Greene nty Bancorp(GCBC) - 2021 Q4 - Annual Report

Part I Business The company is a community bank holding company serving New York's Hudson Valley through traditional banking and lending services General and Corporate Structure The company operates under a mutual holding company structure with its primary business conducted through The Bank of Greene County - Greene County Bancorp, MHC, a mutual holding company, owns 54.1% of Greene County Bancorp, Inc.'s outstanding common stock[18] - The company's principal business is attracting retail deposits and investing them primarily in residential mortgages, commercial real estate loans, consumer loans, and commercial business loans[21] - The company actively addressed the COVID-19 pandemic by participating in relief programs like the Paycheck Protection Program[16] Consolidated Subsidiary Financial Data (as of June 30, 2021) | Subsidiary | Assets (in thousands) | Deposits (in thousands) | Equity (in thousands) | | :--- | :--- | :--- | :--- | | Greene County Bancorp, Inc. (consolidated) | $2,200,335 | $2,005,108 | $149,584 | | The Bank of Greene County (consolidated) | $2,196,274 | $2,005,388 | $169,173 | | Greene County Commercial Bank | $875,328 | $803,468 | $68,391 | | Greene Property Holdings, Ltd. | $686,128 | - | $686,128 | Market Area and Competition The bank operates 17 offices in New York's Hudson Valley and Capital District, facing intense competition from diverse financial institutions - The bank operates 17 full-service banking offices in the Hudson Valley and Capital District Regions of New York State, serving Greene, Columbia, Albany, and Ulster counties[28] - The bank faces intense competition from commercial banks, savings banks, mortgage companies, credit unions, and non-depository competitors like mutual funds and securities firms[30][31] Lending Activities The bank's primary lending activity is originating residential and commercial real estate mortgage loans for its portfolio - The principal lending activity is originating fixed-rate and adjustable-rate mortgage loans collateralized by residential and commercial real estate within its primary market area[32] - The bank participated in both rounds of the Paycheck Protection Program (PPP), originating 100% SBA-guaranteed loans to support local businesses affected by the COVID-19 pandemic[55] - Commercial real estate loans generally require a debt service coverage ratio of at least 110% and personal guarantees, and are considered to have a greater degree of risk than residential loans[47][49] - The largest aggregate loan to a single borrower was $16.1 million, consisting of 10 commercial mortgages, which was performing in accordance with its terms as of June 30, 2021[62] Securities Activities The company maintains a significant portfolio of liquid, high-quality investments to mitigate interest rate risk and meet collateral requirements - The company maintains high balances of liquid investments to mitigate interest rate risk and meet collateral requirements for municipal deposits[63] - Investment policy limits securities to U.S. Government and government-sponsored enterprises, municipal bonds, and corporate debt, with no derivative or hedging transactions[64] - As of June 30, 2021, all mortgage-backed securities were issued by government-sponsored enterprises; no private-label mortgage-backed securities were held[64] Sources of Funds The company's primary sources of funds are deposits, loan and security repayments, and borrowings from institutions like the FHLB - Primary sources of funds include deposits, repayments of loans and securities, and borrowings from facilities like the Federal Home Loan Bank of New York (FHLB)[75] - Greene County Commercial Bank, a subsidiary, focuses on attracting municipal deposits and held $803.5 million in such deposits at June 30, 2021[78] - The company issued fixed-to-floating rate subordinated notes due in 2030 as a cost-effective way to raise regulatory capital[81] Regulation The company and its subsidiaries operate in a highly regulated environment under federal and state banking authorities - The Bank of Greene County is regulated by the Office of the Comptroller of the Currency (OCC) and the FDIC, while the holding companies are regulated by the Federal Reserve Board (FRB)[89] - Federal regulations require the banks to meet minimum capital standards; as of June 30, 2021, The Bank of Greene County was considered "well capitalized"[93][102] - The Bank of Greene County must satisfy the Qualified Thrift Lender (QTL) test, which it met for fiscal years 2021 and 2020[104][108] - The company participated in the Paycheck Protection Program (PPP) under the CARES Act, which provided economic relief during the COVID-19 pandemic[147] Risk Factors This section is not applicable as the company is a smaller reporting company - Not applicable to smaller reporting companies[148] Unresolved Staff Comments The company reports no unresolved staff comments - None[149] Properties The company operates from its executive offices, an operations center, a lending center, and 17 full-service banking offices - At June 30, 2021, the company conducted business through 17 full-service banking offices, of which nine are owned and eight are leased[152] - The properties are located in Greene, Columbia, Albany, and Ulster Counties, and management believes they are suitable and adequate[152] Legal Proceedings The company is not involved in any material legal proceedings outside the ordinary course of business - The company is not involved in any pending legal proceedings other than routine matters considered immaterial to its financial condition[153] Mine Safety Disclosures This section is not applicable to the company - Not applicable[154] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under "GCBC" and it maintains a stock repurchase program - The company's common stock is listed on the NASDAQ Capital Market under the symbol "GCBC"[155] - As of September 10, 2021, there were 8,513,414 shares outstanding, with 54.1% held by the mutual holding company, Greene County Bancorp, MHC[155] - A stock repurchase program authorizes the company to buy back up to 200,000 shares, with 24,400 shares repurchased as of June 30, 2021[157] - The mutual holding company (MHC) received approval to waive its receipt of quarterly cash dividends up to $0.60 per share for the four quarters ending December 31, 2021[156] Selected Financial Data The company demonstrated significant growth in assets, loans, deposits, and net income in fiscal year 2021 Selected Financial Highlights (Years ended June 30) | (Dollars in thousands, except per share data) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Financial Condition | | | | | Total assets | $2,200,335 | $1,676,803 | $1,269,462 | | Loans receivable, net | $1,085,947 | $993,522 | $785,738 | | Deposits | $2,005,108 | $1,501,075 | $1,120,569 | | Shareholders' equity | $149,584 | $128,805 | $112,369 | | Operations | | | | | Net interest income | $53,145 | $44,833 | $40,000 | | Net income | $23,942 | $18,727 | $17,484 | | Diluted earnings per share | $2.81 | $2.20 | $2.05 | | Key Ratios | | | | | Return on average assets | 1.24% | 1.27% | 1.46% | | Net interest margin | 2.81% | 3.09% | 3.39% | | Nonperforming assets to total assets | 0.11% | 0.24% | 0.29% | Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased 27.8% to $23.9 million in FY2021, driven by strong asset and deposit growth despite a decline in net interest margin - The increase in net income was primarily driven by an $8.3 million increase in net interest income, resulting from growth in interest-earning assets[167] - The company's critical accounting policy relates to the allowance for loan losses, which requires significant management judgment[164] - As of June 30, 2021, only 8 loans totaling $8.0 million remained on COVID-19 related payment deferrals, a significant decrease from the prior year[166] Financial Overview (FY 2021 vs. FY 2020) | Metric | FY 2021 | FY 2020 | Change | | :--- | :--- | :--- | :--- | | Net Income | $23.9 million | $18.7 million | +27.8% | | Diluted EPS | $2.81 | $2.20 | +27.7% | | Total Assets | $2.2 billion | $1.7 billion | +31.2% | | Net Loans | $1.1 billion | $993.5 million | +9.3% | | Total Deposits | $2.0 billion | $1.5 billion | +33.6% | | Net Interest Margin | 2.81% | 3.09% | -28 bps | Comparison of Financial Condition (as of June 30, 2021 and 2020) Total assets grew 31.2% to $2.2 billion, driven by a $504.0 million surge in deposits that funded growth in securities and loans - Total assets grew by $523.5 million (31.2%) to $2.2 billion at June 30, 2021[169] - Securities (available-for-sale and held-to-maturity) increased by $277.4 million (45.5%) to $887.8 million, funded by the increase in deposits[170] - Net loans receivable increased by $92.4 million (9.3%) to $1.1 billion, primarily driven by growth in commercial and residential real estate loans[175] - Total deposits increased by $504.0 million (33.6%) to $2.0 billion, with significant growth in NOW and savings accounts[199] - Shareholders' equity increased from $128.8 million to $149.6 million, mainly due to net income of $23.9 million[207] Comparison of Operating Results (for years ended June 30, 2021 and 2020) Net interest income grew by $8.3 million, but the net interest margin compressed by 28 basis points due to the low-rate environment - The increase in net interest income was driven by a $10.6 billion change due to higher volumes, partially offset by a $2.3 billion negative impact from rate changes[216] - Noninterest income increased by $1.0 million (11.8%), primarily due to an $880,000 increase in debit card fees[230] - Noninterest expense increased by $3.4 million (12.2%), driven by a $2.0 million increase in salaries and benefits to support growth[231] Net Interest Income and Margin Analysis | (Dollars in thousands) | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Total interest income | $58,328 | $53,314 | | Total interest expense | $5,183 | $8,481 | | Net interest income | $53,145 | $44,833 | | Net interest rate spread | 2.76% | 2.98% | | Net interest margin | 2.81% | 3.09% | Liquidity and Capital Resources The company maintains a strong liquidity position and robust capital resources, with both of its banks remaining "well capitalized" - Primary sources of liquidity are deposits, principal and interest payments on loans and securities, and borrowing facilities from the FHLB[233] - At June 30, 2021, cash and cash equivalents totaled $149.8 million, or 6.8% of total assets[234] - Total off-balance sheet commitments, including unfunded loans and unused lines of credit, were $208.4 million at June 30, 2021[239][429] - Both The Bank of Greene County and Greene County Commercial Bank exceeded all regulatory capital requirements and were categorized as "well capitalized" as of June 30, 2021[242][453] Quantitative and Qualitative Disclosures About Market Risk The company's most significant market risk is interest rate risk, which it manages through balance sheet composition rather than derivatives - The most significant form of market risk is interest rate risk due to the company's asset and liability structure; the company does not use derivative-based hedging[247] - Risk management strategies include maintaining high liquidity, focusing on core deposits, and originating adjustable-rate and shorter-term loans[248] - The company's largest risk exposure is to a declining interest rate environment, though its income exposure to rising rates is projected to be relatively low[249] Economic Value of Equity (EVE) Sensitivity Analysis (as of June 30, 2021) | Rate Shock (Basis Points) | EVE ($ in thousands) | % Change From Par | | :--- | :--- | :--- | | +300bp | $205,003 | (20.38)% | | +200bp | $225,851 | (12.28)% | | +100bp | $246,914 | (4.10)% | | PAR | $257,475 | - | | -100bp | $295,696 | 14.84% | Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, an unqualified auditor's opinion, and management's report on internal controls Management's Report and Auditor's Opinion Management asserted effective internal controls, and the independent auditor issued an unqualified opinion on the financial statements - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2021[263] - The independent auditor, Bonadio & Co., LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[265][274] - The auditor identified the qualitative factor component of the allowance for loan losses as a critical audit matter due to significant management judgment[269][272] Consolidated Financial Statements The financial statements show significant growth in assets, liabilities, and equity, with net income rising to $23.9 million in 2021 Consolidated Statement of Financial Condition Highlights (as of June 30) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total assets | $2,200,335 | $1,676,803 | | Net loans receivable | $1,085,947 | $993,522 | | Total deposits | $2,005,108 | $1,501,075 | | Total liabilities | $2,050,751 | $1,547,998 | | Total shareholders' equity | $149,584 | $128,805 | Consolidated Statement of Income Highlights (for year ended June 30) | (In thousands, except per share data) | 2021 | 2020 | | :--- | :--- | :--- | | Net interest income | $53,145 | $44,833 | | Provision for loan losses | $3,974 | $3,905 | | Net income | $23,942 | $18,727 | | Diluted earnings per share | $2.81 | $2.20 | Notes to Consolidated Financial Statements The notes detail accounting policies, including the upcoming adoption of CECL, and provide specifics on the loan portfolio and capital adequacy - The company will adopt the new CECL standard for measuring credit losses for fiscal years beginning after December 15, 2022[341] - At June 30, 2021, the company had $67.4 million in PPP loans outstanding and had recognized $4.1 million in related fee income during the fiscal year[175][359] - The defined benefit pension plan was underfunded by $0.5 million as of June 30, 2021, an improvement from a $1.3 million underfunding in 2020[404][406] Bank Capital Ratios (as of June 30, 2021) | The Bank of Greene County | Actual Ratio | Minimum for Adequacy | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Total risk-based capital | 16.9% | 8.0% | 10.0% | | Tier 1 risk-based capital | 15.6% | 6.0% | 8.0% | | Common equity tier 1 capital | 15.6% | 4.5% | 6.5% | | Tier 1 leverage ratio | 8.0% | 4.0% | 5.0% | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Information for this item is incorporated by reference from the company's 2021 Proxy Statement - This section is incorporated by reference from the company's 2021 Proxy Statement[464] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the reporting period[465] - There were no material changes in the company's internal control over financial reporting during the fourth quarter of the fiscal year ended June 30, 2021[465] Other Information The company reports no other information for this item - None[467] Part III Part III incorporates information by reference from the company's definitive Proxy Statement for its 2021 Annual Meeting of Shareholders Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2021 Proxy Statement - This section is incorporated by reference from the company's 2021 Proxy Statement[469] Executive Compensation Information for this item is incorporated by reference from the company's 2021 Proxy Statement - This section is incorporated by reference from the company's 2021 Proxy Statement[471] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2021 Proxy Statement - This section is incorporated by reference from the company's 2021 Proxy Statement[472] Certain Relationships and Related Transactions and Director Independence Information for this item is incorporated by reference from the company's 2021 Proxy Statement - This section is incorporated by reference from the company's 2021 Proxy Statement[473] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2021 Proxy Statement - This section is incorporated by reference from the company's 2021 Proxy Statement[474] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed with the report, including key agreements and certifications - Lists the financial statements and the Report of Bonadio & Co., LLP included in the annual report[477] - Includes a list of exhibits such as the Charter, Bylaws, Subordinated Note Purchase Agreement, employee benefit plans, and Sarbanes-Oxley certifications[478] Form 10-K Summary The company reports no summary for this item - None[479]