EXHIBIT 13
ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
2000 ANNUAL REPORT TO STOCKHOLDERS
GREENE COUNTY BANCORP, INC.
<PAGE>
Greene County Bancorp, Inc., a Delaware corporation, is the parent company of
The Bank of Greene County. The Company's consolidated assets as of June 30, 2000
were $168 million.
The Bank of Greene County was founded in 1889 as The Building and Loan
Association of Catskill. In 1974, the bank changed to a New York State chartered
mutual savings bank, under the name Greene County Savings Bank. In 1998, the
Bank converted to the mutual holding company form of ownership, with the Bank
changing its name to The Bank of Greene County.
The Bank serves Greene County, New York through an operations center and five
banking offices in Catskill, Cairo, Coxsackie, Greeneville and Tannersville. As
part of its mission the Bank tries to foster a sense of community service
through personal service, local decision-making and participation with customers
in community activities such as the Music in the Park series sponsored by the
Bank for the last several years. The Catskill community in December 1999
recognized the Bank's community spirit by presenting the Bank with the Business
of the Year Award from the Heart of Catskill, a local community business group.
2
<PAGE>
Dear Shareholders,
I am pleased to report to you on the results of our first full year as a
publicly owned company. The past year was a busy and productive one, continuing
the expansion of our branch network and support systems.
Following a review of the Bank's performance for fiscal year 2000, on July 18,
2000, the Bank's Board of Directors declared the first semi-annual cash dividend
of $0.12 per share, payable August 15, 2000 to shareholders of record on August
1, 2000.
The past year was highlighted by the opening, on June 10, 2000, of our newest
branch office in the Village of Tannersville, NY. The post-and-beam
architectural style of the branch complements those buildings found in several
"park communities" located in the Town of Hunter. An initial level of business
activity that far exceeded our estimates followed the many favorable comments on
the quality and design of the building from area residents. We expect that this
favorable trend will continue.
Net income for fiscal year 2000 was $958,100 as compared to $867,500 for the
prior year, representing a $90,600 or 10.4% increase. The prior year's income
was affected by a pre-tax charge associated with the funding of The Bank of
Greene County Charitable Foundation for $484,150. Interest income increased 6.1%
to $10.5 million for the year ended June 30, 2000, from $9.9 million for the
year ended June 30, 1999. Interest expense for the year ended June 30, 2000 was
$5.0 million as compared to $4.9 million during the 1999 fiscal year, a 2.0%
increase.
Our net interest margin increased to 3.70% for fiscal 2000, as compared to 3.56%
for the prior fiscal year. Net interest spread also improved to 3.42% for fiscal
year 2000, as compared to 3.14% for fiscal 1999. Contributing to the increased
net interest margin and net interest spread was the $2.8 million increase in
non-interest bearing deposits to $12.3 million at June 30, 2000, as compared to
the $9.5 million balance at June 30, 1999. Non-interest income rose to $850,600
for fiscal year 2000 from $543,300 in the prior year, a 56.6% increase.
Contributing to this increase were ATM surcharges that were initiated during
fiscal year 2000 and an increase in service charges collected on deposit
accounts. Non-interest expense was $5.0 million during fiscal year 2000, a $0.7
million increase over $4.3 million for fiscal year 1999. This increase was
primarily the result of our branch network expansion and expenses associated
with enhancing infrastructure and operations, which included the hiring of an
information systems manager, in order to ensure future success and
competitiveness in an ever-increasing market for technical financial services.
Total assets increased to $167.7 million at June 30, 2000,an increase of $15.1
million or 9.9% over total assets of $152.6 million a year ago. The increase in
assets was due to increases in cash, premises and equipment, and loans. The
concentration in cash at June 30, 2000 was partially a result of maturing
securities at the end of June 2000 and the recent decrease in loan demand due to
an increase in the market interest rate environment.
Low interest rates during the first several months of fiscal year 2000
contributed to a continuation of the previous year's high level of lending
activity. As interest rates rose during the spring of 2000, loan volume
declined, most significantly in the demand for refinancing. Our low cost lending
program for local fire departments and municipalities continues to generate
business. Two loans totaling approximately $250,000 were closed during fiscal
year 2000. At fiscal year end 2000 several more municipal loan applications wee
being processed.
Our merchant credit card services program continues to grow with more than $15.0
million in credit card transactions processed by our vendor, ACS Merchant
Services, during fiscal year 2000. Fees to the Bank totaled more than $29,000.
With more than 50 merchants added during fiscal year 2000, we now have more than
220 participants. We expect this program to continue to grow during the coming
year.
Deposits were up $5.5 million (4.3%) from a year ago. Not readily apparent in
the increase was a change in the Bank's deposit mix. Fiscal year end 2000 saw a
$2.8 million increase over last year's balances in transaction accounts, as the
Bank increased its market penetration in low-cost checking and NOW accounts. We
believe that the growth in this area is substantially due to the Bank's offering
of 24-hour telephone and Internet banking, and our VISA check card. All of
3
<PAGE>
these services have seen a dramatic increase in usage over the past year.
On June 1, 2000 the Bank completed the installation of an off-site ATM machine
at Hunter Mountain Ski Bowl. This high-traffic location should have a positive
effect on non-interest income. As this report is written, we are waiting for
regulatory approval for our latest application to open a full-service branch in
the Town of Westerlo, located in southwestern Albany County.
Last year I reported to you on our extensive preparations for Y2K. I am very
pleased to report that there were no significant operational problems associated
with the change in the millennium. The addition last fall of a full-time Manager
of Information Systems, combined with the hard work of all of our Y2K team
members, provided for a smooth transition to the year 2000. The Bank took
advantage of this window of opportunity to make significant upgrades in its
technology systems. These changes have positioned us to take advantage of recent
and upcoming cost-saving opportunities in telephone, Internet, and operational
expenses.
As part of our conversion to a publicly owned company in December 1998, the Bank
established The Bank of Greene County Charitable Foundation. In June 2000, the
Foundation made its first grant awards totaling $25,600 to 14 area non-profit
organizations. A wide variety of programs were funded to enhance the quality of
life for the residents of Greene County.
We are very pleased with the events of the past year. We believe that the
investments we have made in technology and staff at our administrative center,
and in our new branch facility in Tannersville, will reward the Bank with a
higher level of income in the future. The products and services that we offer
are equal to, if not better than, those being offered by the larger banking
institutions. Our advantage lies in the well-deserved reputation that we have
for personal and friendly service, something that is lacking at many of our
larger competitors. We will continue to look for new opportunities to expand our
branch network, and we will remain informed about changes in technology and
methods of service delivery to assure continued success in our market-place.
Sincerely,
J. Bruce Whittaker
President and Chief Executive Officer
4
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial and operational data presented below at and for the
years shown were derived from the audited consolidated financial statements of
Greene County Bancorp, Inc. (the "Company"), or prior to December 30, 1998,
Greene County Savings Bank and should be read in conjunction with the
consolidated financial statements presented elsewhere in this Annual Report.
<TABLE>
<CAPTION>
June 30,
--------
2000 1999 1998
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Selected Financial Condition Data:
Total assets .............................................. $167,735 $152,644 $140,253
Loans receivable, net ..................................... 97,819 90,798 80,260
Mortgage-backed securities (all available for sale) ...... 6,000 5,233 5,189
Investment securities (all available for sale) ............ 33,892 35,984 35,565
Asset-backed securities (all available for sale) .......... 4,916 8,445 6,324
Deposits .................................................. 133,460 127,999 124,011
Shareholders' equity ...................................... 23,594 23,922 15,730
</TABLE>
<TABLE>
<CAPTION>
Years Ended
June 30,
--------
2000 1999 1998
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Selected Operations Data:
Total interest income ..................................... $ 10,547 $ 9,942 $ 9,503
Total interest expense .................................... 4,985 4,869 4,967
-------- -------- --------
Net interest income .................................... 5,562 5,073 4,536
Provision for loan losses ................................. 135 180 120
-------- -------- --------
Net interest income after provision for loan losses ....... 5,427 4,893 4,416
Total noninterest income .................................. 851 543 436
Total noninterest expense ................................. 4,973 4,319 3,149
-------- -------- --------
Income before taxes ....................................... 1,305 1,117 1,703
Income tax provision ...................................... 347 249 553
-------- -------- --------
Net income ................................................ $ 958 $ 868 $ 1,150
======== ======== ========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
At or for the Years Ended
June 30,
-------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (ratio of net income to average total assets) 0.60% 0.58% 0.84%
Return on average shareholders' equity (ratio of net income to
average shareholders' equity) ....................................... 4.10 4.25 7.63
Ratio of operating expense to average total assets .................... 3.11 2.90 2.31
Ratio of average interest-earning assets to average
interest-bearing liabilities ...................................... 108.61 112.31 109.58
Net interest rate spread (1) .......................................... 3.42 3.14 3.15
Net interest margin (2) ............................................... 3.70 3.56 3.52
Efficiency ratio (3) .................................................. 77.55 76.90 64.90
Asset Quality Ratios:
Nonperforming assets to total assets at end of period ................. 0.49 0.56 0.72
Nonperforming loans to total loans at end of period ................... 0.68 0.94 1.10
Allowance for loan losses to nonperforming loans ...................... 128.93 91.94 82.17
Allowance for loan losses to loans receivable, net .................... 0.89 0.87 0.91
Capital Ratios:
Shareholders' equity to total assets at end of period ................. 14.07 15.68 11.22
Average shareholders' equity to average assets ........................ 14.63 13.70 11.05
Book value ............................................................ $ 11.94 $ 11.54 N/A
Other Data:
Number of full-service offices ........................................ 5 4 4
</TABLE>
---------------
(1) The difference between the weighted average yield on average
interest-earning assets and the weighted average cost of average
interest-bearing liabilities.
(2) Net interest income as a percentage of average interest-earning assets.
(3) The ratio of noninterest expense divided by the sum of net interest income
and noninterest income.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements". The Company desires
to take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform 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, describe future plans or
strategies and include the Company's expectations of future financial results.
The words "believe," "expect," "anticipate," "project," and similar expressions
identify forward-looking statements. The Company'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 which could
affect actual results include but are not limited to (a) change 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 Company's
loan and investment portfolios, (f) deposit flows, (g) competition, and (h)
demand for financial services in the Company'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.
General
The Company's results of operations depend primarily on its net interest
income, which is the difference between the income earned on the Company's loan
and securities portfolios and its cost of funds, consisting of the interest paid
on deposits and borrowings. Results of operations are also affected by the
Company's provision for 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. The Company's noninterest expenses consist principally of compensation
and employee benefits, occupancy, equipment and data processing, and other
operating expenses. Results of operations are also significantly affected by
general economic and competitive conditions, changes in interest rates, as well
as government policies and actions of regulatory authorities. Additionally,
future changes in applicable law, regulations or government policies may
materially affect the Company.
Management of Credit Risk
Management considers credit risk to be an important risk factor affecting
the financial condition and operating results of the Company. The potential for
loss associated with this risk factor is managed through a combination of
policies approved by the Company's Board of Directors, the monitoring of
compliance with these policies, and the periodic reporting and evaluation of
loans with problem characteristics. Policies relate to the maximum amount that
can be granted to a single borrower and such borrower's related interests, the
aggregate amount of loans outstanding by type in relation to total assets and
capital, loan concentrations, loan-to-collateral value ratios, approval limits
and other underwriting criteria. Policies also exist with respect to the rating
of loans, determination of when loans should be placed in a nonperforming
status, and the factors that should be considered in establishing the Company's
allowance for loan losses.
Management of Interest Rate Risk
While the Company's loan portfolio, consisting primarily of mortgage loans
collaterized by residential real property located in its market area, is subject
to risks associated with the local economy, the Company's most significant form
of market risk is interest rate risk because the Company's assets and
liabilities are sensitive to changes in interest rates. The Company's assets
consist primarily of residential mortgage loans, which have longer maturities
than the Company's liabilities, which consist primarily of deposits. The Company
does not engage in any hedging transactions, such as interest rate swaps and
caps. The Company's interest rate risk management program focuses primarily on
evaluating and managing the composition of the Company's assets and liabilities
in the context of various interest rate scenarios.
7
<PAGE>
Factors beyond management's control, such as market interest rates and
competition, also have an impact on interest income and interest expense.
A principal part of the Company's business strategy is to manage interest
rate risk and to minimize the Company's exposure to changes in market interest
rates. In recent years, the Company has followed the following strategies to
manage interest rate risk: (i) maintaining a high level of liquid
interest-earning assets such as short-term federal funds sold; (ii) maintaining
a high concentration of less interest-rate sensitive and lower-costing core
deposits; (iii) originating consumer installment loans that have up to five year
terms but that have significantly shorter average lives due to early
prepayments; and (iv) where possible, matching the funding requirements for
fixed-rate residential mortgages with lower-costing core deposit accounts. By
investing in liquid securities and originating consumer installment loans with
shorter average durations, the Company believes it is better positioned to react
to changes in market interest rates. Investments in short-term securities,
however, generally bear lower yields than longer-term investments. Thus, these
strategies may result in lower levels of interest income than would be obtained
by investing in longer-term fixed-rate loans.
8
<PAGE>
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive " and by monitoring a Company's interest rate sensitivity "gap". An
asset or liability is deemed to be interest rate sensitive within a specific
time period if it will mature or reprice within that time period. The interest
rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
same time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. Accordingly,
during a period of rising interest rates, an institution with a negative gap
position generally would not be in as favorable a position, compared with an
institution with a positive gap, to invest in higher yielding assets. The
resulting yield on the institution's assets generally would increase at a slower
rate than the increase in its cost of interest-bearing liabilities. Conversely,
during a period of falling interest rates, an institution with a negative gap
would tend to experience a repricing of its assets at a slower rate than its
interest-bearing liabilities which, consequently, would generally result in its
net interest income growing at a faster rate than an institution with a positive
gap position. At June 30, 2000, the Company's cumulative one-year gap position,
the difference between the amount of interest-earning assets maturing or
repricing within one year and interest-bearing liabilities maturing or repricing
within one year, as a percentage of total interest-earning assets was a negative
14.52%.
Certain shortcomings are inherent in the method of analysis presented in the GAP
Table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets such as adjustable-rate loans have features
that restrict changes in interest rates both on a short-term basis and over the
life of the asset. Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 2000, which are anticipated
by the Company, based upon certain assumptions, to reprice or mature in each of
the future time periods shown in the GAP Table. Except as stated below, the
amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
June 30, 2000, on the basis of contractual maturities, anticipated prepayments
and scheduled rate adjustments within a three-month period and subsequent
selected time intervals. The loan amounts in the table reflect principal
balances expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
The annual prepayment rate for real estate-related assets are based on the
particulars of coupon maturity of the real estate-related assets.
9
<PAGE>
Amounts maturing or Repricing at June 30, 2000
(Dollars in Thousands)
<TABLE>
<CAPTION>
Within 3 3 to 12 1 to 3 3 to 5 5 to 10 Beyond 10
Months Months Years Years Years Years Total
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (1)
Loans receivable(2) $ 1,208 $ 11,235 $ 6,285 $ 4,153 $ 12,718 $ 63,086 $ 98,685
Investment securities 3,078 4,307 12,663 10,131 7,592 7,037 44,808
Federal funds sold 9,800 -- -- -- -- -- 9,800
Interest-bearing bank balances 736 -- -- -- -- -- 736
FHLB stock 879 -- -- -- -- -- 879
Total interest-earning assets $ 15,701 $ 15,542 $ 18,948 $ 14,284 $ 20,310 $ 70,123 $154,908
Interest-bearing liabilities:
Savings deposits $ 2,694 $ 8,084 $ 21,557 $ 21,557 $ -- $ -- $ 53,892
NOW deposits 455 1,363 3,636 3,636 -- -- 9,090
MMDA deposits 309 928 2,476 2,476 -- -- 6,189
Time deposits 3,691 31,207 16,157 890 -- -- 51,945
Borrowings 5,000 -- -- 2,500 2,500 -- 10,000
Total interest-bearing
liabilities $ 12,149 $ 41,582 $ 43,826 $ 31,059 $ 2,500 $ -- $131,116
Interest sensitivity gap 3,552 (26,040) (24,878) (16,775) 17,810 70,123
Cumulative interest
sensitivity gap 3,552 (22,488) (47,366) (64,141) (46,331) 23,792
Cumulative interest sensitivity
as a percentage of total assets 2.12% (13.41%) (28.24%) (38.24%) (27.62%) 14.18%
Cumulative interest sensitivity
as a percentage of total
interest-earning assets 2.29% (14.52%) (30.58%) (41.41%) (29.91%) 15.36%
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities 129.24% 58.15% 51.45% 50.13% 64.66% 118.15%
</TABLE>
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
(2) Calculated net of deferred loan fees, loan discounts and loans in process.
10
<PAGE>
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income also depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
Average Balance Sheet. The following tables set forth certain information
relating to the Company at June 30, 2000 and for the years ended June 30, 2000
and 1999. For the periods indicated, the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, is expressed both in
dollars and rates. No tax equivalent adjustments were made. All average balances
are average monthly balances. Nonaccruing loans have been excluded from the
yield calculations in these tables.
At June 30, 2000
-----------------------
Actual
Balance Yield/Rate
-------- ----------
(Dollars In Thousands)
Interest-earning assets:
Loans receivable, net (1) ................... $ 97,819 7.43%
Investment securities ....................... 44,808 6.29
Federal funds ............................... 9,800 3.61
Interest-bearing bank balances .............. 736 5.67
FHLB stock .................................. 879 7.53
-------- --------
Total interest-earning assets ............. $154,042 6.85%
======== ========
Interest-bearing liabilities:
Savings deposits ............................ $ 53,892 3.40%
Demand and NOW deposits ..................... 15,279 1.01
Time deposits ............................... 51,945 4.86
Borrowings .................................. 10,000 4.75
-------- --------
Total interest-bearing liabilities ........ $131,116 3.80%
======== ========
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loan loss reserves.
11
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate
------- ---- ---------- ------- ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (1) ........... $ 95,694 $ 7,269 7.60% $ 85,938 $ 6,635 7.72%
Investment securities (2) ........... 47,376 2,816 5.94 48,034 2,893 6.02
Federal funds ....................... 5,641 354 6.28 7,067 330 4.67
Interest bearing bank balances ...... 729 42 5.76 630 35 5.56
FHLB stock .......................... 803 66 8.22 722 49 6.79
-------- -------- -------- -------- -------- --------
Total interest-earning assets .... $150,243 $ 10,547 7.02% $142,391 $ 9,942 6.98%
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Savings deposits .................... $ 58,821 $ 1,830 3.11% $ 55,607 $ 1,801 3.24%
Demand and NOW deposits ............. 18,644 154 0.83 16,321 138 0.85
Time deposits ....................... 51,622 2,526 4.89 54,862 2,930 5.34
Borrowings .......................... 9,250 475 5.14 -- -- --
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $138,337 $ 4,985 3.60% $126,790 $ 4,869 3.84%
======== ======== ======== ======== ======== ========
Net interest income .................... $ 5,562 $ 5,073
======== ========
Net interest rate spread ............... 3.42% 3.14%
======== ========
Net yield on average interest-
earning assets ...................... 3.70% 3.56%
======== ========
Average interest-earning assets to
average interest-bearing liabilities 108.61% 112.30%
======== ========
</TABLE>
---------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Includes mortgage-backed securities and asset-backed securities.
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Company's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
Increase/(Decrease) Increase/(Decrease)
Due to Total Due to Total
------------------Increase/ ------------------- Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net .............. $ 739 $(105) $ 634 $ 580 $(312) $ 268
Investment securities(1) ........... (39) (38) (77) 223 (73) 150
Federal fund ....................... (34) 58 24 119 (151) (32)
Interest-bearing bank deposits ..... 6 1 7 (3) 8 5
FHLB stock ......................... 6 11 17 -- 49 49
----- ----- ----- ----- ----- -----
Total interest-earning assets .... 678 (73) 605 919 (479) 440
----- ----- ----- ----- ----- -----
Interest-bearing liabilities:
Savings deposits ................... 106 (57) 49 117 (148) (31)
Demand and NOW deposits ............ 19 (3) 16 36 (84) (48)
Time deposits ...................... (183) (241) (424) (23) 3 (20)
Borrowings ......................... 475 -- 475 -- -- --
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 417 (301) 116 130 (229) (99)
----- ----- ----- ----- ----- -----
Net interest income .................. $ 261 $ 228 $ 489 $ 789 $(250) $ 539
===== ===== ===== ===== ===== =====
</TABLE>
(1) Includes mortgage-backed securities and asset-backed securities.
12
<PAGE>
Comparison of Financial Condition at June 30, 2000 and June 30, 1999
Assets. Total assets increased to $167.7 million at June 30, 2000 from
$152.6 million at June 30, 1999, an increase of $15.1 million or 9.9%. Asset
growth occurred in cash and cash equivalents, net loans receivable and premises
and equipment. Cash and cash equivalents increased $9.7 million primarily as a
result of matured securities and increases in deposits, pending the deployment
of these funds into higher-yielding investments and loans. Net loans increased
$7.0 million due to the low interest rate environment experienced during the
beginning months of the fiscal year. Investment securities decreased $4.9
million to $44.8 million at June 30, 2000 from $49.7 million at June 30, 1999,
as a result of investment maturities and redemptions. The premises and equipment
increased due to computer upgrades associated with Y2K and other teller platform
changes as well as the new branch in Tannersville. The growth in assets was
primarily funded by new borrowings of $10.0 million from the Federal Home Loan
Bank (FHLB) and deposit growth of $5.5 million, or 4.3%. The borrowings were
originally obtained to fund loan origination, which remained strong through the
end of calendar year 1999.
Cash and federal funds sold holdings increased to $15.8 million at June
30, 2000, from $6.1 million at June 30, 1999, an increase of $9.7 million. The
increase in cash of $3.2 million was a result of vault cash associated with the
new Tannersville branch, and increases in cash items as a result of more
transaction accounts. Federal funds sold increased from $3.4 million at June 30,
1999 to $9.8 million at June 30, 2000, an increase of $6.4 million. Several
investment securities matured at the end of June 2000 and the monies had not
been reinvested in either loans or other investment securities at June 30, 2000.
The total investment securities portfolio declined from $49.7 million at
June 30, 1999 to $44.8 million at June 30, 2000, a decrease of $4.9 million or
9.9%. Decreases in U.S. Treasury securities and asset-backed securities
contributed the most to the overall decrease in the portfolio. U. S. Treasury
securities decreased by $2.7 million, or 36.5%, from $7.4 million at June 30,
1999 to $4.7 million at June 30, 2000. Asset-backed securities decreased by $3.5
million, or 41.7%, from $8.4 million at June 30, 1999 to $4.9 million at June
30, 2000. The decreases in Treasuries and asset-backed securities was partially
offset by an increase in corporate debt securities which increased to $12.8
million at June 30, 2000, from $11.5 million at June 30, 1999, an increase of
$1.3 million or 11.3%. Consequently, the portfolio mix shifted with U.S.
Treasuries representing 10.5% of the portfolio at June 30, 2000 as compared to
15.0% at June 30, 1999. Asset-backed securities represented 11.0% of the
portfolio at June 30, 2000 as compared to 17.0% at June 30, 1999. Corporate debt
securities represented 28.6% of the portfolio at June 30, 2000 as compared to
23.1% at June 30, 1999. The remaining portfolio remained relatively consistent
with U.S. government agencies representing 11.6%, State and political
subdivisions representing 22.1%, mortgage-backed securities representing 13.4%,
and the remaining 2.8% allocated to equity securities and mutual fund holdings.
The primary reason for the changes in the investment portfolio was to obtain
higher yielding securities. The Company continues to invest in only high quality
and rated investment securities.
Total loans outstanding grew from $91.8 million to $99.0 million, an
increase of $7.2 million or 7.9%. Residential mortgages accounted for the
majority of the loan growth from $76.6 million at June 30, 1999, to $82.6
million at June 30, 2000, an increase of $6.0 million or 7.8%. An increase of
$8.6 million in residential fixed rate loans was offset by a decrease of $2.6
million in adjustable residential loans resulting in a net increase in
residential loans of $6.0 million between June 30, 1999 and 2000. The majority
of the residential loan growth occurred during summer and early fall of 1999 due
to the relatively low interest rate environment at the time, which contributed
to the lower average loan yield of 7.60% for the year ended June 30, 2000 as
compared to 7.72% for fiscal year ended June 30, 1999, a decrease of 12 basis
points. Also contributing to the overall loan growth were increases in
commercial real estate mortgages and commercial loans. Commercial real estate
mortgages increased from $4.0 million at June 30, 1999 to $4.7 million at June
30, 2000, an increase of $0.7 million. Commercial loans increased $0.5 million
to $1.7 million at June 30, 2000 from $1.2 million at June 30, 1999. The other
classifications of loans remained relatively consistent between fiscal year
ends. Management believes declines in loan demand occurred in the latter half of
the fiscal year primarily due to the rising interest rate environment as a
result of the Federal Reserve interest rate hikes.
13
<PAGE>
During October 1999, the Bank participated in an investment at a total
cost of $1.2 million in the servicing rights for loans with outstanding
principal balances totaling approximately $179.2 million. A third-party provider
performs the servicing associated with the loans. The Bank will be liquidating
this position in August 2000.
Also, contributing to the overall increase in assets was the increase in
premises and equipment of $1.6 million. The primary acquisitions were computer
equipment and the new branch in Tannersville that opened on June 10, 2000 for
business. Prepaid expenses and other assets increased $0.4 million at June 30,
2000 when compared to June 30, 1999. The most significant item contributing to
the increase in prepaid expenses and other assets was an increase in net
deferred tax asset associated with unrealized losses on the available-for-sale
investment portfolio.
Liabilities. Total deposits amounted to $133.5 million at June 30, 2000,
compared to $128.0 million at June 30, 1999, representing an increase of $5.5
million or 4.3%. Non-interest bearing deposit accounts increased $2.8 million,
or 29.5%, to $12.3 million at June 30, 2000 as compared to $9.5 million at June
30, 1999. Interest bearing deposits increased $2.6 million, or 2.2%, to $121.1
million at June 30, 2000 compared to $118.5 million at June 30, 1999. The most
significant increases were in the money market deposit accounts and NOW
accounts. Money market deposit accounts increased $2.3 million, or 59.0%, to
$6.2 million at June 30, 2000 as compared to $3.9 million at June 30, 1999. NOW
accounts increased to $9.1 million at June 30, 2000 as compared to $7.7 million
at June 30, 1999, an increase of $1.4 million or 18.2%. Management has
emphasized marketing of lower-costing money market and NOW accounts as compared
to higher-rate time accounts.
Borrowings at June 30, 2000 amounted to $10.0 million. There were no
borrowings at June 30, 1999. The borrowings were incurred to assist in loan and
other asset funding.
Shareholders' Equity. Total shareholders' equity was $23.6 million at June
30, 2000 as compared with $23.9 million at June 30, 1999. Several items affected
shareholders' equity including net income, a stock dividend declaration, a stock
repurchase program, earned ESOP allocations and unearned stock compensation
contributing to the slight overall net decrease in capital levels. Common stock
repurchases resulted in a decrease of $1.0 million in shareholders' equity.
Another item affecting the amount of shareholders' equity was unrealized losses
on the available-for-sale portfolio of approximately $0.5 million, net of tax.
The Company at June 30, 2000, met the regulatory requirements to be
classified as well capitalized with total capital to risk weighted asset ratio
of 25.4% as compared with 28.1% at June 30, 1999. The Tier 1 capital to risk
weighted asset ratio decreased to 24.5% at June 30, 2000 from 27.2% at June 30,
1999 and the Tier 1 capital to average asset ratio decreased to 14.4% at June
30, 2000 from 16.1% at June 30, 1999.
Comparison of Operating Results for the Years Ended June 30, 2000 and June 30,
1999
General. The earnings of the Company depend primarily on its level of net
interest income, which is the difference between interest earned on the
Company's interest-earning assets, consisting primarily of residential and
commercial real estate loans, consumer loans and securities available for sale,
and the interest paid on interest-bearing liabilities, consisting of deposits
and borrowings. Net interest income is a function of the Company's interest rate
spread, which is the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities, as well as a function of the average balance of interest-earning
assets as compared with interest-bearing liabilities. The Company's earnings
also are affected by its fees and service charges and gains on sale of loans and
securities, as well as its level of operating and other expenses, including
salaries and employee benefits, occupancy and equipment costs, data processing
expense, marketing and advertising costs, and federal deposit insurance
premiums.
Net income for the fiscal year ended June 30, 2000, was $958,126 as
compared to $867,514 for the fiscal year ended June 30, 1999, an increase of
$90,612 or 10.4%. Net interest income increased to $5,562,420 for the period
ended June 30, 2000 as compared to $5,072,461 for the earlier year period, an
increase of $489,959 or 9.8%. Contributing to net income was noninterest income
of $850,593 for the period ended June 30, 2000, an increase of $307,334, or
56.6%,
14
<PAGE>
from $543,259 for the period ended June 30, 1999. Noninterest expense increased
to $4,973,024 for the period ended June 30, 2000, as compared to $4,318,612 for
the period ended June 30,1999, an increase of $654,412 or 15.2%.
Interest Income. Interest income for fiscal year 2000 amounted to $10.5
million as compared with $9.9 million for the year ended June 30, 1999, an
increase of $0.6 million, or 6.1%. The increase in interest income was primarily
a result of the increase in the average loan portfolio balances. The average
balance of the loan portfolio increased $9.8 million, or 11.4 %, more than
offsetting a decrease in the average yield of 12 basis points. The investment
portfolio average balance decreased by $0.6 million, or 1.4%; while the average
portfolio yield decreased by 8 basis points. The decrease in yield in the loan
portfolio was consistent with the general decreasing interest rate environment
experienced during the first half of the fiscal year, the time at which the
majority of the loan portfolio increase occurred.
Interest Expense. Interest expense remained relatively consistent for the
fiscal year periods ended June 30, 2000 and June 30, 1999, at approximately $5.0
million and $4.9 million, respectively. Interest expense on deposits decreased
by $0.4 million, or 8.2%, to $4.5 million for the period ended June 30, 2000 as
compared to $4.9 million for the period ended June 30, 1999. The decrease in
interest expense on deposit accounts was primarily attributable to a 45 basis
point decrease in the rate paid on time accounts. However, this decrease in time
accounts was offset by interest expense of $475,000 incurred due to borrowings
from FHLB. No interest expense on borrowings was incurred for the period ended
June 30, 1999.
Net interest income. Net interest income for the year ended June 30, 2000
amounted to $5.6 million compared with $5.1 million for the year ended June 30,
1999, an increase of $0.5 million, or 9.8%. Increases in interest income of $0.6
million offset by increases in interest expense of $0.1 million contributed to
the increase in net interest margin by 14 basis points to 3.70% for the year
ended June 30, 2000, as compared to 3.56% for the year ended June 30, 1999. The
net interest rate spread increased to 3.42% for the period ended June 30, 2000,
as compared to 3.14% for the period ended June 30, 1999, an increase of 28 basis
points. An increase of 4 basis points on average total interest-earning assets
and a decrease of 24 basis points on average total interest-bearing liabilities
contributed to the increase in net interest rate spread.
Provision for Loan Losses. The Bank establishes provisions for loan
losses, which are charged to operations, in order to maintain the allowance for
loan losses at a level deemed appropriate to absorb future charge-offs and loans
deemed uncollectible. In determining the appropriate levels of the allowance for
loan losses, management considers past and anticipated loss experience,
collateral values, current and anticipated economic conditions, volume and type
of lending activities and the levels of non-performing and other classified
loans. The allowance is based on estimates and the ultimate losses may vary from
such estimates. Management of the Company assesses the allowance for loan losses
on a quarterly basis and makes provisions for loan losses in order to maintain
the adequacy of the allowance.
The provision for loan losses decreased by $45,000, or 25.0%, to $135,000
for the year ended June 30, 2000, compared with $180,000 for the year ended June
30, 1999. The decrease reflected a desire by management to maintain the
allowance for loan losses at a level appropriate for recent growth in loan
balances and decreases in the ratio of nonperforming loans to total loans. The
ratio of nonperforming loans to total loans improved to 0.68% at June 30, 2000
from 0.94% at June 30, 1999. At June 30, 2000 and 1999, the allowance for loan
losses was 0.9% of total loans outstanding.
Noninterest Income. For the year ended June 30, 2000, noninterest income
was $851,000 as compared with $543,000 for the year ended June 30, 1999,
representing an increase of $308,000, or 56.7%. Contributing to the increases in
noninterest income was increased service fees on deposit accounts, increased
revenues from the Bank's merchant credit card processing program and initiated
surcharges on foreign ATM users. Also contributing to noninterest income were
revenues from purchased mortgage servicing rights.
Noninterest Expense. Noninterest expense increased by $654,000, or 15.2%,
for the year ended June 30, 2000, compared to the prior year. It should be noted
that for the year ended June 30, 1999, noninterest expense was affected by the
contribution to The Bank of Greene County Charitable Foundation of $484,000.
Consequently, excluding
15
<PAGE>
the non-recurring contribution, the increase in noninterest expense was $1.1
million. The primary increase occurred in salaries and employee benefits that
increased $669,000 between June 30, 1999 and June 30, 2000. The increase in
salary expense is a result of additional staffing partially associated with the
new branch in Tannersville, hiring of a manager of information systems and
expenses associated with the ESOP and stock-based compensation plans. At June
30, 2000 there were 70 full-time equivalent employees as compared to 53 at June
30, 1999. Other noninterest expenses increased as a result of being a public
entity with increased reporting and compliance requirements.
Income Taxes. Total tax expense for the year ended June 30, 2000, was
$347,000 as compared to $250,000 for the year ended June 30, 1999, resulting in
an increase in tax expense of $97,000 or 38.8%. The primary factor affecting the
tax expense was the increase in pretax income of $188,000. As a result, the
effective tax rate was 26.6% for the year ended June 30, 2000, compared with
22.7% for the year ended June 30, 1999.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and proceeds from
principal and interest payments on loans, mortgage-backed securities and debt
securities, with lines of credit available through the Federal Home Loan Bank as
needed. While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit outflows, mortgage prepayments, and
borrowings are greatly influenced by general interest rates, economic conditions
and competition.
The Company's primary investing activities are the origination of
residential one- to four-family and commercial real estate loans, other consumer
and commercial business loans, and the purchase of mortgage-backed securities,
and debt securities. During the years ended June 30, 2000 and 1999, the
Company's loan originations totaled $31.8 million and $41.1 million,
respectively. Purchases of mortgage-backed securities and debt securities
totaled $7.3 million and $21.1 million for the years ended June 30, 2000 and
1999, respectively. These activities were funded primarily by borrowings from
the FHLB, deposit growth, and principal payments on loans, mortgage-backed
securities and debt and equity securities during fiscal year 2000. Loan sales
did not provide an additional source of liquidity during the years ended June
30, 2000 and 1999, as the Company generally originates loans for retention in
its portfolio.
The Company experienced a net increase in total deposits of $5.5 million
and $4.0 million for the years ended June 30, 2000 and 1999, respectively. The
level of interest rates and products offered by local competitors are some
factors affecting deposit flows.
The Company monitors its liquidity position on a daily basis. Excess
short-term liquidity is usually invested in overnight federal funds sold. In the
event the Company requires funds beyond its ability to generate them internally,
additional sources of funds are available through the use of FHLB advance
programs made available to the Company. During fiscal year 2000, the Company
borrowed $10.0 million from the FHLB. Five million dollars of the borrowing is
short-term maturing in less than six months and $2.5 million matures in
September 2004, and the remaining $2.5 million matures in October 2005.
Loan commitments totaled $1.3 million at June 30, 2000 and were comprised
of $0.5 million in commitments to originate fixed rate residential loans, and
$0.8 million in commitments to fund commercial lines of credit. The Company
anticipates that it will have sufficient funds available to meet current loan
commitments. Time accounts or certificate of deposits, which are scheduled to
mature in one year or less from June 30, 2000, totaled $34.9 million. Based upon
the Company"s experience and its current pricing strategy, management believes
that a significant portion of such deposits will remain with the Company.
At June 30, 2000 and 1999, the Bank and Company exceeded all of their
regulatory capital requirements. Shareholders' equity represented 14.1% of total
assets at June 30, 2000, as compared to 15.7% at June 30, 1999.
16
<PAGE>
The Company's most liquid assets are cash and cash equivalent accounts.
The levels of these assets are dependent on the Company"s operating, financing,
lending and investing activities during any given period. At June 30, 2000, cash
and cash equivalents totaled $15.8 million, or 9.4% of total assets.
Impact of New Accounting Standards
FASB Statement on Derivatives and Hedging Activities. In June 1999, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133 which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition at fair value. If certain
conditions are met, a derivative may be specifically designated as a fair value
hedge, a cash flow hedge, or a foreign currency hedge. A specific accounting
treatment applies to each type of hedge. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000 and, accordingly,
will be adopted by the Company in the fiscal year beginning on July 1, 2000. The
Company has not engaged in derivatives and hedging activities covered by the new
standard, and does not expect to begin such activities. Accordingly, the
adoption of SFAS No. 133 will have no impact on the Company's consolidated
financial statements.
Year 2000 Compliance
The Company's information technology systems and facilities successfully
completed the "roll-over" to the year 2000. The Company's transition to the year
2000 during the first six months of 2000 resulted in no adverse or negative
impacts associated with the use of date sensitive systems and equipment. The
Company believes that with its successful transition to the year 2000, the
preponderance of risk associated with the year 2000 problem has been identified
and eliminated. The Company estimates that the total cost of its year 2000
assessment and remediation plan has amounted to approximately $200,000, which
has been funded through operating cash flow.
17
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected financial data for the years ended June 30, 2000 and 1999
is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In Thousands Except Per Share Data)
Fiscal 2000
-----------
Interest income .......................... $ 2,581 $ 2,614 $ 2,627 $ 2,725
Net interest income ...................... 1,430 1,363 1,360 1,409
Provision for losses ..................... 45 30 30 30
Income before provision for
income taxes ........................... 362 341 324 278
Net income (loss) ........................ 223 252 263 220
Earnings per common share - Basic ........ $0.11 $0.13 $0.13 $0.11
Earnings per common share - Diluted ...... $0.11 $0.13 $0.13 $0.11
Fiscal 1999
-----------
Interest income .......................... $ 2,472 $ 2,448 $ 2,494 $ 2,528
Net interest income ...................... 1,173 1,177 1,337 1,385
Provision for losses ..................... 45 45 45 45
Income before provision
for income taxes ....................... 402 (162) 479 398
Net income (loss) ........................ 249 (94) 316 397
Earnings per common share - Basic ........ NA NA $0.15 $0.17
Earnings per common share - Diluted ...... NA NA $0.15 $0.17
Earnings per common share have not been presented prior to December 30, 1998
(the date of the public offering), as no shares were outstanding and such
information would not be meaningful.
18
<PAGE>
COMMON STOCK AND RELATED MATTERS
The Company's common stock is listed on the NASDAQ Small-Cap Market under
the symbol "GCBC." As of August 1, 2000, the Company had four registered market
makers, 654 shareholders of record (excluding the number of persons or entities
holding stock in street name through various brokerage firms), and 2,045,235
shares outstanding. As of such date, Greene County Bancorp, MHC (the "Mutual
Company"), the Company's mutual holding company, held 1,152,316 shares of common
stock, the Company held 107,600 shares of Treasury stock, and other shareholders
held 892,919 shares.
The following table sets forth closing market price and dividend
information for the common stock since the completion of the Company"s initial
public offering, which was completed on December 30, 1998.
Semi-annual
Cash Dividends
Quarter Ended High Low Declared
------------- ---- --- --------
June 30, 2000 $9 $7 5/8 $ 0.00 / share
March 31, 2000 $8 15/16 $7 3/4 $ 0.00 / share
December 31, 1999 $10 1/4 $8 5/8 $ 0.00 / share
September 30, 1999 $10 1/2 $8 26/64 $ 0.00 / share
June 30, 1999 $8 55/64 $7 1/2 $ 0.00 / share
March 31, 1999 $9 35/64 $8 13/32 $ 0.00 / share
Payment of dividends on the Company's common stock is subject to
determination and declaration by the Board of Directors and depends upon a
number of factors, including capital requirements, regulatory limitations on the
payment of dividends, the Company's results of operations and financial
condition, tax considerations and general economic conditions. No assurance can
be given that dividends will be declared or, if declared, what the amount of
dividends will be, or whether such dividends, once declared, will continue.
The Company declared its first semi-annual cash dividend on July 18, 2000
for $0.12 per common share for shareholders of record August 1, 2000, payable on
August 15, 2000.
19
<PAGE>
AUDITOR REPORT
PricewaterhouseCooper letter
To the Board of Directors and Shareholders
Greene County Bancorp, Inc.
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income, comprehensive income,
shareholders' equity and of cash flows present fairly, in all material respects,
the financial position of Greene County Bancorp, Inc. and its subsidiary at June
30, 2000 and 1999, and the results of their operations and their cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Pricewaterhousecoopers LLP
July 27, 2000
20
<PAGE>
Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of June 30, 2000 and 1999
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 6,013,605 $ 2,784,524
Federal funds sold 9,800,000 3,351,222
------------ ------------
Total cash and cash equivalents 15,813,605 6,135,746
Investment securities, at fair value 44,807,624 49,662,206
Federal Home Loan Bank stock, at cost 879,100 765,600
Loans 98,960,189 91,829,423
Less: Allowance for possible loan losses (866,443) (791,897)
Unearned origination fees and costs, net (275,118) (239,717)
------------ ------------
Net loans receivable 97,818,628 90,797,809
Purchased mortgage servicing rights 1,105,599 --
Premises and equipment 5,113,620 3,513,906
Accrued interest receivable 1,164,735 1,130,744
Prepaid expenses and other assets 880,632 461,162
Other real estate owned 151,133 176,850
------------ ------------
Total Assets $167,734,676 $152,644,023
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 12,344,344 $ 9,468,291
Interest bearing deposits 121,115,904 118,531,180
------------ ------------
Total deposits 133,460,248 127,999,471
Borrowings from FHLB 10,000,000 --
Accrued interest and other liabilities 455,912 436,874
Accrued income taxes 224,567 285,812
------------ ------------
Total Liabilities 144,140,727 128,722,157
------------ ------------
Shareholders' Equity
Common stock, par value $.10 per share; authorized 4,000,000,
Issued: 2,152,835 at June 30, 2000; 1,957,057 at June 30, 1999,
Outstanding: 2,045,235 at June 30, 2000; 1,957,057 at June 30, 1999 215,284 195,706
Additional paid-in capital 10,319,859 8,202,655
Retained earnings 15,526,092 16,354,339
Accumulated other comprehensive income (loss) (524,546) (118,394)
Less: Treasury Stock, 107,600 shares at cost (1,019,976) --
Unearned Stock-based compensation (333,690) --
Unearned ESOP shares, 68,508 shares at cost (589,074) (712,440)
------------ ------------
Total shareholders' equity 23,593,949 23,921,866
------------ ------------
Total liabilities and shareholders' equity $167,734,676 $152,644,023
============ ============
</TABLE>
See notes to consolidated financial statements
21
<PAGE>
Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Interest income:
Loans $ 7,268,648 $ 6,635,055
Investment securities 2,120,295 2,250,266
Mortgage-backed securities 265,151 279,959
Tax free securities 497,106 411,568
Interest bearing deposits and federal funds sold 395,916 364,853
----------- -----------
Total interest income 10,547,116 9,941,701
Interest expense:
Interest on deposits 4,509,672 4,869,240
Interest on borrowings 475,024 --
----------- -----------
Total interest expense 4,984,696 4,869,240
Net interest income 5,562,420 5,072,461
Less: Provision for loan losses 135,000 180,000
Net interest income after provision for loan losses 5,427,420 4,892,461
----------- -----------
Noninterest income:
Service charges on deposit accounts 389,648 305,612
Other operating income 460,945 237,647
----------- -----------
Total other income 850,593 543,259
Noninterest expense:
Salaries and employee benefits 2,493,206 1,823,901
Occupancy expense 287,396 279,230
Equipment and furniture expense 247,333 239,514
Service fees 458,782 435,686
Charitable Foundation contribution expense -- 484,150
Office supplies 139,618 112,957
Other 1,346,689 943,174
----------- -----------
Total other expense 4,973,024 4,318,612
Income before provision for income taxes 1,304,989 1,117,108
Provision for income taxes
Current 345,404 423,764
Deferred 1,459 (174,170)
----------- -----------
Total provision for income taxes 346,863 249,594
----------- -----------
Net Income $ 958,126 $ 867,514
=========== ===========
Basic $0.48 N/A
Diluted $0.48 N/A
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Net income $ 958,126 $ 867,514
Other comprehensive income (loss)
Reclassification adjustment, net of income tax benefit $13,600 -- 20,400
Unrealized holding gain(loss) arising during the years
ended June 30, 2000 and 1999, net of tax benefit
of $306,395 and $240,913, respectively. (406,152) (381,194)
--------- ---------
Total other comprehensive income (loss) (406,152) (360,794)
--------- ---------
Comprehensive income $ 551,974 $ 506,720
========= =========
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Unearned Total
Capital Paid - In Retained Comprehensive Stock-based Treasury ESOP Shareholders'
Stock Capital Earnings Income Compensation Stock Shares Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1998 $ -- $ -- $15,487,825 $242,400 $ -- $ -- $ -- $15,730,225
Net proceeds
from sale of
common stock $191,864 $ 7,824,845 8,016,709
Issuance of
common stock
to Charitable
Foundation 3,842 380,308 384,150
Capital
contribution to
Greene County
Bancorp, MHC (1,000) (1,000)
ESOP shares earned (2,498) 33,350 30,852
ESOP shares acquired (745,790) (745,790)
Net income 867,514 867,514
Change unrealized
gain (loss) net (360,794) (360,794)
----------------------------------------------------------------------------------------------------------
Balance at
June 30, 1999 $195,706 $8,202,655 $16,354,339 $(118,394) $ -- $ -- ($712,440) $23,921,866
==========================================================================================================
Balance at
June 30, 1999 $195,706 $8,202,655 $16,354,339 ($118,394) $ -- $ -- ($712,440) $23,921,866
Stock dividend 19,578 1,766,795 (1,786,373) --
ESOP shares earned (7,116) 123,366 116,250
Unearned stock-based
compensation 357,525 (357,525) --
Stock-based
compensation
earned 23,835 23,835
Treasury stock
repurchased (1,019,976) (1,019,976)
Net income 958,126 958,126
Change unrealized
gain (loss) net (406,152) (406,152)
----------------------------------------------------------------------------------------------------------
Balance at
June 30, 2000 $215,284 $10,319,859 $15,526,092 ($524,546) ($333,690) ($1,019,976) ($589,074) $23,593,949
==========================================================================================================
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 958,126 $ 867,514
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 240,000 210,000
Net amortization of premiums and discounts 53,287 60,769
Provision for loan losses 135,000 180,000
Contribution expense -- 384,150
ESOP and other stock-based compensation earned 140,085 33,350
Loss on sale of investments -- 34,298
Loss on sale of other real estate 14,548 --
Provision (benefit) for deferred income taxes 1,459 (174,171)
Net increase (decrease) in accrued income taxes (61,245) 283,711
Net (increase) in accrued interest receivable (33,991) (39,624)
Net (increase) in prepaid and other assets (142,551) (120,117)
Net increase in other liabilities 19,038 87,879
----------- ------------
Net cash provided by operating activities 1,323,756 1,807,759
Cash flows from investing activities:
Proceeds from maturities of securities 5,029,103 11,792,084
Proceeds from sale of securities -- 1,282,738
Purchases of securities and other investments (4,997,497) (19,185,580)
Principal payments on securities 4,207,167 2,873,139
Principal payments on mortgage-backed securities 971,650 1,923,676
Purchases of mortgage-backed securities (2,321,777) (1,997,793)
Proceeds from sale of other real estate 30,863 126,969
Net increase in loans receivable (7,166,493) (10,878,902)
Purchases of premises and equipment (1,839,714) (1,139,625)
----------- ------------
Net cash used by investing activities (6,086,698) (15,203,294)
Cash flows from financing activities:
Borrowings from FHLB 10,000,000 --
Purchases of treasury stock (1,019,976) --
Proceeds from issuance of common stock -- 8,016,709
Purchase of unallocated ESOP shares -- (745,790)
Net increase in deposits 5,460,777 3,988,279
----------- ------------
Net cash provided by financing activities 14,440,801 11,259,198
Net increase (decrease) in cash and cash equivalents 9,677,859 (2,136,337)
Cash and cash equivalents at beginning of period 6,135,746 8,272,083
----------- ------------
Cash and cash equivalents at end of period $15,813,605 $ 6,135,746
=========== ============
</TABLE>
See notes to consolidated financial statements
25
<PAGE>
<TABLE>
<S> <C> <C>
Cash paid during period for:
Interest $4,845,795 $4,869,960
Income taxes $ 406,649 $ 138,000
Non-cash investing activities:
Foreclosed loans transferred to other real estate $ 71,128 $ 180,271
Change unrealized gain (loss) securities ($712,547) ($622,107)
</TABLE>
See notes to consolidated financial statements
26
<PAGE>
Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation:
The consolidated financial statements include the accounts of Greene County
Bancorp, Inc. (the "Company") and its subsidiary, The Bank of Greene County (the
"Bank"). All material inter-company accounts and transactions have been
eliminated. The Company utilizes the accrual method of accounting for financial
reporting purposes. Amounts in the prior years' 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.
Nature of operations:
The Bank has five full service offices and an operations center located in its
market area consisting of Greene County, New York. The Bank is primarily engaged
in the business of attracting deposits from the general public in the Bank's
market area, and investing such deposits, together with other sources of funds,
in loans and investment securities.
Reorganization and stock offering:
Greene County Bancorp, Inc. is a Delaware corporation organized in December 1998
by The Bank of Greene County in connection with the conversion of the Bank from
a New York chartered mutual savings bank to a New York capital stock form of
organization and reorganization to a two-tiered mutual holding company. The
Company was formed for the purpose of acquiring all of the capital stock of the
Bank upon completion of the reorganization. The reorganization and offering were
completed on December 30, 1998. Prior to that date, the Company had no assets
and no liabilities. The financial statements presented for periods prior to the
reorganization are for the Bank as the predecessor entity to the Company.
Completion of the offering resulted in the issuance of 1,957,057 shares of
common stock, 1,047,560 shares (53.5%) of which were issued to the MHC, 871,082
shares (44.5%) of which were sold to eligible depositors of the Bank or issued
to the Bank's ESOP, and 38,415 shares (2%) of which were issued to The Bank of
Greene County Charitable Foundation, at $10.00 per share. Costs related to the
offering, primarily marketing fees paid to investment banking firms,
professional fees, registration fees, and printing and mailing costs, were
$694,211: the net proceeds of the offering excluding these costs amounted to
$8,016,709. The Bank's ESOP acquired 36,380 shares at issuance and an additional
36,380 shares were purchased in the open market after the initial offering.
The Bank established a liquidation account, as of the date of conversion, in the
amount of $15.7 million, equal to its net worth as of the date of the latest
consolidated statements of financial condition appearing in the final
prospectus. The liquidation account is maintained for the benefit of eligible
pre-conversion account holders who continue to maintain their accounts at the
Bank after the date of conversion. The liquidation account will be reduced
annually to the extent that eligible account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In the
event of a complete liquidation, each eligible account holder will be entitled,
under New York State Law, to receive a distribution from the liquidation account
in an amount equal to their current adjusted account balances for all such
depositors then holding qualifying deposits in the Bank.
Charitable Foundation:
As part of the reorganization and conversion, the Company established the
Foundation, which is dedicated exclusively
27
<PAGE>
to supporting charitable causes and community development activities in Greene
County, New York. The Foundation was funded in December 1998 with $384,150 of
common stock (39,141 shares), and $100,000 cash contributed by the Company. A
one-time charge of $484,150 is reflected in 1999 for this contribution. The
contribution will be fully tax deductible, subject to an annual limitation based
upon the Company's taxable income.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Cash and cash equivalents:
Cash and cash equivalents include cash on hand, amounts due from banks,
interest-bearing deposits (with original maturity of three months or less) and
federal funds sold. Generally, federal funds are for one-day periods. The
carrying amounts reported in the balance sheet for cash and cash equivalents
approximate those assets' fair values. The amounts of interest bearing deposits
included as cash equivalents at June 30, 2000 and 1999 were approximately
$10,536,000 and $3,939,000, respectively.
Investment securities:
The Company has classified its investments in debt and equity securities as
available for sale. Available for sale securities are reported at fair value,
with net unrealized gains and losses reflected as a separate component of
shareholders' equity, net of applicable income taxes.
Realized gains or losses on investment security transactions are based on the
specific identification method and are reported under other income. Fair values
of investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable investments. Premiums and discounts are amortized and
accreted, respectively, using methods that approximate the effective yield
method over the remaining contractual maturity, adjusted for anticipated
prepayments.
Loans:
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan origination fees and costs. Interest on loans is
accrued and credited to income based upon the principal amount outstanding.
Unearned discount on installment loans is recognized as income over the term of
the loan, principally using a method that approximates the effective yield
method. Nonrefundable loan fees and related direct costs are deferred and
amortized over the life of the loan as an adjustment to loan yield using the
effective interest method.
Fair values for variable rate loans that reprice frequently, with no significant
credit risk, are based on carrying values. Fair values for fixed rate loans are
estimated using discounted cash flows and interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. The
carrying amount of accrued interest approximates fair value.
Allowance for possible loan losses:
The allowance for loan losses is maintained at a level considered adequate to
provide for potential loan losses. The allowance is increased by a provision for
loan losses, charged to expense, and reduced by net charge-offs. The level of
the allowance is based on management's evaluation of the collectibility of the
loan portfolio, including the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans, and economic
conditions. The Bank considers residential mortgages, home equity loans and
installment loans to customers small, homogeneous
28
<PAGE>
loans which are evaluated for impairment collectively based on historical loss
experience. Commercial mortgage and business loans are considered impaired if it
is probable that the Bank will not be able to collect scheduled payments of
principal and interest when due, according to the contractual terms of the loan
agreements. The measurement of impaired loans is generally based on the 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.
Income recognition on impaired and nonaccrual loans:
The Bank generally places a loan, including impaired loans, on nonaccrual status
when it is specifically determined to be impaired or when principal and interest
is delinquent for 90 days or more. Any unpaid interest previously accrued on
these loans is reversed from income. When a loan is specifically determined to
be impaired, collection of interest and principal are generally applied as a
reduction to principal outstanding. Interest income on all other nonaccural
loans is recognized on a cash basis.
Premises and equipment:
Premises and equipment are stated at cost. Depreciation is computed using
principally the straight-line method over the estimated useful lives of the
related assets (39 years for building and improvements, 3-8 years for furniture
and equipment). Maintenance and repairs are typically charged to expense when
incurred. Gains and losses from sales or other dispositions of depreciable
property are included in current operations.
Other real estate:
Properties acquired through foreclosure, or by deed in lieu of foreclosure, are
carried at the lower of cost (fair value at the date of foreclosure) or fair
value less estimated disposal costs.
Deposits:
Fair values disclosed for demand and savings deposits are equal to the carrying
amounts at the reporting date. The carrying amounts for variable rate money
market and certificates of deposit approximate fair values at the reporting
date. Fair values for fixed rate certificates of deposit are estimated using
discounted cash flows and interest rates currently being offered on similar
certificates. The carrying value of accrued interest approximates fair value.
Treasury Stock:
Common stock repurchases are recorded at cost and then held as treasury stock.
During fiscal year 2000, the Company purchased 107,600 shares at an average cost
of $9.48 per share. From time to time, the Company may repurchase shares of
common stock if, in its judgment, such shares are an attractive investment, in
view of the current price at which the common stock is trading relative to the
Company's earnings per share, book value per share, and general market and
economic factors. Common stock has also been acquired in order to have shares
available for issuance under the Management Recognition and Retention Plan or
the Stock Option Plan.
Income taxes:
Provisions for income taxes are based on tax currently payable or refundable and
deferred income taxes on temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are reported in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled.
Earnings per share:
Basic earnings per share ("EPS") on common stock are computed by dividing the
net income by the weighted average
29
<PAGE>
number of shares of common stock outstanding for the period. Diluted EPS are
computed using the same method as basic EPS, but reflects potential dilution of
common stock equivalents. EPS is not presented for periods in which the Company
was not public for the entire period as such information would not be
meaningful.
In calculating the weighted average number of shares outstanding, the results of
a stock dividend, stock repurchase program, and unallocated ESOP shares were
taken into account. The Board of Directors approved a 10% stock dividend on July
6, 1999, for shareholders of record July 26, 1999, effective August 9, 1999. As
a result of the stock dividend, 195,778 new shares were issued bringing the
total number of shares issued to 2,152,835. Shareholders who would have received
a fractional share as a result of the dividend were rounded up to the next whole
number. The affect of the stock dividend has been given retroactive treatment in
the calculation of EPS for all periods presented. During January 2000, the
repurchase program was completed and the Company had repurchased 107,600 shares
for $1,019,976 at an average cost of $9.48. At June 30, 2000, 11,528 shares of
the 80,036 shares of common stock in the ESOP were outstanding and allocated to
employees leaving 68,508 unallocated, and excluded from the calculation for the
number of shares outstanding. At June 30, 2000 the basic and diluted earnings
per share amounts were the same since the common stock equivalents are
antidilutive.
Weighted Average
Net Income Number of shares Earnings Per Share
---------- ---------------- ------------------
Basic and Diluted EPS $958,126 2,000,452 $0.48
2. Balance at Other Banks
The Bank is required to maintain certain reserves of vault cash and/or deposits
with the Federal Reserve Bank. The amount of this daily average reserve
requirement, included in cash and due from banks, was approximately $412,000 and
$352,000 at June 30, 2000 and 1999, respectively.
3. Investment Securities
Securities available-for-sale at June 30, 2000, consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 4,672,010 $ 14,321 $ 2,741 $ 4,683,590
U.S. Government agencies 5,279,911 4,187 94,145 5,189,953
State and political subdivisions 10,097,717 387 194,219 9,903,885
Mortgage-backed securities 6,132,988 -- 133,322 5,999,666
Asset-backed securities 5,004,337 -- 88,669 4,915,668
Corporate debt securities 13,216,314 -- 404,762 12,811,552
--------------------------------------------------
Total debt securities 44,403,277 18,895 917,858 43,504,314
--------------------------------------------------
Equity securities and other 138,707 -- -- 138,707
Mutual funds 1,180,505 -- 15,902 1,164,603
--------------------------------------------------
Total securities available-for-sale $45,722,489 $ 18,895 $ 933,760 $44,807,624
==================================================
</TABLE>
30
<PAGE>
Securities available-for-sale at June 30, 1999, consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 7,343,998 $ 93,362 $ -- $ 7,437,360
U.S. Government agencies 5,550,829 19,869 55,345 5,515,353
State and political subdivisions 10,272,901 175,587 89,452 10,359,036
Mortgage-backed securities 5,270,498 17,049 54,613 5,232,934
Asset-backed securities 8,480,225 1,960 37,424 8,444,761
Corporate debt securities 11,739,192 18,609 279,380 11,478,421
--------------------------------------------------
Total debt securities 48,657,643 326,436 516,214 48,467,865
--------------------------------------------------
Equity securities and other 87,439 -- -- 87,439
Mutual funds 1,114,831 -- 7,929 1,106,902
--------------------------------------------------
Total securities available-for-sale $49,859,913 $ 326,436 $ 524,143 $49,662,206
==================================================
</TABLE>
The amortized cost and estimated fair value of debt securities at June 30, 2000
by contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
----------- -----------
Amounts maturing in:
One year or less $ 7,273,722 $ 7,253,674
After one year through five years 22,482,035 21,908,753
After five years through ten years 8,691,097 8,477,340
After ten years 5,956,423 5,864,547
----------- -----------
$44,403,277 $43,504,314
=========== ===========
The Bank participated in a securities lending program with the Federal Home Loan
Bank, former custodian of substantially all Bank securities at June 30, 1999. At
June 30, 1999, $1.9 million securities were on loan under this program. During
fiscal year 2000, the Company changed custodians and no longer participates in
the securities lending program.
No securities were sold during fiscal year 2000. During fiscal year 1999,
proceeds from sales of available-for-sale securities were $1,282,738. Gross
realized losses on such sales were $34,298. There were no realized gains.
There were no pledged securities at June 30, 2000 or June 30, 1999.
4. Loan Servicing Rights
During October 1999, the Bank participated in a 50% investment at a total cost
of $1,231,951 in the servicing rights for loans with outstanding principal
balances totaling approximately $179.2 million. A third-party provider performs
the servicing associated with the loans. The Bank will be liquidating its
position in this investment in August 2000.
31
<PAGE>
5. Loans
Major classifications of loans at June 30, 2000 and 1999, were summarized as
follows:
2000 1999
Real estate mortgages:
Residential $ 82,564,836 $ 76,638,646
Commercial 4,702,333 3,985,469
Home equity loans 4,630,606 4,688,915
Commercial loans 1,706,643 1,230,945
Installment loans to individuals 4,865,283 4,760,587
Passbook loans to individuals 490,488 524,861
------------ ------------
$ 98,960,189 $ 91,829,423
============ ============
At June 30, 2000 and 1999, loans to officers and directors were not significant.
Changes in the allowance for possible loan losses for the respective periods
ended June 30 were as follows:
2000 1999
Balance, beginning of year $ 791,897 $ 728,478
Provision charged to expense 135,000 180,000
Loans charged off (65,557) (125,971)
Recoveries 5,103 9,390
--------- ---------
Balance, end of year $ 866,443 $ 791,897
At June 30, 2000 and 1999, the Bank's impaired loans for which specific
valuation allowances were recorded were not significant. Nonaccrual loans
amounted to $672,000 at June 30, 2000 and $682,000 at June 30, 1999.
6. Premises and Equipment
A summary of premises and equipment at June 30, 2000 and 1999, is as follows:
2000 1999
Land $ 424,702 $ 424,702
Buildings and improvements 2,733,075 2,730,617
CIP - Tannersville 1,560,168 23,540
Furniture and equipment 2,687,166 2,386,538
----------- -----------
Less: accumulated depreciation (2,291,491) (2,051,491)
$ 5,113,620 $ 3,513,906
32
<PAGE>
7. Deposits
Major classifications of deposits at June 30, 2000 and 1999 are summarized as
follows:
2000 1999
Noninterest bearing $ 12,344,344 $ 9,468,291
Interest bearing deposits:
Time accounts 51,944,929 52,177,128
Savings accounts 53,892,321 54,669,439
Money market deposit accounts 6,188,892 3,940,326
NOW accounts 9,089,762 7,744,287
------------- -------------
Total Deposits $ 133,460,248 $ 127,999,471
============= =============
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $6,249,000 and $5,516,000 at June 30, 2000 and 1999,
respectively.
8. Income Taxes
The provision for income taxes consists of the following:
2000 1999
Current:
Federal $ 288,543 $ 372,072
State 56,861 51,692
-------- ---------
Total Current 345,404 423,764
Deferred 1,459 (174,170)
--------- ---------
Total income tax expense $ 346,863 $ 249,594
========= =========
The Bank's effective tax rate differs from the federal statutory rate as
follows:
2000 1999
Tax based on federal statutory rate 34.00% 34.00%
State income taxes, net of federal benefit 3.29 1.39
Tax-exempt income (11.78) (11.19)
Other - Meals & Entertainment 0.20 0.12
Other, net 0.89 (1.65)
----- -----
Total income tax expense 26.60% 22.67%
===== =====
The components of the deferred tax assets and liabilities at June 30 were as
follows:
2000 1999
Deferred tax assets:
Allowance for loan losses $ 285,125 $ 224,265
Charitable contribution carryover 110,961 144,806
Capital loss carryover 13,471 13,697
Investments 312,051 51,438
Nonaccruing interest 13,878 13,123
Other 15,078 --
--------- ---------
Total deferred tax assets $ 750,564 $ 447,329
========= =========
Deferred tax liabilities:
Depreciation $ 196,008 $ 185,417
ESOP contribution 34,120 16,467
--------- ---------
Total deferred tax liabilities $ 230,128 $ 201,884
========= =========
Net deferred tax asset $ 520,436 $ 245,445
33
<PAGE>
A portion of the change in the net deferred tax asset related to the unrealized
gains and losses on securities available-for-sale. The related deferred tax
benefit of $306,395 and $240,913 has been recorded directly to shareholders'
equity in 2000 and 1999, respectively.
No deferred tax asset valuation allowance has been recorded at June 30, 2000 or
1999.
9. Commitments and Contingent Liabilities
The Bank enters into financial agreements in the normal course of business that
have off-balance sheet risk. These arrangements include commitments to extend
credit and involve, to varying degrees, elements of credit risk in excess of the
amount recognized on the statement of financial condition.
The Bank uses the same credit policies in making commitments as it does for
on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk at June 30,
2000, are as follows:
Commercial lines of credit $ 836,210
Commitments to extend credit 448,150
----------
$1,284,360
==========
Commitments to extend credit and commercial lines of credit are agreements to
lend to a customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being fully drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral, if any, required by the Bank upon the extension of
credit is based on management's credit evaluation of the customer. Commitments
to extend credit are primarily collaterallized by first liens on real estate.
Collateral on extensions of commercial lines of credit varies but may include
accounts receivable, inventory, property, plant and equipment, and income
producing commercial property.
10. Employee Benefit Plans
Defined Benefit Pension Plan
Substantially all Bank employees who have completed one year of service and
attained the age of 21 are covered by a noncontributory, multi-employer, defined
benefit pension plan. Under the plan, retirement benefits are primarily a
function of both years of service and level of compensation. The Bank recognized
pension expense in the amount of $20,000 and zero during fiscal year 2000 and
1999, respectively.
Defined Contribution Plan
The Bank also participates in a multi-employer, defined contribution plan
covering substantially all employees who have completed one year of service. The
plan includes Section 401(k) and thrift provisions as defined under the Internal
Revenue Code. The provisions permit employees to contribute up to 15% of their
total compensation on a pre-tax basis. The Bank matches 50% of the first 6% of
employee contributions. Company contributions associated with the plan amounted
to $38,000 and $47,000 in 2000 and 1999, respectively.
ESOP
All Bank employees meeting the age and service requirements are eligible to
participate in the ESOP established effective January 1, 1998 in conjunction
with the reorganization. Acquisitions of unearned ESOP shares by the Bank were
funded through a borrowing from the Company, which is repayable annually with
interest at the prime rate over
34
<PAGE>
ten years. Shares are committed for release upon repayment of the borrowing and
are allocated to participants based on compensation. Participant's benefits
become fully vested after five years of service. ESOP expense was $116,250, and
$30,852 for years ended June 30, 2000 and 1999, respectively. At June 30, 2000
and 1999, there were 68,508 and 80,036 shares unearned, respectively. At
December 31, 1999, the ESOP plan year-end, 11,528 shares were released for
allocation. No shares were released for allocation as of June 30, 1999.
11. Stock Based Compensation Plans
On March 28, 2000, shareholders approved the Greene County Bancorp, Inc.
Recognition and Retention Plan ("Recognition Plan"), which authorized the Board
Directors to award up to 45,474 shares of Common Stock. On March 28, 2000, the
Board of Directors granted 45,400 shares under the Recognition Plan to members
of management and nonemployee directors. The market value of the shares award
amounted to $357,525 and has been recognized in the accompanying statement of
condition as unearned stock-based compensation. The market value of the shares
awarded will be recognized as compensation expense ratably over the 5-year
vesting period. One fifth of each grant vests at the end of the year for five
years. The first awards will vest on March 28, 2001. Compensation expense in
association with the Recognition Plan amounted to $23,835 for fiscal year 2000.
On March 28, 2000, shareholders approved the Greene County Bancorp, Inc 2000
Stock Option Plan ("Option Plan"), which authorized the Board of Directors to
grant up to 90,949 shares of Common Stock. On March 28, 2000, the Board of
Directors granted 90,940 options to buy stock under the Option Plan at an
exercise price of $7.875, the fair value of the stock on that date. All options
have a 10-year term and vest ratably over the 5-year vesting period. The first
options will vest on March 28, 2001. During fiscal year 2000, no options were
exercised or forfeited. The Company applies provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
financial statement disclosure of Statement of Financial Accounting Standards
("SFAS") No. 123 "Accounting for Stock-Based Compensation". Since the exercise
price is equal to the fair market value on the day of grant no compensation
expense needs to be recognized for the Option Plan on the day of grant per the
guidance of APB 25. SFAS No. 123 required companies not using a fair value based
method of accounting for stock options or similar plans, to provide pro forma
disclosure of net income and earnings per share as if that method of accounting
had been applied. The fair value of each option grant is estimated on the dates
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in the year ended June 30, 2000:
weighted average exercise price of $7.88, weighted average risk-free interest
rate of 6.46%, weighted average expected term of 5 years, weighted average
expected volatility of 30.18%, weighted average expected dividend of 0%. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. Therefore, the forgoing
pro forma results are not likely to be representative of the effects of reported
net income of future periods due to additional years of vesting. Consequently,
the weighted average fair market value per share is estimated to be $3.04 for
options whose stock price on the date of the grant was equal to the exercise
price.
Pro forma disclosures for the Company for the year ended June 30, 2000 utilizing
the estimated fair value of the options granted and an assumed 0% forfeiture
rate are as follows:
Net Income:
As reported $958,126
Pro forma $944,301
Earnings per share: Basic Diluted
As reported $0.48 $0.48
Pro forma $0.47 $0.47
12. Federal Home Loan Advances
At June 30, 2000, the Bank had available an Overnight Line of Credit and a
One-Month Overnight Repricing Line of
35
<PAGE>
Credit, each in the amount of $7,446,400 with the Federal Home Loan Bank (FHLB).
Interest on this line is determined at the time of borrowing. In addition to the
overnight line of credit program, the Bank also has access to the FHLB's Term
Advance Program under which it can borrow at various terms and interest rates.
Residential mortgages are pledged by the Bank as collateral to secure the Bank's
line of credit and term borrowings.
At June 30, 2000, the Bank had the following borrowings:
Amount Rate Maturity Date
------ ---- -------------
$5,000,000 6.29% - Fixed 08/29/2000
$2,500,000 6.82% - Fixed 09/02/2004
$2,500,000 6.80% - Fixed 10/04/2005
At June 30, 1999, there were no borrowings.
13. Concentrations of Credit Risk
The Bank grants residential, consumer and commercial loans to customers
primarily located in Greene County, New York and to a limited extent in the
contiguous counties. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon employment and other economic factors throughout Greene County.
14. Fair Value of Financial Instruments
The Company determines fair values based on quoted market values, where
available, or on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimate of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 "Disclosure About Fair Value of Financial Instruments,"
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company. The methods to determine
the fair value for each financial instrument are described in Note 1. The
carrying amounts and estimated fair value of financial instruments as of June
30, 2000 and 1999 are as follows:
June 30, 2000 June 30, 1999
(in thousands) Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Cash and short-term investments $ 15,814 $ 15,814 $ 6,136 $ 6,136
Investment securities 44,808 44,808 49,662 49,662
FHLB 879 879 765 765
Net loans 97,819 92,713 90,798 91,237
Deposits 133,460 131,425 127,999 126,372
15. Regulatory Matters
The Company is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material impact on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
36
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of June 30, 2000, that the Company
meets all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
(in thousands of dollars) To be Well Capitalized
For Capital Under Prompt
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ---------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000
Total capital $23,814 25.4% $ 7,500 8.0% $ 9,375 10.0%
(to risk weighted assets)
Tier I capital $22,947 24.5% $ 3,750 4.0% $ 5,625 6.0%
(to risk weighted assets)
Tier I capital $22,947 14.4% $ 6,389 4.0% $ 7,987 5.0%
(to average assets)
</TABLE>
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt
Actual Adequacy Purposes Action Provisions
------------------ ------------------ ---------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999
Total capital $24,888 28.1% $ 7,091 8.0% $ 8,863 10.0%
(to risk weighted assets)
Tier I capital $24,096 27.2% $ 3,545 4.0% $ 5,318 6.0%
(to risk weighted assets)
Tier I capital $24,096 16.1% $ 5,588 4.0% $ 7,481 5.0%
</TABLE>
16. Subsequent Events
The Board of Directors approved a semi-annual $0.12 cash dividend on July 18,
2000, for shareholders of record August 1, 2000, payable August 15, 2000.
As of August 7, 2000, The New York State Banking Department and the Federal
Deposit Insurance Corporation (FDIC) approved The Bank of Greene County's plan
to open a branch in the town of Westerlo, New York. The branch is expected to
open approximately January 1, 2001.
37
<PAGE>
STOCKHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Stockholders will be held at 5:30 P.M. on November 27,
2000 at the Bank's main branch located at 425 Main Street in Catskill, New York.
Stock Listing
The NASDAQ Small-Cap Market under the symbol GCBC
Special Counsel
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
Independent Auditors
PricewaterhouseCoopers LLP
State Street Centre
80 State Street
Albany, New York 12207
Transfer Agent and Registrar
ComputerShare Investor Services
Lakewood, Colorado
303-986-5400
Annual Report on Form 10-KSB
A copy of the Company's Form 10-KSB for the fiscal year ended June 30, 2000,
will be furnished without charge to stockholders upon written request to the
Secretary, Greene County Bancorp, Inc., 302 Main Street, Catskill, New York
12414.
