SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended June 30, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from ___________________ to ______________________
Commission File Number: 0-25165
GREENE COUNTY BANCORP, INC.
_________________________________________________
( Name of Small Business Issuer in its Charter)
United States 14-1809721
_____________________________ _____________
(State or Other Jurisdiction
of Incorporation or Organization) (I.R.S. Employer Identification No.)
302 Main Street, Catskill, New York 12414
_____________________________________ _________
(Address of Principal Executive Office) (Zip Code)
(518) 943-2600
(Issuer's Telephone Number
including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
________
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
___________________________________________________________
(Title of Class)
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 past
twelve 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
______________________
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendments to this Form 10-KSB. [X]
The Registrant's revenues for the fiscal year ended June 30, 2001 were
$12,609,158.
As of June 30, 2001, there were issued 2,152,835 and 2,040,355 shares
outstanding of the Registrant's Common Stock. As of September 21, 2001, there
were 2,022,755 shares outstanding, of which 870,439 were shares of voting stock
held by non-affiliates of the Registrant, computed by reference to the closing
price of Common Stock of $13.75 on such date. The aggregate value of stock held
by non-affiliates was $11,968,536.25
DOCUMENTS INCORPORATED BY REFERENCE
1. Sections of Annual Report to Shareholders for the fiscal year ended June 30,
2001 (Part II).
2. Proxy Statement for the 2001 Annual Meeting of Shareholders (Part III)
PART I
________
ITEM 1. Business
______ _________
Greene County Bancorp, Inc. (the "Company") was organized at the direction
of the Board of Trustees of The Bank of Greene County (formerly Greene County
Savings Bank) (the "Bank") for the purpose of acting as the holding company of
the Bank. On August 15, 2000, the Board of Directors of the Company unanimously
approved a plan to convert the Company's charter from a Delaware corporation
regulated by the New York Superintendent of Banks and the Board of Governors of
the Federal Reserve System to a Federal corporation regulated by the Office of
Thrift Supervision ("OTS"). On April 2, 2001, the OTS approved the charter
conversion, which was approved by the shareholders of the Company on November
27, 2000. The Company's assets consist primarily of the outstanding capital
stock of the Bank and cash and investments of $5.1 million. At June 30, 2001,
888,039 shares of the Company's common stock, par value $0.10 per share, were
held by the public, 112,480 shares were held as Treasury stock and 1,152,316
shares were held by Greene County Bancorp, MHC, the Company's mutual holding
company (the "Mutual Company"). The Company's principal business is overseeing
and directing the business of the Bank and various Company investment
securities.
At June 30, 2001, the Company had consolidated total assets of $185.1
million, consolidated total deposits of $154.2 million, borrowings from Federal
Home Loan Bank of $5.0 million and consolidated total equity of $25.1 million.
The Company's administrative office is located at 302 Main Street,
Catskill, New York 12414-1317. Its telephone number is (518) 943-2600.
The Bank of Greene County
The Bank was organized in 1889 as The Building and Loan Association of
Catskill, a New York-chartered savings and loan association. In 1974, the Bank
converted to a New York mutual savings bank under the name Greene County Savings
Bank. In conjunction with the reorganization and the offering completed in
December 1998 ("the December 1998 Reorganization") the Bank changed its name to
The Bank of Greene County. The Bank's deposits are insured by the Bank Insurance
Fund, as administered by the Federal Deposit Insurance Corporation ("FDIC"), up
to the maximum amount permitted by law. The Bank's principal business consists
of attracting retail deposits from the general public in the areas surrounding
its branches and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans, commercial real estate loans, consumer loans, home equity loans and
commercial business loans. In addition, the Bank invests a significant portion
of its assets in investment securities and mortgage- and asset-backed
securities. The Bank's revenues are derived principally from the interest on its
mortgage, consumer and commercial loans and securities, and servicing fees and
service charges and other fees collected on its deposit accounts. The Bank's
primary sources of funds are deposits, and principal and interest payments on
loans and investment and mortgage- and asset-backed securities. At June 30,
2001, the Bank had borrowed $5.0 million from the Federal Home Loan Bank.
The Bank's administrative office is located at 302 Main Street, Catskill,
New York 12414-1317. Its telephone number is (518) 943-2600.
Greene County Bancorp, MHC
The Mutual Company was formed in December 1998 as part of the Bank's mutual
holding company reorganization. The Mutual Company also received OTS approval of
its conversion from a state to federal charter on April 2, 2001 as discussed
above. The OTS under the new charter currently regulates the Mutual Company. The
Mutual Company owns 53.5% of the common stock of the Company. The Mutual Company
does not engage in any business activity other than to hold the Company's common
stock and to invest any liquid assets of the Mutual Company.
The Company's administrative office is located at 302 Main Street,
Catskill, New York 12414-1317, and its telephone number at that address is (518)
943-2600.
Market Area
The Bank has been, and intends to continue to be, a community-oriented bank
offering a variety of financial services to meet the needs of the communities it
serves. The Bank currently operates six full-service banking offices in Greene
County and southern Albany County, New York. The Bank's primary deposit
gathering area is currently concentrated around the areas within Greene County
and southern Albany County where its full-service banking offices are located,
namely the towns of Catskill, Greenville, Cairo, Coxsackie, Tannersville and
Westerlo.
As of the 2000 census estimates, the County population was 48,300 persons,
indicating an overall increase in the population level of 8.0% since the last
census conducted in 1990. Greene County is primarily rural and the major
industry consists of tourism associated with the several ski facilities and
festivals located in the Catskill Mountains. The County has no concentrations of
manufacturing industry. Greene County is contiguous to the
Albany-Schenectady-Troy metropolitan statistical area. The close proximity of
Greene County to the city of Albany has made it a "bedroom" community for
persons working in the Albany capital area. Greene County and the Coxsackie
Correctional Facilities are the largest employers in the County. Other large
employers include the Hunter Mountain and Ski Windham resort areas, the
Catskill, Cairo-Durham, Greenville and Coxsackie-Athens Central School Districts
and Stiefel Labs, Inc.
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's market area has a high density of financial
institutions, many of which are branches of significantly larger institutions
that have greater financial resources than the Bank, and all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings banks, savings and loan
associations, mortgage-banking companies, credit unions, insurance companies and
other financial service companies. Its most direct competition for deposits has
historically come from commercial banks, savings banks, savings and loan
associations and credit unions. The Bank faces additional competition for
deposits from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies. Competition may also
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions.
Competition is likely to increase as a result of the enactment of the
Gramm-Leach-Bliley Act of 1999, which eases restrictions on entry into the
financial services market by insurance companies and securities firms. Moreover,
to the extent that these changes permit banks, securities firms and insurance
companies to affiliate, the financial services industry could experience further
consolidation. This could result in a growing number of larger financial
institutions competing in the Bank's primary market area that offer a wider
variety of financial services than the Bank currently offers. Competition for
deposits, for the origination of loans and the provision of other financial
services may limit the Bank's growth and adversely impact its profitability in
the future.
Lending Activities
General. The principal lending activity of the Bank is the origination, for
retention in its portfolio, of fixed-rate and adjustable-rate mortgage loans
collateralized by one- to four-family residential real estate located within its
primary market area. To a lesser extent, the Bank also originates commercial
real estate loans, home equity loans, consumer loans and commercial business
loans.
In an effort to manage the interest rate risk associated with its
predominantly fixed-rate loan portfolio, the Bank maintains high levels of
liquidity, and, where possible, matches the funding of fixed-rate residential
mortgages with lower-costing core savings accounts.
Loan Portfolio Composition. Set forth below is selected information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for deferred fees and costs, unearned discounts
and allowances for losses) as of the dates indicated.
At June 30,
2001 2000 1999
Amount Percent Amount Percent Amount Percent
---------- ---------- ----------- ----------- ---------- ---------
(Dollars in thousands)
Real estate loans:
One- to four- family $86,336 77.84% $80,696 81.54% $74,145 80.74%
Commercial 5,239 4.72 4,702 4.75 3985 4.34
Construction and land 1,979 1.78 616 0.62 1654 1.80
Multi-family 1,213 1.09 1,253 1.27 841 0.92
---------- ---------- ------------- --------- ------------- --------
Total real estate loans 94,767 85.43 87,267 88.18 80,625 87.80
Consumer loans
Installment (1) 6,128 5.53 4,865 4.92 4,761 5.18
Home equity 6,138 5.53 4,631 4.68 4,689 5.11
Passbook 596 0.54 490 0.50 525 0.57
---------- ---------- ------------- --------- ------------- --------
Total consumer loans 12,862 11.60 9,986 10.10 9,975 10.86
Commercial business loans 3,291 2.97 1,707 1.72 1,230 1.34
---------- ---------- ------------- --------- ------------- --------
Total consumer loans and
commercial business loans 16,153 14.57 11,693 11.82 11,205 12.20
---------- ---------- ------------- --------- ------------- --------
Total gross loans 110,920 100.0% 98,960 100.0% 91,830 100.0%
---------- ------------- -------------
Less:
Deferred fees and discounts (277) (275) (240)
Allowance for loan losses (886) (866) (792)
---------- ------------- -------------
Total loans receivable, net $109,757 $97,819 $90,798
========== ============= =============
(1) Includes direct automobile loans (on both new and used automobiles) and
personal loans.
At June 30,
2001 2000 1999
Amount Percent Amount Percent Amount Percent
---------- ---------- ------------- --------- ------------- --------
(Dollars in thousands)
Fixed-rate loans:
Real estate loans:
One- to four- family $77,852 70.19% $69,360 70.08% $60,137 65.49%
Commercial 3,589 3.23 2,840 2.87 1,542 1.68
Construction and land 1,979 1.78 616 0.62 1,654 1.80
Multi-family 1,175 1.06 1,124 1.14 699 0.76
---------- ---------- ------------- --------- ------------- ---------
Total real estate loans 84,595 76.26 73,940 74.71 64,032 69.73
Consumer loans
Installment (1) 6,128 5.53 4,865 4.92 4,761 5.18
Home equity 6,138 5.53 4,631 4.68 4,689 5.11
Passbook 596 0.54 490 0.50 525 0.57
Commercial business loans 3,291 2.97 1,707 1.72 1,230 1.35
---------- ---------- ------------- --------- ------------- ---------
Total fixed-rate loans 100,748 90.83 85,633 86.53 75,237 81.94
---------- ---------- ------------- --------- ------------- ---------
Adjustable-rate loans
Real estate loans:
One- to four- family 8,484 7.65 11,336 11.46 14,008 15.25
Commercial real estate 1,650 1.49 1,862 1.88 2,443 2.66
Multi-family 38 0.03 129 0.13 142 0.15
Construction and land --- --- --- --- --- ---
---------- ---------- ------------- --------- ------------- ---------
Total adjustable-rate loans 10,172 9.17 13,327 13.47 16,593 18.06
Total gross loans 110,920 100.0% 98,960 100.0% 91,830 100.0%
---------- ---------- ------------- --------- ------------- ---------
Less:
Deferred fees and discounts (277) (275) (240)
Allowance for loan losses (886) (866) (792)
---------- ------------- -------------
Total loans receivable, net $109,757 $97,819 $90,798
========== ============= =============
(1) Includes direct automobile loans (on both new and used automobiles) and
personal loans.
One- to Four-Family Residential Loans. The Bank's primary lending activity
is the origination, for retention in the Bank's portfolio, of one- to
four-family residential mortgage loans collateralized by property located in the
Bank's primary lending area. Generally, one- to four-family residential mortgage
loans are made in amounts up to 89.9% of the lesser of the appraised value of
the property. However, the Bank will originate one- to four-family residential
mortgage loans with loan-to-value ratios of up to 95%, with private mortgage
insurance. Generally, residential mortgage loans are originated for terms of up
to 30 years, though in recent years the Bank has been successful in marketing
and originating such loans with 15-year terms. One- to four-family fixed-rate
loans are offered with both a monthly and bi-weekly payment feature. The Bank
generally requires fire and casualty insurance, the establishment of a mortgage
escrow account for the payment of real estate taxes, hazard and flood insurance,
as well as title insurance on all properties collateralizing real estate loans
made by the Bank.
The Bank currently offers one- to four-family residential mortgage loans
with fixed and adjustable interest rates. Originations of fixed-rate loans
versus adjustable-rate loans are monitored on an ongoing basis and are affected
significantly by the level of market interest rates, customer preference, the
Bank's interest rate gap position, and loan products offered by the Bank's
competitors. Particularly, in a relatively low interest rate environment,
borrowers may prefer fixed-rate loans to adjustable-rate loans. Single-family
residential real estate loans often remain outstanding for significantly shorter
periods than their contractual terms because borrowers may refinance or prepay
loans at their option. The average length of time that the Bank's single-family
residential mortgage loans remain outstanding varies significantly depending
upon trends in market interest rates and other factors.
The Bank's adjustable-rate mortgage ("ARM") loans currently provide for
maximum rate adjustments of 150 basis points per year and 600 basis points over
the term of the loan. The Bank offers ARM loans with initial interest rates that
are below market, referred to as "teaser rates." However, in underwriting such
loans, borrowers are qualified at the full index rate. Generally the Bank's ARM
loans adjust every year. After origination, the interest rate on such ARM loans
is reset based upon a contractual spread or margin above the average yield on
one-year United States Treasury securities, adjusted to a constant maturity (the
"U.S. Treasury Constant Maturity Index"), as published weekly by the Federal
Reserve Board.
ARM loans decrease the risk associated with changes in market interest
rates by periodically re-pricing, but involve other risks because as interest
rates increase, the underlying payments by the borrower increase, thus
increasing the potential for default by the borrower. At the same time, the
marketability of the underlying collateral may be adversely affected by higher
interest rates. Upward adjustment of the contractual interest rate is also
limited by the maximum periodic and lifetime interest rate adjustment permitted
by the terms of the ARM loans, and, therefore, is potentially limited in
effectiveness during periods of rapidly rising interest rates. At June 30, 2001,
7.65% of the Bank's loan portfolio consisted of one- to four-family residential
loans with adjustable interest rates.
The Bank originates construction to permanent loans to homeowners for the
purpose of construction of primary and secondary residences. The Bank issues a
commitment and has one closing which encompasses both the construction phase and
permanent financing. The construction phase is a maximum term of six months and
the interest charged is the rate as stated in the commitment, with loan-to-value
ratios of up to 89% (or up to 95% with private mortgage insurance), of the
completed project. The Bank began offering loans collateralized by undeveloped
land during fiscal year 2001. The acreage associated with such loans is limited.
These land loans generally are intended for future sites of primary or secondary
residence.
Construction lending generally involves a greater degree of risk than other
one- to four-family mortgage lending. The repayment of the construction loan is,
to a great degree, dependent upon the successful and timely completion of the
construction of the subject property. Construction delays may further impair the
borrower's ability to repay the loan.
The Bank's residential mortgage loan originations are generally obtained
from the Bank's loan representatives operating in its branch offices through
their contacts with existing or past loan customers, depositors of the Bank,
referrals from attorneys and accountants who refer loan applications from the
general public, and local realtors. The Bank has hired a loan originator who
calls upon customers during non-banking hours and at locations convenient to the
customer.
All one- to four-family residential mortgage loans originated by the Bank
include "due-on-sale" clauses, which give the Bank the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
At June 30, 2001, $86.3 million, or 77.8% of the Bank's loan portfolio,
consisted of one- to four-family residential mortgage loans. Approximately
$660,607 of such loans (representing 11 loans) were included in nonperforming
loans as of that date.
Commercial Real Estate and Multifamily Loans. At June 30, 2001, $5.2
million, or 4.72%, of the total loan portfolio consisted of commercial real
estate loans. Office buildings, mixed-use properties and other commercial
properties collateralize commercial real estate loans. The Bank originates
fixed- and adjustable-rate commercial mortgage loans with maximum terms of up to
20 years. The maximum loan-to-value ratio of commercial real estate loans is
generally 75%. At June 30, 2001, the largest commercial mortgage loan had a
principal balance of $433,171 and was collateralized by a furniture
warehouse/showroom.
In underwriting commercial real estate loans, the Bank reviews the expected
net operating income generated by the real estate to ensure that it is generally
at least 110% of the amount of the monthly debt service; the age and condition
of the collateral; the financial resources and income level of the borrower; and
the borrower's business experience. The Bank's policy is to require personal
guarantees from all commercial real estate borrowers.
Loans collateralized by commercial real estate generally are larger than
one- to four-family residential loans and involve a greater degree of risk.
Commercial mortgage loans often involve large loan balances to single borrowers
or groups of related borrowers. Payments on these loans depend to a large degree
on the results of operations and management of the properties or underlying
businesses, and may be affected to a greater extent by adverse conditions in the
real estate market or the economy in general. Accordingly, the nature of
commercial real estate loans makes them more difficult for Bank management to
monitor and evaluate.
The Bank originates a limited number of multi-family loans, which totaled
$1.2 million, or 1.09% of the Bank's total loans at June 30, 2001. Multi-family
loans are generally collateralized by apartment buildings located in the Bank's
primary market area. The Bank's underwriting practices and the risks associated
with multi-family loans do not differ substantially from that of commercial real
estate loans.
Consumer Loans. The Bank's consumer loans consist of direct loans on new
and used automobiles, personal loans (either secured or unsecured), home equity
loans, and other consumer loans (consisting of passbook loans, unsecured home
improvement loans and recreational vehicle loans). At June 30, 2001, consumer
loans totaled $12.9 million, or 11.6% of the total loan portfolio. Consumer
loans (other than home equity loans) are originated at fixed rates with terms to
maturity of one to five years.
Consumer loans generally have shorter terms and higher interest rates than
one- to four-family mortgage loans. In addition, consumer loans expand the
products and services offered by the Bank to better meet the financial services
needs of its customers. Consumer loans generally involve greater credit risk
than residential mortgage loans because of the difference in the underlying
collateral. Repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance because of the
greater likelihood of damage, loss or depreciation in the underlying collateral.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower beyond obtaining a deficiency judgment. In
addition, consumer loan collections depend on the borrower's personal financial
stability. Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
that can be recovered on such loans.
The Bank's underwriting procedures for consumer loans includes an
assessment of the applicant's credit history and an assessment of the
applicant's ability to meet existing and proposed debt obligations. Although the
applicant's creditworthiness is the primary consideration, the underwriting
process also includes a comparison of the value of the security to the proposed
loan amount. The Bank underwrites its consumer loans internally, which the Bank
believes limits its exposure to credit risks associated with loans underwritten
or purchased from brokers and other external sources.
The Bank offers fixed-rate home equity loans that are collateralized by the
borrower's residence. Home equity loans are generally underwritten with terms
not to exceed 15 years and under the same criteria that the Bank uses to
underwrite one- to four-family fixed rate loans. Home equity loans may be
underwritten with terms not to exceed 15 years and with a loan to value ratio of
80% when combined with the principal balance of the existing mortgage loan. The
maximum amount of a home equity loan may not exceed $50,000 unless approved by
the Board of Directors. The Bank appraises the property collateralizing the loan
at the time of the loan application (but not thereafter) in order to determine
the value of the property collateralizing the home equity loans. At June 30,
2001, the outstanding balance of home equity loans totaled $6.1 million, or
5.53% of the Bank's total loan portfolio.
Commercial Business Loans. The Bank also originates commercial business
loans up to 10 years at fixed rates. The Bank attributes growth in this
portfolio to its ability to offer borrowers senior management attention as well
as timely and local decision-making on commercial loan applications. The
decision to grant a commercial business loan depends primarily on the
credit worthiness and cash flow of the borrower (and any guarantors) and
secondarily on the value of and ability to liquidate the collateral that
consists of receivables, inventory and equipment. The Bank generally requires
annual financial statements, tax returns and personal guarantees from the
commercial business borrowers. The Bank also generally requires an appraisal of
any real estate that collateralizes the loan. At June 30, 2001, the Bank had
$3.3 million of commercial business loans representing 2.97% of the total loan
portfolio. On such date, the average balance of the Bank's commercial business
loans was approximately $35,800. The largest commercial business loan had a
balance of $600,000 and represented a fire truck loan for a local fire district.
At June 30, 2001, the Bank's commercial loan portfolio included 92 loans
collateralized by real estate, fire trucks, or other equipment.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential and commercial real estate lending. Real estate
lending is generally considered to be collateral based, with loan amounts based
on predetermined loan to collateral values, and liquidation of the underlying
real estate collateral is viewed as the primary source of repayment in the event
of borrower default. Although commercial business loans may be collateralized by
equipment or other business assets, the liquidation of collateral in the event
of a borrower default is often an insufficient source of repayment because
equipment and other business assets may be obsolete or of limited use, among
other things. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower (and any guarantors), while
liquidation of collateral is a secondary and often insufficient source of
repayment.
Loan Maturity Schedule. The following table sets forth certain information
as of June 30, 2001 regarding the amount of loans maturing or re-pricing in the
Bank's portfolio. Adjustable-rate loans are included in the period in which
interest rates are next scheduled to adjust rather than the period in which they
contractually mature, and fixed-rate loans are included in the period in which
the final contractual repayment is due.
The following table illustrates the future maturities of such loans
at June 30, 2001.
1 Year 3 Years 5 Years
Within Through Through Through Beyond
1 Year 3 Years 5 Years 10 Years 10 Years Total
--------- ---------- ---------- ----------- ---------- -----------
(Dollars in thousands)
Real estate loans:
One- to four- family $7,604 $1,784 $1,163 $10,864 $64,921 $86,336
Commercial 1,481 223 155 593 2,787 5,239
Construction and land --- --- 6 --- 1,973 1,979
Multi-family --- 38 74 37 1,064 1,213
--------- ---------- ---------- ----------- ---------- -----------
Total real estate loans 9,085 2,045 1,398 11,494 70,745 94,767
Consumer loans 1,269 3,190 3,708 2,309 2,386 12,862
Commercial business loans 1,208 513 830 140 600 3,291
--------- ---------- ---------- ----------- ---------- -----------
Total loan portfolio $11,562 $5,748 $5,936 $13,943 $73,731 $110,920
========= ========== ========== =========== ========== ===========
The total amount of the above loans due after June 30, 2002 which have
predetermined interest rates is $97.5 million while the total amount of loans
due after such date which have adjustable interest rates is $1.8 million.
The following table sets forth the loan origination and repayment
activities of the Bank for the periods indicated. The Bank did not purchase or
sell any loans during the periods presented.
For the Years Ended June 30,
2001 2000 1999
--------- ---------- ---------
(Dollars in thousands)
Originations by type:
Adjustable rate loans
One- to four- family $409 $541 $1,214
Commercial real estate 252 51 131
Multi-family 10 17 ---
--------- ---------- ---------
Total adjustable rate loans 671 609 1,345
Fixed rate loans
One- to four- family 17,123 15,910 28,455
Commercial real estate 1,485 1,682 90
Construction and land 4,405 4,512 3,347
Multi-family 145 483 ---
Installment 5,630 4,317 4,782
Home equity 3,311 1,610 2,227
Passbook 431 450 540
Commercial business 3,286 2,235 388
--------- ---------- ---------
Total fixed rate loans 35,816 31,199 39,829
Total loans originated $36,487 $31,808 $41,174
--------- ---------- ---------
Repayments:
One- to four- family 11,892 9,900 19,777
Commercial real estate 1,200 1,016 757
Construction and land 3,042 5,550 2,491
Multi-family 195 88 ---
Installment 4,367 4,213 4,193
Home equity 1,804 1,668 2,265
Passbook 325 485 559
Commercial business 1,702 1,758 494
--------- ---------- ---------
Total repayments 24,527 24,678 30,536
--------- ---------- ---------
Net increase in loans $11,960 $7,130 $10,638
========= ========== =========
Loan Approval Procedures and Authority. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. Loan officers
generally have the authority to originate mortgage loans, consumer loans and
commercial business loans up to amounts established for each lending officer.
The Executive Committee or the full Board of Directors must approve all
residential loans over $200,000.
The Board annually approves independent appraisers used by the Bank. For
larger loans, the Bank may require an environmental site assessment to be
performed by an independent professional for all non-residential mortgage loans.
It is the Bank's policy to require hazard insurance on all mortgage loans.
Loan Origination Fees and Other Income. In addition to interest earned on
loans, the Bank receives loan origination fees. Such fees and costs vary with
the volume and type of loans and commitments made and purchased, principal
repayments, and competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.
In addition to loan origination fees, the Bank also receives other income
that consists primarily of deposit transaction account service charges, ATM fees
and late charges. The Bank also installs, maintains and services merchant
bankcard equipment for local retailers and is paid a percentage of the
transactions processed using such equipment.
Loans-to-One Borrower. Savings banks are subject to the same loans-to-one
borrower limits as those applicable to national banks, which under current
regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired capital and unimpaired surplus on an unsecured basis, and an
additional amount equal to 10% of unimpaired capital and unimpaired surplus if
the loan is secured by readily marketable collateral (generally, financial
instruments and bullion, but not real estate). The Bank's policy provides that
loans to one borrower (or related borrowers) should not exceed 10% of the Bank's
capital and reserves.
At June 30, 2001, the largest aggregate amount loaned by the Bank to one
borrower was consisted of a commercial business loan of $600,000 for the
purchase of a fire truck. The loan comprising the lending relationship was
performing in accordance with its terms as of June 30, 2001.
Delinquencies and Classified Assets
Collection Procedures. A computer generated late notice is sent and a 2%
late charge is assessed when a payment is 15 days late. A second notice will be
incorporated in the next month's billing notice, approximately 21 days after the
due date of the first late payment. Accounts thirty days or more past due will
be reviewed by the collection manager and receive individual attention as
required, including collection letters and telephone calls. The collection
manager in order to avoid further deterioration will closely monitor accounts
that have a history of consistent late or delinquent payments. Accounts two or
more payments past due are reported to the Board of Directors for consideration
of foreclosure action. With respect to consumer loans, a late notice is sent and
a late charge is assessed 10 days (or, in the case of home equity loans, 15
days) after payment is due. A second notice is sent 15 days (in the case of home
equity loans, 25 days) thereafter. The collection manager reviews loans 30 days
or more past due individually, following up with collection letters and
telephone calls. Accounts three or more payments past due are reported to the
Board of Directors and are subject to legal action and repossession of
collateral.
Loans Past Due and Non-performing Assets. Loans are reviewed on a regular
basis. Management determines that a loan is impaired or non-performing when it
is probable at least a portion of the loan will not be collected 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 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 non-performing. Interest on
nonaccural loans is recognized on a cash basis until such time as the borrower
has brought the loan to performing status. Other real estate owned is also
considered non-performing. At June 30, 2001, the Bank had non-performing loans
of $743,468 and a ratio of non-performing loans to total loans of 0.67%.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as other real estate owned ("OREO") until such time as
it is sold. When real estate is acquired through foreclosure or by deed in lieu
of foreclosure, it is recorded at its fair value, less estimated costs of
disposal. If the value of the property is less than the loan, less any related
specific loan loss provisions, the difference is charged against the allowance
for loan losses. Any subsequent write-down of OREO is charged against earnings.
At June 30, 2001, the Bank's OREO totaled $30,229 and its ratio of
non-performing assets to total assets was 0.42%.
The following table sets forth delinquencies in the Bank's loan portfolio
at June 30, 2001. When a loan is delinquent 90 days or more, the Bank fully
reverses all accrued interest thereon and ceases to accrue interest thereafter.
A loan is not removed from nonaccrual status until the loan is current and
evidence supports the borrower's ability to maintain a current status. The Bank
also had 3 one-to-four-family real estate loans that amounted to $162,374
classified as nonaccural which were in the 60 to 89 days delinquent category at
June 30, 2001. For all the dates indicated, the Bank did not have any material
restructured loans.
Percentage
of Loan
Dollar Category
Amount
Number
---------- ------------- ------------
60 to 89 Days delinquent
Real estate:
One- to four- family 10 $432,874 64.0%
Commercial 1 66,842 9.9
Construction and land --- --- ---
Multi-family 1 123,867 18.3
Installment 8 52,647 7.8
Commercial business --- --- ---
---------- ------------- ------------
Total loan delinquency 60 to 89 days 20 676,230 100.0%
90 Days and over delinquent
Real estate:
One- to four- family 8 498,233 85.8%
Commercial 1 71,711 12.3
Construction and land --- --- ---
Multi-family --- --- ---
Installment 4 11,150 1.9
Commercial business --- --- ---
---------- ------------- -----------
Total loan delinquency 90 days and over 13 581,094 100.0%
Total loans delinquent over 60 days
Real estate:
One- to four- family 18 931,107 74.0%
Commercial 2 138,553 11.0
Construction and land --- --- ---
Multi-family 1 123,867 9.9
Installment 12 63,797 5.1
Commercial business --- --- ---
---------- ------------- ------------
Total loans delinquent over 60 days 33 $1,257,324 100.0%
========== ============= ============
Nonaccrual Loans and Nonperforming Assets. The following table sets forth
information regarding nonaccrual loans and other non-performing assets at the
dates indicated. The Bank had no accruing loans delinquent more than 90 days at
June 30, 2001, 2000, and 1999.
At June 30,
2001 2000 1999
---------- ----------- ----------
Nonaccruing loans:
Real estate loans
One- to four- family $660,607 $495,909 $486,871
Commercial real estate 71,711 155,002 166,056
Installment and home equity 11,150 20,801 14,644
Commercial business --- --- ---
---------- ----------- ----------
Total nonaccruing loans 743,468 671,712 667,571
Real estate owned:
Real estate loans
One- to four- family --- 42,133 53,302
Commercial real estate 30,229 --- ---
Commercial business --- 109,000 123,548
---------- ----------- ----------
Total real estate owned 30,229 151,133 176,850
---------- ----------- ----------
Total non-performing assets $773,697 $822,845 $844,421
========== =========== ==========
Total as a percentage of total assets 0.42% 0.49% 0.56%
During the year ended June 30, 2001, gross interest income of $31,000 would
have been recorded on nonaccrual loans under their original terms if the loans
had been current throughout the period. No interest income was recorded on
nonaccrual loans or on accruing loans more than 90 days delinquent during the
year ended June 30, 2001.
Classification of Assets. Consistent with regulatory guidelines, the Bank
provides for the classification of loans and other assets considered to be of
lesser quality. Such ratings coincide with the "Substandard", "Doubtful" and
"Loss" classifications used by federal regulators in their examination of
financial institutions. Generally, an asset is considered Substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligors and/or the collateral pledged. Substandard assets include those
characterized by the distinct possibility that the insured financial institution
will sustain some loss if the deficiencies are not corrected. Assets classified
as Doubtful have all the weaknesses inherent in assets classified Substandard
with the added characteristic that the weaknesses present make collection or
liquidation in full, on the basis of currently existing facts, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific loss reserve and/or charge-off is not warranted.
Assets that do not currently expose the insured financial institutions to
sufficient risk to warrant classification in one of the aforementioned
categories but otherwise possess weaknesses are designated "Special Mention."
When the Bank classifies problem assets as either Substandard or Doubtful,
it establishes a valuation allowances or "loss reserves" in an amount deemed
prudent by management. General allowances represent loss allowances that have
been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When the Bank classifies problem assets as "Loss," it
is required either to establish a specific allowance for losses equal to 100% of
the amount of assets so classified, or to charge-off such amount. The Bank's
determination as to the classification of its assets and the amount of its
valuation allowance is subject to review by its regulatory agencies, which can
order the establishment of additional general or specific loss allowances. The
Bank reviews its portfolio monthly to determine whether any assets require
classification in accordance with applicable regulations.
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 adequate loan loss allowance. 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 noninterest expense) and is reduced by net charge-offs. At June 30,
2001, the total allowance was $886,081, which amounted to 0.81% of total net
loans receivable and 119.18% of nonperforming loans. Management will continue to
monitor and modify the level of the allowance for loan losses in order to
maintain it at a level which management considers adequate to provide for
potential loan losses. For the year ended June 30, 2001, the Bank's charge-offs
amounted to $76,915. For the years ended June 30, 2000 and 1999, the Bank's
charge-offs amounted to $65,557 and $125,971, respectively.
The Bank may requires an environmental site assessment to be performed by
an independent professional for non-residential mortgage loans. It is also the
Bank's policy to require title and hazard insurance on all mortgage loans. In
addition, the Bank may require borrowers to make payments to a mortgage escrow
account for the payment of property taxes. Any exceptions to the Bank's loan
policies must be made in accordance with the limitations set out in each policy.
Typically, the exception authority ranges from the Chief Lending Officer to the
Board of Directors, depending on the size and type of loan involved.
Analysis of the Allowance For Loan Losses. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
For theYears Ended June 30,
2001 2000 1999
---------- --------- ----------
Balance at the beginning of period $866,443 $791,897 $728,478
Charge-offs:
One- to four- family real estate --- --- 2,496
Commercial real estate 26,432 --- ---
Installment 50,483 65,557 19,735
Commercial business --- --- 103,740
---------- -------- ----------
Total charge-offs 76,915 65,557 125,971
Recoveries:
One- to four- families --- --- 5,665
Installment 36,553 5,103 3,725
---------- -------- ---------
Total recoveries 36,553 5,103 9,390
Net charge-offs 40,362 60,454 116,581
---------- -------- ---------
Additions charged to operations 60,000 135,000 180,000
---------- -------- ----------
Balance at end of period $886,081 $866,443 $791,897
========== ======== =========
Ratio of net charge-offs to average loans outstanding 0.04% 0.06% 0.15%
Ratio of net charge-offs to nonperforming assets 5.22% 7.35% 11.33%
Allowance for loan loss to nonperforming loans 119.18% 128.99% 91.94%
Allowance for loan loss to net loans 0.81% 0.89% 0.87%
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the allowance for loan losses by loan category at the dates
indicated. The allowance is allocated to each loan category based on historical
loss experience and economic conditions. The unallocated portions of the
allowance represent general reserves for unused lines of credit and inherent
risk associated with increased volume in lending transactions.
June 30, 2001 June 30, 2000 June 30, 1999
Percent Percent Percent
of of of
Loan loans Loan loans Loan loans
Amount of Amounts in each Amount of Amounts in each Amount of Amounts in each
Loan Loss By Category Loan Loss By Category loan Loss By Category
to total to total to total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
(Dollars in Thousands)
One- to four- family $467 $86,336 77.8% $442 $80,696 81.5% $484 $74,145 80.7%
Commercial real 120 5,239 4.7 105 4,702 4.8 88 3,985 4.3
Construction and land 13 1,979 1.8 4 616 0.6 6 1,654 1.8
Multi-family 10 1,213 1.1 22 1,253 1.3 10 841 0.9
Installment 100 6,128 5.5 121 4,865 4.9 80 4,761 5.2
Home equity 32 6,138 5.5 1 4,631 4.7 --- 4,689 5.1
Passbook 1 596 0.6 1 490 0.5 --- 525 0.6
Commercial business 136 3,291 3.0 72 1,707 1.7 55 1,230 1.4
Specific --- --- --- --- --- --- --- --- ---
Unallocated 7 --- --- 98 ---- --- 0 --- ---
---------- --------- --------- ---------- --------- -------- --------- --------- --------
Totals $886 $110,920 100.0% $866 $98,960 100.0% $792 $91,830 100.0%
========== ========= ========= ========== ========= ======== ========== ========= ========
Securities Investment Activities
Given the Bank's substantial portfolio of fixed-rate residential mortgage
loans, the Bank maintains high balances of liquid investments for the purpose of
reducing interest rate risk. The Board of Directors establishes the securities
investment policy. This policy dictates that investment decisions will be made
based on the safety of the investment, liquidity requirements, potential
returns, cash flow targets, and desired risk parameters. In pursuing these
objectives, management considers the ability of an investment to provide
earnings consistent with factors of quality, maturity, marketability and risk
diversification.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, federal funds sold, municipal bonds, corporate
debt obligations and certain mutual funds. In addition, the Bank's policy
permits investments in mortgage-backed securities, including securities issued
and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage
obligations ('CMOs'). The Bank's current securities investment strategy utilizes
a risk management approach of diversified investing among three categories:
short-, intermediate- and long-term. The emphasis of this approach is to
increase overall investment securities yields while managing interest rate risk.
The Bank will only invest in securities rated A or higher by at least one
nationally recognized rating agency (or securities attaining such rating as a
result of guarantees by insurance companies), with the exception of occasional
investments in smaller non-rated local bonds. The Bank does not engage in any
derivative or hedging transactions, such as interest rate swaps or caps.
At June 30, 2001, the Bank had $48.9 million in investment securities, or
26.4% of total assets. SFAS No. 115 requires the Bank to designate its
securities as held to maturity, available for sale or trading, depending on the
Bank's ability and intent regarding its investments. As of June 30, 2001, the
entire investment securities portfolio was classified as available for sale. At
June 30, 2001, the Bank's mortgage-backed securities portfolio totaled $8.9
million, or 4.8% of total assets and the Bank's asset-backed securities
portfolio totaled $3.3 million, or 1.8% of total assets.
Book Value of Investment Securities. The following table sets forth certain
information regarding the investment securities and other interest earning
assets as of the dates indicated.
At June 30,
2001 2000 1999
Book Percent Book Percent Book Percent
Value of total Value of Value of total
total
--------- ----------- -------------- --------- ------------- ----------
(Dollars in Thousands)
Investment securities, AFS
U.S. Treasuries $1,005 2.1% $4,684 10.4% 7,437 15.0%
U.S. Government agencies 1,794 3.7 5,190 11.6 5,515 11.1
State and political subdivisions 9,420 19.3 9,904 22.1 10,359 20.9
Mortgage-backed securities 8,783 18.0 6,000 13.4 5,233 10.5
Asset-backed securities 3,300 6.7 4,915 11.0 8,445 17.0
Corporate debt securities 23,432 47.9 12,812 28.6 11,479 23.1
Equity securities and other 1,141 2.3 1,303 2.9 1,194 2.4
--------- ----------- -------------- --------- ------------- ----------
Total investment securities, AFS $48,875 100.0% $44,808 100.0% $49,662 100.0%
========= =========== ============== ========= ============= ==========
Mortgage-Backed and Asset-Backed Securities. The Bank purchases
mortgage-backed securities in order to: (i) generate positive interest rate
spreads with minimal administrative expense; (ii) lower the Bank's credit risk
as a result of the guarantees provided by Freddie Mac, Fannie Mae, and GNMA; and
(iii) increase liquidity. At June 30, 2001, mortgage-backed securities
(including CMOs) totaled $8.8 million or 4.8% of total assets, all of which were
classified as available for sale. At June 30, 2001, all of the mortgage-backed
securities were fixed rate. The mortgage-backed securities portfolio had coupon
rates ranging from 5.50% to 7.0%, a weighted average yield of 6.25% and a
weighted average life (including pre-payment assumptions) of 3.0 years at June
30, 2001. The estimated market value of the Bank's mortgage-backed securities at
June 30, 2001 was $8.8 million, which was $109,685 more than cost.
The pooling of mortgages and the issuance of a security with an interest
rate that is based on the interest rate on the underlying mortgages create
mortgage-backed securities. Mortgage-backed securities typically represent a
participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including Fannie Mae,
Freddie Mac and GNMA) pool and resell the participation interests in the form of
securities to investors, such as the Bank, and guarantee the payment of
principal and interest to these investors. Mortgage-backed securities generally
yield less than the loans that underlie such securities because of the cost of
payment guarantees and credit enhancements. In addition, mortgage-backed
securities are usually more liquid than individual mortgage loans and may be
used to collateralize certain liabilities and obligations of the Bank.
Investments in mortgage-backed securities involve a risk that actual
prepayments will be greater than estimated over the life of the security, which
may require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby altering the net yield on such
securities. There is also reinvestment risk associated with the cash flows from
such securities or in the event such securities are prepaid. In addition, the
market value of such securities may be adversely affected by changes in interest
rates.
Management reviews prepayment estimates periodically to ensure that
prepayment assumptions are reasonable considering the underlying collateral for
the securities at issue and current interest rates and to determine the yield
and estimated maturity of the Bank's mortgage-backed securities portfolio. Of
the Bank's $8.8 million mortgage-backed securities portfolio at June 30, 2001,
$2.1 million with a weighted average yield of 5.93% had contractual maturities
within five years, $0.9 million with a weighted average yield of 7.61% had
contractual maturities of five to ten years and the remaining $5.8 million with
a weighted average yield of 6.17% had contractual maturities more than 10 years.
However, the actual maturity of a security may be less than its stated maturity
due to prepayments of the underlying mortgages. Prepayments that are faster than
anticipated may shorten the life of the security and may result in a loss of any
premiums paid and thereby reduce the net yield on such securities. Although
prepayments of underlying mortgages depend on many factors, the difference
between the interest rates on the underlying mortgages and the prevailing
mortgage interest rates generally is the most significant determinant of the
rate of prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Bank may be
subject to reinvestment risk because, to the extent that the Bank's securities
prepay faster than anticipated, the Bank may not be able to reinvest the
proceeds of such repayments and prepayments at a comparable rate of return.
Conversely, in a rising interest rate environment prepayments may decline,
thereby extending the estimated life of the security and depriving the Bank of
the ability to reinvest cash flows at the increased of interest.
At June 30, 2001, the Bank's portfolio of asset-backed securities totaled
$3.3 million, or 1.8% of total assets, all of which were classified as available
for sale. At June 30, 2001, all of the asset-backed securities were fixed rate.
The portfolio had coupon rates ranging form 6.00% to 6.85%, a weighted average
yield of 6.38% and a weighted average life (including prepayment assumptions) of
1.1 years at June 30, 2001. The estimated market value of the Bank's
asset-backed securities portfolio at June 30, 2001 was $3.3 million, which was
$88,669 more than cost at such date.
Asset-backed securities are a type of debt security collateralized by
various loans and assets including: automobile loans, equipment leases, credit
card receivables, home equity and improvement loans, manufactured housing,
student loans and other consumer loans. In the case of the Bank, its
asset-backed securities are collateralized by automobile loans and
second-mortgage loans.
Asset-backed securities provide the Bank with a broad selection of
fixed-income alternatives, most with higher credit ratings and less downgrade
risk than corporate bonds and more stable cash flows than mortgage related
securities. Prepayments and structure risk of asset-backed securities are less
of a concern than CMO securities due to the shorter maturities of the underlying
collateral promoting greater stability of payments.
Of the Bank's $3.3 million portfolio of asset-backed securities at June 30,
2001, $0.2 million with a weighted average yield of 5.76% had contractual
maturities within 5 years, no asset-backed securities held in the portfolio had
contractual maturities of 5 to 10 years, and the remaining $3.1 million with a
weighted average yield of 6.42% had contractual maturities of more than 10
years.
Sources of Funds
General. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of securities, and proceeds from maturing securities and
cash flows from operations are the primary sources of the Bank's funds for use
in lending, investing and for other general purposes.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, NOW
accounts, non-interest bearing checking accounts and money market accounts, and
certificates of deposit. The Bank also offers IRAs.
At June 30, 2001, deposits totaled $154.2 million. At June 30, 2001, the
Bank had a total of $58.1 million in certificates of deposit, of which $45.6
million had maturities of one year or less. Although the Bank has a significant
portion of its deposits in shorter-term certificates of deposit, management
monitors activity on these accounts and, based on historical experience and the
Bank's current pricing strategy, believes it will retain a large portion of such
accounts upon maturity.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. Deposits are obtained predominantly from the areas in which the
Bank's branch offices are located. The Bank relies primarily on competitive
pricing of its deposit products and customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio,
television, and print media. It generally does not solicit deposits from outside
its market area. While the Bank accepts certificates of deposit in excess of
$100,000, they are not subject to preferential rates. The Bank does not actively
solicit such deposits, as they are more difficult to retain than core deposits.
Historically, the Bank has not used brokers to obtain deposits.
The following table sets forth the deposit activities of the Bank for the
periods indicated.
For the Years Ended June 30,
2001 2000 1999
---------- ----------- ------------
(Dollars in thousands)
Opening balance $133,460 $127,999 $124,011
Deposits 512,785 333,442 289,926
Withdrawals 496,480 332,441 291,331
Interest credited 4,427 4,460 5,393
Ending balance 154,192 133,460 127,999
---------- ---------- ------------
Net increase $20,732 $5,461 $3,988
========== ========= =============
Percent increase 15.54% 4.27% 3.22%
The following tables set forth information, by various rate categories,
regarding the balance of deposits by types of deposit as of the dates indicated.
At June 30,
2001 2000 1999
Amount Percent Amount Percent Amount Percent
----------- --------- ---------- --------- --------- ---------
(Dollars in thousands)
Transaction and savings deposits
Demand deposits $18,418 11.9% $12,344 9.3% $9,468 7.4%
Savings deposits 57,021 37.0 53,892 40.4 54,670 42.6
NOW deposits 11,446 7.4 9,090 6.8 7,744 6.1
Money market deposits 9,194 6.0 6,189 4.6 3,940 3.1
-------- --------- ---------- ------ --------- -------
Total non-certificates of deposit 96,079 62.3 81,515 61.1 75,822 59.2
------- --------- ---------- ------ --------- -------
Certificate of deposit
0.00 - 3.99% 530 0.4 77 0.1 --- ---
4.00 - 5.99% 57,583 37.3 51,868 38.8 52,084 40.7
6.00 - 7.99% --- --- --- --- 93 0.1
8.00 - and over --- --- --- --- --- ---
------ --------- ---------- ------ --------- ------
Total certificates of deposit 58,113 37.7 51,945 38.9 52,177 40.8
-------- --------- ---------- ------ --------- -------
Total deposits $154,192 100.0% $133,460 100.0% $127,999 100.0%
======== ========= =========== ====== ========= =======
The following table sets forth the amount and remaining maturities of the
Bank's certificates of deposit accounts at June 30, 2001.
0.00- 4.00- 6.00% or Percent of
3.99% 5.99% Greater Total Total
-------- -------- ----------- ---------- ----------
(Dollars in thousands)
Certificates of deposits
Maturing in quarter ended
September 30, 2001 $106 $13,315 $--- $13,421 23.1%
December 31, 2001 418 15,035 --- 15,453 26.6
March 31, 2002 6 9,688 --- 9,694 16.7
June 30, 2002 --- 7,032 --- 7,032 12.1
September 30, 2002 --- 6,747 --- 6,747 11.6
December 31, 2002 --- 2,295 --- 2,295 4.0
March 31, 2003 --- 913 --- 913 1.6
June 30, 2003 --- 706 --- 706 1.2
September 30, 2003 --- 309 --- 309 0.5
December 31, 2003 --- 295 --- 295 0.5
March 31, 2004 --- 84 --- 84 0.1
June 30, 2004 --- 162 --- 162 0.3
Thereafter --- 1,002 --- 1,002 1.7
-------- -------- --------- --------- ---------
Total $530 $57,583 $--- $58,113 100.0%
======== ======== ========= ========= =========
Percent of total 0.9% 99.1% 0.0% 100.0%
Borrowed Funds. In the event that the Bank requires funds beyond its
ability to generate them internally, additional sources of funds are available
through Federal Home Loan Bank ("FHLB"). At June 30, 2001 the Bank had available
an Overnight Line of Credit and a One-Month Overnight Repricing Line of Credit,
each in the amount of $7,946,050 with the FHLB. Residential mortgages are
pledged by the Bank as collateral to secure the Bank's line of credit and term
borrowing. Interest on the 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. The advances are secured by all of the Company's stock and
deposits in the FHLB and a general lien on one-to-four family mortgage loans,
certain multi-family loans and U.S. Government Agency obligations in an
aggregate amount equal up to 133% of outstanding advances. The maximum amount
that the FHLB will advance to member institutions, including the Company,
fluctuates from time to time in accordance with policies of the FHLB.
The following table set forth certain information regarding borrowed funds.
Balance Outstanding at June 30, 2001:
Amount Rate Maturity Date
------------- --------------- ---------------
$2,500,000 6.82% - fixed 09/02/2004
2,500,000 6.80% - fixed 10/04/2005
-------------
$5,000,000
=============
Average daily balance outstanding: $8,739,726
Maximum amount outstanding during the year $12,500,000
Weighted average interest rate during the year 6.65%
Weighted average interest at end of year 6.81%
Personnel
As of June 30, 2001, the Bank had 66 full-time employees and 12 part-time
employees. A collective bargaining unit does not represent the employees and the
Bank considers its relationship with its employees to be good.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Mutual Company, the Company and the Bank are subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to these entities.
Method of Accounting. For federal income tax purposes, the Company and the
Bank currently report income and expenses on the accrual method of accounting
and use a tax year ending June 30 for filing consolidated federal income tax
returns. The Small Business Job Protection Act of 1996 (the "1996 Act")
eliminated the use of the reserve method of accounting for bad debt reserves by
savings institutions, effective for taxable years beginning after 1995.
Bad Debt Reserves. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 Federal tax return.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
New federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Bank redeem its common stock pay dividends or make distributions in excess
of earnings and profits.
At June 30, 2001, the Bank's total federal pre-1988 reserve was
approximately $2.1 million. This reserve reflects the cumulative effects of
federal tax deductions by the Bank for which no Federal income tax provision has
been made. A deferred tax liability has not been provided on this amount as
management does not intend to redeem stock, make distributions or take other
actions that would result in recapture of the reserve.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Company
and the Bank have not been subject to the alternative minimum tax and has no
such amounts available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after August 5, 1997. At June 30, 2001, the Bank had no
net operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The Mutual Company owns less than 80% of the
outstanding Common Stock of the Company. As such, the Mutual Company is not
permitted to file a consolidated federal income tax return with the Company and
the Bank. The corporate dividends-received deduction is 80% in the case of
dividends received from corporations with which a corporate recipient does not
file a consolidated return, and corporations which own less than 20% of the
stock of a corporation distributing a dividend may deduct only 70% of dividends
received or accrued on their behalf.
State Taxation
New York State Taxation - General. The Company and the Bank report income
on a combined calendar year basis to New York State. The New York State
franchise tax on banking corporations is imposed in an amount equal to the
greater of (a) 8.5% of "entire net income" allocable to New York State (b) 3% of
"alternative entire net income" allocable to New York State (c) 0.01% of the
average value of assets allocable to New York State or (d) $250. Entire net
income is based on federal taxable income, subject to certain modifications.
Alternative entire net income is equal to entire net income without certain
modifications. The Mutual Company files a separate New York State franchise tax
return.
Bad Debt Reserves. The Bank is allowed to utilize the reserve method of
accounting for New York State franchise tax purposes and is required to maintain
two reserve accounts: the Reserve for Losses on Nonqualifying Loans (the "NY NQL
Reserve") and the Reserve for Losses on Qualifying Real Property Loans (the "NY
QRPL Reserve"). The addition to the NY NQL Reserve must be computed under the
"experience method". The addition to the NY QRPL Reserve may be computed under
either the experience method or the "percentage of taxable income method" (the
"PTI method"). The deduction under the PTI method is equal to 32% of entire net
income (before the deduction for the bad debt reserve addition), which must
first be allocated to the NY NQL Reserve. The balance, if any, is the allowable
addition to the NY QRPL reserve, subject to a limitation based upon 6% of
Qualifying Real Property Loans ("QRPL").
Recapture of New York State Bad Debt Reserves. If the Bank ceases to
qualify as a "thrift institution" (as defined in the New York State tax law), or
fails to hold at least 60% of its assets in "Qualifying Assets", it will no
longer be entitled to use the reserve method and must recapture into entire net
income a portion of its NY QRPL Reserve. The amount subject to recapture is
generally equal to the excess of the NY QRPL Reserve over the federal QRPL
Reserve as of December 31, 1995. The amount of the Bank's NY QRPL Reserve
subject to recapture is approximately $1.8 million. Since it is the Bank's
intention to continue to qualify as a thrift institution and to meet the 60%
Qualifying Asset test, a deferred tax liability has not been established for the
$153,000 New York State tax that would result from such failure.
Net Operating Loss Deductions. For New York State franchise tax purposes,
the Bank is not entitled to carry back or forward net operating losses ("NOLs")
incurred in taxable years ending before January 1, 2001. NOLs incurred in
taxable years beginning on or after January 1, 2001 can be carried forward to
the succeeding 20 taxable years. No carryback of NOLs will be permitted.
Corporate Dividends-Received Deduction. Similar to the federal rules, the
Company and the Bank file a combined New York State franchise tax report and
intercompany dividends will be eliminated. However, the Mutual Company does not
own the requisite percentage (generally 80% or more) of the common stock of the
Company necessary to file on a combined basis with the Company. As long as the
Mutual Company owns more than 50% of the common stock of the Company, it is
entitled to a full exclusion from taxation of dividend income related to
subsidiary capital. The Mutual Company is entitled to a 50% dividends-received
deduction if it owns 50% or less of the common stock of the Company.
REGULATION
General
The Bank is a New York-chartered savings bank and the FDIC through the BIF
insures its deposit accounts up to applicable limits. The Bank is subject to
extensive regulation by the New York State Banking Department(" the
Department"), as its chartering agency, and by the FDIC, as its deposit insurer.
The Bank is required to file reports with, and is periodically examined by, the
FDIC and the New York Superintendent of Banking concerning its activities and
financial condition and must obtain regulatory approvals prior to entering into
certain transactions, including, but not limited to, mergers with or
acquisitions of other banking institutions. The Bank is a member of the FHLB of
New York and is subject to certain regulations by the Federal Home Loan Bank
System. Both the Company and the Mutual Company, as Mutual Savings and Loan
holding companies, are subject to regulation by the OTS ("OTS")and are required
to file reports with the OTS. Any change in such regulations, whether by the
Department, the FDIC, or OTS could have a material adverse impact on the Bank,
the Company, or the Mutual Company.
Certain of the regulatory requirements applicable to the Bank, the Company
and the Mutual Company are referred to below or elsewhere herein.
New York Bank Regulation
FDIC regulations and other federal law and regulations limit the exercise
by an FDIC-insured savings bank of the lending and investment powers under the
New York State Banking Law. In particular, the applicable provisions of New York
State Banking Law and regulations governing the investment authority and
activities of an FDIC insured state-chartered savings bank have been
substantially limited by the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant thereto.
The Bank derives its lending, investment and other authority primarily from
the applicable provisions of New York State Banking Law and the regulations of
the Department, as limited by FDIC regulations. Under these laws and
regulations, savings banks, including the Bank, may invest in real estate
mortgages, consumer and commercial loans, certain types of debt securities,
including certain corporate debt securities and obligations of federal, state
and local governments and agencies, certain types of corporate equity securities
and certain other assets. Under the statutory authority for investing in equity
securities, a savings bank may invest up to 7.5% of its assets in corporate
stock, with an overall limit of 5% of its assets invested in common stock.
Investment in the stock of a single corporation is limited to the lesser of 2%
of the outstanding stock of such corporation or 1% of the savings bank's assets,
except as set forth below. Such equity securities must meet certain earnings
ratios and other tests of financial performance. A savings bank's lending powers
are not subject to percentage of assets limitations, although there are limits
applicable to single borrowers. A savings bank may also, pursuant to the
"leeway" power, make investments not otherwise permitted under the New York
State Banking Law. This power permits investments in otherwise impermissible
investments of up to 1% of assets in any single investment, subject to certain
restrictions and to an aggregate limit for all such investments of up to 5% of
assets. Additionally, in lieu of investing in such securities in accordance with
and reliance upon the specific investment authority set forth in the New York
State Banking Law, savings banks are authorized to elect to invest under a
"prudent person" standard in a wider range of investment securities as compared
to the types of investments permissible under such specific investment
authority. However, in the event a savings bank elects to utilize the "prudent
person" standard, it will be unable to avail itself of the other provisions of
the New York State Banking Law and regulations, which set forth specific
investment authority. The Bank has not elected to conduct its investment
activities under the "prudent person" standard. A savings bank may also exercise
trust powers upon approval of the Department.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment authority. A savings bank may use
this power to invest in corporations that engage in various activities
authorized for savings banks, plus any additional activities, which may be
authorized by the Department. Investment by a savings bank in the stock, capital
notes and debentures of its service corporations is limited to 3% of the bank's
assets, and such investments, together with the bank's loans to its service
corporations, may not exceed 10% of the savings bank's assets. Furthermore, New
York banking regulations impose requirements on loans which a bank may make to
its executive officers and directors and to certain corporations or partnerships
in which such persons have equity interests. These requirements include, but are
not limited to, requirements that (i) certain loans must be approved in advance
by a majority of the entire board of trustees and the interested party must
abstain from participating directly or indirectly in the voting on such loan,
(ii) the loan must be on terms that are not more favorable than those offered to
unaffiliated third parties, and (iii) the loan must not involve more than a
normal risk of repayment or present other unfavorable features.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the BIF, which is administered by the FDIC. The
FDIC insures deposits up to applicable limits and such insurance is backed by
the full faith and credit of the U.S. Government. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings banks, after giving
the Superintendent an opportunity to take such action, and may terminate the
deposit insurance if it determines that the institution has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound
condition.
Regulatory Capital Requirements
The FDIC has adopted risk-based capital guidelines for banks under their
supervision. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. The Bank is required to maintain certain
levels of regulatory capital in relation to regulatory risk-weighted assets. The
ratio of such regulatory capital to regulatory risk-weighted assets is referred
to as the Bank's "risk-based capital ratio." Risk-based capital ratios are
determined by allocating assets and specified off-balance sheet items to four
risk-weighted categories ranging from 0% to 100%, with higher levels of capital
being required for the categories perceived as representing greater risk.
These guidelines divide the Bank's capital into two tiers. The first tier
("Tier I") includes common equity, retained earnings, certain non-cumulative
perpetual preferred stock (excluding auction rate issues) and minority interests
in equity accounts of consolidated subsidiaries, less goodwill and other
intangible assets (except mortgage servicing rights and purchased credit card
relationships subject to certain limitations). Supplementary ("Tier II") capital
includes, among other items, cumulative perpetual and long-term limited-life
preferred stock, mandatory convertible securities, certain hybrid capital
instruments, term subordinated debt and the allowance for loan and lease losses,
subject to certain limitations, less required deductions. Savings banks are
required to maintain a total risk-based capital ratio of 8%, of which at least
4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC may, however, set higher leverage and risk-based capital requirements on
individual institutions when particular circumstances warrant. Savings banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.
At June 30, 2001, the Bank exceeded all regulatory capital requirements.
Standards for Safety and Soundness
The federal banking agencies have adopted a final regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
federal law. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The standards set forth
in the Guidelines address internal controls and information systems; internal
audit system; credit underwriting; loan documentation; interest rate risk
exposure; asset growth; compensation; fees and benefits. The agencies also
adopted additions to the Guidelines, which require institutions to examine asset
quality and earnings standards. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by federal
law. The final regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
Limitations on Dividends and Other Capital Distributions
The FDIC has the authority to use its enforcement powers to prohibit a
savings bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice. Federal law also prohibits the
payment of dividends by a bank that will result in the bank failing to meet its
applicable capital requirements on a pro forma basis. New York law restricts the
Bank from declaring a dividend, which would reduce its capital below (i) the
amount required to be maintained by state and federal law and regulations, or
(ii) the amount of the Bank's liquidation account established in connection with
the December 1998 Reorganization. New York law also prescribes that dividends
declared by a stock savings bank in any calendar year shall not exceed the total
of its net profits for that year combined with its retained net profits of the
preceding two years, plus any required transfer to surplus or for the retirement
of any preferred stock, unless approved by the Superintendent.
Prompt Corrective Action
The federal banking agencies have promulgated regulations to implement the
system of prompt corrective action required by federal law. Under the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital of 10.0% or more, has a Tier I risk-based capital ratio of
6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to any written capital order or directive; (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized"; (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0%; and (v) "critically undercapitalized:" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Federal law
and regulations also specify circumstances under which a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution to comply with supervisory actions
as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
Based on the foregoing, the Bank is currently classified as a "well capitalized"
savings institution.
Activities and Investments of Insured State-Chartered Banks
Federal law generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks, notwithstanding state laws. Under regulations dealing with equity
investments, an insured state bank generally may not, directly or indirectly,
acquire or retain any equity investment of a type, or in an amount, that is not
permissible for a national bank. An insured state bank is not prohibited from,
among other things, (i) acquiring or retaining a majority interest in a
subsidiary; (ii) investing as a limited partner in a partnership the sole
purpose of which is the direct or indirect investment in the acquisition,
rehabilitation, or new construction of a qualified housing project, provided
that such limited partnership investments may not exceed 2% of the bank's total
assets; (iii) acquiring up to 10% of the voting stock of a company that solely
provides or reinsures directors', trustees', and officers' liability insurance
coverage or bankers' blanket bond group insurance coverage for insured
depository institutions; and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met.
Federal law and FDIC regulations permit certain exceptions to the foregoing
limitation. For example, certain state-chartered banks, such as the Bank, may
continue to invest in common or preferred stock listed on a National Securities
Exchange or the National Market System of NASDAQ, and in the shares of an
investment company registered under the Investment Company Act of 1940, as
amended. As of June 30, 2001, the Bank had no securities pursuant to this
exception.
Transactions with Affiliates
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary. In a holding company context, at a minimum, the parent holding
companies of a savings bank and any companies that are controlled by such parent
holding company are affiliates of the savings bank. Generally, Section 23A
limits the extent to which the savings bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
savings bank's capital stock and surplus, and contains an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus. The term "covered transaction" includes the making of loans
or other extensions of credit to an affiliate; the purchase of assets from an
affiliate, the purchase of, or an investment in, the securities of an affiliate;
the acceptance of securities of an affiliate as collateral for a loan or
extension of credit to any person; or issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances on letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and stockholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal stockholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
Holding Company Regulation
Generally. Federal law allows a state savings bank, such as the Bank, that
qualifies as a "Qualified Thrift Lender," discussed below, to elect to be
treated as a savings association for purposes of the savings and loan holding
company provisions of the Home Owners' Loan Act (the "HOLA"). Such election
results in its holding company being regulated as a savings and loan holding
company by the OTS rather than as a bank holding company by the Federal Reserve
Board. The Company and the Mutual Company have made such election by converting
from a Delaware corporation and a New York mutual holding company to a Federal
corporation and Federal mutual holding company, respectively, effective May 15,
2001. The Company and the Mutual Company savings and loan holding companies are
within the meaning of the HOLA As such, the Company and the Mutual Company are
registered with the OTS and are subject to the OTS regulations, examinations,
supervisions and reporting requirements. In addition, the OTS has enforcement
authority over the Company and the Mutual Company and any nonsavings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. As federal corporations, the Company and the Mutual Company
are generally not subject to state business organization law.
Permissible Activities. Under the HOLA and OTS regulations and policies, a
federal mid-tier holding company such as the Company is permitted to, among
other things: (i) own a savings association or savings bank; (ii) acquire a
mutual institution; (iii) merge with or acquire another mutual holding company,
one of whose subsidiaries is a savings institution; (iv) acquire non-controlling
amounts of the stock of savings institutions and savings institution holding
companies, subject to certain restrictions; (v) invest in any corporation that a
savings association may invest in under federal law or under the law of any
state where the savings association has its home office; (vi) furnish or perform
management services for a savings institution subsidiary; (vii) hold, manage or
liquidate assets owned or acquired from a savings institution subsidiary of such
company; (viii) hold or manage properties used or occupied by a savings
institution subsidiary of such company; and (ix) act as trustee under deed or
trust. In addition, a federal mutual holding company may engage in any other
activity that is permissible for bank holding companies under the Bank Holding
Company Act, or in which multiple savings and loan companies may engage.
Finally, under recently enacted financial modernization legislation, federal
mutual holding companies may engage in any activity in which a financial holding
company may engage, including maintaining an insurance agency, escrow business
and underwriting securities and insurance. Moreover, a federal mutual holding
company may engage in the activities of a financial holding company without
having to make financial holding company election that is applicable to bank
holding companies. If a mutual holding company acquires or merges with another
holding company, the holding company acquired or the holding company resulting
from such merger or acquisition may only invest in assets and engage in
activities listed-above, and has a period of two years to cease any
nonconforming activities and divest of any nonconforming investments.
Holding Company Regulatory Capital Requirements. The Company, as a mutual
savings and loan holding company, does not have any regulatory capital
requirements.
Mergers and Acquisitions. The Home Owners' Loan Act prohibits a savings and
loan holding company, including the Company and Mutual Holding Company, directly
or indirectly, or through one or more subsidiaries, from acquiring another
savings institution or holding company thereof, without prior written approval
of the OTS. The Home Owners' Loan Act also prohibits a savings and loan holding
company from, directly or indirectly, acquiring more than 5% of the voting stock
of another savings association or savings and loan holding company, or from
acquiring such an institution or company by merger, consolidation, or purchase
or its assets, without the prior written approval of the OTS. In evaluation
applications by holding companies to acquire other financial institutions, the
OTS considers the financial and managerial resources and future prospects of the
acquiror and the merging institution, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisitions that would result in
multiple savings and loan holding companies controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies, and (ii) the
acquisition of a savings institution in another state if the laws of the state
or target savings institution specifically permit such acquisitions. The states
vary in the extent to which they permit interstate savings and loan holding
company acquisitions.
Payment of Cash Dividends. OTS regulations generally do not restrict the
ability of a savings and loan holding company to pay dividends. However, federal
and state law do impose certain limitations on the payment by the Bank, the
Company's principal operating subsidiary, of cash dividends to the Company
(described herein).
Waivers of Dividends by the Mutual Company. OTS regulations require the
Mutual Company to notify the OTS of any proposed waiver of its right to receive
dividends. The OTS reviews dividend waiver notices on a case-by-case basis, and,
in general, does not object to any such waiver if: (i) the mutual holding
company's board of directors determines that such waiver is consistent with such
director's fiduciary duties to the mutual holding company's members; (ii) for as
long as the savings association subsidiary is controlled by the mutual holding
company, the dollar amount of dividends waived by the mutual holding company are
considered as a restriction to the retained earnings of the savings association,
which restriction, if material is disclosed in the public financial statements
of the savings association as a note to the financial statements; (iii) the
amount of any dividend waived by the mutual holding company is available for
declaration as a dividend solely to the mutual holding company, and, in
accordance with SFAS 5, where the savings association determines that the
payment of such dividend to the mutual holding company is probable, an
appropriate dollar amount is recorded as a liability; and (iv) the amount of any
waived dividend is considered as having been paid by the savings association in
evaluating any proposed dividend under OTS capital distribution regulations.
Conversion of the Mutual Company to Stock Form. OTS regulations permit the
Mutual Company to convert from the mutual to the stock form of ownership (a
"Conversion Transaction"). There can be no assurance when, if ever, a Conversion
Transaction will occur, and the Board of Directors has no current intention to
plan to undertake a Conversion Transaction. In a Conversion Transaction a new
holding company would be formed as the successor to the Company (the "New
Holding Company"), the Mutual Holding Company's corporate existence would end,
and certain depositors of the Bank would receive the right to subscribe for
additional shares of the New Holding Company. Based upon the current OTS policy,
in a Conversion Transaction, each share of Common Stock held by the Company's
public stockholders ("Minority Shareholders") would be automatically converted
into a number of shares of common stock of the New Holding Company determined
pursuant an exchange ratio that ensures that after the Conversion Transaction,
subject to any adjustment to reflect the receipt of cash in lieu of fractional
shares, the percentage of the to-be outstanding shares of the New Holding
Company issued to Minority Shareholders in exchange for their Common Stock would
be equal to the percentage of the outstanding shares of Common Stock held by
Minority Shareholders immediately prior to the Conversion Transaction. The total
number of shares held by Minority Stockholders after the Conversion Transaction
would also be affected by any purchases by such persons in the offering that
would be conducted as part of the Conversion Transaction.
Stock Repurchases. The OTS imposes no restrictions on stock repurchases by
the Company.
Qualified Thrift Lender Test. In order for the Company to be regulated as a
savings and loan holding company by the OTS (rather than as a bank holding
company by the Federal Reserve Board), the Bank must qualify as a "qualified
thrift lender" under OTS regulations or satisfy the "domestic building and loan
association" test under the Internal Revenue Code. Under the qualified thrift
lender test, a savings institution is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangible, including goodwill; and (iii) the value of
property used to conduct business) in certain " qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least nine out of each 12 month
period. The Bank currently maintains the majority of its portfolio assets in
qualified thrift investments and has met the qualified thrift lender test in
each of the last 12 months.
The OTS has proposed new rules which would require savings and loan holding
companies to notify the OTS prior to engaging in transactions which (i) when
combined with other debt transactions engaged in during a 12-month period, would
increase the holding company's consolidated debt by 5% or more; (ii) when
combined with other asset acquisitions engaged in during a 12-month period,
would result in asset acquisitions of greater than 15% of the holding company's
consolidated assets; or (iii) when combined with any other transactions engages
in during a 12-month period, would reduce the holding company's consolidated
tangible capital to consolidated tangible assets by 10% or more. The OTS has
proposed to exempt from this rule holding companies whose consolidated tangible
capital exceeds 10% following the transactions.
The OTS has also proposed new rules, which would codify the manner in which
the OTS reviews the capital adequacy or savings and loan holding companies and
determines when a holding company must maintain additional capital. The OTS is
not currently proposing to establish uniform capital adequacy guidelines for all
savings and loan holding companies.
The Bank of Greene County and Greene County Bancorp, Inc. are unable to
predict whether or when these proposed regulations will be adopted, and what
effect, if any, the adoption of these regulations would have on their business.
Federal Securities Law
The Common Stock of the Company is registered with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company is subject to
the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
The Company Common Stock held by persons who are affiliates (generally
officers, directors and principal shareholders) of the Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Community Reinvestment Act
Under the Community Reinvestment Act, as amended (the "CRA"), as
implemented by FDIC regulations, a savings bank has a continuing and affirmative
obligation, consistent with its safe and sound operation, to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA requires the FDIC, in connection with its examination of
a savings institution to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications by such institution. The Bank's latest CRA rating was
"outstanding".
The Bank is also subject to provisions of the New York State Banking Law
which impose continuing and affirmative obligations upon banking institutions
organized in New York State to serve the credit needs of its local community
("NYCRA") which are substantially similar to those imposed by the CRA. The NYCRA
also requires the Superintendent to consider a bank's NYCRA rating when
reviewing a bank's application to engage in certain transactions, including
mergers, asset purchases and the establishment of branch offices or automated
teller machines, and provides that such assessment may serve as a basis for the
denial of any such application.
The Bank's NYCRA rating as of its latest examination was "outstanding".
Federal Home Loan Bank System
The Bank is a member of the FHLB of New York, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
institutions. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York. At June 30, 2001, the Bank had $939,600 of FHLB stock. The
dividend yield from FHLB stock was 5.84% at June 30, 2001. No assurance can be
given that such dividends will continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
Reports to Security Holders
The Company files annual and quarterly reports with the SEC on Forms 10-KSB
and 10-QSB, respectively. The Company also files current reports on the Form 8-K
with the SEC. Finally, the Company files preliminary and definitive proxy
materials with the SEC.
The public may read and copy any materials filed by the Company with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an
electronic filer. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of the site is http://www.sec.gov.
ITEM 2. Properties
------ ----------
The Bank currently conducts its business through six full-service banking
offices. Both the Company and the Bank maintain their executive offices at the
Operations Center, 302 Main Street, Catskill, New York. The following table sets
forth the Bank's offices as of June 30, 2001. The Bank's current facilities are
considered by management to be adequate for the needs of the Bank and the
Company in the foreseeable future.
Original Net Book Value
Leased Year Date of Of Property or
or Leased or Lease Leasehold
Location Owned Acquired Expiration Improvements
-----------------------------------------------------------------------------------------------
(Dollars in thousands)
Main Office (1)
Main & Church Streets
Catskill, NY 12414 Owned 1963 --- $257
Full Service Branches
Coxsackie Branch
Route 385
West Coxsackie, NY 12051 Owned 1974 --- 116
Cairo Branch
Main Street
Cairo, NY 12413 Owned 1988 --- 372
Greeneville Branch
Route 32
Greeneville, NY 12083 Owned 1997 --- 1042
Tannersville Branch
Main Street
Tannersville, NY 12485 Owned 2000 --- 1329
Westerlo Branch
Routes 141 & 143
Westerlo, NY 12193 Leased 2001 November 30, 2005 103
Operations Center
302 Main Street
Catskill, NY 12414 Owned 1999 --- 516
ITEM 3. Legal Proceedings
------ -----------------
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involve amounts which are believed by management to be immaterial
to the financial condition and results of operations of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
------ ---------------------------------------------------
No matters were submitted to a vote of shareholders during the fourth
quarter of the year under report.
PART II
ITEM 5. Market for Company's Common Stock and Related Security Holder Matters
------ ---------------------------------------------------------------------
The "Common Stock and Related Matters" section of the Company's Annual
Report to Shareholders is incorporated herein by reference.
ITEM 6. Management's Discussion and Analysis of Financial Condition and
______ Results of Operations
-----------------------------------------------------------------------
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the Company's Annual Report to Shareholders is
incorporated herein by reference.
ITEM 7. Selected Financial Data
------ ------------------------
The selected financial information for the year ended June 30, 2001 is
filed as part of the Company's Annual Report to Shareholders and is incorporated
by reference.
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
_______ Financial Disclosure
--------------------------------------------------------------
None.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
_____ Compliance With Section 16(a) of the Exchange Act
-----------------------------------------------------------------------
The Proposal I - Election of Directors" section of the Company's definitive
Proxy Statement for the Company's 2001 Annual Meeting of Shareholders (the "2001
Proxy Statement") is incorporated herein by reference.
ITEM 10. Executive Compensation
-------- ----------------------
The "Proposal I - Election of Directors" section of the Company's 2001 Proxy
Statement is incorporated herein by reference.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
------- --------------------------------------------------------------
The "Proposal I - Election of Directors" section of the Company's 2001 Proxy
Statement is incorporated herein by reference.
ITEM 12. Certain Relationships and Related Transactions
-------- ----------------------------------------------
The "Transactions with Certain Related Persons" section of the Company's 2001
Proxy Statement is incorporated herein by reference.
ITEM 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
------- ----------------------------------------------------------------
(a)(1) Financial Statements
The exhibits and financial statement schedules filed as a part of this Form
10-KSB are as follows, all of which are included in the Annual Report to
Shareholders (Exhibit 13):
(A) Report of Independent Accountants
(B) Consolidated Statements of Condition
(C) Consolidated Statements of Operations
(D) Consolidated Statements of Changes in Equity
(E) Consolidated Statements of Cash Flows
(F) Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted as the required information
is inapplicable or has been included in the Notes to Consolidated Financial
Statements. The remaining information appearing in the Annual Report to
Shareholders for the year ended June 30, 2001 is not deemed to be filed as part
of this report except as expressly provided herein.
(b)Reports on Form 8-K
None
(c)Exhibits
3.1 Certificate of Incorporation of Greene County Bancorp, Inc.
(incorporated herein by reference to the Company's registration statement on
SB-2, file No. 333-63681 (the "SB-2")).
3.2 Bylaws of Greene County Bancorp, Inc. (incorporated herein by
reference to the Company's SB-2)
4.0 Form of Stock Certificate of Greene County Bancorp, Inc. incorporated
herein by reference to the Form SB-2)
10.1 Employment Agreement with J. Bruce Whittaker (incorporated herein by
reference to the Company's SB-2)
10.2 Employee Stock Ownership Plan (incorporated herein by reference
to the Company's SB-2)
13.0 Annual Report to Shareholders
21.0 Subsidiaries of the Company
23.0 Consent of Experts
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GREENE COUNTY BANCORP, INC.
Date: September____28__, 2001 By:_________________________
/s/
J. Bruce Whittaker
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
By:________________________ By:_________________________
/s/ /s/
Michelle Plummer Walter H. Ingalls
Chief Financial Officer Chairman of the Board
Date: September __28___, 2001 Date: September___18____, 2001
By:________________________ By:_________________________
/s/ /s/
Paul Slutzky Raphael Klein
Director Director
Date: September __18__, 2001 Date: September___18___, 2001
By:________________________ By:_________________________
/s/ /s/
David H. Jenkins, DVM Dennis R. O'Grady
Director Director
Date: September__18____, 2001 Date: September___18____, 2001
By:________________________
/s/
Martin C. Smith
Director
Date: September__18____, 2001
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Company Percent Owned
The Bank of Greene County 100.0% owned by the Company
EXHIBIT 23
CONSENT OF EXPERTS
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form s-8 (No. 333-51538) of our report dated July 27, 2001 relating
to the financial statements of Greene County Bancorp, Inc., which appears in
this Form 10-KSB.
PricewaterhouseCoopers LLC
/s/_______________________
Albany, New York
September 27, 2001