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 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. COVID-19 is expected to continue to impact the economy and the Company's financial results as well as demand for services and products during the remainder for the fiscal year endingJune 30, 2021 and into the following fiscal year. The Company has implemented various plans, strategies, and protocols to protect its employees, customers and other stakeholders in response to the pandemic. The Company imposed business travel restrictions, implemented quarantine and remote work from home protocols, and at times during the pandemic, the Company implemented drive-thru only or by appointment protocols for branches and other operational areas which may be reinstated if needed. Enhanced cleaning, sanitation processes and social distancing measurers were also implemented. The Company also enhanced communications with critical vendors to ensure operational functioning of mission-critical activities. The short and long-term implications of the COVID-19 crisis, and related government monetary and fiscal stimulus measures on the Company's future operations, revenues, earnings, allowance for loan losses, capital and liquidity are difficult to assess and remain uncertain at this time.
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 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: 34
--------------------------------------------------------------------------------
Index
(a) changes in general market interest rates,
(b) general economic conditions,
(c) economic or policy changes related to the COVID-19 pandemic,
(d) legislative and regulatory changes,
(e) monetary and fiscal policies of the
(f) changes in the quality or composition of
and investment portfolios,
(g) deposit flows, (h) competition, 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 RegulationG. 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. Allowance for loan losses to total loans receivable: The allowance for loan losses to total loans receivable ratio is calculated by dividing the balance in the allowance for loan losses by the gross loans outstanding at the end of the period. This ratio is utilized to show the historical relationship between the allowance for loan losses and the balances of loans at the end each period presented in conjunction with other financial information related to asset quality such as nonperforming loans, charge-offs, and classified assets to indicate the overall adequacy of the allowance for loan losses. The Company has adjusted the calculation of the allowance for loan losses to total loans receivable to exclude loans that are 100% guaranteed by theSmall Business Administration as these present no credit risk to the Company. With a significant balance in SBA loans atJune 30, 2020 andMarch 31, 2021 , this adjusted calculation is used to provide a better basis of comparison with other periods presented within the financial statements presented. 35
--------------------------------------------------------------------------------
Index
Comparison of Financial Condition at
ASSETS
Total assets of the Company were$2.1 billion atMarch 31, 2021 and$1.7 billion atJune 30, 2020 , an increase of$466.0 million , or 27.8%. Securities available-for-sale and held-to-maturity amounted to$848.3 million atMarch 31, 2021 as compared to$610.4 million atJune 30, 2020 , an increase of$237.9 million , or 39.0%. Net loans increased$75.0 million , or 7.5%, to$1.1 billion atMarch 31, 2021 as compared to$993.5 million atJune 30, 2020 .
CASH AND CASH EQUIVALENTS
Total cash and cash equivalents increased$105.3 million to$145.8 million atMarch 31, 2021 from$40.5 million atJune 30, 2020 . 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$237.9 million , or 39.0%, to$848.3 million atMarch 31, 2021 as compared to$610.4 million atJune 30, 2020 . This increase was the result of utilizing excess cash on hand due to an increase in deposits. Securities purchases totaled$478.8 million during the nine months endedMarch 31, 2021 and consisted of$281.2 million of state and political subdivision securities,$153.3 million of mortgage-backed securities,$6.8 million of corporate securities,$13.1 million ofUS Government Agency securities,$19.7 million ofUS Treasury securities, and$4.7 million of other securities. Principal pay-downs and maturities during the nine months amounted to$232.8 million , primarily consisting of$55.0 million of mortgage-backed securities,$163.5 million of state and political subdivision securities,$7.4 million of collateralized mortgage obligations,$2.5 million ofUS Government agency securities,$3.0 million of corporate debt securities and$1.4 million of other securities. AtMarch 31, 2021 , 59.5% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promoteGreene County Bancorp, Inc.'s participation in the communities in which it operates. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending. March 31, 2021 June 30, 2020 (Dollars in thousands) Percentage of Percentage of Balance portfolio Balance portfolio Securities available-for-sale: U.S. Government sponsored enterprises$ 12,633 1.5 %$ 504 0.1 % U.S. Treasury securities 19,620 2.3 - - State and political subdivisions 210,014 24.8 177,107 29.0 Mortgage-backed securities-residential 39,416 4.6 15,528 2.5 Mortgage-backed securities-multifamily 119,363 14.1 28,910 4.7 Corporate debt securities 3,140 0.4 4,660 0.8 Total securities available-for-sale 404,186 47.7 226,709 37.1 Securities held-to-maturity: U.S. Government sponsored enterprises - - 2,000 0.3 State and political subdivisions 294,382 34.7 210,535 34.5 Mortgage-backed securities-residential 32,908 3.9 38,884 6.4 Mortgage-backed securities-multifamily 103,448 12.2 127,582 20.9 Corporate debt securities 7,849 0.9 2,593 0.4 Other securities 5,486 0.6 2,063 0.4 Total securities held-to-maturity 444,073 52.3 383,657 62.9 Total securities$ 848,259 100.0 %$ 610,366 100.0 % 36
--------------------------------------------------------------------------------
Index
LOANS
Net loans receivable increased$75.0 million , or 7.5%, to$1.1 billion atMarch 31, 2021 from$993.5 million atJune 30, 2020 . Net loans receivable atMarch 31, 2021 included$90.3 million in SBA Paycheck Protection Program loans. The loan growth experienced during the nine months consisted primarily of$73.4 million in commercial real estate loans,$25.9 million in residential real estate loans and$12.4 million in multi-family loans. This growth was partially offset by a$3.4 million decrease in residential construction and land loans,$8.0 million decrease in commercial construction loans,$3.1 million decrease in home equity loans,$18.6 million decrease in commercial loans,$3.3 million increase in allowance for loan losses offset by a$33,000 net increase in deferred fees due to the forgiveness of SBA PPP loans. SBA PPP loans decreased$9.5 million to$90.3 million from$99.8 million atJune 30, 2020 , due to the receipt of forgiveness proceeds. The increase in commercial real estate loans was primarily due to large participations with other financial institutions and large commercial construction loans switching to permanent financing during the nine months endedMarch 31, 2021 .The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products. A significant decline in home values, however, in the Company's markets could have a negative effect on the consolidated results of operations, as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios. Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower's ability to repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy. (Dollars in thousands) March 31, 2021 June 30, 2020 Percentage of Percentage of Balance Portfolio Balance Portfolio Residential real estate$ 305,267 28.0 %$ 279,332 27.6 % Residential construction and land 8,467 0.8 11,847 1.2 Multi-family 37,470 3.4 25,104 2.5 Commercial real estate 454,792 41.7 381,415 37.6 Commercial construction 66,913 6.2 74,920 7.4 Home equity 18,957 1.7 22,106 2.2 Consumer installment 4,499 0.4 4,817 0.5 Commercial loans 194,515 17.8 213,119 21.0 Total gross loans 1,090,880 100.0 % 1,012,660 100.0 % Allowance for loan losses (19,668 ) (16,391 ) Deferred fees and costs (2,714 ) (2,747 ) Total net loans$ 1,068,498 $ 993,522 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"). The Consolidated Appropriations Act, 2021 provides amendments to the PPP program, including additional loans through the SBA. Although we were not already a qualified SBA lender, we enrolled in the PPP by completing the required documentation and will participate in additional funding under the Consolidated Appropriations Act, 2021. PPP loans have an interest rate of 1.0%, a two-year or five-year loan term to maturity, and principal and interest payments deferred until the lender receives the applicable forgiven amount or ten months after the end of the borrower's loan forgiveness covered period. The SBA guarantees 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 the loan proceeds are used for other qualifying expenses. The Company had 1,151 PPP loans with a total balance of$90.3 million outstanding atMarch 31, 2021 , compared to 1,267 PPP loans with a total balance of$99.8 million outstanding atJune 30, 2020 . 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. 37
--------------------------------------------------------------------------------
Index
The Bank of Greene County 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 toThe Bank of Greene County . As a result, provision for loan losses amounted to$1.4 million for the three months endedMarch 31, 2021 and 2020, respectively, and amounted to$3.9 million and$2.7 million for the nine months endedMarch 31, 2021 and 2020, respectively. Much uncertainty remains regarding the duration of the containment strategies and the overall impact to the economy and to local businesses. Management 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.
Analysis of allowance for loan losses activity
At or for the nine months ended
March 31,
(Dollars in thousands) 2021 2020
Balance at the beginning of the period $ 16,391 $ 13,200
Charge-offs:
Residential real estate 26 101
Consumer installment 247 359
Commercial loans 500 333
Total loans charged off 773 793
Recoveries:
Residential real estate 10 13
Consumer installment 101 83
Commercial loans - 36
Total recoveries 111 132
Net charge-offs 662 661
Provisions charged to operations 3,939 2,666
Balance at the end of the period Net charge-offs to average loans outstanding (annualized) 0.09 % 0.11 % Net charge-offs to nonperforming assets (annualized) 31.28 % 22.69 % Allowance for loan losses to nonperforming loans 737.73 % 391.38 % Allowance for loan losses to total loans receivable 1.80 % 1.69 %
Allowance for loan losses to total loans receivable (excluding PPP loans)
1.97 % 1.69 %
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.
38--------------------------------------------------------------------------------
Index
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) 2021 2020
Nonaccruing loans:
Residential real estate $ 1,582 $ 2,513
Multi-family - 151
Commercial real estate 529 781
Home equity 243 319
Commercial 312 313
Total nonaccruing loans $ 2,666 $ 4,077
Foreclosed real estate:
Residential real estate 160 -
Total foreclosed real estate 160 -
Total nonperforming assets$ 2,826
Troubled debt restructuring: Nonperforming (included above)$ 364 $ 304 Performing (accruing and excluded above) 2,630
909
Total nonperforming assets as a percentage of total assets 0.13 %
0.24 %
Total nonperforming loans to net loans 0.25 % 0.41 %
At
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) 2021 2020 2021 2020
Interest income that would have been
recorded if loans had been performing in
accordance with original terms $ 43 $ 64 $ 174 $ 218
Interest income that was recorded on
nonaccrual loans 36 51 116 143
Nonperforming assets amounted to $2.8 million and $4.1 million at March 31, 2021
and June 30, 2020 , respectively. Nonaccrual loans consisted primarily of loans
secured by real estate at March 31, 2021 and June 30, 2020 . Loans on nonaccrual
status totaled $2.7 million at March 31, 2021 of which $752,000 were in the
process of foreclosure. At March 31, 2021 , there were six residential loans in
the process of foreclosure totaling $450,000 . Included in nonaccrual loans were
$1.6 million of loans which were less than 90 days past due at March 31, 2021 ,
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 $4.1 million at June 30,
2020 of which $1.3 million were in the process of foreclosure. At June 30, 2020 ,
there were eight residential loans in the process of foreclosure totaling $1.0
million . Included in nonaccrual loans were $1.4 million of loans which were less
than 90 days past due at June 30, 2020 , but have a recent history of delinquency
greater than 90 days past due.
39
--------------------------------------------------------------------------------
In order to assist borrowers through the COVID-19 pandemic, The Bank of Greene
County instituted a loan deferment program in response to the COVID-19 pandemic
whereby deferral of principal and/or interest payments have been provided and
correspond to the length of the National Emergency as defined under the CARES
Act. Provisions under the CARES Act were extended under the Consolidated
Appropriations Act signed into law on December 27, 2020 . Payment deferrals
consisted of either principal deferrals or full payment deferrals. Based on
guidance provided by bank regulators on March 22, 2020 regarding deferrals
granted due to COVID-19, these have not been reported as delinquent and we 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.
The following table details loans that have payments deferred at March 31, 2021 .
Principal Payment
Full Payment Deferral Deferral Total Deferral
Number Number Number
(Dollars in thousands) Balance of Loans Balance
of Loans Balance of Loans
Residential $ 118 1 $ 255 1 $ 373 2
Multi-family - - 659 5 659 5
Commercial real estate 8,381 11 7,938 5 16,319 16
Home Equity - - - - - -
Consumer installment 9 1 - - 9 1
Commercial loans 1,433 6 - - 1,433 6
Total $ 9,941 19 $ 8,852 11 $ 18,793 30
The following table details loans that have payments deferred at June 30, 2020 .
Principal Payment
Full Payment Deferral Deferral Total Deferral
Number Number Number
(Dollars in thousands) Balance of Loans Balance
of Loans Balance of Loans
Residential $ 31,373 172 $ 17,664 109 $ 49,037 281
Multi-family 8,264 10 4,226 7 12,490 17
Commercial real estate 74,481 173 36,267 85 110,748 258
Commercial construction 339 1 - - 339 1
Home equity 291 7 140 8 431 15
Consumer installment 116 10 133 17 249 27
Commercial loans 8,537 64 11,643 43 20,180 107
Total $ 123,401 437 $ 70,073 269 $ 193,474 706
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 March 31,
2021 and June 30, 2020 :
(In thousands) March 31, 2021 June 30, 2020
Balance of impaired loans, with a valuation allowance $ 2,909 $ 1,662
Allowances relating to impaired loans included in allowance for loan losses 287 228
Balance of impaired loans, without a valuation allowance 1,010 1,608
Total impaired loans 3,919 3,270
40--------------------------------------------------------------------------------
Index
For the three months For the nine months
ended March 31, ended March 31,
(In thousands) 2021 2020 2021 2020
Average balance of impaired loans for
the periods ended $ 3,391 $ 3,382 $ 3,043 $ 3,520
Interest income recorded on impaired
loans during the periods ended 90 31 171 139
DEPOSITS
Deposits totaled $2.0 billion at March 31, 2021 and $1.5 billion at June 30,
2020 , an increase of $459.0 million , or 30.6%. Noninterest-bearing deposits
increased $30.5 million , or 22.1%, NOW deposits increased $374.0 million , or
39.3%, money market deposits increased $16.7 million , or 12.5%, and savings
deposits increased $38.2 million , or 15.8%, when comparing March 31, 2021 and
June 30, 2020 . These increases were offset by a decrease in certificates of
deposits of $418,000 , or 1.2%, when comparing March 31, 2021 and June 30, 2020 .
Deposits increased during the nine months ended March 31, 2021 as a result of an
increase in new account relationships including new corporate cash management
deposit relationships, the opening of a new branch on Wolf Road in Albany
County, NY , and an increase in municipal deposits at Greene County Commercial
Bank , primarily from tax collection and new account relationships.
Percentage Percentage
(In thousands) March 31, 2021 of Portfolio June 30, 2020 of Portfolio
Noninterest-bearing deposits $ 168,714 8.6 % $ 138,187 9.2 %
Certificates of deposit 35,207 1.8 35,625 2.4
Savings deposits 279,539 14.3 241,371 16.1
Money market deposits 150,702 7.7 133,970 8.9
NOW deposits 1,325,867 67.6 951,922 63.4
Total deposits $ 1,960,029 100.0 % $ 1,501,075 100.0 %
BORROWINGS
At March 31, 2021 , The Bank of Greene County had pledged approximately $394.5
million of its residential and commercial mortgage portfolio as collateral for
borrowing and irrevocable stand-by letters of credit at the Federal Home Loan
Bank of New York ("FHLB"). The maximum amount of funding available from the FHLB
was $288.4 million at March 31, 2021 , of which there were no borrowings
outstanding at March 31, 2021 . There were no short-term or overnight borrowings
outstanding at March 31, 2021 . There were no irrevocable stand-by letters of
credit outstanding at March 31, 2021 .
The Bank of Greene County also pledges securities and certificates of deposit as
collateral at the Federal Reserve Bank discount window for overnight borrowings.
At March 31, 2021 , approximately $3.9 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
March 31, 2021 . The Company had $10.9 million of the Paycheck Protection Plan
Lending Facility ("PPPLF") outstanding as of June 30, 2020 , which provides banks
additional funding for liquidity whereby PPP loans are pledged as collateral.
No PPPLF borrowings were outstanding at March 31, 2021 .
The Bank of Greene County has established unsecured lines of credit with
Atlantic Central Bankers Bank for $10.0 million and three other financial
institutions for $64.5 million . Greene County Bancorp, Inc. 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. At March 31, 2021 , The Bank of Greene
County had no balances outstanding on any of these lines of credit. Greene
County Bancorp, Inc. , had borrowings outstanding with Atlantic Central Bankers
Bank of $2.0 million and $7.0 million at March 31, 2021 and June 30, 2020 ,
respectively to fund Bank capital.
The Company entered into Subordinated Note Purchase Agreements with 14 qualified
institutional investors on September 17, 2020 , issued at 4.75% Fixed-to-Floating
Rate due September 15, 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 March 31, 2021 , there were
$19.6 million of Subordinated Note Purchases Agreements outstanding, net of
issuance costs.
At
41--------------------------------------------------------------------------------
Index
EQUITY
Shareholders' equity increased to$139.1 million atMarch 31, 2021 from$128.8 million atJune 30, 2020 , resulting primarily from net income of$16.3 million , partially offset by dividends declared and paid of$2.0 million and an increase in other accumulated comprehensive loss of$4.1 million . 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. For the nine months endingMarch 31, 2021 , the Company did not repurchase any shares.
Selected Equity Data:
March 31, 2021 June 30, 2020
Shareholders' equity to total assets, at end of period 6.49 % 7.68 %
Book value per share $ 16.34 $ 15.13
Closing market price of common stock $ 25.01 $ 22.30
For the nine months ended March 31,
2021 2020
Average shareholders' equity to average assets 7.25 % 8.37 %
Dividend payout ratio1 18.75 % 20.12 %
Actual dividends paid to net income2 12.02 % 12.89 %
1 The 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 September 30, 2019 ; March 31,
2020 ; June 30, 2020 ; September 30, 2020 ; and December 31, 2020 . Dividends
declared during the three months ended December 31, 2019 and March 31, 2021 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 .
42--------------------------------------------------------------------------------
Index
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, 2021 and 2020. 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, 2021 2020 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$ 1,066,451 $ 11,567 4.34 %$ 878,442 $ 9,955 4.53 % Securities2 772,319 3,176 1.64 542,018 3,250 2.40 Interest-bearing bank balances and federal funds 126,688 30 0.09 67,460 206 1.22 FHLB stock 993 15 6.04 1,359 26 7.65 Total interest-earning assets 1,966,451 14,788 3.01 % 1,489,279 13,437 3.61 % Cash and due from banks 15,421 13,401 Allowance for loan losses (18,854 ) (14,113 ) Other noninterest-earning assets 55,902 23,921 Total assets$ 2,018,920 $ 1,512,488 Interest-Bearing Liabilities: Savings and money market deposits$ 416,808 $ 225 0.22 %$ 338,874 $ 351 0.41 % NOW deposits 1,225,451 639 0.21 874,531 1,769 0.81 Certificates of deposit 35,039 87 0.99 35,640 119 1.34 Borrowings 22,012 267 4.85 13,051 57 1.75 Total interest-bearing liabilities 1,699,310 1,218 0.29 % 1,262,096 2,296 0.73 % Noninterest-bearing deposits 158,318 110,633 Other noninterest-bearing liabilities 22,261 17,197 Shareholders' equity 139,031 122,562 Total liabilities and equity$ 2,018,920 $ 1,512,488 Net interest income$ 13,570 $ 11,141 Net interest rate spread 2.72 % 2.88 % Net earnings assets$ 267,141 $ 227,183 Net interest margin 2.76 % 2.99 % Average interest-earning assets to average interest-bearing liabilities 115.72 % 118.00 %
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1 Calculated net of deferred loan fees and costs, loan discounts, and loans in
process.
2 Includes tax-free securities, mortgage-backed securities, and asset-backed
securities.
For the three months ended
Taxable-equivalent net interest income and net interest margin March 31,
(Dollars in thousands) 2021 2020
Net interest income (GAAP) $ 13,570 $ 11,141
Tax-equivalent adjustment(1) 751 628
Net interest income (fully taxable-equivalent) $
14,321
Average interest-earning assets$ 1,966,451 $ 1,489,279 Net interest margin (fully taxable-equivalent) 2.91 % 3.16 % 1 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. The rate used for this adjustment was 21% for federal income taxes and 3.98% forNew York State income taxes for the period endedMarch 31, 2021 and 2020. 43
--------------------------------------------------------------------------------
Index
Nine months ended March 31,
2021 2020
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 $ 1,046,993 $ 33,525 4.27 % $ 841,380 $ 29,161 4.62 %
Securities2 711,507 9,443 1.77 499,986 9,398 2.51
Interest-bearing bank
balances and federal
funds 72,802 58 0.11 50,113 611 1.63
FHLB stock 1,163 49 5.62 1,461 72 6.57
Total interest-earning
assets 1,832,465 43,075 3.13 % 1,392,940 39,242 3.76 %
Cash and due from banks 12,905 11,481
Allowance for loan
losses (17,651 ) (13,621 )
Other
noninterest-earning
assets 36,447 23,002
Total assets $ 1,864,166 $ 1,413,802
Interest-Bearing
Liabilities:
Savings and money
market deposits $ 391,061 $ 750 0.26 % $ 328,994 $ 1,015 0.41 %
NOW deposits 1,107,017 2,349 0.28 790,152 5,115 0.86
Certificates of deposit 35,157 294 1.11 36,335 364 1.34
Borrowings 22,758 687 4.02 15,098 196 1.73
Total interest-bearing
liabilities 1,555,993 4,080 0.35 % 1,170,579 6,690 0.76 %
Noninterest-bearing
deposits 151,422 108,513
Other
noninterest-bearing
liabilities 21,684 16,332
Shareholders' equity 135,067 118,378
Total liabilities and
equity $ 1,864,166 $ 1,413,802
Net interest income $ 38,995 $ 32,552
Net interest rate
spread 2.78 % 3.00 %
Net earnings assets $ 276,472 $ 222,361
Net interest margin 2.84 % 3.12 %
Average
interest-earning assets
to average
interest-bearing
liabilities 117.77 119.00
--------------------------------------------------------------------------------
1 Calculated net of deferred loan fees and costs, loan discounts, and loans in
process.
2 Includes tax-free securities, mortgage-backed securities, and asset-backed
securities.
For the nine months ended
Taxable-equivalent net interest income and net interest margin March 31,
(Dollars in thousands) 2021 2020
Net interest income (GAAP) $ 38,995 $ 32,552
Tax-equivalent adjustment(1) 2,207 1,820
Net interest income (fully taxable-equivalent) $
41,202
Average interest-earning assets$ 1,832,465 $ 1,392,940 Net interest margin (fully taxable-equivalent)
3.00 % 3.29 %
1 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. 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, 2021 and 2020. 44
--------------------------------------------------------------------------------
Index
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) 2021 versus 2020 2021 versus 2020
Increase/(Decrease) Total Increase/(Decrease) Total
Due To Increase/ Due To Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
Interest Earning Assets:
Loans receivable, net1 $ 2,046 $ (434
)
1,138 (1,212 ) (74 ) 3,297 (3,252 ) 45
Interest-bearing bank balances and federal funds 100 (276 ) (176 ) 193 (746 ) (553 )
FHLB stock (6 ) (5 ) (11 ) (13 ) (10 ) (23 )
Total interest-earning assets 3,278 (1,927 ) 1,351 10,180 (6,347 ) 3,833
Interest-Bearing Liabilities: Savings and money market deposits 65 (191 ) (126 ) 162 (427 ) (265 ) NOW deposits 525 (1,655
) (1,130 ) 1,532 (4,298 ) (2,766 ) Certificates of deposit
(2 ) (30 ) (32 ) (11 ) (59 ) (70 )
Borrowings 59 151 210 136 355 491
Total interest-bearing liabilities 647 (1,725 ) (1,078 ) 1,819 (4,429 ) (2,610 ) Net change in net interest income
$ 2,631 $ (202
)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 1.04% for the three months endedMarch 31, 2021 as compared to 1.07% for the three months endedMarch 31, 2020 , and was 1.17% and 1.32% for the nine months endedMarch 31, 2021 and 2020, respectively. Annualized return on average equity increased to 15.13% for the three months and 16.12% for the nine months endedMarch 31, 2021 , as compared to 13.22% for the three months and 15.80% for the nine months endedMarch 31, 2020 . The decrease in return on average assets for the three and nine months endedMarch 31, 2021 , was primarily the result of balance sheet growth outpacing growth in net income. The increase in return on average shareholders' equity for the three and nine months endedMarch 31, 2021 was primarily due to the receipt of$1.3 million and$2.8 million in PPP fee income due to forgiveness of funds received on SBA PPP loans. Net income amounted to$5.3 million and$4.1 million for the three months endedMarch 31, 2021 and 2020, respectively, an increase of$1.2 million , or 29.8%, and amounted to$16.3 million and$14.0 million for the nine months endedMarch 31, 2021 and 2020, respectively, an increase of$2.3 million , or 16.4%. Average assets increased$506.4 million , or 33.5%, to$2.0 billion for the three months endedMarch 31, 2021 as compared to$1.5 billion for the three months endedMarch 31, 2020 . Average equity increased$16.5 million , or 13.4%, to$139.0 million for the three months endedMarch 31, 2021 as compared to$122.6 million for the three months endedMarch 31, 2020 . Average assets increased$450.4 million , or 31.9%, to$1.9 billion for the nine months endedMarch 31, 2021 as compared to$1.4 billion for the nine months endedMarch 31, 2020 . Average equity increased$16.7 million , or 14.1%, to$135.1 million for the nine months endedMarch 31, 2021 as compared to$118.4 million for the nine months endedMarch 31, 2020 . 45
--------------------------------------------------------------------------------
Index
INTEREST INCOME
Interest income amounted to$14.8 million for the three months endedMarch 31, 2021 as compared to$13.4 million for the three months endedMarch 31, 2020 , an increase of$1.4 million , or 10.1%. Interest income amounted to$43.1 million for the nine months endedMarch 31, 2021 as compared to$39.2 million for the nine months endedMarch 31, 2020 , an increase of$3.9 million , or 9.8%. The increase in average balances on loans and securities as well as the recognition of PPP fee income due to the forgiveness of SBA PPP loans had the greatest impact on interest income, offset by the decrease in rates on securities. Average loan balances increased$188.0 million and$205.6 million and the yield on loans decreased 19 and 35 basis points when comparing the three and nine months endedMarch 31, 2021 and 2020, respectively. Included in interest-earning assets atMarch 31, 2021 were$90.3 million of SBA Paycheck Protection Program (PPP) loans at a rate of 1.00%. A decline in yields on loans was offset by the receipt of$1.3 million and$2.8 million in SBA PPP fee income for the three and nine months endedMarch 31, 2021 , which was realized through a deferred origination fee and recognized within interest income. There were no SBA PPP loans outstanding atMarch 31, 2020 . Average securities increased$230.3 million and$211.5 million , and the yield on such securities decreased 76 and 74 basis points when comparing the three and nine months endedMarch 31, 2021 and 2020, respectively. INTEREST EXPENSE Interest expense amounted to$1.2 million for the three months endedMarch 31, 2021 as compared to$2.3 million for the three months endedMarch 31, 2020 , a decrease of$1.1 million , or 47.0%. Interest expense amounted to$4.1 million for the nine months endedMarch 31, 2021 as compared to$6.7 million for the nine months endedMarch 31, 2020 , a decrease of$2.6 million or 39.0%. As illustrated in the rate/volume table, interest expense decreased$1.1 million and$2.6 million when comparing the three and nine months endedMarch 31, 2021 and 2020 due to the decrease in the rate paid on interest-bearing liabilities. Decreases in the rate paid on interest-bearing liabilities was offset by an increase in interest expense of$647,000 and$1.8 million when comparing these same periods due to the increased average balances. Cost of interest-bearing liabilities decreased 44 and 41 basis points when comparing the three and nine months endedMarch 31, 2021 and 2020, respectively. The cost of NOW deposits decreased 60 and 58 basis points, the cost of savings and money market deposits decreased 19 and 15 basis points, and the cost of certificates of deposit decreased 35 and 23 basis points when comparing the three and nine months endedMarch 31, 2021 , and 2020, respectively. The decrease in cost of interest-bearing liabilities was offset by growth in the average balance of interest-bearing liabilities of$437.2 million and$385.4 million , most notably due to an increase in NOW deposits of$350.9 million and$316.9 million , an increase in average savings and money market deposits of$77.9 million and$62.1 million , and an increase in borrowings of$9.0 million and$7.7 million when comparing the three and nine months endedMarch 31, 2021 and 2020, respectively. The cost of borrowings increased 310 and 229 basis points when comparing the three and nine months endedMarch 31, 2021 and 2020. The increase in cost of borrowings was due to the Company entering into Subordinated Note Purchase Agreements inSeptember 2020 . Yields on interest-earning assets and costs of interest-bearing deposits continue to decline as a result of the low interest rate environment brought on byFederal Reserve Board interest rate decreases during fiscal 2020 and its stance to continue the low interest rate environment to support an economic recovery as the pandemic crisis is contained and potentially moderated during the vaccine roll-out. NET INTEREST INCOME Net interest income increased$2.4 million to$13.6 million and$6.4 million to$39.0 million for the three and nine months endedMarch 31, 2021 . The increase in net interest income was primarily the result of the growth in the average balance of interest-earning assets, which increased$477.2 million and$439.5 million when comparing the three and nine months endedMarch 31, 2021 and 2020, respectively. Included in interest-earning assets atMarch 31, 2021 , are$90.3 million of SBA Paycheck Protection Program (PPP) loans at a rate of 1.00%. Included in interest income was the receipt of$1.3 million and$2.8 million in SBA PPP fee income for the three and nine months endedMarch 31, 2021 , which was realized through a deferred origination fee and recognized within interest income. Costs of interest-bearing liabilities decreased 44 and 41 basis points when comparing the three and nine months endedMarch 31, 2021 and 2020, respectively. The decline in costs was offset by growth in average interest-bearing liabilities of$437.2 million and$385.4 million when comparing the three and nine months endedMarch 31, 2021 and 2020, respectively. Net interest rate spread and margin both decreased when comparing the three and nine months endedMarch 31, 2021 and 2020. Net interest rate spread decreased 16 basis points to 2.72% for the three months endedMarch 31, 2021 compared to 2.88% for the three months endedMarch 31, 2020 . Net interest margin decreased 23 basis points to 2.76% for the three months endedMarch 31, 2021 compared to 2.99% for the three months endedMarch 31, 2020 . Net interest rate spread decreased 22 basis points to 2.78% for the nine months endedMarch 31, 2021 compared to 3.00% for the nine months endedMarch 31, 2020 . Net interest margin decreased 28 basis points to 2.84% for the nine months endedMarch 31, 2021 compared to 3.12% for the nine months endedMarch 31, 2020 . Decreases in net interest rate spread and net interest margin resulted primarily from the higher cost of interest-bearing liabilities and lower yields on securities, partially offset by growth in average loan and securities balances. 46
--------------------------------------------------------------------------------
Index
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 2.91% and 3.16% for the three months endedMarch 31, 2021 and 2020, respectively, and was 3.00% and 3.29% for the nine months endedMarch 31, 2021 and 2020, 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, including in 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. TheFederal Reserve Bank has maintained interest rates near 0.00%-0.25% which has had an impact to the Company for the three and nine months endedMarch 31, 2021 . It is anticipated that the low interest rate environment will continue to have a negative impact on the Company's interest spread and margin during the fiscal year endedJune 30, 2021 . 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 for the three months endedMarch 31, 2021 and 2020, respectively, and$3.9 million and$2.7 million for the nine months endedMarch 31, 2021 and 2020, respectively. The increase in provision for loan losses for the nine months endedMarch 31, 2021 was due to the impact of the COVID-19 pandemic as well as growth in gross loans and an increase in loans adversely classified. The Company instituted a loan deferral program in response to the COVID-19 pandemic whereby deferral of principal and/or interest payments have been provided and correspond to the length of the National Emergency as defined under the CARES Act and extended under the Consolidated Appropriations Act which was signed into law onDecember 27, 2020 . AtMarch 31, 2021 , the Company had$18.8 million , or 30 loans, on payment deferral as a result of the pandemic, which is a decrease from$193.5 million , or 706 loans, atJune 30, 2020 . Management continues to monitor these loans, and it remains uncertain whether all of these loans will continue to perform as agreed once they reach the end of the deferral period. Loans classified as substandard or special mention totaled$43.0 million atMarch 31, 2021 and$32.8 million atJune 30, 2020 , an increase of$10.2 million . Loans classified as substandard or special mention increased due to insufficient cash flows and revenues for commercial real estate and commercial loans related to the COVID-19 pandemic. Reserves on loans classified as substandard or special mention totaled$5.2 million atMarch 31, 2021 compared to$2.4 million atJune 30, 2020 , an increase of$2.8 million . No loans were classified as doubtful or loss atMarch 31, 2021 orJune 30, 2020 . Allowance for loan losses to total loans receivable was 1.80% atMarch 31, 2021 compared to 1.62% atJune 30, 2020 . Total loans receivable included$90.3 million and$99.8 million of SBA Paycheck Protection Program (PPP) loans atMarch 31, 2021 andJune 30, 2020 , respectively. Excluding these SBA guaranteed loans, the allowance for loan losses to total loans receivable would have been 1.97% and 1.80% atMarch 31, 2021 andJune 30, 2020 , respectively. Net charge-offs for the three months endedMarch 31, 2021 totaled$36,000 compared to$204,000 for the three months endedMarch 31, 2020 . Net charge-offs totaled$662,000 and$661,000 for the nine months endedMarch 31, 2021 and 2020, respectively. The primary change in the net charge off activity was the result of a commercial charge off that occurred in the second quarter of fiscal 2021. There were no other significant net charge off changes in other loan categories as of the three and nine months endedMarch 31, 2021 . Nonperforming loans amounted to$2.7 million and$4.1 million atMarch 31, 2021 andJune 30, 2020 , respectively. The decrease in nonperforming loans during the period was primarily due to$1.4 million in loan repayments,$583,000 in charge-offs, and$293,000 in loans returned to performing status, offset by$907,000 of loans placed into nonperforming status. AtMarch 31, 2021 nonperforming assets were 0.13% of total assets compared to 0.24% atJune 30, 2020 . Nonperforming loans were 0.25% and 0.41% of net loans atMarch 31, 2021 andJune 30, 2020 , respectively. Nonperforming assets to total assets were 0.25% and nonperforming loans to net loans were 0.44% atMarch 31, 2020 . The Company has not been an originator of "no documentation" mortgage loans, and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime. 47
--------------------------------------------------------------------------------
Index
NONINTEREST INCOME
For the three months For the nine months
(In thousands) ended March 31, Change from Prior Year ended March 31, Change from Prior Year
Noninterest income: 2021 2020 Amount Percent 2021 2020 Amount Percent
Service charges on deposit accounts
(219 ) (21.18 )%$ 2,555 $ 3,270 $ (715 ) (21.87 )% Debit card fees 951 698 253 36.25 2,761 2,196 565 25.73 Investment services 174 120 54 45.00 551 433 118 27.25 E-commerce fees 25 24 1 4.17 82 90 (8 ) (8.89 ) Bank owned life insurance 173 - 173 100.00 173 - 173 100.00 Other operating income 223 250 (27 ) (10.80 ) 711 719 (8 ) (1.11 ) Total noninterest income$ 2,361 $ 2,126 $ 235 11.05 %$ 6,833 $ 6,708 $ 125 1.86 % Noninterest income increased$235,000 , or 11.1%, and totaled$2.4 million and$2.1 million for the three months endedMarch 31, 2021 and 2020, respectively. Noninterest income increased$125,000 , or 1.9%, and totaled$6.8 million and$6.7 million for the nine months endedMarch 31, 2021 and 2020, respectively. The increase was primarily due to an increase in debit card fees resulting from continued growth in the number of checking accounts with debit cards and the income from bank owned life insurance offset by decreases in service charges on deposit accounts, primarily from a lower volume of nonsufficient fund fees. NONINTEREST EXPENSE For the three months For the nine months (In thousands) ended March 31, Change from Prior Year ended March 31, Change from Prior Year Noninterest expense: 2021 2020 Amount Percent 2021 2020 Amount Percent Salaries and employee benefits$ 4,788 $ 4,412 $ 376 8.52 %$ 13,966 $ 12,346 $ 1,620 13.12 % Occupancy expense 605 496 109 21.98 1,584 1,403 181 12.90 Equipment and furniture expense 168 191 (23 ) (12.04 ) 483 598 (115 ) (19.23 ) Service and data processing fees 674 626 48 7.67 1,958 1,838 120 6.53 Computer software, supplies and support 368 285 83 29.12 1,001 791 210 26.55 Advertising and promotion 108 115 (7 ) (6.09 ) 328 373 (45 ) (12.06 ) FDIC insurance premiums 204 159 45 28.30 552 132 420 318.18 Legal and professional fees 386 274 112 40.88 981 878 103 11.73 Other 1,066 670 396 59.10 2,187 1,826 361 19.77 Total noninterest expense$ 8,367 $ 7,228 $ 1,139 15.76 %$ 23,040 $ 20,185 $ 2,855 14.14 % Noninterest expense increased$1.1 million , or 15.8%, to$8.4 million for the three months endedMarch 31, 2021 as compared to$7.2 million for the three months endedMarch 31, 2020 . Noninterest expense increased$2.9 million , or 14.1%, to$23.0 million for the nine months endedMarch 31, 2021 , compared to$20.2 million for the nine months endedMarch 31, 2020 . The increase in noninterest expense during the three and nine months endedMarch 31, 2021 was primarily due to an increase in salaries and employee benefits expense resulting from additional staffing for a new branch located inAlbany, New York , which opened inSeptember 2020 . Due to continued growth, staffing was also increased within our lending department, information technology department and branch offices.FDIC insurance premiums also increased for the three and nine months endedMarch 31, 2021 , compared to the three and nine months endedMarch 31, 2020 , when credits were applied to the premiums.
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 14.2% and 13.4% for the three and nine months endedMarch 31, 2021 , compared to 12.2% and 14.5% for the three and nine months endedMarch 31, 2020 , respectively. 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.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, 2021 , the Company had$145.8 million in cash and cash equivalents, representing 6.8% of total assets, and had$372.3 million available in unused lines of credit. 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 allows banks to offer these loans to local businesses while maintaining strong liquidity to meet cash flow needs. 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%. AtJune 30, 2020 , the Company had$10.9 million of PPPLF borrowings outstanding. The PPPLF was paid off during the nine months endedMarch 31, 2021 . 48
--------------------------------------------------------------------------------
Index
At
Cash equivalents/(deposits plus short term borrowings)
7.43 % (Cash equivalents plus unpledged securities)/(deposits plus short term borrowings)
10.30 % (Cash equivalents plus unpledged securities plus additional borrowing capacity)/(deposits plus short term borrowings)
29.33 %
(In thousands) 2021 Unfunded loan commitments$ 110,172 Unused lines of credit 84,015 Standby letters of credit 192 Total commitments$ 194,380 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.
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, 2021 or June 30, 2020 . 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 $5.8 million and $3.3 million at
March 31, 2021 and June 30, 2020 , respectively. The current amount of credit
exposure is spread out over ten counterparties, and terms range between one 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.
49--------------------------------------------------------------------------------
Index
To Be Well
Capitalized
(Dollars in For Capital Prompt Capital Conservation
thousands) Actual Adequacy Action Buffer
The Bank of Amount Ratio Amount Ratio Amount Ratio Actual Required
Greene County
As of March 31,
2021:
Total risk-based
capital $ 175,267 16.4 % $ 85,521 8.0 % $ 106,901 10.0 % 8.40 % 2.50 %
Tier 1
risk-based
capital 161,827 15.1 64,141 6.0 85,521 8.0 9.14 2.50Common equity tier 1 capital 161,827 15.1 48,106 4.5 69,486 6.5
10.64 2.50
Tier 1 leverage
ratio 161,827 8.0 80,561 4.0 100,701 5.0 4.04 2.50
As of June 30,
2020:
Total risk-based
capital $ 142,524 16.0 % $ 71,393 8.0 % $ 89,241 10.0 % 7.97 % 2.50 %
Tier 1
risk-based
capital 131,305 14.7 53,545 6.0 71,393 8.0 8.71 2.50Common equity tier 1 capital 131,305 14.7 40,158 4.5 58,007 6.5
10.21 2.50
Tier 1 leverage
ratio(1) 131,305 8.1 65,238 4.0 81,547 5.0 4.05 2.50
Greene County
Commercial Bank
As of March 31,
2021:
Total risk-based
capital $ 66,062 38.8 % $ 13,623 8.0 % $ 17,028 10.0 % 30.80 % 2.50 %
Tier 1
risk-based
capital 66,062 38.8 10,217 6.0 13,623 8.0 32.80 2.50Common equity tier 1 capital 66,062 38.8 7,663 4.5 11,068 6.5
34.30 2.50
Tier 1 leverage
ratio 66,062 8.3 31,873 4.0 39,841 5.0 4.29 2.50
As of June 30,
2020:
Total risk-based
capital $ 60,832 45.3 % $ 10,754 8.0 % $ 13,442 10.0 % 37.26 % 2.50 %
Tier 1
risk-based
capital 60,832 45.3 8,065 6.0 10,754 8.0 39.26 2.50Common equity tier 1 capital 60,832 45.3 6,049 4.5 8,737 6.5
40.76 2.50
Tier 1 leverage
ratio 60,832 9.0 26,976 4.0 33,720 5.0 5.02 2.50
(1) Average assets have been adjusted for PPPLF borrowings in calculation of Tier
1 Leverage Ratio.
© Edgar Online, source
