| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
Overview of the Company’s Activities and Risks
The Company’s results of operations depend primarily on its net interest income, which is the difference between the income earned on the Company’s loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the Company’s provision for credit losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges. The Company’s noninterest expense consists principally of compensation and employee benefits, occupancy, equipment and data processing, and other operating expenses. Results of operations are also significantly affected by general economic and competitive conditions, changes in interest rates, as well as government policies and actions of regulatory authorities. Additionally, future changes in applicable law, regulations or government policies may materially affect the Company.
To operate successfully, the Company must manage various types of risk, including but not limited to, market or interest rate risk, credit risk, transaction risk, liquidity risk, security risk, strategic risk, reputation risk and compliance risk.
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. 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 most significant market risk affecting the Company. It 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.
Liquidity risk is the risk the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternate funding sources. The Company’s objective is to fund balance sheet growth while meeting the cash flow requirements of depositors. Management is responsible for liquidity monitoring and has available different sources of liquidity as requirements and demands change. These demands include loan growth and repayments, security purchases and maturities, deposit inflows and outflows, and payments on borrowings. Management continually monitors trends to identify patterns that might improve the predictability and timing of the Company’s liquidity position.
Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or systems, the misconduct or errors of people, and adverse external events. Operational losses result from internal fraud; external fraud; employment practices and workplace safety, clients, products, and business practices; damage to physical assets; business disruption and system failures; and execution, delivery, and process management.
Special Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements. Greene County Bancorp, Inc. desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all such forward-looking statements. These forward-looking statements, which are included in this Management’s Discussion and Analysis and elsewhere in this quarterly report, describe future plans or strategies and include Greene County Bancorp, Inc.’s expectations of future financial results. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions identify forward-looking statements. Greene County Bancorp, Inc.’s ability to predict results or the effect of future plans or strategies or qualitative or quantitative changes based on market risk exposure is inherently uncertain. Factors that could affect actual results include but are not limited to:
| | (a) | changes in general market interest rates, |
| (b) | general economic conditions, |
| (c) | legislative and regulatory changes, |
| (d) | monetary and fiscal policies of the U.S. Treasury and the Federal Reserve, |
| (e) | changes in the quality or composition of Greene County Bancorp, Inc.’s loan and investment portfolios, |
| (h) | demand for financial services in Greene County Bancorp, Inc.’s market area. |
These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements, since results in future periods may differ materially from those currently expected because of various risks and uncertainties.
Non-GAAP Financial Measures
Regulation G, a rule adopted by the Securities and Exchange Commission (SEC), applies to certain SEC filings, including earnings releases, made by registered companies that contain “non-GAAP financial measures.” GAAP is generally accepted accounting principles in the United States of America. Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure (if a comparable GAAP measure exists) and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. Financial institutions like the Company and its subsidiary banks are subject to an array of bank regulatory capital measures that are financial in nature but are not based on GAAP and are not easily reconcilable to the closest comparable GAAP financial measures, even in those cases where a comparable measure exists. The Company follows industry practice in disclosing its financial condition under these various regulatory capital measures, including period-end regulatory capital ratios for itself and its subsidiary banks, in its periodic reports filed with the SEC, and it does so without compliance with Regulation G, on the widely-shared assumption that the SEC regards such non-GAAP measures to be exempt from Regulation G. The Company uses in this Report additional non-GAAP financial measures that are commonly utilized by financial institutions and have not been specifically exempted by the SEC from Regulation G. The Company provides, as supplemental information, such non-GAAP measures included in this Report as described immediately below.
Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income, as a component of the tabular presentation by financial institutions of Selected Financial Information regarding their recently completed operations, as well as disclosures based on that tabular presentation, is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of another institution or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. While we present net interest income and net interest margin utilizing GAAP measures (no tax-equivalent adjustments) as a component of the tabular presentation within our disclosures, we do provide as supplemental information net interest income and net interest margin on a tax-equivalent basis.
Critical Accounting Policies
Critical accounting estimates as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations. The more significant of these policies are summarized in Note 1 to the consolidated financial statements presented in our 2023 Annual Report on Form 10-K. Refer to Note 2 in this Quarterly Report on Form 10-Q for recently adopted accounting standards. Not all significant accounting policies require management to make difficult, subjective or complex judgments. The allowance for credit losses on loans and unfunded commitments policies noted below are deemed the Company’s critical accounting estimate.
The allowance for credit losses consists of the allowance for credit losses for loans and unfunded commitments. Effective July 1, 2023, the measurement of Current Expensed Credit Losses (“CECL”) on financial instruments requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, the Company considers forecasts about future economic conditions that are reasonable and supportable. The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, are adjusted by a provision (expense) for credit losses, which is recognized in earnings, and reduced by the charge-off of loans, net of recoveries. The allowance for credit losses on unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The allowance for credit losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws, and is included in accrued expenses and other liabilities on the Company’s consolidated statements of financial condition.
Management of the Company considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of our loan portfolios. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolios, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate, the allowance may need to be increased under adversely different conditions or assumptions. Going forward, the impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolios, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility to our reported earnings. This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.
The Company’s policies on the CECL method for allowance for credit losses are disclosed in Note 1 to the consolidated financial statements presented in this Quarterly Report on Form 10-Q. Refer to Note 2 to the consolidated financial statements in this Quarterly Report on Form 10-Q for recently adopted accounting standards.
Comparison of Financial Condition at September 30, 2023 and June 30, 2023
ASSETS
Total assets of the Company remained unchanged at $2.7 billion at September 30, 2023 and at June 30, 2023. Securities available-for-sale and held-to-maturity remained unchanged at $1.0 billion at September 30, 2023 and at June 30, 2023. Net loans receivable increased $40.4 million, or 2.9%, to $1.43 billion at September 30, 2023 from $1.39 billion at June 30, 2023.
CASH AND CASH EQUIVALENTS
Total cash and cash equivalents for the Company were $130.3 million at September 30, 2023 and $196.4 million at June 30, 2023. 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. The Company held excess cash balances for both quarter ends in response to the recent industry turmoil and has continued to maintain strong capital and liquidity positions as of September 30, 2023.
SECURITIES
Securities available-for-sale and held-to-maturity remained unchanged at $1.0 billion at September 30, 2023 and at June 30, 2023. Securities purchases totaled $85.0 million during the three months ended September 30, 2023 and consisted primarily of $84.3 million of state and political subdivision securities. Principal pay-downs and maturities during the three months ended September 30, 2023 amounted to $66.1 million, primarily consisting of $61.5 million of state and political subdivision securities, and $3.8 million of mortgage-backed securities. At September 30, 2023, 62.6% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promote the Company’s participation in the communities in which it operates. Mortgage-backed securities, which represent 27.5% of our securities portfolio at September 30, 2023, do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.
The Company adopted ASU 2016-13 (CECL) as of July 1, 2023. For periods subsequent to adoption, the allowance for credit losses (ACL) is calculated under the CECL methodology and the resulting provision for credit losses includes expected credit losses on securities held-to-maturity. The periods prior to adoption did not have an allowance for credit losses under applicable Generally Accepted Accounting Principles (GAAP) for those periods.
U.S. Treasury and mortgage-backed securities are issued by U.S. government entities and agencies. These securities are either explicitly and/or implicitly guaranteed by the U.S. government as to timely repayment of principal and interest, are highly rated by major rating agencies, and have a long history of zero credit losses. Therefore, the Company determined a zero credit loss assumption, and did not calculate or record an allowance for credit loss for these securities. An allowance for credit losses on investment securities held-to-maturity has been recorded for certain municipal securities issued by state and political subdivisions and corporate debt securities to account for expected lifetime credit loss using the CECL methodology.
The following table summarizes the securities portfolio by classification as a percentage of the portfolio. The values are reported at the balance sheet carrying value, as of September 30, 2023 and June 30, 2023. Refer to financial statements Note 3 Securities for the complete fair value of securities.
| | | September 30, 2023 | | | June 30, 2023 | |
| (Dollars in thousands) | | Balance | | | Percentage of portfolio | | | Balance | | | Percentage of portfolio | |
| Securities available-for-sale (at fair value): | | | | | | | | | | | | |
| U.S. Government sponsored enterprises | | $ | 10,467 | | | | 1.0 | % | | $ | 10,823 | | | | 1.1 | % |
| U.S. Treasury securities | | | 16,208 | | | | 1.6 | | | | 16,500 | | | | 1.6 | |
| State and political subdivisions | | | 171,620 | | | | 16.8 | | | | 138,011 | | | | 13.7 | |
| Mortgage-backed securities-residential | | | 23,592 | | | | 2.3 | | | | 25,601 | | | | 2.5 | |
| Mortgage-backed securities-multifamily | | | 68,884 | | | | 6.7 | | | | 72,086 | | | | 7.2 | |
| Corporate debt securities | | | 17,945 | | | | 1.8 | | | | 18,112 | | | | 1.8 | |
| Total securities available-for-sale | | | 308,716 | | | | 30.2 | | | | 281,133 | | | | 27.9 | |
| Securities held-to-maturity (at amortized cost): | | | | | | | | | | | | | | | | |
| U.S. treasury securities | | | 33,726 | | | | 3.3 | | | | 33,705 | | | | 3.4 | |
| State and political subdivisions | | | 467,647 | | | | 45.8 | | | | 478,756 | | | | 47.5 | |
| Mortgage-backed securities-residential | | | 35,927 | | | | 3.5 | | | | 37,186 | | | | 3.7 | |
| Mortgage-backed securities-multifamily | | | 152,504 | | | | 15.0 | | | | 155,046 | | | | 15.4 | |
| Corporate debt securities | | | 21,876 | | | | 2.2 | | | | 21,632 | | | | 2.1 | |
| Other securities | | | 36 | | | | 0.0 | | | | 38 | | | | 0.0 | |
| Total securities held-to-maturity | | | 711,716 | | | | 69.8 | | | | 726,363 | | | | 72.1 | |
| Total securities | | $ | 1,020,432 | | | | 100.0 | % | | $ | 1,007,496 | | | | 100.0 | % |
There was no ACL recorded on available-for-sale securities as of either period presented as each of the securities in the portfolio are investment grade, current as to principal and interest and their price changes are consistent with interest and credit spreads when adjusting for convexity, rating, and industry differences.
Held-to-maturity securities are evaluated for credit losses on a quarterly basis under the CECL methodology. At September 30, 2023, the ACL on held-to-maturity securities was $498,000.
LOANS
Net loans receivable increased $40.4 million, or 2.9%, to $1.43 billion at September 30, 2023 from $1.39 billion at June 30, 2023. The loan growth experienced during the three months consisted primarily of $27.9 million in commercial real estate loans, $6.7 million in residential real estate loans, $2.6 million in home equity loans and $2.3 million in commercial loans. The Company continues to experience loan growth as a result of continued growth in its customer base and its relationships with other financial institutions in originating loan participations. The Company continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products. Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.
| | | September 30, 2023 | | | June 30, 2023 | |
| (Dollars in thousands) | | Balance | | | Percentage of Portfolio | | | Balance | | | Percentage of Portfolio | |
| Residential real estate | | $ | 397,626 | | | | 27.5 | % | | $ | 390,944 | | | | 27.8 | % |
| Commercial real estate | | | 910,165 | | | | 62.8 | | | | 882,388 | | | | 62.6 | |
| Home equity | | | 25,467 | | | | 1.8 | | | | 22,887 | | | | 1.6 | |
| Consumer | | | 4,778 | | | | 0.3 | | | | 4,646 | | | | 0.3 | |
| Commercial loans | | | 110,304 | | | | 7.6 | | | | 108,001 | | | | 7.7 | |
Total gross loans(1)(2) | | | 1,448,340 | | | | 100.0 | % | | | 1,408,866 | | | | 100.0 | % |
| Allowance for credit losses on loans | | | (20,249 | ) | | | | | | | (21,212 | ) | | | | |
| Total net loans | | $ | 1,428,091 | | | | | | | $ | 1,387,654 | | | | | |
| | (1) | Loan balances include net deferred fees/cost of ($62,000) and $75,000 at September 30, 2023 and at June 30, 2023, respectively. |
| | (2) | Loan balances exclude accrued interest receivable of $6.0 million and $5.5 million at September 30, 2023 and at June 30, 2023, respectively, which is included in accrued interest receivable in the consolidated statement of financial condition. |
ALLOWANCE FOR CREDIT LOSSES ON LOANS
The allowance for credit losses on loans (the “ACL”) is established through a provision made periodically by charges or benefits to the provision for credit losses. This is necessary to maintain the ACL at a level which management believes is reasonably reflective of the overall loss expected over the contractual life of the loan portfolio. Management has an established ACL policy to govern the use of judgments exercised in evaluating the ACL required to estimate the expected credit losses over the expected contractual life of the loan portfolios and the material effect that such judgments can have on the consolidated financial statements. While management uses available information to recognize losses on loans, additions or reductions to the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in the reasonable and supportable forecast, analysis of loans evaluated individually, and/or changes in management’s assessment of factors.
The ACL is based on the results of life of loan quantitative models, reserves associated with collateral-dependent loans evaluated individually and adjustments for the impact of current economic conditions not accounted for in the quantitative models. The discounted cash flow methodology is used to calculate the CECL reserve for the residential real estate, commercial real estate, home equity and commercial loan segments. The remaining life method is utilized to determine the CECL reserve for the consumer loan segment. The Company elected to use the practical expedient to evaluate loans individually, if they are collateral dependent loans that are on nonaccrual status with a balance of $250,000 or greater, which is consistent with regulatory requirements. The fair value of collateral for collateral dependent loans less selling expenses will be compared to the loan balance to determine if a CECL reserve is required. A qualitative factor framework has been developed to adjust the quantitative loss rates for asset-specific risk characteristics or current conditions at the reporting date.
The Company charges loans off against the ACL when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Company more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers. Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the ACL, unless equitable arrangements are made. Included within consumer installment loan charge-offs and recoveries are deposit accounts that have been overdrawn in excess of 60 days. 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 ACL is increased by a provision for credit losses (which results in a charge to expense) and recoveries of loans previously charged off, and is reduced by charge-offs.
Additional information about the ACL is included in Note 4 to the consolidated financial statements. Management considers the ACL to be appropriate based on evaluation and analysis of the loan portfolio.
The ACL totaled $20.2 million at September 30, 2023, compared to $21.2 million at June 30, 2023 and $19.9 million at July 1, 2023. The ACL to total loans receivable was 1.40% at September 30, 2023 compared to 1.51% at June 30, 2023 and 1.42% at day-one CECL adoption (July 1, 2023). The ACL as of September 30, 2023 is consistent with the July 1, 2023 day-one ACL. The decrease in the ACL from June 30, 2023 to September 30, 2023 was primarily due to the CECL adoption.
The allowance for credit losses on unfunded commitments as of September 30, 2023 was $1.5 million.
Nonaccrual Loans and Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loans that have modifications, foreclosed real estate and nonperforming securities. Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection. A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan. A loan does not have to be 90 days delinquent in order to be classified as nonaccrual, and may be placed on nonaccrual when circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments. The threshold for evaluating classified and nonperforming loans specifically evaluated for individual credit loss is $250,000. Foreclosed real estate represents property acquired through foreclosure and is vale lower of the carrying amount or fair value, less any estimated disposal costs.
Analysis of Nonaccrual Loans and Nonperforming Assets
| (Dollars in thousands) | | September 30, 2023 | | | June 30, 2023 | |
| Nonaccrual loans: | | | | | | |
| Residential real estate | | $ | 2,816 | | | $ | 2,747 | |
| Commercial real estate | | | 1,307 | | | | 1,318 | |
| Home equity | | | 52 | | | | 54 | |
| Consumer installment | | | 43 | | | | 63 | |
| Commercial | | | 1,256 | | | | 1,276 | |
| Total nonaccrual loans | | $ | 5,474 | | | $ | 5,458 | |
| Foreclosed real estate: | | | | | | | | |
| Commercial | | | 302 | | | | 302 | |
| Total foreclosed real estate | | | 302 | | | | 302 | |
| Total nonperforming assets | | $ | 5,776 | | | $ | 5,760 | |
| | | | | | | | | |
| Total nonperforming assets of total assets | | | 0.21 | % | | | 0.21 | % |
| Total nonperforming loans to net loans | | | 0.38 | % | | | 0.39 | % |
| Allowance for credit losses on loans to nonperforming loans | | | 369.91 | % | | | 388.64 | % |
| Allowance for credit losses on loans to total loans receivable | | | 1.40 | % | | | 1.51 | % |
At September 30, 2023 and June 30, 2023, there were no loans greater than 90 days and accruing.
Nonperforming assets amounted to $5.8 million at September 30, 2023 and June 30, 2023. Loans on nonaccrual status totaled $5.5 million at September 30, 2023, of which there were three residential loans totaling $637,000 and two commercial real estate loans totaling $1.4 million that were in process of foreclosure. Included in nonaccrual loans were $2.9 million of loans which were less than 90 days past due at September 30, 2023, 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 $5.5 million at June 30, 2023 of which three residential real estate loans totaling $625,000 and two commercial real estate loans totaling $1.4 million in the process of foreclosure. Included in nonaccrual loans were $3.1 million of loans which were less than 90 days past due at June 30, 2023, but have a recent history of delinquency greater than 90 days past due.
DEPOSITS
Deposits totaled $2.4 billion at both September 30, 2023 and at June 30, 2023. NOW deposits increased $28.4 million, or 1.6%, and noninterest-bearing deposits increased $7.0 million, or 4.4%, when comparing September 30, 2023 and June 30, 2023. Certificates of deposits decreased $16.3 million, or 12.7%, money market deposits decreased $14.1 million, or 12.3%, and savings deposits decreased $21.7 million, or 7.2%, when comparing September 30, 2023 and June 30, 2023. As of September 30, 2023, the overall brokered deposit balance amounted to $62.7 million, which included $15.0 million of NOW deposits in the form of IntraFi Insured Network Deposits and $47.7 million of certificates of deposits in the form of brokered certificates of deposits. As of June 30, 2023, the overall brokered deposits balance amounted to $60.0 million of brokered certificates of deposits. The Company maintained the increased level of brokered deposits to support overall liquidity and a higher cash position.
Major classifications of deposits at September 30, 2023 and June 30, 2023 are summarized as follows:
| (In thousands) | | September 30, 2023 | | | Percentage of Portfolio | | | June 30, 2023 | | | Percentage of Portfolio | |
| Noninterest-bearing deposits | | $ | 166,054 | | | | 6.8 | % | | $ | 159,039 | | | | 6.5 | % |
| Certificates of deposit | | | 111,803 | | | | 4.6 | | | | 128,077 | | | | 5.3 | |
| Savings deposits | | | 277,380 | | | | 11.5 | | | | 299,038 | | | | 12.3 | |
| Money market deposits | | | 100,900 | | | | 4.2 | | | | 115,029 | | | | 4.7 | |
| NOW deposits | | | 1,764,344 | | | | 72.9 | | | | 1,735,978 | | | | 71.2 | |
| Total deposits | | $ | 2,420,481 | | | | 100.0 | % | | $ | 2,437,161 | | | | 100.0 | % |
BORROWINGS
At September 30, 2023, the Bank had pledged approximately $579.8 million of its residential and commercial mortgage portfolio as collateral for borrowing and irrevocable municipal letters of credit at the Federal Home Loan Bank of New York (“FHLB”). The maximum amount of funding available from the FHLB was $368.2 million at September 30, 2023, of which there were $4.4 million term fixed rate borrowings, $190.0 million irrevocable municipal letters of credit and no short-term borrowings outstanding at September 30, 2023. There were no overnight borrowings at September 30, 2023 and June 30, 2023, respectively. Interest rates on overnight borrowings are determined at the time of borrowing. There were no long-term fixed rate, fixed term advances at June 30, 2023. The $190.0 million of irrevocable municipal letters of credit with the FHLB have been issued to secure municipal transactional deposit accounts, on behalf of Greene County Commercial Bank.
The FHLB term fixed rate borrowing of $4.4 million has a stated rate of 5.7%, maturing September 2024. The Company received a corresponding credit related to the FHLB term fixed rate borrowing, from the “FHLB 0% Development Advance (ZDA) Program”, which effectively reduces the interest rate paid to zero percent.
The Bank also pledges securities and certificates of deposit as collateral at the Federal Reserve Bank discount window for overnight borrowings. At September 30, 2023, approximately $23.7 million of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window the Bank Term Funding Program. There were no balances outstanding with the Federal Reserve Bank at September 30, 2023.
The Bank has established unsecured lines of credit with Atlantic Central Bankers Bank for $15.0 million and two other financial institutions for $50.0 million. The Company has also established an unsecured line of credit with Atlantic Central Bankers Bank for $7.5 million. The lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing. There were no borrowings outstanding with these lines of credit for both the Company and the Bank at September 30, 2023 and June 30, 2023.
On September 17, 2020, the Company entered into Subordinated Note Purchase Agreements with 14 qualified institutional investors, issued at 4.75% Fixed-to-Floating Rate due September 17, 2030, in the aggregate principal amount of $20.0 million, carried net of issuance costs of $424,000 amortized over a period of 60 months. These notes are callable on September 15, 2025. At September 30, 2023, there were $19.8 million of these Subordinated Note Purchases Agreements outstanding, net of issuance costs.
On September 15, 2021, the Company entered into Subordinated Note Purchase Agreements with 18 qualified institutional investors, issued at 3.00% Fixed-to-Floating Rate due September 15, 2031, in the aggregate principal amount of $30.0 million, carried net of issuance costs of $499,000 amortized over a period of 60 months. These notes are callable on September 15, 2026. At September 30, 2023, there were $29.7 million of these Subordinated Note Purchases Agreements outstanding, net of issuance costs.
At September 30, 2023, there were no other long-term borrowings and therefore no scheduled maturities of long-term borrowings.
EQUITY
Shareholders’ equity increased to $184.2 million at September 30, 2023 from $183.3 million at June 30, 2023, resulting primarily from net income of $6.5 million, partially offset by dividends declared and paid of $1.4 million, an increase in accumulated other comprehensive loss of $3.7 million and the day-one CECL adoption impact of $510,000. Unrealized loss on available for sale securities increased at September 30, 2023 compared to June 30, 2023, as the market yields on bonds increased during the three months ended September 30, 2023.
The Federal Reserve raised their target benchmark interest rate in 2022 and into the third quarter of calendar year 2023, resulting in subsequent prime lending rate increases of 525 basis points, and a significant increase in market rates between March 2022 and September 2023. If market interest rates continue to rise, the fair value of the fixed income bond portfolio will decrease, resulting in additional unrealized losses, and depending on the extent of the rise in interest rates, the increase in unrealized losses could be significant. The non-credit portion of unrealized losses are recorded to Accumulated Other Comprehensive Income, a component of Shareholders' Equity. A significant increase in market rates may have a negative impact on book value per share. The Company's bond portfolio is expected to mature at par and therefore the unrealized losses in the portfolio that result from higher market interest rates will decrease as the bonds become closer to maturity. However, if the Company were required to sell investment securities with an unrealized loss for any reason, including liquidity needs, the unrealized loss would become realized and reduce both net income for the reported period and regulatory capital, which as currently reported, excludes unrealized losses on investment securities.
On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to 400,000 shares of its common stock. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. For the three months ended September 30, 2023, the Company did not repurchase any shares.
| Selected Equity Data: | | | |
| | | September 30, 2023 | | | June 30, 2023 | |
| Shareholders’ equity to total assets, at end of period | | | 6.85 | % | | | 6.79 | % |
Book value per share1 | | $ | 10.82 | | | $ | 10.76 | |
| Closing market price of common stock | | $ | 24.05 | | | $ | 29.80 | |
| | | | | | | | | |
| | | For the three months ended September 30, | |
| | | | 2023 | | | | 2022 | |
| Average shareholders’ equity to average assets | | | 7.00 | % | | | 6.32 | % |
Dividend payout ratio1 | | | 21.05 | % | | | 13.21 | % |
Actual dividends paid to net income2 | | | 21.05 | % | | | 6.04 | % |
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 December 31, 2021, March 31, 2022, September 30, 2022, December 31, 2022, March 31, 2023 and June 30, 2023. Dividends declared during the three months ended June 30, 2022 and September 30, 2023 were paid to the MHC. The MHC’s ability to waive the receipt of dividends is dependent upon annual approval of its members as well as receiving the non-objection of the Federal Reserve Board.
Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022
Average Balance Sheet
The following table sets forth certain information relating to the Company for the three months ended September 30, 2023 and 2022. 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 September 30, | |
| | | 2023 | | | 2022 | |
| (Dollars in thousands) | | Average Outstanding Balance | | | Interest Earned / Paid | | | Average Yield / Rate | | | Average Outstanding Balance | | | Interest
Earned / Paid | | | Average Yield / Rate | |
| Interest-earning Assets: | | | | | | | | | | | | | | | | | | |
Loans receivable, net1 | | $ | 1,429,657 | | | $ | 17,205 | | | | 4.81 | % | | $ | 1,314,095 | | | $ | 13,382 | | | | 4.07 | % |
| Securities non-taxable | | | 638,478 | | | | 4,290 | | | | 2.69 | | | | 698,137 | | | | 3,077 | | | | 1.76 | |
Securities taxable | | | 400,024 | | | | 2,224 | | | | 2.22 | | | | 433,522 | | | | 2,120 | | | | 1.96 | |
| Interest-bearing bank balances and federal funds | | | 64,719 | | | | 916 | | | | 5.66 | | | | 5,471 | | | | 27 | | | | 1.97 | |
| FHLB stock | | | 2,040 | | | | 37 | | | | 7.25 | | | | 3,254 | | | | 34 | | | | 4.18 | |
| Total interest-earning assets | | | 2,534,918 | | | | 24,672 | | | | 3.89 | % | | | 2,454,479 | | | | 18,640 | | | | 3.04 | % |
| Cash and due from banks | | | 12,317 | | | | | | | | | | | | 12,907 | | | | | | | | | |
| Allowance for credit losses on loans | | | (20,001 | ) | | | | | | | | | | | (23,046 | ) | | | | | | | | |
| Allowance for credit losses on securities held-to-maturity | | | (492 | ) | | | | | | | | | | | - | | | | | | | | | |
| Other noninterest-earning assets | | | 97,787 | | | | | | | | | | | | 90,701 | | | | | | | | | |
| Total assets | | $ | 2,624,529 | | | | | | | | | | | $ | 2,535,041 | | | | | | �� | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest-Bearing Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Savings and money market deposits | | $ | 399,629 | | | $ | 286 | | | | 0.29 | % | | $ | 499,168 | | | $ | 203 | | | | 0.16 | % |
| NOW deposits | | | 1,675,568 | | | | 9,174 | | | | 2.19 | | | | 1,499,209 | | | | 1,586 | | | | 0.42 | |
| Certificates of deposit | | | 117,750 | | | | 1,147 | | | | 3.90 | | | | 69,788 | | | | 221 | | | | 1.27 | |
| Borrowings | | | 58,997 | | | | 626 | | | | 4.24 | | | | 94,129 | | | | 796 | | | | 3.38 | |
| Total interest-bearing liabilities | | | 2,251,944 | | | | 11,233 | | | | 2.00 | % | | | 2,162,294 | | | | 2,806 | | | | 0.52 | % |
| Noninterest-bearing deposits | | | 158,278 | | | | | | | | | | | | 184,216 | | | | | | | | | |
| Other noninterest-bearing liabilities | | | 30,653 | | | | | | | | | | | | 28,213 | | | | | | | | | |
| Shareholders' equity | | | 183,654 | | | | | | | | | | | | 160,318 | | | | | | | | | |
| Total liabilities and equity | | $ | 2,624,529 | | | | | | | | | | | $ | 2,535,041 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net interest income | | | | | | $ | 13,439 | | | | | | | | | | | $ | 15,834 | | | | | |
| Net interest rate spread | | | | | | | | | | | 1.89 | % | | | | | | | | | | | 2.52 | % |
| Net earnings assets | | $ | 282,974 | | | | | | | | | | | $ | 292,185 | | | | | | | | | |
| Net interest margin | | | | | | | | | | | 2.12 | % | | | | | | | | | | | 2.58 | % |
| Average interest-earning assets to average interest-bearing liabilities | | | 112.57 | % | | | | | | | | | | | 113.51 | % | | | | | | | | |
1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
| Taxable-equivalent net interest income and net interest margin | | For the three months ended September 30, | |
| (Dollars in thousands) | | 2023 | | | 2022 | |
| Net interest income (GAAP) | | $ | 13,439 | | | $ | 15,834 | |
Tax-equivalent adjustment(1) | | | 1,563 | | | | 1,125 | |
| Net interest income (fully taxable-equivalent) | | $ | 15,002 | | | $ | 16,959 | |
| | | | | | | | | |
| Average interest-earning assets | | $ | 2,534,918 | | | $ | 2,454,479 | |
| Net interest margin (fully taxable-equivalent) | | | 2.37 | % | | | 2.76 | % |
1Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. The rate used for this adjustment was 21% for federal income taxes and 4.44% for New York State income taxes for the periods ended September 30, 2023 and 2022, respectively.
Rate / Volume Analysis
The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to:
| | (i) | Change attributable to changes in volume (changes in volume multiplied by prior rate); |
| (ii) | Change attributable to changes in rate (changes in rate multiplied by prior volume); and |
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 September 30, | |
| | | 2023 versus 2022 | |
| | | Increase/(Decrease) | | | Total | |
| | | Due To | | | Increase/ | |
| (Dollars in thousands) | | Volume | | | Rate | | | (Decrease) | |
| Interest-earning Assets: | | | | | | | | | |
Loans receivable, net1 | | $ | 1,246 | | | $ | 2,577 | | | $ | 3,823 | |
| Securities non-taxable | | | (283 | ) | | | 1,496 | | | | 1,213 | |
| Securities taxable | | | (169 | ) | | | 273 | | | | 104 | |
| Interest-bearing bank balances and federal funds | | | 758 | | | | 131 | | | | 889 | |
| FHLB stock | | | (16 | ) | | | 19 | | | | 3 | |
| Total interest-earning assets | | | 1,536 | | | | 4,496 | | | | 6,032 | |
| | | | | | | | | | | | | |
| Interest-Bearing Liabilities: | | | | | | | | | | | | |
| Savings and money market deposits | | | (48 | ) | | | 131 | | | | 83 | |
| NOW deposits | | | 206 | | | | 7,382 | | | | 7,588 | |
| Certificates of deposit | | | 231 | | | | 695 | | | | 926 | |
| Borrowings | | | (342 | ) | | | 172 | | | | (170 | ) |
| Total interest-bearing liabilities | | | 47 | | | | 8,380 | | | | 8,427 | |
| Net change in net interest income | | $ | 1,489 | | | $ | (3,884 | ) | | $ | (2,395 | ) |
1 Calculated net of deferred loan fees, loan discounts, and loans in process.
GENERAL
Return on average assets and return on average equity are common methods of measuring operating results. Annualized return on average assets decreased to 0.99% for the three months ended September 30, 2023 as compared to 1.43% for the three months ended September 30, 2022. Annualized return on average equity decreased to 14.09% for the three months ended September 30, 2023 as compared to 22.55% for the three months ended September 30, 2022. The decrease in return on average assets and return on average equity for the three months ended September 30, 2023 was primarily the result of the balance sheet growing at a faster rate than net income growth. Net income amounted to $6.5 million and $9.0 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of $2.5 million. Average assets increased $89.5 million, or 3.5%, to $2.6 billion for the three months ended September 30, 2023 as compared to $2.5 billion for the three months ended September 30, 2022. Average equity increased $23.3 million, or 14.6%, to $183.7 million for the three months ended September 30, 2023 as compared to $160.3 million for the three months ended September 30, 2022.
INTEREST INCOME
Interest income amounted to $24.7 million for the three months ended September 30, 2023 as compared to $18.6 million for the three months ended September 30, 2022, an increase of $6.0 million, or 32.4%. The increase in yields earned on loans and securities had the greatest impact on interest income. The average balances of loans also increased during the comparative periods contributing to higher interest income.
Average loan balances increased $115.6 million and the yield on loans increased 74 basis points when comparing the three months ended September 30, 2023 and 2022. The average balance of securities decreased $93.2 million and the yield on such securities increased 67 basis points when comparing the three months ended September 30, 2023 and 2022. Average interest-bearing bank balances and federal funds increased $59.2 million and the yield increased 369 basis points when comparing the three months ended September 30, 2023 and 2022.
INTEREST EXPENSE
Interest expense amounted to $11.2 million for the three months ended September 30, 2023 as compared to $2.8 million for the three months ended September 30, 2022, an increase of $8.4 million, or 300.3%. The increase in the cost of funds on NOW deposits and certificates of deposit had the greatest impact on interest expense during the three months ended September 30, 2023, reflecting higher market interest rates when comparing the periods.
The cost of NOW deposits increased 177 basis points, the cost of certificates of deposit increased 263 basis points, and the cost of savings and money market deposits increased 13 basis points when comparing the three months ended September 30, 2023 and 2022. The increase in the cost of interest-bearing liabilities was also due to growth in the average balance of interest-bearing liabilities of $89.7 million. This was due to an increase in NOW deposits of $176.4 million and an increase in average certificates of deposits of $48.0 million, offset by a decrease in average savings and money market deposits of $99.5 million and a decrease in average borrowings of $35.1 million when comparing the three months ended September 30, 2023 and 2022. Yields on interest-earning assets and costs of interest-bearing deposits increased for the three months ended September 30, 2023, as the Federal Reserve Board raised interest rates throughout the calendar year 2022 and into the third quarter of calendar year 2023.
NET INTEREST INCOME
Net interest income decreased $2.4 million to $13.4 million for the three months ended September 30, 2023 from $15.8 million for the three months ended September 30, 2022. The decrease in net interest income was due to an increase in the average balance of interest-bearing liabilities, which increased $89.7 million when comparing the three months ended September 30, 2023 and 2022, and increases in rates paid on interest-bearing liabilities, which increased 148 basis points when comparing the three months ended September 30, 2023 and 2022. The decrease in net interest income was partially offset by increases in the average balance of interest-earning assets, which increased $80.4 million when comparing the three months ended September 30, 2023 and 2022, and increases in interest rates on interest-earning assets, which increased 85 basis points when comparing the three months ended September 30, 2023 and 2022.
Net interest rate spread and margin both decreased when comparing the three months ended September 30, 2023 and 2022. Net interest rate spread decreased 63 basis points to 1.89% for the three months ended September 30, 2023 compared to 2.52% for the three months ended September 30, 2022. Net interest margin decreased 46 basis points to 2.12% for the three months ended September 30, 2023 compared to 2.58% for the three months ended September 30, 2022. The decrease during the current quarter was due to the higher interest rate environment, which resulted in higher rates paid on deposits, resulting in higher interest expense. This was partially offset by increases in interest income on loans and securities, as they reprice at higher yields and the interest rates earned on new balances were higher than the historic low levels from the prior year period.
Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. Tax equivalent net interest margin was 2.37% and 2.76% for the three months ended September 30, 2023 and 2022.
The Company closely monitors its interest rate risk, and the Company will continue to monitor and prudently manage the asset and liability mix to address the risks or potential negative effects of changes in interest rates. Management attempts to mitigate the interest rate risk through balance sheet composition. Several strategies are used to help manage interest rate risk such as maintaining a high level of liquid assets such as short-term federal funds sold and various investment securities and maintaining a high concentration of less interest-rate sensitive and lower-costing core deposits.
The Federal Reserve Board has raised rates since March of 2022. The rise in the federal funds rate is expected to have a positive impact to the Company’s interest spread and margin as the rates on new loans and securities purchased are at higher rates than in the prior year, however given how quickly the rate rise has been, it has not allowed the Company to reprice assets as quickly as deposits.
PROVISION FOR CREDIT LOSSES ON LOANS
Provision for credit losses amounted to $457,000 for the three months ended September 30, 2023. The provision for credit losses on loans amounted to $462,000 for the three months ended September 30, 2023, compared to a benefit of $499,000 for the three months ended September 30, 2022. The loan provision for the three months ended September 30, 2023 was primarily due to the increase in gross loans and increases in the qualitative factor adjustments. The allowance for credit losses on loans to total loans receivable was 1.40% at September 30, 2023 compared to 1.51% at June 30, 2023 and 1.42% at day-one CECL adoption (July 1, 2023).
Loans classified as substandard or special mention totaled $43.8 million at September 30, 2023 and $41.9 million at June 30, 2023, an increase of $1.9 million. There were no loans classified as doubtful or loss at September 30, 2023 or June 30, 2023.
Net charge-offs amounted to $93,000 and $115,000 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $22,000. There were no significant charge-offs in any loan segment during the three months ended September 30, 2023. Net charge-offs to average loans was 3 bps and 4 bps for the three months ended September 30, 2023 and 2022, respectively. Net charge-offs to nonperforming assets was 6.4% and 8.5% for the three months ended September 30, 2023 and 2022, respectively.
NONINTEREST INCOME
| (Dollars in thousands) | | For the three months ended September 30, | | | Change from Prior Year | |
| Noninterest income: | | 2023 | | | 2022 | | | Amount | | | Percent | |
| Service charges on deposit accounts | | $ | 1,230 | | | $ | 1,217 | | | $ | 13 | | | | 1.1 | % |
| Debit card fees | | | 1,133 | | | | 1,142 | | | | (9 | ) | | | (0.8 | ) |
| Investment services | | | 243 | | | | 180 | | | | 63 | | | | 35.0 | |
| E-commerce fees | | | 29 | | | | 26 | | | | 3 | | | | 11.5 | |
| Bank owned life insurance | | | 362 | | | | 340 | | | | 22 | | | | 6.5 | |
| Other operating income | | | 302 | | | | 193 | | | | 109 | | | | 56.5 | |
| Total noninterest income | | $ | 3,299 | | | $ | 3,098 | | | $ | 201 | | | | 6.5 | % |
Noninterest income increased $201,000, or 6.5%, to $3.3 million for the three months ended September 30, 2023 compared to $3.1 million for the three months ended September 30, 2022. The increase for the three month period was primarily due to an increase in investment service income and fee income earned on customer interest rate swap contracts, as well as income from bank owned life insurance.
NONINTEREST EXPENSE
| (Dollars in thousands) | | For the three months ended September 30, | | | Change from Prior Year | |
| Noninterest expense: | | 2023 | | | 2022 | | | Amount | | | Percent | |
| Salaries and employee benefits | | $ | 5,491 | | | $ | 5,428 | | | $ | 63 | | | | 1.2 | % |
| Occupancy expense | | | 537 | | | | 524 | | | | 13 | | | | 2.5 | |
| Equipment and furniture expense | | | 138 | | | | 158 | | | | (20 | ) | | | (12.7 | ) |
| Service and data processing fees | | | 591 | | | | 702 | | | | (111 | ) | | | (15.8 | ) |
| Computer software, supplies and support | | | 511 | | | | 381 | | | | 130 | | | | 34.1 | |
| Advertising and promotion | | | 97 | | | | 76 | | | | 21 | | | | 27.6 | |
| FDIC insurance premiums | | | 312 | | | | 242 | | | | 70 | | | | 28.9 | |
| Legal and professional fees | | | 383 | | | | 451 | | | | (68 | ) | | | (15.1 | ) |
| Other | | | 785 | | | | 835 | | | | (50 | ) | | | (6.0 | ) |
| Total noninterest expense | | $ | 8,845 | | | $ | 8,797 | | | $ | 48 | | | | 0.5 | % |
Noninterest expense remained unchanged at $8.8 million for the three months ended September 30, 2023 and September 30, 2022. During the three months ended September 30, 2023, there was an increase in computer software and supplies of $130,000 due to the Company purchasing new equipment to upgrade our IT infrastructure, which was partially offset by a decrease in service and data processing fees paid, as compared to the three months ended September 30, 2022.
INCOME TAXES
Provision for income taxes reflects the expected tax associated with the pre-tax income generated for the given period and certain regulatory requirements. The effective tax rate was 13.0% for the three months ended September 30, 2023 and 15.0% for the three months ended September 30, 2022. 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, and income received on the bank owned life insurance, to arrive at the effective tax rate. The decrease in the current quarter’s effective tax rate was the result of an increase in tax-exempt income proportional to total income.
LIQUIDITY AND CAPITAL RESOURCES
Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company’s most significant form of market risk is interest rate risk since the majority of the Company’s assets and liabilities are sensitive to changes in interest rates. The Company’s primary sources of funds are deposits and proceeds from principal and interest payments on loans, mortgage-backed securities and debt securities, with lines of credit available through the Federal Home Loan Bank, Atlantic Central Bankers Bank and two other financial institutions, as needed. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and lending activities are greatly influenced by general interest rates, economic conditions and competition. At September 30, 2023, the Company had $130.3 million in cash and cash equivalents, representing 4.8% of total assets, and had $270.2 million available in unused lines of credit.
On March 12, 2023, in response to liquidity concerns in the banking system, the Federal Deposit Insurance Corporation, Federal Reserve and U.S. Department of Treasury, collaboratively approved certain actions with a stated intention to reduce stress across the financial system, support financial stability and minimize any impact on business, households, taxpayers, and the broader economy. Among other actions, the Federal Reserve Board has created a new Bank Term Funding Program (BTFP) to make additional funding available to eligible depository institutions to help assure institutions can meet the needs of their depositors. Eligible institutions may obtain liquidity against a wide range of collateral. BTFP advances can be requested through March 11, 2024. The Company has not requested funding through the BTFP as of September 30, 2023, but has an established relationship with the Federal Reserve to take advantage of this program.
In efforts to enhance strong levels of liquidity and to fund strong loan demand, the Bank and Commercial Bank (the “Banks”) accept brokered certificates of deposits, generally in denominations of less than $250,000, from national brokerage networks or through IntraFi’s one-way CDARS and ICS products, including IntraFi’s Insured Network Deposits (“IND”). The Banks can place and obtain brokered deposits from a national brokerage network up to 10% of total deposits, in the amount of $242.0 million based on policy. The Banks can also place and obtain brokered deposits from IntraFi up to 10% of total deposits, in the amount of $242.0 million based on policy. Additionally, both Banks participate in the IntraFi reciprocal (“two-way”) CDARS and the ICS products, which provides for reciprocal two-way transactions among other institutions, facilitated by IntraFi, for the purpose of maximizing FDIC insurance for depositors.
As of September 30, 2023, the overall brokered deposit balance amounted to $62.7 million, which included $15.0 million of NOW deposits in the form of IntraFi IND and $47.7 million of certificates of deposits in the form of brokered certificates of deposits. As of June 30, 2023, the overall brokered deposits balance amounted to $60.0 million of brokered certificates of deposits. The Company maintained the increased level of brokered deposits to support overall liquidity and a higher cash position.
At September 30, 2023, liquidity measures were as follows:
| Cash equivalents/(deposits plus short term borrowings) | | | 5.37 | % |
| (Cash equivalents plus unpledged securities)/(deposits plus short term borrowings) | | | 8.43 | % |
| (Cash equivalents plus unpledged securities plus additional borrowing capacity)/(deposits plus short term borrowings) | | | 19.58 | % |
The Company’s off-balance sheet credit exposures at September 30, 2023:
| (In thousands) | | | |
Unfunded loan commitments | | $ | 126,149 | |
Unused lines of credit | | | 94,164 | |
Standby letters of credit | | | 179 | |
Total commitments | | $ | 220,492 | |
The Company anticipates that it will have sufficient funds available to meet current commitments and other funding needs based on the level of cash and cash equivalents as well as the available-for-sale investment portfolio and borrowing capacity.
The Bank of Greene County and its wholly-owned subsidiary, Greene County Commercial Bank, met all applicable regulatory capital requirements at September 30, 2023 and June 30, 2023.
| | | | | | | | | | | | | | | To Be Well | | | | | | | |
| | | | | | | | | For Capital | | | Capitalized Under | | | | | | | |
| | | | | | | | | Adequacy | | | Prompt Corrective | | | Capital Conservation | |
| (Dollars in thousands) | | Actual | | | Purposes | | | Action Provisions | | | Buffer | |
| The Bank of Greene County | | Amount | | | Ratio | | | Amount | | | Ratio | | | Amount | | | Ratio | | | Actual | | | Required | |
| As of September 30, 2023: | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total risk-based capital | | $ | 261,189 | | | | 16.6 | % | | $ | 126,247 | | | | 8.0 | % | | $ | 157,809 | | | | 10.0 | % | | | 8.55 | % | | | 2.50 | % |
| Tier 1 risk-based capital | | | 241,432 | | | | 15.3 | | | | 94,686 | | | | 6.0 | | | | 126,247 | | | | 8.0 | | | | 9.30 | | | | 2.50 | |
| Common equity tier 1 capital | | | 241,432 | | | | 15.3 | | | | 71,014 | | | | 4.5 | | | | 102,576 | | | | 6.5 | | | | 10.80 | | | | 2.50 | |
| Tier 1 leverage ratio | | | 241,432 | | | | 9.1 | | | | 106,075 | | | | 4.0 | | | | 132,594 | | | | 5.0 | | | | 5.10 | | | | 2.50 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of June 30, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total risk-based capital | | $ | 249,165 | | | | 16.5 | % | | $ | 121,020 | | | | 8.0 | % | | $ | 151,275 | | | | 10.0 | % | | | 8.47 | % | | | 2.50 | % |
| Tier 1 risk-based capital | | | 230,228 | | | | 15.2 | | | | 90,765 | | | | 6.0 | | | | 121,020 | | | | 8.0 | | | | 9.22 | | | | 2.50 | |
| Common equity tier 1 capital | | | 230,228 | | | | 15.2 | | | | 68,074 | | | | 4.5 | | | | 98,328 | | | | 6.5 | | | | 10.72 | | | | 2.50 | |
| Tier 1 leverage ratio | | | 230,228 | | | | 8.7 | | | | 106,141 | | | | 4.0 | | | | 132,676 | | | | 5.0 | | | | 4.68 | | | | 2.50 | |
| Greene County Commercial Bank | | | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2023: | | | | | | | | | | | | | | | | | | | | | | | | |
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| Total risk-based capital | | $ | 105,641 | | | | 44.0 | % | | $ | 19,188 | | | | 8.0 | % | | $ | 23,985 | | | | 10.0 | % | | | 36.00 | % | | | 2.50 | % |
| Tier 1 risk-based capital | | | 105,641 | | | | 44.0 | | | | 14,391 | | | | 6.0 | | | | 19,188 | | | | 8.0 | | | | 38.00 | | | | 2.50 | |
| Common equity tier 1 capital | | | 105,641 | | | | 44.0 | | | | 10,793 | | | | 4.5 | | | | 15,590 | | | | 6.5 | | | | 39.50 | | | | 2.50 | |
| Tier 1 leverage ratio | | | 105,641 | | | | 9.4 | | | | 44,771 | | | | 4.0 | | | | 55,964 | | | | 5.0 | | | | 5.44 | | | | 2.50 | |
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| As of June 30, 2023: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total risk-based capital | | $ | 104,781 | | | | 46.6 | % | | $ | 17,975 | | | | 8.0 | % | | $ | 22,469 | | | | 10.0 | % | | | 38.63 | % | | | 2.50 | % |
| Tier 1 risk-based capital | | | 104,781 | | | | 46.6 | | | | 13,481 | | | | 6.0 | | | | 17,975 | | | | 8.0 | | | | 40.63 | | | | 2.50 | |
| Common equity tier 1 capital | | | 104,781 | | | | 46.6 | | | | 10,111 | | | | 4.5 | | | | 14,605 | | | | 6.5 | | | | 42.13 | | | | 2.50 | |
| Tier 1 leverage ratio | | | 104,781 | | | | 9.1 | | | | 45,958 | | | | 4.0 | | | | 57,447 | | | | 5.0 | | | | 5.12 | | | | 2.50 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable to smaller reporting companies.
| Item 4. | Controls and Procedures |
Under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and in timely altering them to material information relating to the Company (or its consolidated subsidiaries) required to be filed in its periodic SEC filings.
During the quarter ended September 30, 2023, the Company implemented new CECL accounting policies, procedures, and controls as part of its adoption of ASU No. 2016-13 and subsequent ASU’s issued to amend ASC Topic 326. There were no other changes in the Company's internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
| Part II. | Other Information |
The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Except as noted below, management believes there are no such legal proceedings pending or threatened against the Company or its subsidiaries, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company or any of its subsidiaries. See Note 13 – Commitments and Contingent Liabilities to the Notes to the unaudited financial statements for a description of a current lawsuit in which the Company has been named a party.
Not applicable to smaller reporting companies.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| c) | On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program. Under the repurchase program, the Company is authorized to repurchase up to 400,000 shares of its common stock. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. There were no additional share repurchases during the quarter ended September 30, 2023. |
| Item 3. | Defaults Upon Senior Securities |
Not applicable.
| | Item 4. | Mine Safety Disclosures |
Not applicable.
| b) | There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q. |
Exhibits
| Greene County Bancorp, Inc. Stock Holding Company Charter as amended on January 19, 2023 (filed as Exhibit 3.1 to Registrant’s Form 10-Q, filed on February 10, 2023 and incorporated herein by reference). |
| Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a) |
| Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a) |
| Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350 |
| Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350 |
| 101 | The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended September 30, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements, (detail tagged). |
| 104 | Cover Page Integrative Data File (formatted in iXBRL and included in exhibit 101). |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.
Greene County Bancorp, Inc.
Date: November 13, 2023
By: /s/ Donald E. Gibson
Donald E. Gibson
President and Chief Executive Officer
Date: November 13, 2023
By: /s/ Michelle M. Plummer
Michelle M. Plummer, CPA, CGMA
Senior Executive Vice President, Chief Financial Officer, and Chief Operating Officer
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