune 30, 2019 . These increases were offset by a decrease in noninterest-bearing deposits of$625,000 , or 0.6%, and a decrease in certificates of deposits of$548,000 , or 1.5%, when comparingMarch 31, 2020 andJune 30, 2019 . Percentage Percentage (In thousands) March 31, 2020 of Portfolio June 30, 2019 of Portfolio Noninterest-bearing deposits$ 106,844 7.5 %$ 107,469 9.6 % Certificates of deposit 35,994 2.5 36,542 3.3 Savings deposits 217,643 15.2 214,680 19.2 Money market deposits 129,918 9.1 114,915 10.2 NOW deposits 939,133 65.7 646,963 57.7 Total deposits$ 1,429,532 100.0 %$ 1,120,569 100.0 % BORROWINGS AtMarch 31, 2020 ,The Bank of Greene County had pledged approximately$320.3 million of its residential and commercial mortgage portfolio as collateral for borrowing and irrevocable stand-by letters of credit at theFederal Home Loan Bank of New York ("FHLB"). The maximum amount of funding available from the FHLB was$235.0 million atMarch 31, 2020 , of which$9.1 million in borrowings and$125.7 million in irrevocable stand-by letters of credit were outstanding atMarch 31, 2020 . There were no short-term or overnight borrowings outstanding atMarch 31, 2020 . The$9.1 million consisted of long-term fixed rate advances with a weighted average rate of 1.69% and a weighted average maturity of 15 months. The$125.7 million of irrevocable stand-by letters of credit with the FHLB have been issued to secure municipal transactional deposit accounts, on behalf ofGreene County Commercial Bank .The Bank of Greene County also pledges securities and certificates of deposit as collateral at theFederal Reserve Bank discount window for overnight borrowings. AtMarch 31, 2020 , approximately$5.2 million of collateral consisting of$4.5 million in securities and$762,000 of certificates of deposit, was available to be pledged against potential borrowings at theFederal Reserve Bank discount window. There were no balances outstanding with theFederal Reserve Bank atMarch 31, 2020 orJune 30, 2019 .
At
March 31, 2020 andJune 30, 2019 , there were no balances outstanding on any of these lines of credit.Greene County Bancorp, Inc. has also established an unsecured line of credit withAtlantic Central Bankers Bank for$7.5 million . There was$4.0 million outstanding on this line of credit atMarch 31, 2020 and no outstanding balance atJune 30, 2019 .
Scheduled maturities of long-term borrowings at
(In thousands) Within the twelve months endedMarch 31, 2021 $ 3,300 2022 4,850 2023 950$ 9,100 EQUITY Shareholders' equity increased to$124.0 million atMarch 31, 2020 from$112.4 million atJune 30, 2019 , resulting primarily from net income of$14.0 million and a decrease in other accumulated comprehensive loss of$36,000 , partially offset by dividends declared and paid of$1.8 million and repurchase of stock of$631,000 . OnSeptember 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. AtMarch 31, 2020 , the Company had repurchased 24,400 shares under this program. 41
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Selected Equity Data:
March 31, 2020 June 30, 2019
Shareholders' equity to total assets, at end of period 7.83 % 8.85 %
Book value per share $ 14.56 $ 13.16
Closing market price of common stock $ 23.36 $ 29.42
For the
nine months ended
2020 2019
Average shareholders' equity to average assets 8.37 % 8.63 %
Dividend payout ratio1 20.12 % 19.23 %
Actual dividends paid to net income2 12.89 % 12.34 %
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 Company's
majority 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 September 30, 2019 and March
31, 2020 . Dividends declared during the three months ended December 31, 2019
were paid to the MHC. Dividends declared during the three months ended
September 30, 2018 were paid to the MHC. The MHC waived its right to receive
dividends during the three months ended December 31, 2018 and March 31, 2019 .
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 .
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Comparison of Operating Results for the Three and Nine Months Ended
Average Balance Sheet The following table sets forth certain information relating toGreene County Bancorp, Inc. for the three and nine months endedMarch 31, 2020 and 2019. 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 March 31, 2020 2019 Average Interest Average Average Interest Average Outstanding Earned Yield / Outstanding Earned Yield /
(Dollars in thousands) Balance / Paid Rate Balance / Paid Rate Interest-earning Assets: Loans receivable, net1$ 878,442 $ 9,955 4.53 %$ 770,123 $ 8,900 4.62 % Securities2 542,018 3,250 2.40 387,988 2,559 2.64 Interest-bearing bank balances and federal funds 67,460 206 1.22 39,351 215 2.18 FHLB stock 1,359 26 7.65 1,634 34 8.32 Total interest-earning assets 1,489,279 13,437 3.61 % 1,199,096 11,708 11,40 3.91 % Cash and due from banks 13,401 13,368 Allowance for loan losses (14,113 ) (12,701 ) Other noninterest-earning assets 23,921 20,753 Total assets$ 1,512,488 $ 1,220,516 Interest-Bearing Liabilities: Savings and money market deposits$ 338,874 $ 351 0.41 %$ 326,535 $ 323 0.40 % NOW deposits 874,531 1,769 0.81 613,498 1,132 0.74 Certificates of deposit 35,640 119 1.34 41,654 129 1.24 Borrowings 13,051 57 1.75 20,320 98 1.93 Total interest-bearing liabilities 1,262,096 2,296 0.73 % 1,002,007 1,682 0.67 % Noninterest-bearing deposits 110,633 100,046 Other noninterest-bearing liabilities 17,197 12,477 Shareholders' equity 122,562 105,986 Total liabilities and equity$ 1,512,488 $ 1,220,516 Net interest income$ 11,141 $ 10,026 Net interest rate spread 2.88 % 3.24 % Net earnings assets$ 227,183 $ 197,089 Net interest margin 2.99 % 3.34 % Average interest-earning assets to average interest-bearing liabilities 118.00 % 119.67 %
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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 For the three months ended margin March 31, (Dollars in thousands) 2020 2019 Net interest income (GAAP)$ 11,141 $ 10,026 Tax-equivalent adjustment(1) 628 496 Net interest income (fully taxable-equivalent)$ 11,769
Average interest-earning assets$ 1,489,279 $ 1,199,096 Net interest margin (fully taxable-equivalent) 3.16 %
3.51 %
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 andNew York State income taxes yielding the same after-tax income. The rate used for this adjustment was 21% for federal income taxes and 3.98% forNew York State income taxes for the periods endedMarch 31, 2020 and 2019. 43
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Nine months ended March 31,
2020 2019
Average Interest Average Average Interest Average
Outstanding Earned Yield / Outstanding Earned Yield /
(Dollars in thousands) Balance / Paid Rate Balance / Paid Rate
Interest-earning
Assets:
Loans receivable, net1 $ 841,380 $ 29,161 4.62 % $ 748,324 $ 25,894 4.61 %
Securities2 499,986 9,398 2.51 393,500 7,823 2.65
Interest-bearing bank
balances and federal
funds 50,113 611 1.63 16,918 274 2.16
FHLB stock 1,461 72 6.57 2,304 120 6.94
Total interest-earning
assets 1,392,940 39,242 3.76 % 1,161,046 34,111 3.92 %
Cash and due from banks 11,481 10,857
Allowance for loan
losses (13,621 ) (12,421 )
Other
noninterest-earning
assets 23,002 20,026
Total assets $ 1,413,802 $ 1,179,508
Interest-Bearing
Liabilities:
Savings and money
market deposits $ 328,994 $ 1,015 0.41 % $ 331,791 $ 911 0.37 %
NOW deposits 790,152 5,115 0.86 555,646 2,606 0.63
Certificates of deposit 36,335 364 1.34 42,190 374 1.18
Borrowings 15,098 196 1.73 35,079 542 2.06
Total interest-bearing
liabilities 1,170,579 6,690 0.76 % 964,706 4,433 0.61 %
Noninterest-bearing
deposits 108,513 101,587
Other
noninterest-bearing
liabilities 16,332 11,420
Shareholders' equity 118,378 101,795
Total liabilities and
equity $ 1,413,802 $ 1,179,508
Net interest income $ 32,552 $ 29,678
Net interest rate
spread 3.00 % 3.31 %
Net earnings assets $ 222,361 $ 196,340
Net interest margin 3.12 % 3.41 %
Average
interest-earning assets
to average
interest-bearing
liabilities 119.00 % 120.35 %
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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 For the nine months ended margin March 31, (Dollars in thousands) 2020 2019 Net interest income (GAAP)$ 32,552 $ 29,678 Tax-equivalent adjustment(1) 1,820 1,455 Net interest income (fully taxable-equivalent)$ 34,372
Average interest-earning assets$ 1,392,940 $ 1,161,046 Net interest margin (fully taxable-equivalent) 3.29 %
3.58 %
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 andNew York State income taxes yielding the same after-tax income. The rate used for this adjustment was 21% for federal income taxes and 3.98% forNew York State income taxes for the periods endedMarch 31, 2020 and 2019. 44
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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 affectedGreene County Bancorp, Inc.'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 March 31, Nine Months Ended March 31,
(Dollars in thousands) 2020 versus 2019 2020 versus 2019
Increase/(Decrease) Total Increase/(Decrease) Total
Due To Increase/ Due To Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
Interest Earning
Assets:
Loans receivable, net1 $ 1,231 $ (176 ) $ 1,055 $ 3,211 $ 56 $ 3,267
Securities2 941 (250 ) 691 2,009 (434 ) 1,575
Interest-bearing bank
balances and federal
funds 111 (120 ) (9 ) 419 (82 ) 337
FHLB stock (5 ) (3 ) (8 ) (42 ) (6 ) (48 )
Total interest-earning
assets 2,278 (549 ) 1,729 5,597 (466 ) 5,131
Interest-Bearing
Liabilities:
Savings and money
market deposits 17 11 28 (7 ) 111 104
NOW deposits 521 116 637 1,345 1,164 2,509
Certificates of deposit (20 ) 10 (10 ) (56 ) 46 (10 )
Borrowings (33 ) (8 ) (41 ) (270 ) (76 ) (346 )
Total interest-bearing
liabilities 485 129 614 1,012 1,245 2,257
Net change in net
interest income $ 1,793 $ (678 ) $ 1,115 $
4,585
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1 Calculated net of deferred loan fees, loan discounts, and loans in process. 2 Includes tax-free securities, mortgage-backed securities, and asset-backed securities. GENERAL Return on average assets and return on average equity are common methods of measuring operating results. Annualized return on average assets decreased to 1.07% for the three months endedMarch 31, 2020 as compared to 1.43% for the three months endedMarch 31, 2019 , and was 1.32% and 1.51% for the nine months endedMarch 31, 2020 and 2019, respectively. Annualized return on average equity decreased to 13.22% for the three months and 15.80% for the nine months endedMarch 31, 2020 , as compared to 16.44% for the three months and 17.45% for the nine months endedMarch 31, 2019 . The decrease in return on average assets and return on average equity was primarily the result of balance sheet growth outpacing growth in net income. Net income amounted to$4.1 million and$4.4 million for the three months endedMarch 31, 2020 and 2019, respectively, a decrease of$305,000 , or 7.0%, and amounted to$14.0 million and$13.3 million for the nine months endedMarch 31, 2020 and 2019, respectively, an increase of$707,000 , or 5.3%. Average assets increased$292.0 million , or 23.9%, to$1.5 billion for the three months endedMarch 31, 2020 as compared to$1.2 billion for the three months endedMarch 31, 2019 . Average equity increased$16.6 million , or 15.7%, to$122.6 million for the three months endedMarch 31, 2020 as compared to$106.0 million for the three months endedMarch 31, 2019 . Average assets increased$234.3 million , or 19.9%, to$1.4 billion for the nine months endedMarch 31, 2020 as compared to$1.2 billion for the nine months endedMarch 31, 2019 . Average equity increased$16.6 million , or 16.3%, to$118.4 million for the nine months endedMarch 31, 2020 as compared to$101.8 million for the nine months endedMarch 31, 2019 . 45
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INTEREST INCOME
Interest income amounted to$13.4 million for the three months endedMarch 31, 2020 as compared to$11.7 million for the three months endedMarch 31, 2019 , an increase of$1.7 million , or 14.5%. Interest income amounted to$39.2 million for the nine months endedMarch 31, 2020 as compared to$34.1 million for the nine months endedMarch 31, 2019 , an increase of$5.1 million , or 15.0%. The increase in average loan and securities balances had the greatest impact on interest income when comparing the three and nine months endedMarch 31, 2020 and 2019. Average loan balances increased$108.3 million and$93.0 million while the yield on loans decreased nine basis points and increased one basis point when comparing the three and nine months endedMarch 31, 2020 and 2019, respectively. Average securities increased$154.0 million and$106.5 million and the yield on such securities decreased 24 basis points and 14 basis points when comparing the three and nine months endedMarch 31, 2020 and 2019.
INTEREST EXPENSE
Interest expense amounted to$2.3 million for the three months endedMarch 31, 2020 as compared to$1.7 million for the three months endedMarch 31, 2019 , an increase of$614,000 or 36.5%. Interest expense amounted to$6.7 million for the nine months endedMarch 31, 2020 as compared to$4.4 million for the nine months endedMarch 31, 2019 , an increase of$2.3 million , or 52.3%. Increases in both the rate paid and the increase in average balances of NOW accounts had the greatest impact on interest expense and was the result of promotions within the Company's newer markets targeting new businesses, municipal and retail customers as well as the impact from increased market interest rates during fiscal 2019. As illustrated in the rate/volume table, interest expense increased$129,000 and$1.2 million when comparing the three and nine months endedMarch 31, 2020 and 2019 due to the increase in the rate paid on interest-bearing liabilities. Interest expense increased$485,000 and$1.0 million when comparing these same periods due to the increased average balances. Average interest-bearing liabilities increased$260.1 million and$205.9 million when comparing the three and nine months endedMarch 31, 2019 , respectively. The average rate paid on interest-bearing liabilities increased six basis points to 0.73% from 0.67% when comparing the three months endedMarch 31, 2020 and 2019, respectively, and increased 15 basis points to 0.76% from 0.61% when comparing the nine months endedMarch 31, 2020 and 2019. Average deposits increased$267.4 million and$225.9 million for the three and nine months endedMarch 31, 2020 and 2019, respectively, as a result of continued growth across all three of our primary banking lines - retail, commercial and municipal. The average rate paid on NOW deposits increased seven basis points when comparing the three months endedMarch 31, 2020 and 2019, and the average balance of such accounts grew by$261.0 million when comparing these same periods. The average rate paid on NOW deposits increased 23 basis points when comparing the nine months endedMarch 31, 2020 and 2019, and the average balance of such accounts increased$234.5 million when comparing these same periods. The average balance of savings and money market deposits increased$12.3 million and decreased$2.8 million when comparing the three and nine months endedMarch 31, 2020 and 2019, respectively. The rates paid on savings and money market deposits increased one basis point and four basis points when comparing the three and nine months endedMarch 31, 2020 and 2019, respectively. The average balance of certificates of deposit decreased$6.0 million and$5.9 million when comparing the three and nine months endedMarch 31, 2020 and 2019, respectively. The average rate paid on certificate of deposits increased 10 basis and 16 basis points when comparing the three and nine months endedMarch 31, 2020 and 2019. The average balance on borrowings decreased$7.3 million and$20.0 million when comparing the three and nine months endedMarch 31, 2020 and 2019. The rate decreased 18 basis points and 33 basis points when comparing the three and nine months endedMarch 31, 2020 and 2019.
NET INTEREST INCOME
Net interest income increased$1.1 million to$11.1 million for the three months endedMarch 31, 2020 from$10.0 million for the three months endedMarch 31, 2019 . Net interest income increased$2.9 million to$32.6 million for the nine months endedMarch 31, 2020 from$29.7 million for the nine months endedMarch 31, 2019 . These increases in net interest income were primarily the result of growth in the average balance of interest-earning assets, with continued growth in loans and securities, funded primarily from growth in deposits. Net interest spread decreased 36 basis points to 2.88% for the three months endedMarch 31, 2020 compared to 3.24% for the three months endedMarch 31, 2019 . Net interest margin decreased 35 basis points to 2.99% for the three months endedMarch 31, 2020 compared to 3.34% for the three months endedMarch 31, 2019 . Net interest spread and margin decreased 31 basis points and 29 basis points to 3.00% and 3.12%, respectively, for the nine months endedMarch 31, 2020 compared to 3.31% and 3.41%, respectively, for the nine months endedMarch 31, 2019 . Decreases in net interest spread and margin are primarily the result of the higher cost of interest-bearing liabilities and lower yields on securities, partially offset by growth in average loan and securities balances. 46
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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 andNew York State income taxes yielding the same after-tax income. Tax equivalent net interest margin was 3.16% and 3.51% for the three months endedMarch 31, 2020 and 2019, respectively, and was 3.29% and 3.58% for the nine months endedMarch 31, 2020 and 2019, respectively. Due to the large portion of fixed-rate residential mortgages in the Company's portfolio, interest rate risk is a concern 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 a rising rate environment. 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. TheFederal Reserve Bank has taken a number of measures in an attempt to mitigate the impact of the coronavirus on the economy. Inmid-March 2020 , the Federal Reserve Bank Board decreased the Federal Funds benchmark rate by 100 basis points to 0.00%-.0.25%. Although the impact to the Company from this rate decrease is minimal for the three and nine months endedMarch 31, 2020 , it is anticipated that it will have a negative impact on the Company's interest spread and margin during the quarter and fiscal year endedJune 30, 2020 . The Company continually monitors its interest rate risk and the impact to net interest income and capital from the interest rate decrease is well within established limits. PROVISION FOR LOAN LOSSES Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary. The amount recognized for the provision for loan losses is determined by management based on its ongoing analysis of the adequacy of the allowance for loan losses. Provision for loan losses amounted to$1.4 million and$350,000 for the three months endedMarch 31, 2020 and 2019, respectively, and amounted to$2.7 million and$1.1 million for the nine months endedMarch 31, 2020 and 2019, respectively. Management recognizes that strategies put in place to assist borrowers through the COVID-19 pandemic may not be sufficient to fully mitigate the impact to borrowers and that it is likely that a portion of the loan portfolio will default and result in losses to the Bank. As a result, the Bank has increased its provision for loan losses during the three months endedMarch 31, 2020 by$500,000 to reserve for these losses. Much uncertainty remains regarding the duration of the containment strategies and the overall impact to the economy and to local businesses. The Bank is closely monitoring the changes within its economic environment, stress testing the loan portfolio under various scenarios, and adjusting the allowance for loan loss as necessary to remain adequately reserved. In addition to adjusting the provision for loan loss for the impact of the COVID-19 pandemic, provision for loan loss also increased as a result of strong growth in gross loans and an increase in loans adversely classified during the three and nine months endedMarch 30, 2020 . Loans classified as substandard or special mention totaled$27.1 million atMarch 31, 2020 compared to$17.1 million atJune 30, 2019 , an increase of$10.0 million . Reserves on these loans totaled$2.0 million atMarch 31, 2020 compared to$1.5 million atJune 30, 2019 , an increase of$517,000 . During the nine months endedMarch 31, 2020 the Company downgraded a construction loan to special mention as a result of project cost overruns and several delinquent payments. Several other commercial real estate and commercial loan relationships have been downgraded to special mention during the three and nine months endedMarch 31, 2020 due to a deterioration in borrower cash flows. AtMarch 31, 2020 , these loans were all performing. Management continues to monitor this loan relationship closely. No loans were classified as doubtful or loss atMarch 31, 2020 orJune 30, 2019 . Allowance for loan losses to total loans receivable was 1.69% atMarch 31, 2020 , and 1.65% atJune 30, 2019 . Net charge-offs for the three months endedMarch 31, 2020 totaled$204,000 compared to$177,000 for the three months endedMarch 31, 2019 . Net charge-offs totaled$661,000 and$236,000 for the nine months endedMarch 31, 2020 and 2019, respectively. The increases in net charge-off activity during the 2020 periods were primarily due to an increase in charge-offs within the commercial and consumer loan portfolios and decreases in recoveries within the commercial loan portfolio. Commercial loan net charge-offs totaled$297,000 for the nine months endedMarch 31, 2020 compared to a net recovery of$102,000 for the nine months endedMarch 31, 2019 . Consumer loan net charge-offs totaled$276,000 and$181,000 for the nine months endedMarch 31, 2020 and 2019, respectively, an increase of$95,000 . Charge-offs during the three and nine months endedMarch 31, 2020 were not the result of COVID-19. Nonperforming loans amounted to$3.9 million and$3.6 million atMarch 31, 2020 andJune 30, 2019 , respectively. AtMarch 31, 2020 andJune 30, 2019 , respectively, nonperforming assets were 0.25% and 0.29% of total assets, and nonperforming loans were 0.44% and 0.46% of net loans. AtMarch 31, 2019 , nonperforming assets to total assets were 0.24% and nonperforming loans to net loans were 0.39%. The Company has not been an originator of "no documentation" mortgage loans, and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime. 47
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NONINTEREST INCOME
For the three months For the nine months
(In thousands) ended March 31, Change from Prior Year ended March 31, Change from Prior Year
Noninterest income: 2020 2019 Amount Percent 2020 2019 Amount Percent
Service charges on
deposit accounts $ 1,034 $ 960 $ 74 7.71 % $ 3,270 $ 3,103 $ 167 5.38 %
Debit card fees 698 604 94 15.56 2,196 1,929 267 13.84
Investment services 120 145 (25 ) (17.24 ) 433 396 37 9.34
E-commerce fees 24 31 (7 ) (22.58 ) 90 102 (12 ) (11.76 )
Other operating
income 250 270 (20 ) (7.41 ) 719 673 46 6.84
Total noninterest
income $ 2,126 $ 2,010 $ 116 5.77 % $ 6,708 $ 6,203 $ 505 8.14 %
Noninterest income increased $116,000 , or 5.8%, and totaled $2.1 million and
$2.0 million for the three months ended March 31, 2020 and 2019. Noninterest
income increased $505,000 , or 8.1%, and totaled $6.7 million and $6.2 million
for the nine months ended March 31, 2020 and 2019. This increase was primarily
due to increases in debit card fees and service charges on deposit accounts
resulting from continued growth in the number of checking accounts with debit
cards, as well as increased monthly or transactional service charges on deposit
accounts.
NONINTEREST EXPENSE
For the three months For the nine months
(In thousands) Ended March 31, Change from Prior Year Ended March 31, Change from Prior Year
Noninterest expense: 2020 2019 Amount Percent 2020 2019 Amount Percent
Salaries and employee
benefits $ 4,412 $ 4,005 $ 407 10.16 % $ 12,346 $ 11,160 $ 1,186 10.63 %
Occupancy expense 496 471 25 5.31 1,403 1,287 116 9.01
Equipment and
furniture expense 191 112 79 70.54 598 453 145 32.01
Service and data
processing fees 626 546 80 14.65 1,838 1,583 255 16.11
Computer software,
supplies and support 285 260 25 9.62 791 683 108 15.81
Advertising and
promotion 115 110 5 4.55 373 306 67 21.90
FDIC insurance
premiums 159 117 42 35.90 132 344 (212 ) (61.63 )
Legal and
professional fees 274 280 (6 ) (2.14 ) 878 892 (14 ) (1.57 )
Other 670 585 85 14.53 1,826 1,986 (160 ) (8.06 )
Total noninterest
expense $ 7,228 $ 6,486 $ 742 11.44 % $ 20,185 $ 18,694 $ 1,491 7.98 %
Noninterest expense increased $742,000 or 11.4%, to $7.2 million for the three
months ended March 31, 2020 as compared to $6.5 million for the three months
ended March 31, 2019 and increased $1.5 million , or 8.0%, to $20.2 million for
the nine months ended March 31, 2020 , compared to $18.7 million for the nine
months ended March 31, 2019 . These increases were primarily due to an increase
in salaries and employee benefits expenses, resulting from additional staffing
for the addition of a new branch located in Kinderhook -Valatie, New York , which
opened in July 2019 . As the Company continues to grow, staffing was also
increased within our lending department, customer service center and investment
center. This increase was partially offset by a decrease in FDIC insurance
premiums. In January 2019 , the FDIC provided notification to the Company that a
credit in the amount of $177,000 was calculated for The Bank of Greene County ,
and a credit in the amount of $91,000 was calculated for Greene County
Commercial Bank , based on a change in assessments under FDIC regulations
resulting from the Deposit Insurance Fund Reserve Ratio reaching 1.36%. The
Deposit Insurance Fund reserve ratio was above 1.38% as of June 30, 2019 ,
September 30, 2019 , and December 31, 2019 and therefore, the FDIC offset regular
deposit insurance assessments with credits on the September 2019 , December 2019
and March 2020 invoices. The Company received credits totaling $40,000 and
$268,000 during the three and nine months ended March 31, 2020 . This credit was
applied against FDIC insurance premiums expense. Other noninterest expense also
decreased for the nine months ended March 31, 2020 and was due to a charitable
donation made to the Company's Charitable Foundation during the nine months
ended March 31, 2019 .
INCOME TAXES
The provision for income taxes directly reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements. The effective tax rate was 12.2% and 14.5% for the three and nine months endedMarch 31, 2020 , compared to 16.2% and 17.4% for the three and nine months endedMarch 31, 2019 . 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, 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. 48
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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.Greene County Bancorp, Inc.'s most significant form of market risk is interest rate risk since the majority ofGreene County Bancorp, Inc.'s assets and liabilities are sensitive to changes in interest rates.Greene County Bancorp, Inc.'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 theFederal Home Loan Bank andAtlantic 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. The impact of the COVID-19 pandemic has added to the uncertainty regarding the Company's liquidity needs, with reductions in interest and principal payments from loans and changes in deposit activity, estimating cash flow has become more challenging. AtMarch 31, 2020 , the Company had$77.8 million in cash and cash equivalents, representing 4.9% of total assets, and had$180.2 million available in unused lines of credit. AtMarch 31, 2020 , liquidity measures were as follows: Cash equivalents/(deposits plus short term borrowings)
5.42 % (Cash equivalents plus unpledged securities)/(deposits plus short term borrowings)
9.12 % (Cash equivalents plus unpledged securities plus additional borrowing capacity)/(deposits plus short term borrowings)
21.66 %
TheFederal Reserve has instituted a program, the Paycheck Protection Plan Lending Facility ("PPPLF") to provide banks additional funding for liquidity whereby the PPP loans are pledged as collateral. The PPPLF will allow banks to offer these loans to local businesses while maintaining strong liquidity to meet cash flow needs. AtApril 30, 2020 , the Company had borrowed$11.6 million through the PPPLF. Principal repayment of these borrowings will be made upon receipt of payment on the underlying loans being pledged as collateral and interest will be charged at a rate of 0.35%. The Company continues to evaluate its liquidity needs and will borrow additional funds through this facility as deemed necessary.
(In thousands) Unfunded loan commitments$ 76,684 Unused lines of credit 64,567 Total commitments$ 141,251
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 where 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 March 31, 2020 or June 30, 2019 . 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. The Company's estimate of the credit exposure
associated with its risk participations-in was $3.3 million and $1.2 million at
March 31, 2020 and June 30, 2019 , respectively. The current amount of credit
exposure is spread out over five counterparties, and terms range between five to
ten years.
Greene County Bancorp, Inc. anticipates that it will have sufficient funds
available to meet current loan commitments based on the level of cash and cash
equivalents as well as the available-for-sale investment portfolio and borrowing
capacity.
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Index
The Bank of Greene County andGreene County Commercial Bank met all applicable regulatory capital requirements atMarch 31, 2020 andJune 30, 2019 . Consolidated shareholders' equity represented 7.8% and 8.9% of total assets atMarch 31, 2020 and atJune 30, 2019 , respectively. To Be Well Capitalized Under (Dollars in For Capital Prompt Corrective Capital Conservation thousands) Actual Adequacy Purposes Action Provisions Buffer
The Bank of Greene Amount Ratio Amount Ratio Amount Ratio Actual Required County As of March 31, 2020: Total risk-based capital$ 132,917 15.2 %$ 70,048 8.0 %$ 87,560 10.0 % 7.180 % 2.50 % Tier 1 risk-based capital 121,920 13.9 52,536 6.0 70,048 8.0 7.924 2.50 Common equity tier 1 capital 121,920 13.9 39,402 4.5 56,914 6.5 9.424 2.50 Tier 1 leverage ratio 121,920 8.1 60,277 4.0 75,347 5.0 4.091 2.50 As of June 30, 2019: Total risk-based capital$ 118,113 15.8 %$ 59,842 8.0 %$ 74,802 10.0 % 7.79 % 2.50 % Tier 1 risk-based capital 108,716 14.5 44,881 6.0 59,842 8.0 8.53 2.50 Common equity tier 1 capital 108,716 14.5 33,661 4.5 48,621 6.5 10.03 2.50 Tier 1 leverage ratio 108,716 8.7 50,049 4.0 62,561 5.0 4.69 2.50 Greene County Commercial Bank As of March 31, 2020: Total risk-based capital$ 58,364 40.6 %$ 11,498 8.0 %$ 14,373 10.0 % 32.61 % 2.50 % Tier 1 risk-based capital 58,364 40.6 8,624 6.0 11,498 8.0 34.61 2.50 Common equity tier 1 capital 58,364 40.6 6,468 4.5 9,343 6.5 36.11 2.50 Tier 1 leverage ratio 58,364 8.7 26,733 4.0 33,416 5.0 4.73 2.50 As of June 30, 2019: Total risk-based capital$ 47,366 47.4 %$ 7,996 8.0 %$ 9,996 10.0 % 39.39 % 2.50 % Tier 1 risk-based capital 47,366 47.4 5,997 6.0 7,996 8.0 41.39 2.50 Common equity tier 1 capital 47,366 47.4 4,498 4.5 6,497 6.5 42.89 2.50 Tier 1 leverage ratio 47,366 9.6 19,678 4.0 24,597 5.0 5.63 2.50
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