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Greene nty Bancorp(GCBC) - 2024 Q4 - Annual Report
GCBCGreene nty Bancorp(GCBC)2024-09-06 20:27

Residential and Commercial Lending - As of June 30, 2024, the Company purchased 17.4millionofresidentialloansoutsideitsprimarymarketarea,ensuringfullduediligenceoneachloantomaintaincreditquality[23].−TheCompanyoffersresidentialmortgageloanswithamaximumloan−to−valueratioof8517.4 million of residential loans outside its primary market area, ensuring full due diligence on each loan to maintain credit quality [23]. - The Company offers residential mortgage loans with a maximum loan-to-value ratio of 85%, increasing to 90% for first-time homebuyer programs [23]. - The Company has seen an increase in adjustable-rate mortgage loans due to the higher interest rate environment, reflecting a shift in customer preference [25]. - The Company's adjustable-rate mortgage loans allow for maximum rate adjustments of 150 basis points per year and 600 basis points over the loan term [26]. - At June 30, 2024, the largest loan to one borrower was 23.8 million, consisting of eleven commercial mortgages and lines, performing according to repayment terms [44]. - The Company retains most residential mortgage loans in its portfolio, exposing it to interest rate risk as yields on fixed-rate assets remain constant while deposit rates may increase [24]. - The Company has emphasized growing its commercial lending department, focusing on multi-family and mixed-use properties [32]. - The Company requires personal guarantees on all commercial real estate mortgages unless properties are fully stabilized with strong cash flow coverage [33]. - The Company’s consumer loans include direct loans on automobiles and personal loans, generally with terms of one to five years [36]. Investment Strategy and Risk Management - The Company maintains high balances of liquid investments to mitigate interest rate risk and meet collateral requirements for municipal deposits exceeding FDIC insurance limits [45]. - The Company’s investment strategy focuses on high-quality securities, with an emphasis on managing interest rate risk through diversified investments across short-, intermediate-, and long-term categories [47]. - The Company does not hold any private-label mortgage-backed securities, focusing instead on those guaranteed by government-sponsored enterprises [53]. - The Company’s portfolio of state and political subdivision securities is primarily composed of short-term obligations, which are generally exempt from federal income tax [50]. - The Company has an unrecaptured pre-1988 Federal bad debt reserve of approximately 1.8million,forwhichnoFederalincometaxprovisionhasbeenmade[67].−TheCompanydoesnotengageinbalancesheetderivativeorhedginginvestmenttransactions,suchasinterestrateswapsorcaps[47].−TheCompany’smortgage−backedsecuritiesareprimarilysecuredbycashflowsfrompoolsofmortgages,withguaranteesfromentitieslikeFreddieMacandFannieMae[54].−TheCompanyemploysariskmanagementapproachtoassesscreditriskonitsstateandpoliticalsubdivisionsecuritiesportfolio,whichisconsideredlow[52].CapitalandRegulatoryCompliance−AsofJune30,2024,TheBankofGreeneCountymetthecriteriaforbeingconsidered"wellcapitalized,"withatotalrisk−basedcapitalratioexceeding101.8 million, for which no Federal income tax provision has been made [67]. - The Company does not engage in balance sheet derivative or hedging investment transactions, such as interest rate swaps or caps [47]. - The Company’s mortgage-backed securities are primarily secured by cash flows from pools of mortgages, with guarantees from entities like Freddie Mac and Fannie Mae [54]. - The Company employs a risk management approach to assess credit risk on its state and political subdivision securities portfolio, which is considered low [52]. Capital and Regulatory Compliance - As of June 30, 2024, The Bank of Greene County met the criteria for being considered "well capitalized," with a total risk-based capital ratio exceeding 10%, a Tier 1 risk-based ratio exceeding 8.0%, a common equity Tier 1 ratio exceeding 6.5%, and a leverage ratio exceeding 5.0% [81]. - The capital standards require maintenance of common equity Tier 1 capital, Tier 1 capital, and total capital to risk-weighted assets of at least 4.5%, 6%, and 8%, respectively [75]. - The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020 [78]. - The Bank of Greene County was in compliance with the loans-to-one borrower limitations as of June 30, 2024, which generally restricts loans to a single borrower to 15% of unimpaired capital and surplus [81]. - The Bank received a "satisfactory" Community Reinvestment Act rating in its most recent examination, indicating compliance with credit needs in its communities [88]. - Federal regulations require that an insured depository institution shall not make any capital distribution if it would be undercapitalized after such distribution [86]. - The Bank has exercised a one-time opt-out regarding the treatment of Accumulated Other Comprehensive Income (AOCI) in its regulatory capital determinations [75]. - The Bank must maintain at least 65% of its portfolio assets in qualified thrift investments to satisfy the qualified thrift lender requirement [82]. - The regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a capital conservation buffer of 2.5% of common equity Tier 1 capital to risk-weighted assets [77]. Cybersecurity and Risk Management - The Bank is subject to various federal and state laws regarding cybersecurity, which impose standards and requirements related to data security and risk management processes [90]. - The Board of Directors oversees cybersecurity risk management, ensuring effective governance and proactive responses to emerging threats [127]. - The Company has not experienced any material losses related to cybersecurity threats for the year ended June 30, 2024 [126]. - The Company employs comprehensive methodologies for risk assessment, including regular examinations of emerging threats and vulnerability scanning [121]. - The Chief Information Security Officer and Chief Information Officer regularly update the Board on cybersecurity risks and compliance with regulatory requirements [128]. - The Company has developed an Incident Response Plan to address cybersecurity incidents, ensuring timely mitigation and remediation [122]. Interest Rate Risk and Sensitivity - The Company has a relatively low level of net interest income (NII) sensitivity, indicating low income exposure to rising interest rates, with the largest risk being a declining rate environment [269]. - As of June 30, 2024, the Company's economic value of equity (EVE) was 297,749 thousand at par, with a projected decrease of 30% to $208,413 thousand in a +300 basis points rate shock scenario [273]. - The cumulative one-year and three-year gap positions were positive at 16.03% and 10.69% respectively, indicating a favorable position for interest rate sensitivity [276]. - EVE sensitivity has increased across the industry due to loans and investments losing market value in the current higher interest rate environment [274]. - The Company performs dynamic modeling to assess interest rate risk, incorporating projected balance sheets and income statements under various economic scenarios [270]. - The EVE ratio at par was 10.89%, with a projected change of -264 basis points in a +300 basis points rate shock scenario [273]. - The Company utilizes gap analysis to monitor interest rate sensitivity, with a positive gap indicating a favorable position during rising interest rates [276]. - The EVE measure does not account for future changes in the balance sheet, which may limit its effectiveness [271]. - The Company’s interest rate risk measurements are subject to certain assumptions that may not reflect actual market responses [275]. - The analysis of interest rate sensitivity is limited by the potential for different reactions of similar maturity assets and liabilities to market rate changes [277].