U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES
AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE
SECURITIES EXCHANGE ACT
GREENE COUNTY BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
Commission file number 0-25165
United States 14-1809721
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
302 Main Street, Catskill, New York 12414
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (518) 943-2600
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes: X No:
As of February 13, 2003, the registrant had 2,152,835 shares of common stock
issued at $ .10 par value, and 2,026,723 were outstanding.
Transitional Small Business Disclosure
Format: Yes: No: X
GREENE COUNTY BANCORP, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
* Consolidated Statements of Financial Condition 3
* Consolidated Statements of Income 4-5
* Consolidated Statements of Comprehensive Income 6
* Consolidated Statements of Changes in Shareholders' Equity 7
* Consolidated Statements of Cash Flows 8
* Notes to Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-20
Item 3. Controls and Procedures 21-22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24-28
Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of December 31, 2002 and June 30, 2002
ASSETS December 31, 2002 June 30, 2002
(Unaudited)
ASSETS
Cash and due from banks $8,199,182 $7,408,150
Federal funds sold 11,264,252 10,423,871
----------------- -----------
Total cash and cash equivalents 19,463,434 17,832,021
Investment securities, at fair value 77,609,142 66,088,530
Federal Home Loan Bank stock, at cost 1,121,100 1,121,100
Loans 132,867,078 129,727,150
Less: Allowance for loan losses (1,101,641) (1,068,734)
Unearned origination fees and costs, net (285,509) (285,132)
----------------- ------------
Net loans receivable 131,479,928 128,373,284
Premises and equipment 4,870,075 4,963,621
Accrued interest receivable 1,528,334 1,452,104
Prepaid expenses and other assets 317,167 296,691
Other real estate owned --- 30,229
Total assets $236,389,180 $220,157,580
================= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $22,357,684 $22,067,347
Interest bearing deposits 175,631,495 161,646,281
----------------- -----------
Total deposits 197,989,179 183,713,628
Borrowings from FHLB 9,000,000 9,000,000
Accrued expenses and other liabilities 1,372,343 911,959
Accrued income taxes 101,747 131,287
----------------- -----------
Total liabilities 208,463,269 193,756,874
Shareholders' equity
Preferred stock,
Authorized 1,000,000 at December 31, and June 30, 2002; --- ---
Common stock, par value $.10 per share;
Authorized: 12,000,000 at December 31, and June 30, 2002;
Issued: 2,152,835 at December 31, and June 30, 2002;
Outstanding: 2,026,043 at December 31, 2002;
2,024,835 at June 30, 2002 215,284 215,284
Additional paid-in capital 10,143,580 10,084,621
Retained earnings 18,062,878 17,164,403
Accumulated other comprehensive income 1,369,422 880,401
Less: Treasury stock (shares at cost) 126,792 at December 31, 2002;
and 128,000 at June 30, 2002 (1,358,578) (1,371,527)
Unearned stock-based compensation (128,284) (156,791)
Unearned ESOP shares (at cost) 41,552 at December 31, 2002;
and 49,972 at June 30, 2002 (378,391) (415,685)
----------------- -----------
Total shareholders' equity 27,925,911 26,400,706
----------------- -----------
Total liabilities and shareholders' equity $236,389,180 $220,157,580
================= ===========
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended December 31, 2002 and 2001
(Unaudited)
2002 2001
Interest income:
Loans $2,332,422 $2,249,573
Investment securities 458,350 434,266
Mortgage-backed securities 299,140 189,273
Tax free securities 116,911 103,863
Interest bearing deposits and federal funds sold 39,945 75,365
---------------- ------------
Total interest income 3,246,768 3,052,340
Interest expense:
Interest on deposits 1,010,724 1,151,946
Interest on borrowings 107,905 85,825
---------------- -----------
Total interest expense 1,118,629 1,237,771
Net interest income 2,128,139 1,814,569
Less: Provision for loan losses 30,000 68,900
---------------- -----------
Net interest income after provision for loan losses 2,098,139 1,745,669
---------------- -----------
Noninterest income:
Service charges on deposit accounts 436,286 302,374
Other operating income 192,274 161,536
---------------- -----------
Total noninterest income 628,560 463,910
Noninterest expense:
Salaries and employee benefits 937,050 837,394
Occupancy expense 96,062 96,647
Equipment and furniture expense 145,795 107,868
Service and data processing fees 191,988 155,911
Office supplies 25,171 36,542
Other 525,487 445,416
---------------- -----------
Total noninterest expense 1,921,553 1,679,778
Income before provision for income taxes 805,146 529,801
Provision for income taxes 261,400 148,400
---------------- -----------
Net income $543,746 $381,401
================ ===========
Basic EPS $0.27 $0.20
Basic shares outstanding 1,977,943 1,950,176
Diluted EPS $0.27 $0.19
Diluted average shares outstanding 2,031,937 2,002,292
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Six Months Ended December 31, 2002 and 2001
(Unaudited)
2002 2001
Interest income:
Loans $4,732,329 $4,437,518
Investment securities 943,242 978,475
Mortgage-backed securities 543,390 292,941
Tax free securities 218,682 205,646
Interest bearing deposits and federal funds sold 104,956 218,643
---------------- -----------
Total interest income 6,542,599 6,133,223
Interest expense:
Interest on deposits 2,070,763 2,407,536
Interest on borrowings 215,809 171,649
---------------- -----------
Total interest expense 2,286,572 2,579,185
Net interest income 4,256,027 3,554,038
Less: Provision for loan losses 30,000 98,900
---------------- -----------
Net interest income after provision for loan losses 4,226,027 3,455,138
---------------- -----------
Non-interest income:
Service charges on deposit accounts 835,887 488,899
Other operating income 455,465 327,308
---------------- -----------
Total non-interest income 1,291,352 816,207
Non-interest expense:
Salaries and employee benefits 1,820,734 1,629,295
Occupancy expense 194,840 179,614
Equipment and furniture expense 286,775 218,080
Service and data processing fees 371,191 308,565
Office supplies 53,626 76,613
Other 1,075,460 856,423
---------------- -----------
Total non-interest expense 3,802,626 3,268,590
Income before provision for income taxes 1,714,753 1,002,755
Provision for income taxes 529,900 277,400
----------------- -----------
Net income $1,184,853 $725,355
================= ===========
Basic EPS $0.60 $0.37
Basic average shares outstanding 1,976,780 1,962,023
Diluted EPS $0.58 $0.36
Diluted average shares outstanding 2,030,034 2,010,782
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended December 31, 2002 and 2001
(Unaudited)
2002 2001
Net income $543,749 $381,401
------------- ---------
Other comprehensive income:
Unrealized holding gain / (loss) arising during the three months
ended December 31, 2002 and 2001, net of tax expense / (benefit)
of $20,585 and ($141,707), respectively. 54,351 (212,558)
------------- ---------
Total other comprehensive income 54,351 (212,558)
------------- ---------
Comprehensive income $598,100 $168,843
============= =========
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Six Months Ended December 31, 2002 and 2001
(Unaudited)
2002 2001
Net income $1,184,853 $725,355
------------- --------
Other comprehensive income:
Unrealized holding gain arising during the six months
ended December 31, 2002 and 2001, net of tax expense
of $310,366 and $162,308, respectively. 489,021 243,461
------------- --------
Total other comprehensive income 489,021 243,461
------------- --------
Comprehensive income $1,673,874 $968,816
============= =========
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders' Equity
For the Six Months Ended December 31, 2002 and 2001
(Unaudited)
Accumulated
Additional Other
Capital Paid - In Retained Comprehensive
Stock Capital Earnings Income
Balance at
June 30, 2001 $215,284 $10,188,573 $15,993,025 $499,022
ESOP shares earned 22,822
Options exercised (7,227)
Stock-based
compensation
earned
Treasury stock
purchased
Dividends paid (230,807)
Net income 725,355
Change in unrealized
gain, net 243,461
----------- ------------ ------------ -----------
Balance at
December 31, 2001 $215,284 $10,204,168 $16,487,573 $742,483
=========== ============ ============== ===========
Unearned Unearned Total
Stock-based Treasury ESOP Shareholders'
Compensation Stock Shares Equity
Balance at
June 30, 2001 ($229,753) ($1,075,923) ($496,638) $25,093,590
ESOP shares earned 39,773 62,595
Options exercised 27,229 20,002
Stock-based
compensation
earned 30,634 30,634
Treasury stock
purchased (531,125) (531,125)
Dividends paid (230,807)
Net income 725,355
Change in unrealized
gain, net 243,461
---------- ------------ ------------ -----------
Balance at
December 31, 2001 ($199,119) ($1,579,819) ($456,865) $25,413,705
========== ============ ============= ===========
Balance at
June 30, 2002 $215,284 $10,084,621 $17,164,403 $880,401
ESOP shares earned 62,396
Options exercised (3,437)
Stock-based
compensation
earned
Dividends paid (286,378)
Net income 1,184,853
Change in unrealized
gain, net 489,021
---------- ------------ ------------ -----------
Balance at
December 31, 2002 $215,284 $10,143,580 $18,062,878 $1,369,422
========== ============ ============ ===========
Balance at
June 30, 2002 ($156,791) ($1,371,527) ($415,685) $26,400,706
ESOP shares earned 37,294 99,690
Options exercised 12,949 9,512
Stock-based
compensation
earned 28,507 28,507
Dividends paid (286,378)
Net income 1,184,853
Change in unrealized
gain, net 489,021
---------- ------------ ------------ -----------
Balance at
December 31, 2002 ($128,284) ($1,358,578) ($378,391) $27,925,911
========== ============ ============ ===========
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2002 and 2001
(Unaudited)
2002 2001
Cash flows from operating activities:
Net Income $1,184,853 $725,355
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation 277,800 222,975
Net amortization of premiums 171,304 23,376
Provision for loan losses 30,000 98,900
ESOP and other stock-based compensation earned 128,197 93,229
Gain on sale of other real estate (59,770) ---
Net (decrease) increase in accrued income taxes (29,540) 47,654
Net increase in accrued interest receivable (76,230) (96,405)
Net increase in prepaid and other assets (20,476) (112,361)
Net increase in other liabilities 150,017 3,639
------------- -----------
Net cash provided by operating activities 1,756,155 1,006,362
Cash flows from investing activities:
Proceeds from maturities and calls of securities 7,269,854 3,155,123
Purchases of securities and other investments (3,727,224) (4,432,584)
Principal payments on securities 755,936 2,898,356
Principal payments on mortgage-backed securities 3,807,962 940,084
Purchases of mortgage-backed securities (18,999,057) (6,129,445)
Net increase in loans receivable (3,136,644) (10,765,429)
Proceeds from the sale of other real estate 90,000 ---
Purchases of premises and equipment (184,254) (192,374)
------------ -----------
Net cash used in investing activities (14,123,427) (14,526,269)
Cash flows from financing activities:
Dividends paid (286,378) (230,807)
Purchase of treasury stock --- (531,125)
Proceeds from issuance of stock options 9,512 20,002
Net increase (decrease) in deposits 14,275,551 11,725,271
-------------- ------------
Net cash provided by financing activities 13,998,685 10,983,341
Net increase in cash and cash equivalents 1,631,413 (2,536,566)
Cash and cash equivalents at beginning of period 17,832,021 18,804,358
------------ ------------
Cash and cash equivalents at end of period $19,463,434 $16,267,792
============ ===========
See notes to consolidated financial statements.
Greene County Bancorp, Inc.
Notes to Financial Statements
As of and for the Three and Six Months Ended December 31, 2002 and 2001
(1) Basis of Presentation
The accompanying consolidated balance sheet information for June 30, 2002 was
derived from the audited consolidated financial statements of Greene County
Bancorp, Inc. (the "Company") and its wholly owned subsidiary, The Bank of
Greene County (the "Bank") at June 30, 2002. The consolidated financial
statements at and for the three months and six months ended December 31, 2002
and 2001 are unaudited.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. To the extent that
information and footnotes required by GAAP for complete financial statements are
contained in or are consistent with the audited financial statements
incorporated by reference to the Company's Annual Report on Form 10-KSB for the
year ended June 30, 2002, such information and footnotes have not been
duplicated herein. In the opinion of management, all adjustments (consisting of
only normal recurring items) necessary for a fair presentation of the financial
position and results of operations and cash flows at and for the periods
presented have been included. Amounts in the prior year's consolidated financial
statements have been reclassified whenever necessary to conform to the current
year's presentation. These reclassifications had no effect on net income or
retained earnings as previously reported. All material inter-company accounts
and transactions have been eliminated in the consolidation. The results of
operations and other data for the three and six months ended December 31, 2002
are not necessarily indicative of results that may be expected for the entire
fiscal year ending June 30, 2003.
The Company's critical accounting policy relates to the allowance for loan
losses (the "Allowance"). It is based on management's opinion of an amount that
is intended to absorb losses in the existing portfolio. The allowance for loan
losses is established through a provision for loss based on management's
evaluation of the risk inherent in the loan portfolio, the composition of the
portfolio, specific impaired loans and current economic conditions. Such
evaluation, which includes a review of all loans for which full collectibility
may not be reasonably assured, considers among other matters, the estimated net
realizable value or the fair value of the underlying collateral, economic
conditions, historical loan loss experience, management's estimate of probable
credit losses and other factors that warrant recognition in providing for the
allowance for loan losses. However, this evaluation involves a high degree of
complexity and requires management to make subjective judgments that often
require assumptions or estimates about highly uncertain matters. This critical
accounting policy and its application are periodically reviewed with the Audit
Committee and the Board of Directors.
(2) Nature of Operations
The Bank has six full-service offices and an operations center located in its
market area consisting of Greene County and southern Albany County, New York.
The Bank 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.
(3) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term related to the determination of the allowance for loan losses and
valuation of other real estate owned ("OREO").
While management uses available information to recognize losses on loans and
OREO, future additions to the Allowance, or OREO write-downs, may be necessary
based on changes in economic conditions, asset quality or other factors. In
addition, various regulatory authorities, as an integral part of their
examination process, periodically review the Company's Allowance and the
carrying value of OREO and other assets. Such authorities may require the
Company to recognize additions to the Allowance and/or write down the carrying
value of OREO or other assets based on their judgments of information available
to them at the time of their examination.
(4) Earnings Per Share
Basic earnings per share ("EPS") on common stock are computed by dividing net
income by the weighted average number of shares of common stock outstanding for
the period. Shares of restricted stock are not considered outstanding for the
calculation of basic earnings per share until they become fully vested. Diluted
earnings per share are computed in a manner similar to that of basic earnings
per share except that the weighted average number of common shares outstanding
is increased to include the number of incremental common shares that would have
been outstanding under the treasury stock method if all potentially dilutive
instruments (such as stock options and unvested restricted stock) issued became
vested and in the case of stock options exercised during the period.
Unallocated common shares held by the ESOP are not included in the weighted
average number of common shares outstanding for either the basic or diluted
earnings per share calculations.
Weighted Average
Number of Shares
Three Months Ended Net Income Outstanding Earnings Per Share
December 31, 2002: $543,746
Basic EPS 1,977,943 $0.27
Diluted EPS 2,031,937 $0.27
December 31, 2001: $381,401
Basic EPS 1,950,176 $0.20
Diluted EPS 2,002,292 $0.19
Weighted Average
Number of Shares
Six Months Ended Net Income Outstanding Earnings Per Share
December 31, 2002: $1,184,853
Basic EPS 1,976,780 $0.60
Diluted EPS 2,030,034 $0.58
December 31, 2001: $725,355
Basic EPS 1,962,023 $0.37
Diluted EPS 2,010,782 $0.36
(5) Dividends
The Board of Directors declared a semi-annual $0.32 per share cash dividend on
July 19, 2002, for shareholders of record August 15, 2002, payable September 1,
2002. The dividend reflected an annual cash dividend rate of $0.64 per share,
which represented an increase from the previous annual cash dividend rate of
$0.56 per share. The increase in the dividend paid out was a result of improved
earnings as well as the waiver of such dividends by Greene County Bancorp, MHC,
the Company's mutual holding company.
(6) Subsequent events
On January 21, 2003, Board of Directors declared a semi-annual cash dividend of
$0.34 per share of the Company's common stock. The dividend reflected an annual
cash dividend rate of $0.68 per share, which represented an increase from the
current annual cash dividend rate of $0.64 per share. The dividend will be
payable to stockholders of record as of February 15, 2003, and will be paid on
March 1, 2003. The Company's mutual holding company has waived receipt of the
cash dividend.
(7) Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with U.S. generally
accepted accounting principles, which requires the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
(8) Impact of Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement No. 142,
"Goodwill and Other Intangible Assets", which requires acquired intangible
assets (other than goodwill) to be amortized over their useful economic lives,
while goodwill and any acquired intangible assets with an indefinite useful
economic life would not be amortized, but would be reviewed for impairment on an
annual basis based upon guidelines specified by the statement. The adoption of
this statement in fiscal 2003 had no impact on the Company's consolidated
financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which replaces Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." Under SFAS No. 146, liabilities for costs associated with
an exit or disposal activity are to be recognized when the liability is
incurred. Under EITF Issue No. 94-3, liabilities related to exit or disposal
activities were recognized when an entity committed to an exit plan. In
addition, Statement No. 146 establishes that the objective for the initial
measurement of the liability is fair value. Statement No. 146 is effective for
exit and disposal activities initiated after December 31, 2002. The Company is
currently evaluating the impact the adoption of this statement will have on its
financial statements but does not believe it will be material.
In October 2002, the FASB issued Statement No. 147, "Acquisitions of Certain
Financial Institutions", which no longer requires the separate recognition and
subsequent amortization of goodwill that was originally required by Statement
No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions".
Instead, SFAS 72 goodwill would be accounted for in accordance with Statement
No. 142, "Goodwill and Other Intangible Assets" and would be subject to an
annual impairment test. SFAS 147 also amends Statement No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets, to include in its scope core
deposit intangibles. Those intangible assets are now subject to the same
recoverability and impairment loss recognition provisions that SFAS 144 requires
for other long-lived assets. SFAS 147 was effective October 1, 2002. The
adoption of SFAS 147 did not have an impact on the financial statements.
In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment to FASB Statement 123".
SFAS 148 provides alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee compensation.
In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS 148 is effective for financial statements
for fiscal years ending after December 15, 2002. The adoption of SFAS 148 is not
expected to have a material impact on the financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
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 expense consists principally of compensation
and employee benefits, occupancy, equipment and data processing, and other
operating expenses. Results of operations are also significantly affected by
general economic and competitive conditions, changes in interest rates, as well
as government policies and actions of regulatory authorities. Additionally,
future changes in applicable law, regulations or government policies may
materially affect the Company.
Special Note Regarding Forward Looking Statements
This quarterly report contains forward-looking statements. The Company desires
to take advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 and is including this statement for the express
purpose of availing itself of the protections of the safe harbor with respect to
all such forward-looking statements. These forward-looking statements, which are
included in this Management's Discussion and Analysis and elsewhere in this
quarterly report, describe future plans or strategies and include 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 that could affect actual results
include but are not limited to:
(a) changes in general market interest rates,
(b) general economic conditions,
(c) legislative and regulatory changes,
(d) monetary and fiscal policies of the U.S. Treasury and the
Federal Reserve,
(e) changes in the quality or composition of the 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.
Comparison of Financial Condition as of December 31, 2002 and June 30, 2002
ASSETS
Total assets increased to $236.4 million at December 31, 2002 from $220.2
million at June 30, 2002, an increase of $16.2 million, or 7.4%. Growth was most
significant in the cash and investments portfolios as well as to a lesser extent
in the loan portfolio. Deposit growth funded the asset growth and appeared to be
the result of continued reduced investment in the equity markets and investors
appeared to continue to be conservative in their investment options.
CASH AND CASH EQUIVALENTS
Total cash and cash equivalents increased to $19.5 million at December 31, 2002
from $17.8 million at June 30, 2002, an increase of $1.7 million, or 9.6%. The
increase was a result of continued deposit inflows as noted above.
INVESTMENT SECURITIES
Investment securities increased to $77.6 million at December 31, 2002 as
compared to $66.1 million at June 30, 2002, an increase of $11.5 million, or
17.4%. During the six months ended December 31, 2002, the investment portfolio
shifted toward mortgage-backed securities and state and political subdivision
securities representing 36.9% and 15.8% of the portfolio, respectively, at
December 31, 2002 as compared to 29.6% and 13.3% of the portfolio, respectively,
at June 30, 2002. A shift away from corporate debt securities as a percentage of
the total portfolio occurred between June 30, 2002 and December 31, 2002. Due to
the potential credit problems of some corporations, the Company has focused more
heavily on debt with some form of guarantee such as a U.S. agency guarantee
which often accompanies investment in mortgage-backed securities. The Company
has also shifted the portfolio toward more adjustable rate securities than in
the past in an effort to provide some future interest rate risk protection in a
rising rate environment. Investment securities represent 32.8% of total assets
at December 31, 2002 as compared to 30.0% at June 30, 2002. The shift was
partially a result of loan demand being slightly lower than inflows of deposits
allowing the Company to invest additional funds in investment securities. During
the six months ended December 31, 2002, the Company purchased $19.0 million in
mortgage-backed securities which were partially offset by the principal pay down
of mortgage-backed securities of $3.8 million. Maturities or calls of investment
securities other than mortgage-backed securities amounted to $7.3 million for
the six months ended December 31, 2002, offsetting purchases of $3.7 million
during the same period.
(Dollars rounded to nearest thousand) Market value at Percentage Market value at Percentage
Dec. 31, 2002 of portfolio June 30, 2002 of portfolio
U.S. government agencies $16,012 20.6% $14,862 22.5%
State and political subdivisions 12,244 15.8 8,811 13.3
Mortgage-backed securities 28,642 36.9 19,564 29.6
Asset-backed securities 427 0.6 818 1.3
Corporate debt securities 18,994 24.4 20,760 31.4
--------------- ------------ ------------ ----------
Total debt securities 76,319 98.3 64,815 98.1
Equity securities and other 1,290 1.7 1,274 1.9
--------------- ------------ ------------ ----------
Total available-for-sale securities $77,609 100.0% $66,089 100.0%
=============== ============= ============ ==========
LOANS
Net loans receivable increased to $131.5 million at December 31, 2002 from
$128.4 million at June 30, 2002, an increase of $3.1 million, or 2.4%. The
continued low interest rate environment and strong customer satisfaction from
personal service continued to enhance loan growth. Commercial real estate
mortgages increased $1.6 million, or 18.2%, to $10.4 million at December 31,
2002 as compared to $8.8 million at June 30, 2002. Commercial mortgages and
commercial loans as a percentage of total loans increased to 7.8% and 4.2%,
respectively, at December 31, 2002 as compared to 6.8% and 3.3% at June 30, 2002
which caused residential mortgages and installment loans to decrease as a
percentage of total loans to 78.2% and 3.8% respectively, at December 31, 2002,
as compared to 79.8% and 4.3% at June 30, 2002. Loan demand continued to be
strong, but at a slightly slower rate than experienced during fiscal 2002. The
decrease in demand appeared to be the result of the overall weakened economic
conditions.
(Dollars rounded to nearest thousand) At Percentage At Percentage
Dec. 30, 2002 of portfolio June 30, 2002 of portfolio
Real estate mortgages
Residential $103,944 78.2% $103,494 79.8%
Commercial 10,410 7.8 8,764 6.8
Home equity loans 7,397 5.6 6,957 5.4
Commercial loans 5,598 4.2 4,356 3.3
Installment loans 4,988 3.8 5,611 4.3
Passbook loans 530 0.4 545 0.4
----------- ------------ ------------ ----------
Total loans $132,867 100.0% $129,727 100.0%
Less: Allowance for loan losses (1,102) (1,069)
Unearned origination fees and costs, (285) (285)
net
----------- -------------
Net loans receivable $131,480 $128,373
=========== ============
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
based on management's evaluation of the risk inherent in the loan portfolio, the
composition of the loan portfolio, specific impaired loans and current economic
conditions. Such evaluation, which includes a review of all loans on which full
collectibility may not be reasonably assured, considers among other matters, the
estimated net realizable value or the fair value of the underlying collateral,
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an allowance for loan losses. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses and valuation of OREO.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgment about information available to them at the time of their
examination. The allowance for loan losses is increased by a provision for loan
losses (which results in a charge to expense) and is reduced by net charge-offs.
During the fiscal year ended June 30, 2002, and the six months ended December
31, 2002 the level of provision was affected by the growth of the loan portfolio
and composition of the portfolio shifting to more commercial loans. These types
of loans generally possess a higher degree of credit risk than traditional
one-to-four family residential mortgage loans. Management also implemented
improved procedures for pursuing delinquent and previously charged-off accounts
during fiscal year 2002, which appeared to have helped reduce the effect of
credit quality deterioration due to current economic weakness in the overall
economy. Any increase in the allowance for loan losses or loan charge-offs could
have a material adverse effect on the Company's results of operations and
financial condition.
Six months ended Six months ended
December 31, 2002 December 31, 2001
Balance at the beginning of the period $1,068,734 $886,081
Charge-offs:
Commercial real estate mortgage loans --- ---
Commercial loans 13,319 ---
Home equity --- 2,380
Installment loans to individuals 26,032 18,624
--------------- ------------------
Total loans charged off 39,351 21,004
Recoveries:
Commercial loans 24,093 ---
Installment loans to individuals 18,165 12,076
---------------- ------------------
Total recoveries 42,258 12,076
---------------- -----------------
Net (recoveries) charge-offs (2,907) 8,928
Provisions charged to operations 30,000 98,900
--------------- ------------------
Balance at the end of the period $1,101,641 $976,053
=============== ==================
Ratio of net charge-offs to average loans outstanding (0.00%) 0.01%
Ratio of net charge-offs to nonperforming assets (0.95%) 1.29%
Allowance for loan loss to nonperforming loans 359.28% 170.30%
Allowance for loan loss to net loans receivable 0.84% 0.81%
Nonaccrual Loans and Nonperforming Assets
Loans are reviewed on a regular basis. Management determines that a loan is
impaired or nonperforming when it is probable at least a portion of the loan
will not be collected in accordance with its contractual terms due to an
irreversible deterioration in the financial condition of the borrower or the
value of the underlying collateral. When a loan is determined to be impaired,
the measurement of the loan is based on the present value of estimated future
cash flows, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. Management places loans on
nonaccrual status once the loans have become over 90 days delinquent. Nonaccrual
is defined as a loan in which collectibility is questionable and therefore
interest on the loan will no longer be recognized on an accrual basis. A loan
does not have to be 90 days delinquent in order to be classified as
nonperforming. Other real estate owned is considered nonperforming. The Bank had
no accruing loans delinquent more than 90 days at December 31, 2002 or June 30,
2002.
Analysis of Nonaccrual Loans and Nonperforming Assets
At December 31, 2002 At June 30, 2002
Nonaccruing loans:
Real estate mortgage loans:
Residential mortgages loans (one- to four-family) $210,621 $313,981
Commercial mortgage loans 15,178 ---
Home equity --- ---
Installment loans to individuals 80,823 18,886
--------------- ------------------
Total nonaccruing loans 306,622 332,867
Real Estate Owned:
Commercial mortgage loans --- 30,229
--------------- ------------------
Total real estate owned --- 30,229
--------------- ------------------
Total nonperforming assets $306,622 $363,096
=============== ==================
Total nonperforming assets
as a percentage of total assets 0.13% 0.16%
Total nonperforming loans to net loans receivable 0.23% 0.26%
DEPOSITS
Total deposits increased to $198.0 million at December 31, 2002 from $183.7
million at June 30, 2002, an increase of $14.3 million, or 7.8%. Savings
accounts experienced the most significant dollar growth between June 30, 2002,
and December 31, 2002, increasing $6.3 million, or 8.9%, to $77.1 million from
$70.8 million. Money market accounts experienced the most significant percentage
growth between June 30, 2002, and December 31, 2002, increasing $5.8 million, or
41.7%, to $19.7 million as compared to $13.9 million. Due to the continued poor
returns in the equity market and doubt about the credibility of corporate
America, investors appeared to continue to prefer to invest their funds in
safer, more liquid accounts such as money market deposits and savings deposits.
The historically low interest rates offered on certificates of deposit, which
are relatively illiquid, also contributed to investors choosing money market and
savings deposits.
(Dollars rounded to nearest thousand) At Percentage At Percentage
Dec. 31, 2002 of portfolio June 30, 2002 of portfolio
Noninterest bearing deposits $22,349 11.3% $22,067 12.0%
Certificates of deposit 63,474 32.1 62,645 34.1
Savings deposits 77,148 39.0 70,825 38.5
Money market deposits 19,685 9.9 13,883 7.6
NOW deposits 15,333 7.7 14,294 7.8
----------- ------------- ------------- -------------
Total deposits $197,989 100.0% $183,714 100.0%
=========== ============= ============= =============
BORROWINGS
There was no change in the borrowings from the Federal Home Loan Bank between
June 30, 2002 and December 31, 2002.
At December 31, 2002 and June 30, 2002, the Bank had the following borrowings:
Amount Rate Maturity Date
$4,000,000 2.19% -Fixed 01/14/2003
2,500,000 6.82% -Fixed 09/02/2004
2,500,000 6.80% -Fixed 10/04/2005
------------------
$9,000,000
==================
ACCRUED EXPENSES AND OTHER LIABILITIES
At December 31, 2002, accrued expenses and other liabilities amounted to $1.4
million as compared to $0.9 million at June 30, 2002, an increase of $0.5
million. The increase was primarily due to increased deferred taxes associated
with unrealized gains on available-for-sale securities.
EQUITY
The primary changes in equity included changes in retained earnings and
accumulated comprehensive income. Retained earnings was affected by net income
of $1.2 million and partially offset by dividends paid of $286,000. Treasury
stock decreased by $13,000 due to the exercise of 1,208 options under the 2000
Stock Option Plan reducing the number of shares held in treasury to 126,792. Net
unrealized gains associated with the available-for-sale investment portfolio
caused accumulated other comprehensive income to increase by approximately
$489,000, net of tax. The remaining changes in equity are due to amortization of
compensation expense associated with the Employee Stock Ownership Plan ("ESOP")
and stock-based compensation expense associated with the Management Recognition
and Retention Plan.
Comparison of Operating Results for the Six and Three Months
Ended December 31, 2002 and 2001
GENERAL
Return on average assets and return on average equity are common methods of
measuring operating results. Return on average assets increased to 1.02% for the
six months ended December 31, 2002 as compared to 0.75% for the six months ended
December 31, 2001. These ratios were based on average assets of $231.7 million
and $193.7 million and net income of $1.2 million and $0.7 million for the six
months ended December 31, 2002 and 2001, respectively. Return on average assets
increased to 0.93% for the quarter ended December 31, 2002 as compared to 0.78%
for the quarter ended December 31, 2001 and were based on average assets of
$233.9 million and $196.3 million and net income of $544,000 and $381,000,
respectively. Return on average equity increased to 8.72% for the six months
ended December 31, 2002 as compared to 5.71% for the six months ended December
31, 2001 based on average equity of $27.2 million and $25.4 million,
respectively for these periods. Return on average equity increased to 7.90% for
the quarter ended December 31, 2002 as compared to 5.99% for the quarter ended
December 31, 2001 based on average equity for the respective quarters of $27.5
million and $25.5 million, respectively. The improvement in the return on
average assets and return on average equity for the three and six month periods
were primarily the result of increases in the net income of the Company. The
reasons for the increases in net income are further discussed below.
INTEREST INCOME
Total interest income increased to $6.5 million for the six months ended
December 31, 2002, as compared to $6.1 million for the six months ended December
31, 2001, an increase of $0.4 million, or 6.6%. Total interest income increased
to $3.2 million for the quarter ended December 31, 2002 as compared to $3.1
million for the quarter ended December 30, 2001, an increase of $0.1 million, or
3.1%.
Interest earned on loans represented the largest dollar increase in total
interest income. Interest earned on loans increased $300,000, or 6.8% to $4.7
million as compared to $4.4 million when comparing six month periods ended
December 31, 2002 and 2001, respectively. This increase was a result of an
increase in average loans outstanding of $13.7 million, to $130.4 million for
the six months ended December 31, 2002 as compared to $116.7 million for the six
months ended December 31, 2001. The increase in average balance was offset by a
decrease in the yield on such loans which decreased 35 basis points to 7.26% for
the six months ended December 31, 2002 as compared to 7.61% for the six months
ended December 31, 2001. Similarly, interest earned on loans for the quarter
ended December 31, 2002 increased to $2.3 million as compared to $2.2 million
for the quarter ended December 31, 2001, an increase of $0.1 million, or 4.6%.
Average loans outstanding for the quarter ended December 31, 2002 amounted to
$130.9 million as compared to $119.0 million for the quarter ended December 31,
2001, an increase of $11.9 million, or 10.0%. The average yield on such loans
decreased to 7.13% for the quarter ended December 31, 2002 as compared to 7.56%
for the quarter ended December 31, 2001, a decrease of 43 basis points. Loan
growth continued to be relatively strong despite the weakening economic
conditions. This growth appeared to be spurred by the current low interest
environment which encouraged customers to make household improvements or upgrade
to larger, more expensive homes. Also, the Bank continued to grow its commercial
loan portfolio through efforts to win commercial customers in all areas of
banking products from loans to checking accounts.
Interest earned on mortgage backed securities also contributed to the overall
increase in total interest earned when comparing the quarters and six months
ended December 31, 2002 and 2001. Interest income represented $0.5 million for
the six months ended December 31, 2002 as compared to $0.3 million for the six
months ended December 31, 2001, an increase of $0.2 million or 66.7%. As a
result, interest on mortgage-backed securities represented 8.3% of total
interest income for the six months ended December 31, 2002 as compared to 4.8%
of total interest income for the six months ended December 31, 2001. When
comparing the quarters ended December 31, 2002 and 2001, interest earned on
mortgage-backed securities had corresponding increases to the six-month periods.
Interest earned on mortgage-backed securities increased to $0.3 million for the
quarter ended December 31, 2002, as compared to $0.2 million for the quarter
ended December 31, 2001, an increase of $0.1 million, or 50.0%. Interest earned
on investment securities other than mortgage-backed securities including
tax-free securities, remained relatively consistent when comparing the three and
six month periods ended December 31, 2002 and 2001.
Federal Reserve rate cuts and lower average balances were the reasons for the
decrease in amount of federal funds interest income when comparing the six
months and quarters ended December 31, 2002 and 2001. Interest income earned on
federal funds and interest bearing deposits decreased $114,000, or 52.1% to
$105,000 for the six months ended December 31, 2002 as compared to $219,000 for
the six months ended December 31, 2001. The decrease was a result of a decrease
in the federal funds average balance to $10.6 million for the six months ended
December 31, 2002 as compared to $14.0 million for the six months ended December
31, 2001, a decrease of $3.4 million, or 24.3%. The average rate on federal
funds fell 113 basis points to 1.84% for the six months ended December 31, 2002
from 2.97% for the six months ended December 31, 2001. Similarly, a decrease in
the average balance of $1.8 million and 92 basis points when comparing the
quarters ended December 31, 2002 and 2001, contributed to a decrease of $35,000
in interest earned on federal funds and interest bearing deposits.
The average balance of all investment securities increased to $74.7 million for
the six months ended December 31, 2002 as compared to $49.8 million for the six
months ended December 31, 2001, an increase of $24.9 million, or 50.0%. The
yield on all investment securities, however, fell 136 basis points to 4.49% as
compared to 5.85% when comparing the six months ended December 31, 2002 and
2001, respectively. Similarly, the average balance of all investment securities
for the quarter ended December 31, 2002 amounted to $77.7 million at an average
yield of 4.40% as compared to $51.6 million at an average yield of 5.56% for the
quarter ended December 31, 2001, an increase in average balance of $26.1 million
and a decrease in average yield of 116 basis points. The growth in the level of
deposits and borrowed money funded the investment portfolio increases. The low
interest rate environment associated with several Federal Reserve rate cuts
accounted for the decrease in yield.
INTEREST EXPENSE
Interest expense on deposits amounted to $2.1 million for the six months ended
December 31, 2002 as compared to $2.4 million for the six months ended December
31, 2001, a decrease of $0.3 million, or 12.5%. Interest expense on deposits
amounted to $1.0 million for the quarter ended December 31, 2002 as compared to
$1.2 million for the quarter ended December 31, 2001, a decrease of $0.2 million
or 16.7%. These decreases were the result of decreases in the average rates paid
on all types of deposit accounts despite increases in the average balances.
The most significant average rate decrease was 143 basis points on certificates
of deposit which fell to 3.29% for the six months ended December 31, 2002 as
compared to 4.72% for the six months ended December 31, 2001. An increase in the
average balance of certificates of deposit of $2.5 million to $64.3 million for
the six months ended December 31, 2002 as compared to $61.8 for the six months
ended December 31, 2001 partially offset the decrease in average rate.
Similarly, an increase in the average balance of certificates of deposit of $0.7
million to $64.0 million for the quarter ended December 31, 2002 as compared to
$63.3 million for the quarter ended December 31, 2001, partially offset the
decrease in average rate of 130 basis points from 4.49% to 3.19% when comparing
the quarters ended December 31, 2002 and 2001. The average balance of savings
and escrow accounts increased $23.1 million, or 33.3% to $92.3 million for the
six months ended December 31, 2002 as compared to $69.2 million for the six
months ended December 31, 2001. The decrease in average rate on such balances
partially offset the effects of the increase in average balance on savings and
escrow accounts. The average rate on savings and escrow accounts decreased to
2.04% for the six months ended December 31, 2002 as compared to 2.50% for the
six months ended December 31, 2001, a decrease of 46 basis points. Similarly, a
decrease of 30 basis points in the average rate paid on savings and escrow
accounts partially offset an increase in the average balance of such accounts of
$23.7 million when comparing the quarters ended December 31, 2002 and 2001.
Interest expense on borrowings increased $44,000 to $216,000 for the six months
ended December 31, 2002 as compared to $172,000 for the six months ended
December 31, 2001. Interest expense on borrowings increased $22,000 for the
quarter ended December 31, 2002 to $108,000 as compared to $86,000 for the
quarter ended December 31, 2001. These increases were the result of an increase
in the average balance of borrowings to $9.0 million and decrease in average
rate to 4.80% from $5.0 million in average balance of borrowings and 6.87% in
average rate paid on such borrowings for the three and six months ended December
31, 2002 and 2001, respectively.
NET INTEREST INCOME
Net interest income, a function of interest income and interest expense,
increased to $4.3 million for the six months ended December 31, 2002, from $3.6
million for the six months ended December 31, 2001, an increase of $0.7 million,
or 19.4%. Net interest income increased to $2.1 million for the quarter ended
December 31, 2002 as compared to $1.8 million for the quarter ended December 31,
2001, an increase of $0.3 million, or 16.7%. As a result of changes in
interest-earning assets and interest-bearing liabilities, as well as changes in
the yield and rate on such assets and liabilities, net interest spread increased
to 3.76% for the six months ended December 31, 2002 as compared to 3.64% for the
six months ended December 31, 2001, an improvement of 12 basis points. Also, net
interest margin increased to 3.92% for the six months ended December 31, 2002 as
compared to 3.90% for six months ended December 31, 2001, an improvement of 2
basis points. The net interest spread remained constant at 3.72% when comparing
the quarters ended December 31, 2002 and 2001. However, net interest margin
decreased 7 basis points to 3.88% for the quarter ended December 31, 2002 as
compared to 3.95% for the quarter ended December 31, 2001. These changes were
the result of a continued low interest rate environment experienced during the
last calendar year. As assets mature or the yield on such assets adjust they
have frequently been replaced with lower yielding assets resulting in the
decreased net interest spread and margin when comparing the quarters ended
December 31, 2002 and 2001. The improvement in net interest income contributed
to the overall improvement in net income. In a rising rate environment the
Bank's net interest margin and spread would be more likely to shrink than in a
declining rate environment.
PROVISION FOR LOAN LOSSES
The provision for loan losses was reduced to $30,000 for the quarter and six
month period ended December 31, 2002 as compared to $68,900 for the quarter and
$98,900 for the six months ended December 31, 2001. The decrease was a result of
the receipt of a large recovery which served to meet the reserve requirements
for the allowance in the quarter ended September 30, 2002, as well as the
reduced level of delinquent loans when comparing the time frames. There were
several factors contributing to a decrease in the provision during the six
months ended December 31, 2002, including the receipt of a large recovery of a
portion of a previously charged-off loan, the continued low level of nonaccrual
loans and delinquent assets relative to the size of the loan portfolio, and the
relatively low level of charge-offs experienced during the last several
quarters.
NONINTEREST INCOME
Total noninterest income amounted to $1.3 million for the six months ended
December 31, 2002 as compared to $0.8 million for the six months ended December
31, 2001, an increase of $0.5 million, or 62.5%. Total noninterest income for
the quarter ended December 31, 2002 increased to $629,000 as compared to
$464,000 for the quarter ended December 31, 2001, an increase of $165,000, or
35.6% Service charges on deposit accounts contributed the largest portion of the
increase in overall noninterest income increasing to $836,000 for the six months
ended December 31, 2002 as compared to $489,000 for the six months ended
December 31, 2001, an increase of $347,000, or 71.0%. The quarterly increase in
service charges amounted to $134,000 or 44.4%, increasing to $436,000 for the
quarter ended December 31, 2002 as compared to $302,000 for the quarter ended
December 31, 2001. The primary item contributing to these service charges was
the introduction of the Carefree Overdraft Privilege program which was initiated
during October 2001 and has proven to be well liked by customers of the Bank.
The same fee that would apply to a check drawn on insufficient funds or an
uncollected item is charged when the overdraft privilege is used; however, in
this case the customers' check is not returned, but paid and the fee is
collected. The increase in the overall volume of deposit accounts also
contributed to the increase in charges on such accounts for items such as a
monthly service charge on accounts which fall below certain minimum balance
levels.
Other operating income increased to $455,000 for the six months ended December
31, 2002 as compared to $327,000 for the six months ended December 31, 2201, an
increase of $128,000 or 39.1%. For the quarter ended December 31, 2002 other
operating income amounted to $192,000 as compared to $162,000 for the quarter
ended December 31, 2001. The most significant factor contributing to the six
months increase in other operating income was profit on the sale of REO
properties which amounted to approximately $67,000. The Bank continues to have
success in its marketing of merchant credit card processing and upgrading
checking account products for existing customers which enhances the profit
margin on such checking products. Fees earned on debit cards also contributed to
the increases in other operating income for the quarter and six-month periods.
NONINTEREST EXPENSE
Noninterest expense for the six months ended December 31, 2002 increased to $3.8
million as compared to $3.3 million for the six months ended December 31, 2001,
an increase of $0.5 million, or 15.2%. Noninterest expense increased to $1.9
million for the quarter ended December 31, 2002 as compared to $1.7 million for
the quarter ended December 31, 2001, an increase of 11.8%. The increase in
salaries and employee benefits of $191,000 and $100,000 when comparing the six
months and quarters ended December 31, 2002 and 2001, respectively, was a result
of annual salary increases, increased expenses associated with medical benefits
and retirement plans as well as some additional staffing. Approximately $30,000
of the increases in employee benefits when comparing both the six months and
quarters ended December 31, 2002 to 2001 were due to increased retirement plan
costs. The increases in furniture and equipment expense of approximately $69,000
when comparing the six months and $38,000 when comparing the quarters ended
December 31, 2002 to 2001, respectively, resulted from increased depreciation
expense associated with the replacement and upgrade of some computers and other
communications technology. The increases in service and data processing fees of
approximately $62,000 when comparing the six months and $36,000 when comparing
the quarters ended December 31, 2002 and 2001, respectively, were due to an
increase in the volume of deposit and loan accounts as well as fees associated
with increased ATM processing. The decreases in office supplies were largely
based on supply needs and some reductions in supply expenses due to changes in
technology allowing cheaper or more efficiently produced supplies such as forms.
Other noninterest expense items which contributed to the increases of $219,000
when comparing the six months and $80,000 when comparing the quarters ended
December 31, 2002 and 2001, respectively were increases in the commission paid
to the consultant which helped coordinate the kick-off of the overdraft
privilege program, additional advertising associated with several programs the
Bank is promoting, additional or increased computer licensing fees and other
computer security expenses as well as increases in postage expenses due to
postal rate increases and volume increases related to more deposit and loan
accounts. Some expenses have increased as a result of the overdraft privilege
program including the charge-off of uncollected balances on overdrawn accounts.
INCOME TAXES
The provision for income taxes directly reflects the expected tax associated
with the revenue generated for the given year and certain regulatory
requirements. Income tax expense increased to $530,000 for the six months ended
December 31, 2002 from $277,000 for the six months ended December 31, 2001, an
increase of $253,000, or 91.3%. The effective tax rate increased to 30.9% for
the six months ended December 31, 2002, as compared to 27.7% for the six months
ended December 31, 2001 in anticipation of the effective rate required for the
fiscal year ending June 30, 2003. A major reason for the change in effective
rate was due to the expected decrease in the percentage of total income that
municipal securities and other tax free investments are expected to contribute
to total income during the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates or prices such as interest rates, foreign currency
exchange rates, commodity prices, and equity prices. The Company's most
significant form of market risk is interest rate risk since the majority of the
Company's assets and liabilities are sensitive to changes in interest rates. The
Company's primary sources of funds are deposits and proceeds from principal and
interest payments on loans, mortgage-backed securities and debt securities, with
lines of credit available through the Federal Home Loan Bank as needed. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit outflows, mortgage prepayments, and lending activities
are greatly influenced by general interest rates, economic conditions and
competition.
During the last year the declining market interest rate environment has helped
to improve the net interest spread and margin; however, an increasing market
interest rate environment will have the reverse effect.
Mortgage loan commitments totaled $4.3 million at December 31, 2002. The unused
portion of overdraft lines of credit amounted to $0.8 million, the unused
portion of home equity lines of credit amounted to $1.7 million, and the unused
portion of commercial lines of credit amounted to $1.7 million at December 31,
2002. The Company anticipates that it will have sufficient funds available to
meet current loan commitments based on the level of cash and cash equivalents as
well as the available for sale investment portfolio.
The Bank met all regulatory capital requirements at December 31, 2002 and 2001.
Consolidated shareholders' equity represented 11.8% of total assets at December
31, 2002 and 12.0% of total assets of June 30, 2002.
Item 3. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days prior to the filing date of
this report, that the Company's disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-14 (c ) and 15d-14( c )) are effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There have been no
significant changes in the Company's internal controls or other factors that
could significantly affect these controls subsequent to the date of the
foregoing evaluation.
Part II. Other Information
Item 1. Legal Proceedings
The Company is not engaged in any material legal proceedings
at the present time.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On October 23, 2002, the Company held an annual meeting of shareholders. At the
meeting, proposals to (1) elect Directors Dennis R. O'Grady and Martin C. Smith
each to serve as director for three-year terms and until their successors have
been elected and qualified, and (2) ratify the engagement of
PricewaterhouseCoopers LLP, to be the Company's auditors for the June 30, 2003
fiscal year were approved. There were no broker non-votes. The votes cast for
and against these proposals were as follows:
Election to the Board Directors For Withheld
Dennis R. O'Grady 1,916,457 1,333
Martin C. Smith 1,919,393 1,397
Ratification of PricewaterhouseCoopers LLP
For Against Abstain
Number of votes 1,910,167 6,235 1,388
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 99.1 - Written Statement of Chief Executive Officer furnished pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U. S.C. Section 1350.
Exhibit 99.2 - Written Statement of Chief Financial Officer furnished pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
(b) No Form 8-K reports were filed during the quarter ended December 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by
the undersigned thereunto duly authorized.
Greene County Bancorp, Inc.
Date: February 14, 2003
By: /s/ J. Bruce Whittaker
J. Bruce Whittaker
President and Chief Executive Officer
Date: February 14, 2003
By: /s/ Michelle Plummer
Michelle Plummer
Chief Financial Officer and Treasurer
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, J. Bruce Whittaker, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Greene County
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/ J. Bruce Whittaker
____________________________
President and Chief Executive Officer
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Michelle Plummer, Chief Financial Officer and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Greene County
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusion about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
d) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
e) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/ Michelle Plummer
__________________________
Chief Financial Officer and Treasurer
EXHIBIT 99.1
STATEMENT FURNISHED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
The undersigned, J. Bruce Whittaker, is the President and Chief Executive
Officer of Greene County Bancorp, Inc. (the "Company").
This statement is being furnished in connection with the filing by the Company
of the Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 2002 (the "Report").
By execution of this statement, I certify that:
A) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and
B) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
as of the dates and for the periods covered by the Report.
This statement is authorized to be attached as an exhibit to the
Report so that this statement will accompany the Report at such time as the
Report is filed with the Securities and Exchange Commission pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. 18 U.S.C. Section 1350. It
is not intended that this statement be deemed to be filed for purposes of
the Securities Exchange Act of 1934, as amended.
February 14, 2003 /s/ J. Bruce Whittaker
_______________________
Dated J. Bruce Whittaker
EXHIBIT 99.1
STATEMENT FURNISHED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
The undersigned, Michelle Plummer, is the Chief Financial Officer and Treasurer
of Greene County Bancorp, Inc. (the "Company").
This statement is being furnished in connection with the filing by the Company
of the Company's Quarterly Report on Form 10-QSB for the quarter ended
December 31, 2002 (the "Report").
By execution of this statement, I certify that:
A) the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and
B) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
as of the dates and for the periods covered by the Report.
This statement is authorized to be attached as an exhibit to the
Report so that this statement will accompany the Report at such time as the
Report is filed with the Securities and Exchange Commission pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. 18 U.S.C. Section 1350. It
is not intended that this statement be deemed to be filed for purposes of
the Securities Exchange Act of 1934, as amended.
February 14, 2003 /s/ Michelle Plummer
_______________________
Dated Michelle Plummer