U.S. SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OF 15(d) OF THE SECURITIES EXCHANGE ACT
GREENE COUNTY BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
Commission file number 0-25165
United States 14-1809721
_____________ _____________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
302 Main Street, Catskill, New York 12414
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (518) 943-2600
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes: X No:
_________ __________
As of May 13, 2003, the registrant had 2,152,835 shares of common stock
issued at $ .10 par value, and 2,034,203 were outstanding.
Transitional Small Business Disclosure
Format: Yes: No: X
__________ _______________
GREENE COUNTY BANCORP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
* Consolidated Statements of Financial Condition 3
* Consolidated Statements of Income 4-5
* Consolidated Statements of Comprehensive Income 6
* Consolidated Statements of Changes in Shareholders' Equity 7
* Consolidated Statements of Cash Flows 8
* Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-23
Item 3. Controls and Procedures 23-24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25-29
Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of March 31, 2003 and June 30, 2002
(Unaudited)
March 31, 2003 June 30, 2002
ASSETS
Cash and due from banks $8,854,803 $7,408,150
Federal funds sold 11,440,365 10,423,871
----------- --------------
Total cash and cash equivalents 20,295,168 17,832,021
Investment securities, at fair value 84,818,851 66,088,530
Federal Home Loan Bank stock, at cost 1,121,100 1,121,100
Loans 132,577,404 129,727,150
Less: Allowance for loan losses (1,117,627) (1,068,734)
Unearned origination fees and costs, net (310,405) (285,132)
----------- --------------
Net loans receivable 131,149,372 128,373,284
Premises and equipment 4,810,832 4,963,621
Accrued interest receivable 1,505,232 1,452,104
Prepaid expenses and other assets 317,233 296,691
Other real estate owned 55,125 30,229
----------- --------------
Total assets $244,072,913 $220,157,580
============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $22,455,818 $22,067,347
Interest bearing deposits 183,732,590 161,646,281
----------- --------------
Total deposits 206,188,408 183,713,628
Borrowings from FHLB 8,000,000 9,000,000
Accrued expenses and other liabilities 1,550,109 911,959
Accrued income taxes 114,771 131,287
----------- --------------
Total liabilities 215,853,288 193,756,874
Shareholders' equity
Preferred stock,
Authorized 1,000,000 at March 31, 2003 and June 30, 2002; --- ---
Common stock, par value $.10 per share;
Authorized: 12,000,000 at March 31, 2003 and June 30, 2002;
Issued: 2,152,835 at March 31, 2003 and June 30, 2002;
Outstanding: 2,034,203 at March 31, 2003;
2,024,835 at June 30, 2002 215,284 215,284
Additional paid-in capital 10,087,973 10,084,621
Retained earnings 18,272,230 17,164,403
Accumulated other comprehensive income 1,383,033 880,401
Less: Treasury stock (shares at cost) 118,632 at March 31, 2003;
and 128,000 at June 30, 2002 (1,271,184) (1,371,527)
Unearned stock-based compensation (114,030) (156,791)
Unearned ESOP shares (at cost) 40,853 at March 31, 2003;
and 49,972 at June 30, 2002 (353,681) (415,685)
----------- -------------
Total shareholders' equity 28,219,625 26,400,706
----------- -------------
Total liabilities and shareholders' equity $244,072,913 $220,157,580
============ =============
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
Interest income:
Loans $2,375,401 $2,298,935
Investment securities 428,903 450,401
Mortgage-backed securities 288,963 196,463
Tax free securities 121,621 102,363
Interest bearing deposits and federal funds sold 46,266 56,805
----------- -------------
Total interest income 3,261,154 3,104,967
Interest expense:
Interest on deposits 945,273 1,085,708
Interest on borrowings 96,889 102,439
----------- -------------
Total interest expense 1,042,162 1,188,147
Net interest income 2,218,992 1,916,820
Less: Provision for loan losses 75,000 60,000
----------- -------------
Net interest income after provision for loan losses 2,143,992 1,856,820
----------- -------------
Noninterest income:
Service charges on deposit accounts 386,493 280,692
Other operating income 213,914 190,231
----------- -------------
Total noninterest income 600,407 470,923
Noninterest expense:
Salaries and employee benefits 1,022,784 814,621
Occupancy expense 111,593 94,588
Equipment and furniture expense 149,951 117,343
Service and data processing fees 232,332 195,215
Office supplies 42,461 33,126
Other 418,242 464,623
----------- -------------
Total noninterest expense 1,977,363 1,719,516
Income before provision for income taxes 767,036 608,227
Provision for income taxes 253,000 140,500
----------- -------------
Net income $514,036 $467,727
=========== =============
Basic EPS $0.26 $0.24
Basic average shares outstanding 1,982,123 1,955,078
Diluted EPS $0.25 $0.23
Diluted average shares outstanding 2,038,278 2,013,215
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Nine Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
Interest income:
Loans $7,107,730 $6,736,453
Investment securities 1,372,145 1,510,448
Mortgage-backed securities 832,354 489,403
Tax free securities 340,302 308,009
Interest bearing deposits and federal funds sold 151,222 275,448
----------- --------------
Total interest income 9,803,753 9,319,761
Interest expense:
Interest on deposits 3,016,035 3,493,245
Interest on borrowings 312,698 274,088
----------- --------------
Total interest expense 3,328,733 3,767,333
Net interest income 6,475,020 5,552,428
Less: Provision for loan losses 105,000 158,900
----------- --------------
Net interest income after provision for loan losses 6,370,020 5,393,528
----------- --------------
Non-interest income:
Service charges on deposit accounts 1,181,782 756,428
Other operating income 649,269 516,530
----------- --------------
Total non-interest income 1,831,051 1,272,958
Non-interest expense:
Salaries and employee benefits 2,822,008 2,425,198
Occupancy expense 306,433 274,203
Equipment and furniture expense 436,726 335,422
Service and data processing fees 723,219 590,306
Office supplies 107,977 109,737
Other 1,322,919 1,320,637
----------- --------------
Total non-interest expense 5,719,282 5,055,503
Income before provision for income taxes 2,481,789 1,610,983
Provision for income taxes 782,900 417,900
----------- --------------
Net income $1,698,889 $1,193,083
=========== ==============
Basic EPS $0.86 $0.61
Basic average shares outstanding 1,978,535 1,959,546
Diluted EPS $0.84 $0.59
Diluted average shares outstanding 2,033,029 2,012,285
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
Net income $514,036 $467,727
----------- --------------
Other comprehensive income:
Unrealized holding gain / (loss)arising during the three months ended March 31,
2003 and 2002, net of tax (expense) / benefit
of ($11,112) and $196,712, respectively. 13,610 (295,069)
----------- --------------
Total other comprehensive income (loss) 13,610 (295,069)
----------- ---------------
Comprehensive income $527,646 $172,658
=========== ==============
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Nine Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
Net income $1,698,889 $1,193,083
----------- --------------
Other comprehensive income:
Unrealized holding gain arising during the nine months ended March 31, 2003 and
2002, net of tax expense
of $321,477 and $34,407, respectively. 502,632 (51,608)
----------- -------------
Total other comprehensive income (loss) 502,632 (51,608)
----------- --------------
Comprehensive income $2,201,521 $1,141,475
=========== ===============
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders' Equity
For the Nine Months Ended March 31, 2003 and 2002
(Unaudited)
Accumulated
Additional Other
Capital Paid - In Retained Comprehensive
Stock Capital Earnings Income
Balance at
June 30, 2001 $215,284 $10,188,573 $15,993,025 $499,022
ESOP shares earned 25,988
Options exercised (28,125)
MRP shares issued (100,674)
Stock-based
compensation
earned
Treasury stock
Purchased
Dividends paid (481,334)
Net income 1,193,083
Change in unrealized
gain, net (51,608)
----------- ------------ ----------- -----------------
Balance at
March 31, 2002 $215,284 $10,085,762 $16,704,774 $447,414
========== ============ =========== =================
Balance at
June 30, 2002 $215,284 $10,084,621 $17,164,403 $880,401
ESOP shares earned 85,992
Options exercised (6,385)
MRP shares issued (76,255)
Stock-based
compensation
earned
Dividends paid (591,062)
Net income 1,698,889
Change in unrealized
gain, net 502,632
---------- ------------ ----------- ----------------
Balance at
March 31, 2003 $215,284 $10,087,973 $18,272,230 $1,383,033
========== ============ =========== ================
Unearned Unearned Total
Stock-based Treasury ESOP Shareholders'
Compensation Stock Shares Equity
Balance at
June 30, 2001 ($229,753) ($1,075,923) ($496,638) $25,093,590
ESOP shares earned 60,834 86,822
Options exercised 105,930 77,805
MRP shares issued 100,674 ---
Stock-based
compensation
earned 58,708 58,708
Treasury stock
Purchased (531,125) (531,125)
Dividends paid (481,334)
Net income 1,193,083
Change in unrealized
gain, net (51,608)
---------- ------------ ----------- ------------------
Balance at
March 31, 2002 ($171,045) ($1,400,444) ($435,804) $25,445,941
============ ============ =========== =================
Balance at
June 30, 2002 ($156,791) ($1,371,527) ($415,685) $26,400,706
ESOP shares earned 62,004 147,996
Options exercised 24,088 17,703
MRP shares issued 76,255 ---
Stock-based
compensation
earned 42,761 42,761
Dividends paid (591,062)
Net income 1,698,889
Change in unrealized
gain, net 502,632
------------ ------------ ----------- -----------------
Balance at
March 31, 2003 ($114,030) ($1,271,184) ($353,681) $28,219,625
============ ============ =========== ================
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
Cash flows from operating activities:
Net Income $1,698,889 $1,193,083
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation 422,300 340,175
Net, amortization (accretion) of premiums (discount) 305,108 (2,774)
Provision for loan losses 105,000 158,900
ESOP and other stock-based compensation earned 190,757 145,530
Gain on sale of other real estate (59,771) (22,945)
Net decrease in accrued income taxes (16,516) (71,966)
Net increase in accrued interest receivable (53,128) (37,471)
Net increase in prepaid and other assets (20,542) (58,949)
Net increase in other liabilities 316,672 62,188
----------- ------------
Net cash provided by operating activities 2,888,769 1,705,771
Cash flows from investing activities:
Proceeds from maturities and calls of securities 10,969,854 4,155,123
Purchases of securities and other investments (10,106,951) (8,736,012)
Principal payments on securities 983,412 2,611,077
Principal payments on mortgage-backed securities 6,305,160 3,297,436
Purchases of mortgage-backed securities (26,362,794) (13,209,625)
Net increase in loans receivable (2,936,213) (15,967,546)
Proceeds from the sale of other real estate 90,000 110,144
Purchases of premises and equipment (269,511) (303,466)
----------- ------------
Net cash used in investing activities (21,327,043) (28,042,869)
Cash flows from financing activities:
(Payment to) borrowing from Federal Home Loan Bank (1,000,000) 4,000,000
Dividends paid (591,062) (481,334)
Purchase of treasury stock --- (531,125)
Proceeds from issuance of stock options 17,703 77,805
Net increase in deposits 22,474,780 21,480,677
----------- ------------
Net cash provided by financing activities 20,901,421 24,546,023
Net increase (decrease) in cash and cash equivalents 2,463,147 (1,791,075)
Cash and cash equivalents at beginning of period 17,832,021 18,804,358
----------- ------------
Cash and cash equivalents at end of period $20,295,168 $17,013,283
=========== ============
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Notes to Financial Statements
As of and for the Three and Nine Months Ended March 31, 2003 and 2002
(1) Basis of Presentation
The accompanying consolidated balance sheet information for June 30, 2002 was
derived from the audited consolidated financial statements of Greene County
Bancorp, Inc. (the "Company") and its wholly owned subsidiary, The Bank of
Greene County (the "Bank") at June 30, 2002. The consolidated financial
statements at and for the three months and nine months ended March 31, 2003 and
2002 are unaudited.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. To the extent that
information and footnotes required by GAAP for complete financial statements are
contained in or are consistent with the audited financial statements
incorporated by reference to Greene County Bancorp, Inc.'s Annual Report on Form
10-KSB for the year ended June 30, 2002, such information and footnotes have not
been duplicated herein. In the opinion of management, all adjustments
(consisting of only normal recurring items) necessary for a fair presentation of
the financial position and results of operations and cash flows at and for the
periods presented have been included. Amounts in the prior year's consolidated
financial statements have been reclassified whenever necessary to conform to the
current year's presentation. These reclassifications had no effect on net income
or retained earnings as previously reported. All material inter-company accounts
and transactions have been eliminated in the consolidation. The results of
operations and other data for the three and nine months ended March 31, 2003 are
not necessarily indicative of results that may be expected for the entire fiscal
year ending June 30, 2003.
Greene County Bancorp, Inc.'s critical accounting policy relates to the
allowance for loan losses (the "Allowance"). It is based on management's opinion
of an amount that is intended to absorb losses in the existing portfolio. The
allowance for loan losses is established through a provision for losses based on
management's evaluation of the risk inherent in the loan portfolio, the
composition of the portfolio, specific impaired loans and current economic
conditions. Such evaluation, which includes a review of all loans for which full
collectibility may not be reasonably assured, considers among other matters, the
estimated net realizable value or the fair value of the underlying collateral,
economic conditions, historical loan loss experience, management's estimate of
probable credit losses and other factors that warrant recognition in providing
for the allowance for loan losses. However, this evaluation involves a high
degree of complexity and requires management to make subjective judgments that
often require assumptions or estimates about highly uncertain matters. This
critical accounting policy and its application are periodically reviewed with
the Audit Committee and the Board of Directors.
(2) Nature of Operations
The Bank of Greene County has six full-service offices and an operations center
located in its market area consisting of Greene County and southern Albany
County, New York. The Bank of Greene County is primarily engaged in the business
of attracting deposits from the general public in The Bank of Greene County's
market area, and investing such deposits, together with other sources of funds
in loans and investment securities.
(3) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
valuation of other real estate owned ("OREO").
While management uses available information to recognize losses on loans and
OREO, future additions to the Allowance, or OREO write-downs, may be necessary
based on changes in economic conditions, asset quality or other factors. In
addition, various regulatory authorities, as an integral part of their
examination process, periodically review The Bank Of Greene County's Allowance
and the carrying value of OREO and other assets. Such authorities may require
The Bank Of Greene County's. to recognize additions to the Allowance and/or
write down the carrying value of OREO or other assets based on their judgments
of information available to them at the time of their examination.
(4) Earnings Per Share
Basic earnings per share ("EPS") on common stock are computed by dividing net
income by the weighted average number of shares of common stock outstanding for
the period. Shares of restricted stock are not considered outstanding for the
calculation of basic earnings per share until they become fully vested. Diluted
earnings per share are computed in a manner similar to that of basic earnings
per share except that the weighted average number of common shares outstanding
is increased to include the number of incremental common shares that would have
been outstanding under the treasury stock method if all potentially dilutive
instruments (such as stock options and unvested restricted stock) became vested
and (in the case of stock options) exercised during the period. Unallocated
common shares held by the ESOP are not included in the weighted average number
of common shares outstanding for either the basic or diluted earnings per share
calculations.
Weighted Average
Number of Shares
Three Months Ended Net Income Outstanding Earnings Per Share
March 31, 2003: $514,036
Basic EPS 1,982,123 $0.26
Diluted EPS 2,038,278 $0.25
March 31, 2002: $467,727
Basic EPS 1,955,078 $0.24
Diluted EPS 2,013,215 $0.23
Weighted Average
Number of Shares
Nine Months Ended Net Income Outstanding Earnings Per Share
March 31, 2003: $1,698,889
Basic EPS 1,978,535 $0.86
Diluted EPS 2,033,029 $0.84
March 31, 2002: $1,193,083
Basic EPS 1,959,546 $0.61
Diluted EPS 2,012,285 $0.59
(5) Dividends
The Board of Directors declared a semi-annual $0.32 per share cash dividend on
July 19, 2002, for shareholders of record August 15, 2002, payable September 1,
2002. The dividend reflected an annual cash dividend rate of $0.64 per share,
which represented an increase from the previous annual cash dividend rate of
$0.56 per share. The increase in the dividend paid out was a result of improved
earnings as well as the waiver of such dividends by Greene County Bancorp, MHC,
Greene County Bancorp, Inc.'s mutual holding company.
On January 21, 2003, the Board of Directors declared a semi-annual cash dividend
of $0.34 per share of Greene County Bancorp, Inc.'s common stock. The dividend
reflected an annual cash dividend rate of $0.68 per share, which represented an
increase from the previous annual cash dividend rate of $0.64 per share. The
dividend was for stockholders of record as of February 15, 2003, and was paid on
March 1, 2003. Greene County Bancorp, Inc.'s mutual holding company has waived
receipt of the cash dividend.
(7) Impact of Inflation and Changing Prices
The consolidated financial statements of Greene County Bancorp, Inc. and notes
thereto, presented elsewhere herein, have been prepared in accordance with U.S.
generally accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
Greene County Bancorp, Inc.'s operations. Unlike most industrial companies,
nearly all the assets and liabilities of Greene County Bancorp, Inc. are
monetary. As a result, interest rates have a greater impact on Greene County
Bancorp, Inc.'s performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
(8) Impact of Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement No. 142,
"Goodwill and Other Intangible Assets", which requires acquired intangible
assets (other than goodwill) to be amortized over their useful economic lives,
while goodwill and any acquired intangible assets with an indefinite useful
economic life would not be amortized, but would be reviewed for impairment on an
annual basis based upon guidelines specified by the statement. The adoption of
this statement in fiscal 2003 had no material impact on Greene County Bancorp,
Inc.'s consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which replaces Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." Under SFAS No. 146, liabilities for costs associated with
an exit or disposal activity are to be recognized when the liability is
incurred. Under EITF Issue No. 94-3, liabilities related to exit or disposal
activities were recognized when an entity committed to an exit plan. In
addition, Statement No. 146 establishes that the objective for the initial
measurement of the liability is fair value. Statement No. 146 is effective for
exit and disposal activities initiated after December 31, 2002. The adoption of
this statement had no impact on Greene County Bancorp, Inc.'s consolidated
financial statements.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions", which no longer requires the separate recognition and
subsequent amortization of goodwill that was originally required by Statement
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions".
Instead, SFAS 72 goodwill would be accounted for in accordance with Statement
No. 142, "Goodwill and Other Intangible Assets" and would be subject to an
annual impairment test. SFAS 147 also amends Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope core
deposit intangibles. Those intangible assets are now subject to the same
recoverability and impairment loss recognition provisions that SFAS 144 requires
for other long-lived assets. SFAS 147 was effective October 1, 2002. The
adoption of SFAS 147 did not have a material impact on the financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires disclosures be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also requires the recognition of
a liability by a guarantor at the inception of certain guarantees that it has
issued and that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 does not have a material effect on the Company's
financial statements since the Company does not issue such guarantees.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment to FASB Statement 123".
SFAS 148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS 148 is effective for financial statements
for fiscal years ending after December 15, 2002 and for condensed interim
financial statements issued after December 15, 2002. The Company had not adopted
the voluntary change to the fair value based method of accounting for
stock-based employee compensation as of March 31, 2003. Refer to Note 9 for
required disclosures relating to stock-based compensation.
(9) Stock-Based Compensation
At March 31, 2003, Greene County Bancorp, Inc. had two stock-based compensation
plans, which are described more fully in Note nine of the financial statements
and notes thereto for the year ended June 30, 2002. SFAS No. 123, Accounting for
Stock-Based Compensation, requires the measurement of the fair value of stock
options or warrants granted to employees to be included in the statement of
operations or, alternatively, disclosed in the notes to consolidated financial
statements. The Company accounts for stock-based compensation of employees under
the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations and has
elected the disclosure-only alternative under SFAS No. 123. No stock-based
compensation cost is reflected in net income, as all options granted under the
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect on net
income and earnings per share as if the Company had applied the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.
Three months ended Nine months ended
March 31, March 31,
2003 2002 2003 2002
Net income, as reported $514,036 $467,727 $1,698,889 $1,193,083
Deduct: Total stock-based compensation
expense determined under fair value
based method for all awards, net of
related tax effects 8,649 11,634 25,947 34,902
Pro forma net income $505,387 $456,093 $1,672,942 $1,158,181
Earnings per share:
Basic - as reported $0.26 $0.24 $0.86 $0.61
Basic - pro forma $0.25 $0.23 $0.85 $0.59
Diluted - as reported $0.25 $0.23 $0.84 $0.59
Diluted - pro forma $0.25 $0.23 $0.82 $0.58
The fair value of each option grant has been estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
grants in all periods presented: dividend yield of 3.0%, expected volatility of
29.54%, risk free interest rate of 4.78%, and expected term of 5 years.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
General
Greene County Bancorp, Inc.'s results of operations depend primarily on its net
interest income, which is the difference between the income earned on Greene
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 by Greene County Bancorp, Inc.'s provision for loan
losses, income and expense pertaining to other real estate owned, gains and
losses from sales of securities, noninterest income and noninterest expense.
Noninterest income consists primarily of fees and service charges. 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
affect Greene County Bancorp, Inc.
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 The Bank of Greene County's loan
portfolio or the consolidated investment portfolios of The Bank of Greene
County and Greene County Bancorp, Inc.,
(f) deposit flows,
(g) competition, and
(h) demand for financial services in Greene County Bancorp, Inc.'s market area.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements, since results in
future periods may differ materially from those currently expected because of
various risks and uncertainties.
Comparison of Financial Condition as of March 31, 2003 and June 30, 2002
ASSETS
Total assets increased to $244.1 million at March 31, 2003 from $220.2 million
at June 30, 2002, an increase of $23.9 million, or 10.9%. Growth was most
significant in the loan and investment portfolios as well as to a lesser extent
in the cash portfolio. Deposit growth funded the asset growth and appeared to be
the result of continued reduced investment in the equity markets as investors
appeared to continue to be conservative in their investment options choosing
less risky cash products such as cash accounts like money market and savings
accounts.
CASH AND CASH EQUIVALENTS
Total cash and cash equivalents increased to $20.3 million at March 31, 2003
from $17.8 million at June 30, 2002, an increase of $2.5 million, or 14.0%. The
increase was a result of continued deposit inflows as noted above.
INVESTMENT SECURITIES
Investment securities increased to $84.8 million at March 31, 2003 as compared
to $66.1 million at June 30, 2002, an increase of $18.7 million, or 28.3%.
During the nine months ended March 31, 2003, the investment portfolio shifted
toward mortgage-backed securities and state and political subdivision securities
representing 46.8% and 15.6% of the portfolio, respectively, at March 31, 2003
as compared to 29.6% and 13.3% of the portfolio, respectively, at June 30, 2002.
A shift away from corporate debt securities as a percentage of the total
portfolio occurred between June 30, 2002 and March 31, 2003. Due to the
potential credit problems of some corporations, Greene County Bancorp, Inc. has
focused more heavily on debt with some form of guarantee such as a U.S. agency
guarantee which often accompanies investments in mortgage-backed securities.
Greene County Bancorp, Inc. has also shifted the portfolio toward more
adjustable rate securities than in the past in an effort to provide some future
interest rate risk protection in a rising rate environment. Investment
securities represent 34.8% of total assets at March 31, 2003 as compared to
30.0% at June 30, 2002. The shift was partially a result of loan demand being
slightly lower than inflows of deposits allowing Greene County Bancorp, Inc. to
invest additional funds in investment securities. During the nine months ended
March 31, 2003, Greene County Bancorp, Inc. purchased $26.4 million in
mortgage-backed securities which were partially offset by the principal pay down
of mortgage-backed securities of $6.3 million. Maturities or calls of investment
securities, primarily U.S. government agencies, corporate and state and
political subdivision securities amounted to $11.0 million for the nine months
ended March 31, 2003, offsetting purchases of $10.1 million during the same
period.
Market value at Percentage Market value at Percentage
Mar. 31, 2003 of portfolio June 30, 2002 of portfolio
(Dollars rounded to nearest thousand)
U.S. government agencies $12,771 15.0% $14,862 22.5%
State and political subdivisions 13,246 15.6 8,811 13.3
Mortgage-backed securities 39,652 46.8 19,564 29.6
Asset-backed securities 329 0.4 818 1.3
Corporate debt securities 17,457 20.6 20,760 31.4
--------------- ------------ --------------- -------------
Total debt securities 83,455 98.4 64,815 98.1
Equity securities and other 1,364 1.6 1,274 1.9
--------------- ------------ --------------- -------------
Total available-for-sale securities $84,819 100.0% $66,089 100.0%
=============== ============ =============== =============
LOANS
Net loans receivable increased to $131.1 million at March 31, 2003 from $128.4
million at June 30, 2002, an increase of $2.7 million, or 2.1%. The continued
low interest rate environment and strong customer satisfaction from personal
service continued to enhance loan growth. Commercial real estate mortgages
increased $1.7 million, or 19.3%, to $10.5 million at March 31, 2003 as compared
to $8.8 million at June 30, 2002. Commercial mortgages and commercial loans as a
percentage of total loans increased to 7.9% and 4.5%, respectively, at March 31,
2003 as compared to 6.8% and 3.3% at June 30, 2002 which caused residential
mortgages and installment loans to decrease as a percentage of total loans to
78.0% and 3.4% respectively, at March 31, 2003, as compared to 79.8% and 4.3% at
June 30, 2002. Loan demand continued to be strong, but grew at a slightly slower
rate than experienced during fiscal 2002. The decrease in demand appeared to be
the result of the overall weakened economic conditions.
At Percentage At Percentage
Mar. 31, 2003 of portfolio June 30, 2002 of portfolio
(Dollars rounded to nearest thousand)
Real estate mortgages
Residential $103,439 78.0% $103,494 79.8%
Commercial 10,458 7.9 8,764 6.8
Home equity loans 7,664 5.8 6,957 5.4
Commercial loans 6,007 4.5 4,356 3.3
Installment loans 4,450 3.4 5,611 4.3
Passbook loans 559 0.4 545 0.4
--------------- ------------- --------------- -------------
Total loans $132,577 100.0% $129,727 100.0%
Less: Allowance for loan losses (1,118) (1,069)
Unearned origination fees and costs, (310) (285)
net
--------------- ---------------
Net loans receivable $131,149 $128,373
=============== ===============
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
based on management's evaluation of the risk inherent in the loan portfolio, the
composition of the loan portfolio, specific impaired loans and current economic
conditions. Such evaluation, which includes a review of all loans on which full
collectibility may not be reasonably assured, considers among other matters, the
estimated net realizable value or the fair value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an allowance for loan losses. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review The Bank of Greene County's allowance for loan losses and
valuation of OREO. Such agencies may require The Bank of Greene County to
recognize additions to the allowance based on their judgment about information
available to them at the time of their examination. The allowance for loan
losses is increased by a provision for loan losses (which results in a charge to
expense) and is reduced by net charge-offs. During the fiscal year ended June
30, 2002, and the nine months ended March 31, 2003 the level of the allowance
for loan losses was affected by the growth of the loan portfolio and composition
of the portfolio shifting to more commercial loans. These types of loans
generally possess a higher degree of credit risk than traditional one-to-four
family residential mortgage loans. Management also implemented improved
procedures for pursuing delinquent and previously charged-off accounts during
fiscal year 2002, which appeared to have helped reduce the effect of credit
quality deterioration due to current economic weakness in the overall economy.
Any increase in the allowance for loan losses or loan charge-offs could have a
material adverse effect on Greene County Bancorp, Inc.'s results of operations
and financial condition.
Nine months ended Nine months ended
March 31, 2003 March 31, 2002
Allowance for loan losses
Balance at the beginning of the period $1,068,734 $886,081
Charge-offs:
Commercial real estate mortgage loans --- ---
Commercial loans 13,319 ---
Home equity --- 2,380
Installment loans to individuals 99,712 27,774
-------------- ----------------
Total loans charged off 113,031 30,154
Recoveries:
Commercial loans 24,093 ---
Installment loans to individuals 32,831 13,904
-------------- ----------------
Total recoveries 56,924 13,904
-------------- ---------------
Net charge-offs 56,107 16,250
Provisions charged to operations 105,000 158,900
-------------- --------------
Balance at the end of the period $1,117,627 $1,028,731
============== ================
Ratio of net charge-offs to average loans outstanding 0.04% 0.01%
Ratio of net charge-offs to nonperforming assets 15.37% 12.15%
Allowance for loan loss to nonperforming loans 360.49% 994.18%
Allowance for loan loss to net loans receivable 0.85% 0.82%
Nonaccrual Loans and Nonperforming Assets
Loans are reviewed on a regular basis. Management determines that a loan is
impaired or nonperforming when it is probable at least a portion of the loan
will not be collected in accordance with its contractual terms due to an
irreversible deterioration in the financial condition of the borrower or the
value of the underlying collateral. When a loan is determined to be impaired,
the measurement of the loan is based on the present value of estimated future
cash flows, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. Management places loans on
nonaccrual status once the loans have become over 90 days delinquent. Nonaccrual
is defined as a loan in which collectibility is questionable and therefore
interest on the loan will no longer be recognized on an accrual basis. A loan
does not have to be 90 days delinquent in order to be classified as
nonperforming. Other real estate owned is considered nonperforming. The Bank of
Greene County had no accruing loans delinquent more than 90 days at March 31,
2003 or June 30, 2002.
Analysis of Nonaccrual Loans and Nonperforming Assets
At March 31, 2003 At June 30, 2002
Nonaccruing loans:
Real estate mortgage loans:
Residential mortgages loans (one- to four-family) $271,613 $313,981
Commercial mortgage loans --- ---
Home equity 2,104 ---
Commercial loans 24,175 ---
Installment loans to individuals 12,141 18,886
------------------ -------------------
Total nonaccruing loans 310,033 332,867
Real Estate Owned:
Commercial mortgage loans 55,125 30,229
----------------- ---------------------
Total real estate owned 55,125 30,229
----------------- ---------------------
Total nonperforming assets $365,158 $363,096
================= ====================
Total nonperforming assets
as a percentage of total assets 0.15% 0.16%
Total nonperforming loans to net loans receivable 0.24% 0.26%
At March 31, 2003, gross interest income of $6,700 would have been recorded on
nonaccrual loans under their original terms if the loans had been current
throughout the period. No interest income was recorded on nonaccrual loans or on
accruing loans more than 90 days delinquent at March 31, 2003.
DEPOSITS
Total deposits increased to $206.2 million at March 31, 2003 from $183.7 million
at June 30, 2002, an increase of $22.5 million, or 12.2%. Savings accounts
experienced the most significant dollar growth between June 30, 2002, and March
31, 2003, increasing $10.9 million, or 15.4%, to $81.7 million from $70.8
million. Money market accounts experienced the most significant percentage
growth between June 30, 2002, and March 31, 2003, increasing $8.9 million, or
64.0%, to $22.8 million as compared to $13.9 million. Due to the continued poor
returns in the equity market and doubt about the credibility of corporate
America, investors appeared to continue to prefer to invest their funds in
safer, more liquid accounts such as money market deposits and savings deposits.
The historically low interest rates offered on certificates of deposit, which
are relatively illiquid, also contributed to investors choosing money market and
savings deposits. The shift in the deposit portfolio from certificate of deposit
accounts which represented 34.1% of the portfolio as of June 30, 2002 as
compared to 30.3% at March 31, 2003 to money market accounts which represented
7.6% for the portfolio as of June 30, 2002 as compared to 11.1% at March 31,
2003 contributed to improvement in net interest income as discussed further
below. Money market accounts tend to pay a lower average rate when compared with
certificate of deposit accounts.
At Percentage At Percentage
Mar. 31, 2003 of portfolio June 30, 2002 of portfolio
(Dollars rounded to nearest thousand)
Noninterest bearing deposits $22,456 10.9% $22,067 12.0%
Certificates of deposit 62,469 30.3 62,645 34.1
Savings deposits 81,687 39.6 70,825 38.5
Money market deposits 22,786 11.1 13,883 7.6
NOW deposits 16,790 8.1 14,294 7.8
-------------- ----------- ------------- ------------
Total deposits $206,188 100.0% $183,714 100.0%
============== =========== ============= ============
BORROWINGS
During January 2003, The Bank of Greene County refinanced its short-term debt
including paying down $1.0 million of the short-term borrowing balance from $4.0
million to $3.0 million. The fixed rate on such short-term borrowing decreased
to 1.55% from 2.19%.
At March 31, 2003, The Bank of Greene County had the following borrowings:
Amount Rate Maturity Date
$3,000,000 1.55% -Fixed 1/14/2004
2,500,000 6.82% -Fixed 09/02/2004
2,500,000 6.80% -Fixed 10/04/2005
-----------
$8,000,000
===========
ACCRUED EXPENSES AND OTHER LIABILITIES
At March 31, 2003, accrued expenses and other liabilities amounted to $1.6
million as compared to $0.9 million at June 30, 2002, an increase of $0.7
million. The increase was primarily due to increased deferred taxes associated
with unrealized gains on available-for-sale securities.
EQUITY
The primary changes in equity included changes in retained earnings and
accumulated comprehensive income. Retained earnings was affected by net income
of $1.7 million and partially offset by dividends paid of $591,000. Treasury
stock decreased by $24,000 due to the exercise of 2,248 options under the 2000
Stock Option Plan and $76,000 due to issuance of 7,120 shares under the 2000
Management Recognition and Retention Plan reducing the number of shares held in
treasury to 118,632. Net unrealized gains associated with the available-for-sale
investment portfolio caused accumulated other comprehensive income to increase
by approximately $503,000, net of tax. The remaining changes in equity were due
to amortization of compensation expense associated with the Employee Stock
Ownership Plan ("ESOP") and stock-based compensation expense associated with the
Management Recognition and Retention Plan.
Comparison of Operating Results for the Nine and Three Months Ended March 31,
2003 and 2002
GENERAL
Return on average assets and return on average equity are common methods of
measuring operating results. Return on average assets increased to 0.97% for the
nine months ended March 31, 2003 as compared to 0.80% for the nine months ended
March 31, 2002. These ratios were based on average assets of $233.7 million and
$198.4 million and net income of $1.7 million and $1.2 million for the nine
months ended March 31, 2003 and 2002, respectively. Return on average assets
increased to 0.91% for the quarter ended March 31, 2003 as compared to 0.90% for
the quarter ended March 31, 2002 and was based on average assets of $237.9
million and $207.7 million and net income of $514,000 and $468,000,
respectively. Return on average equity increased to 8.25% for the nine months
ended March 31, 2003 as compared to 6.26% for the nine months ended March 31,
2002 based on average equity of $27.4 million and $25.4 million, respectively
for these periods. Return on average equity increased to 7.77% for the quarter
ended March 31, 2003 as compared to 7.35% for the quarter ended March 31, 2002
based on average equity for the respective quarters of $28.0 million and $25.4
million, respectively. The improvements in the return on average assets and
return on average equity for the three and nine month periods were primarily the
result of increases in the net income of Greene County Bancorp, Inc. The reasons
for the increases in net income are further discussed below.
INTEREST INCOME
Total interest income increased to $9.8 million for the nine months ended March
31, 2003, as compared to $9.3 million for the nine months ended March 31, 2002,
an increase of $0.5 million, or 5.4%. Total interest income increased to $3.3
million for the quarter ended March 31, 2003 as compared to $3.1 million for the
quarter ended March 31, 2002, an increase of $0.2 million, or 6.5%.
Interest earned on loans represented the largest dollar increase in total
interest income. Interest earned on loans increased $371,000, or 5.5% to $7.1
million as compared to $6.7 million when comparing nine month periods ended
March 31, 2003 and 2002, respectively. This increase was a result of an increase
in average loans outstanding of $11.7 million, to $130.7 million for the nine
months ended March 31, 2003 as compared to $119.0 million for the nine months
ended March 31, 2002. The increase in average balances was offset by a decrease
in the yield on such loans which decreased 30 basis points to 7.25% for the nine
months ended March 31, 2003 as compared to 7.55% for the nine months ended March
31, 2002. Similarly, interest earned on loans for the quarter ended March 31,
2003 increased to $2.4 million as compared to $2.3 million for the quarter ended
March 31, 2002, an increase of $76,000, or 3.3%. Average loans outstanding for
the quarter ended March 31, 2003 amounted to $131.4 million as compared to
$123.7 million for the quarter ended March 31, 2002, an increase of $7.7
million, or 6.2%. The average yield on such loans decreased to 7.23% for the
quarter ended March 31, 2003 as compared to 7.43% for the quarter ended March
31, 2002, a decrease of 20 basis points. Loan growth continued to be relatively
strong despite the weakening economic conditions. This growth appeared to be
spurred by the current low interest rate environment which encouraged customers
to make household improvements or upgrade to larger, more expensive homes. Also,
The Bank of Greene County continued to grow its commercial loan portfolio
through efforts to win commercial customers in all areas of banking products
from loans to checking accounts.
Interest earned on mortgage backed securities also contributed to the overall
increase in total interest earned when comparing the nine months and quarters
ended March 31, 2003 and 2002. Interest income earned on mortgage backed
securities represented $0.8 million for the nine months ended March 31, 2003 as
compared to $0.5 million for the nine months ended March 31, 2002, an increase
of $0.3 million or 60.0%. As a result, interest on mortgage-backed securities
represented 8.5% of total interest income for the nine months ended March 31,
2003 as compared to 5.3% of total interest income for the nine months ended
March 31, 2002. When comparing the quarters ended March 31, 2003 and 2002,
interest earned on mortgage-backed securities had corresponding increases to the
nine-month periods. Interest earned on mortgage-backed securities increased to
$0.3 million for the quarter ended March 31, 2003, as compared to $0.2 million
for the quarter ended March 31, 2002, an increase of $0.1 million, or 50.0%.
Interest earned on investment securities other than mortgage-backed securities
including tax-free securities, remained relatively consistent when comparing the
three and nine month periods ended March 31, 2003 and 2002.
Federal Reserve rate cuts and lower average balances were the reasons for the
decrease in amount of federal funds interest income when comparing the nine
months and quarters ended March 31, 2003 and 2002. Interest income earned on
federal funds and interest bearing deposits decreased $124,000, or 45.1% to
$151,000 for the nine months ended March 31, 2003 as compared to $275,000 for
the nine months ended March 31, 2002. The decrease was a result of a decrease in
the federal funds average balance to $10.8 million for the nine months ended
March 31, 2003 as compared to $13.2 million for the nine months ended March 31,
2002, a decrease of $2.4 million, or 18.2%. The average rate on federal funds
fell 94 basis points to 1.68% for the nine months ended March 31, 2003 from
2.62% for the nine months ended March 31, 2002. A decrease in the average
balance of $0.5 million and a decreases in the average yield of 38 basis points
when comparing the quarters ended March 31, 2003 and 2002, contributed to a
decrease of $11,000 in interest earned on federal funds and interest bearing
deposits.
The average balance of all investment securities increased to $76.7 million for
the nine months ended March 31, 2003 as compared to $52.4 million for the nine
months ended March 31, 2002, an increase of $24.3 million, or 46.4%. The yield
on all investment securities, however, fell 146 basis points to 4.35% as
compared to 5.81% when comparing the nine months ended March 31, 2003 and 2002,
respectively. Similarly, the average balance of all investment securities for
the quarter ended March 31, 2003 amounted to $80.6 million at an average yield
of 4.09% as compared to $57.5 million at an average yield of 5.15% for the
quarter ended March 31, 2002, an increase in average balance of $23.1 million
and a decrease in average yield of 106 basis points. The growth in the level of
deposits funded the investment portfolio increases. The low interest rate
environment associated with several Federal Reserve rate cuts accounted for the
decrease in yield.
INTEREST EXPENSE
Interest expense on deposits amounted to $3.0 million for the nine months ended
March 31, 2003 as compared to $3.5 million for the nine months ended March 31,
2002, a decrease of $0.5 million, or 14.3%. Interest expense on deposits
amounted to $0.9 million for the quarter ended March 31, 2003 as compared to
$1.1 million for the quarter ended March 31, 2002, a decrease of $0.2 million or
18.2%. These decreases were the result of decreases in the average rates paid on
all types of deposit accounts despite increases in the average balances on these
accounts except for certificate of deposit accounts, in which the average
balance decreased when comparing the quarter ended March 31, 2003 to quarter
ended March 31, 2002.
The most significant average rate decrease was 130 basis points on certificates
of deposit which fell to 3.17% for the nine months ended March 31, 2003 as
compared to 4.47% for the nine months ended March 31, 2002. An increase in the
average balance of certificates of deposit of $1.5 million to $63.8 million for
the nine months ended March 31, 2003 as compared to $62.3 for the nine months
ended March 31, 2002 partially offset the decrease in average rate. However, a
decrease in the average balance of certificates of deposit of $0.7 million to
$62.7 million for the quarter ended March 31, 2003 as compared to $63.4 million
for the quarter ended March 31, 2002, partially offset the decrease in average
rate of 104 basis points to 2.94% from 3.98% when comparing the quarters ended
March 31, 2003 and 2002. The average balance of savings and escrow accounts
increased $24.3 million, or 34.2% to $95.3 million for the nine months ended
March 31, 2003 as compared to $71.0 million for the nine months ended March 31,
2002. The decrease in average rate on such balances partially offset the effects
of the increase in average balance on savings and escrow accounts. The average
rate on savings and escrow accounts decreased to 1.96% for the nine months ended
March 31, 2003 as compared to 2.40% for the nine months ended March 31, 2002, a
decrease of 44 basis points. Similarly, a decrease of 40 basis points in the
average rate paid on savings and escrow accounts partially offset an increase in
the average balance of such accounts of $25.5 million when comparing the
quarters ended March 31, 2003 and 2002.
Interest expense on borrowings increased $39,000 to $313,000 for the nine months
ended March 31, 2003 as compared to $274,000 for the nine months ended March 31,
2002. Interest expense on borrowings decreased $5,000 for the quarter ended
March 31, 2003 to $97,000 as compared to $102,000 for the quarter ended March
31, 2002. The increase in interest expense when comparing the nine months
periods was the result of an increase in the average balance of such borrowings
to $8.7 million for the nine months ended March 31, 2003 as compared to $6.3
million for the nine months ended March 31, 2002. However, the average balance
of borrowings when comparing the quarterly periods decreased to $8.0 million for
the quarter ended March 31, 2003 from $9.0 million for the quarter ended March
31, 2002. Also affecting the level of interest expense on borrowings was a shift
in the average rate on such borrowings. The average rate on borrowings when
comparing the nine month periods decreased 96 basis points to 4.81% for the nine
months ended March 31, 2003 as compared to 5.77% for the nine months ended March
31, 2002. The average rate on borrowings when comparing the quarterly periods
increased 29 basis points to 4.84% for the quarter ended March 31, 2003 as
compared to 4.55% for the quarter ended March 31, 2002.
NET INTEREST INCOME
Net interest income, a function of interest income and interest expense,
increased to $6.5 million for the nine months ended March 31, 2003, from $5.6
million for the nine months ended March 31, 2002, an increase of $0.9 million,
or 16.1%. Net interest income increased to $2.2 million for the quarter ended
March 31, 2003 as compared to $1.9 million for the quarter ended March 31, 2002,
an increase of $0.3 million, or 15.8%. As a result of changes in
interest-earning assets and interest-bearing liabilities, as well as changes in
the yield and rate on such assets and liabilities, net interest spread increased
to 3.78% for the nine months ended March 31, 2003 as compared to 3.74% for the
nine months ended March 31, 2002, an improvement of four basis points. Net
interest margin decreased to 3.93% for the nine months ended March 31, 2003 as
compared to 3.97% for nine months ended March 31, 2002, a decline of four basis
points. The net interest spread increased seven basis points to 3.81% for the
quarter ended March 31, 2003 as compared to 3.74% for the quarter ended March
31, 2002. Net interest margin increased one basis point to 3.95% for the quarter
ended March 31, 2003 as compared to 3.94% for the quarter ended March 31, 2002.
These changes were the result of a continued low interest rate environment
experienced during the last calendar year. As assets mature or the yield on such
assets adjust they have frequently been replaced with lower yielding assets;
however, The Bank of Greene County has also taken advantage of the lower
interest rate environment by refinancing short term borrowings at a lower rate
and offering lower rates on certificates of deposits, which has had a large
impact on improving net interest income. The shift in the deposit portfolio
composition from more expensive certificate of deposit accounts to cheaper money
market accounts has also contributed to the overall improvement in net interest
income. The improvement in net interest income contributed to the overall
improvement in net income. In a rising rate environment The Bank of Greene
County's net interest margin and spread would be more likely to shrink than in a
declining rate environment, which could ultimately negatively impact net income.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the nine months ended March 31, 2003 decreased
to $105,000 as compared to $158,900 for the nine months ended March 31, 2002.
The provision for loan losses for the nine months ended March 31, 2002 reflected
the establishment of a reserve for potential losses associated with the Bank's
new Overdraft Protection Program, initiated in October 2001, and the growth in,
and composition of, the loan portfolio. As indicated above the portion of
commercial loans, both real estate mortgage and non-mortgage, to total loans has
increased at March 31, 2003 as compared to June 30, 2002. Commercial loans are
considered generally more risky than other types of loans and as a result, the
allocation to the provision for loan losses for such loans is generally greater.
The increase commercial loans in the portfolio contributed to the overall
increase in the provision for loan losses when comparing the periods ended March
31, 2003 and 2002. The provision for loan losses increased to $75,000 for the
quarter ended March 31, 2003 as compared to $60,000 for the quarter ended March
31, 2002 as a result of an increased level of nonperforming loans and
charge-offs. The level of nonperforming loans to total loans increased to 0.23%
at March 31, 2003 as compared to 0.08% at March 31, 2002. It should be noted
that the level of nonperforming loans experienced at March 31, 2002 was
considered unusually low and unsustainable. Net charge-offs increased to $56,000
for the nine-months ended March 31, 2003, as compared to $16,000 for the
nine-months ended March 31, 2002.
NONINTEREST INCOME
Total noninterest income amounted to $1.8 million for the nine months ended
March 31, 2003 as compared to $1.3 million for the nine months ended March 31,
2002, an increase of $0.5 million, or 38.5%. Total noninterest income for the
quarter ended March 31, 2003 increased to $600,000 as compared to $471,000 for
the quarter ended March 31, 2002, an increase of $129,000, or 27.4% Service
charges on deposit accounts contributed the largest portion of the increase in
overall noninterest income increasing to $1.2 million for the nine months ended
March 31, 2003 as compared to $0.8 million for the nine months ended March 31,
2002, an increase of $0.4 million, or 50.0%. The quarterly increase in service
charges amounted to $105,000 or 37.4%, increasing to $386,000 for the quarter
ended March 31, 2003 as compared to $281,000 for the quarter ended March 31,
2002. The primary item contributing to these service charges was the
introduction of the Overdraft Protection Program which was initiated during
October 2001 and has proven to be well liked by customers of The Bank of Greene
County. The same fee that would apply to a check drawn on insufficient funds or
an uncollected item is charged when the overdraft privilege is used; however, in
this case the customers' check is not returned, but paid and the fee is
collected. The increase in the overall volume of deposit accounts also
contributed to the increase in charges on such accounts for items such as a
monthly service charge on accounts which fall below certain minimum balance
levels.
Other operating income increased to $649,000 for the nine months ended March 31,
2003 as compared to $517,000 for the nine months ended March 31, 2002, an
increase of $132,000 or 25.5%. For the quarter ended March 31, 2003 other
operating income amounted to $214,000 as compared to $190,000 for the quarter
ended March 31, 2002. The Bank of Greene County continues to have success in its
marketing of merchant credit card processing and other e-commerce products as
well as upgrading checking account products for existing customers which
enhances the profit margin on such checking products. Fees earned on debit card
transactions also contributed to the increases in other operating income for the
quarter and nine-month periods. Another factor contributing to the nine months
increase in other operating income was profit on the sale of REO properties
which amounted to approximately $60,000, compared to profit of $22,000 on sale
of REO recognized in the quarter ended March 31, 2002.
NONINTEREST EXPENSE
Noninterest expense for the nine months ended March 31, 2003 increased to $5.7
million as compared to $5.1 million for the nine months ended March 31, 2002, an
increase of $0.6 million, or 11.8%. Noninterest expense increased to $2.0
million for the quarter ended March 31, 2003 as compared to $1.7 million for the
quarter ended March 31, 2002, an increase of 17.6%. The increase in salaries and
employee benefits of $400,000 and $200,000 when comparing the nine months and
quarters ended March 31, 2003 and 2002, respectively, was a result of annual
salary increases, increased expenses associated with medical benefits and
retirement plans as well as some additional staffing. Also, Greene County
Bancorp, Inc. established a performance bonus program during fiscal 2003 to
reward staff. The bonus is directly linked to the return on assets and return on
equity measures. Approximately $35,000 of the increases in employee benefits
when comparing both the nine months and quarters ended March 31, 2003 to 2002
were due to increased retirement plan costs. The increases in occupancy expense
can be attributed to the cold and snowy winter experienced in the Northeast. The
increases in furniture and equipment expense of approximately $102,000 when
comparing the nine months and $33,000 when comparing the quarters ended March
31, 2003 to 2002, respectively, resulted from increased depreciation expense
associated with the replacement and upgrade of some computers and other
communications technology as well as purchase of cabinets and other furniture to
ensure compliance with aspects of new privacy regulations. The increases in
service and data processing fees of approximately $133,000 when comparing the
nine months and $37,000 when comparing the quarters ended March 31, 2003 and
2002, respectively, were due to an increase in the volume of deposit and loan
accounts as well as fees associated with increased ATM and debit card
processing. Data communications expenses which are included in service and data
processing fees have increased significantly over the last year in order to
provide better and faster information to customers as well as to ensure
electronic security messages. The Company expects that some of these costs will
be recouped by establishing more efficient communication channels between the
various offices. Office supplies expense has remained relatively constant
despite growth in the number of accounts primarily due to efficiencies from
automation of some forms generation as compared to manual processes with
preordered forms. Other noninterest expense remained relatively consistent
comparing the nine-months and decreased when comparing the quarters ended March
31, 2003 and 2002. During the quarter ended March 31, 2002, The Bank of Greene
County paid a fee to a consultant for assistance in establishing the Overdraft
Protection Program which was based on the increase in the amount of service
charges collected on overdrawn accounts. This fee was not required to be paid
during the quarter ended March 31, 2003; which accounted for the decrease in
other noninterest expense when comparing the two quarters.
INCOME TAXES
The provision for income taxes directly reflects the expected tax associated
with the revenue generated for the given year and certain regulatory
requirements. Income tax expense increased to $783,000 for the nine months ended
March 31, 2003 from $418,000 for the nine months ended March 31, 2002, an
increase of $365,000, or 87.3%. The effective tax rate increased to 31.5% for
the nine months ended March 31, 2003, as compared to 25.9% for the nine months
ended March 31, 2002 in anticipation of the effective rate required for the
fiscal year ending June 30, 2003. A major reason for the change in effective
rate was the expected decrease in the percentage of income that municipal
securities and other tax free investments are expected to contribute to total
income during the fiscal year.
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 of Greene 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 the Federal Home Loan Bank as needed. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
outflows, mortgage prepayments, and lending activities are greatly influenced by
general interest rates, economic conditions and competition.
During the last year the declining market interest rate environment has helped
to improve the net interest spread and margin; however, an increasing market
interest rate environment will have the reverse effect.
Mortgage loan commitments totaled $3.9 million at March 31, 2003. The unused
portion of overdraft lines of credit amounted to $0.7 million, the unused
portion of home equity lines of credit amounted to $1.9 million, and the unused
portion of commercial lines of credit amounted to $1.9 million at March 31,
2003. 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.
The Bank of Greene County met all regulatory capital requirements at March 31,
2003 and June 30, 2002. Consolidated shareholders' equity represented 11.6 % of
total assets at March 31, 2003 and 12.0% of total assets of June 30, 2002.
Item 3. Controls and Procedures
Greene County Bancorp, Inc.'s Chief Executive Officer and Chief Financial
Officer have concluded, based on their evaluation within 90 days prior to the
filing date of this report, that Greene County Bancorp, Inc.'s disclosure
controls and procedures (as defined in Securities Exchange Act Rules 13a-14 (c)
and 15d-14( c )) are effective to ensure that information required to be
disclosed in the reports that Greene County Bancorp, Inc. files or submits under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. There have been no significant changes in Greene
County Bancorp, Inc.'s internal controls or other factors that could
significantly affect these controls subsequent to the date of the foregoing
evaluation.
Item 1. LegalProceedings Greene County Bancorp, Inc.is not engaged
in any material legal proceedings at the present time.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 - Written Statement of Chief Executive Officer furnished
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U. S.C. Section
1350.
Exhibit 99.2 - Written Statement of Chief Financial Officer furnished
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
(b) No Form 8-K reports were filed during the quarter ended March 31, 2003.
SIGNATURES
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: May 15, 2003
By: /s/ J. Bruce Whittaker
__________________________
J. Bruce Whittaker
President and Chief Executive Officer
Date: May 15, 2003
By: /s/ Michelle Plummer
________________________
Michelle Plummer
Chief Financial Officer and Treasurer
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, J. Bruce Whittaker, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Greene County
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ J. Bruce Whittaker
______________________
President and Chief Executive Officer
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michelle Plummer, Chief Financial Officer and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Greene County
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
d) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
e) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Michelle Plummer
____________________
Chief Financial Officer and Treasurer
EXHIBIT 99.1
STATEMENT FURNISHED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
The undersigned, J. Bruce Whittaker, is the President and Chief Executive
Officer of Greene County Bancorp, Inc. (the "Company").
This statement is being furnished in connection with the filing by Greene
County Bancorp, Inc. of Greene County Bancorp, Inc.'s Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2003 (the "Report").
By execution of this statement, I certify that:
A) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(a) or 78o(d)) and
B) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of Greene County Bancorp, Inc. as of the dates and for the
periods covered by the Report.
This statement is authorized to be attached as an exhibit to the Report so
that this statement will accompany the Report at such time as the Report is
filed with the Securities and Exchange Commission pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. 18 U.S.C. Section 1350. It is not
intended that this statement be deemed to be filed for purposes of the
Securities Exchange Act of 1934, as amended.
Date: May 15, 2003 /s/ J. Bruce Whittaker
______________________
J. Bruce Whittaker
EXHIBIT 99.1
STATEMENT FURNISHED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
The undersigned, Michelle Plummer, is the Chief Financial Officer and
Treasurer of Greene County Bancorp, Inc. (the "Company").
This statement is being furnished in connection with the filing by Greene
County Bancorp, Inc. of Greene County Bancorp, Inc.'s Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2003 (the "Report").
By execution of this statement, I certify that:
A) the Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78m(a) or 78o(d)) and
B) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of Greene County Bancorp, Inc. as of the dates and for the
periods covered by the Report.
This statement is authorized to be attached as an exhibit to the Report so
that this statement will accompany the Report at such time as the Report is
filed with the Securities and Exchange Commission pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. 18 U.S.C. Section 1350. It is not
intended that this statement be deemed to be filed for purposes of the
Securities Exchange Act of 1934, as amended.
Date: May 15, 2003 /s/ Michelle Plummer
____________________
Michelle Plummer