Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended December 31, 2021. This is fiscal Q2 2022, despite the request metadata identifying 2021 Q2. Financial statement amounts below are in U.S. dollars; balance sheet and income statement figures are generally shown in millions unless noted.
Business context
The company operates The Bank of Greene County and related subsidiaries in New York’s Hudson Valley and Capital District. Its core activities are gathering deposits and investing in loans and securities. The filing is unaudited and says interim results are not necessarily indicative of full-year results.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 | Prior-year comparison |
|---|---|---|---|
| Net interest income | $14.5 million | $28.9 million | Up 6.2% and 13.5%, respectively |
| Provision for loan losses | $1.3 million | $2.3 million | Quarter roughly unchanged; six-month provision down from $2.5 million |
| Noninterest income | $3.2 million | $6.2 million | Up 35.3% and 37.9% |
| Noninterest expense | $8.3 million | $16.3 million | Up 10.6% and 11.1% |
| Net income | $6.9 million | $14.0 million | Up 11.0% and 26.4% |
| EPS, basic and diluted | $0.81 | $1.64 | Prior-year $0.73 and $1.30 |
| Net interest margin | 2.55% | 2.61% | Prior-year 2.96% and 2.88% |
| Return on average assets | 1.18% | 1.23% | Prior-year 1.33% and 1.24% |
At December 31, 2021, total assets were $2.345 billion, up 6.6% from June 30, 2021. Deposits were $2.073 billion, up 3.4%; net loans were $1.123 billion, up 3.4%; and shareholders’ equity was $160.0 million, versus $149.6 million at fiscal year-end.
Cash and cash equivalents were $63.5 million, down from $149.8 million at June 30. For the six months, operating cash flow was $13.4 million, investing cash flow was negative $233.3 million, and financing cash flow was positive $133.7 million; cash declined by $86.2 million. The investing outflow primarily reflected securities purchases and loan growth.
Borrowings at period-end included $40.0 million of short-term FHLB advances and $49.2 million of subordinated notes, net. The company issued $30 million principal of 3.00% fixed-to-floating subordinated notes in September 2021; the notes mature in 2031 and are callable in 2026. The earlier $20 million issue carries a 4.75% fixed-to-floating rate and is callable in 2025. The Bank of Greene County reported a 16.9% total risk-based capital ratio and an 8.2% leverage ratio and met applicable regulatory capital requirements.
Material changes and operating trends
- Net interest income increased on growth in average earning assets, although yields on earning assets and reported net interest margins declined. Six-month average earning assets grew $445.3 million year over year; the six-month net interest margin fell 27 basis points.
- Noninterest income growth reflected higher service charges and debit-card fees, as well as $616,000 of bank-owned life insurance income. Noninterest expense rose with staffing and professional fees; management cited 13 positions added in the prior fiscal year to support lending, customer service, and finance.
- Securities increased to approximately $1.068 billion at amortized cost, from $887.3 million at June 30, mainly as excess cash from deposit growth was invested. The portfolio’s available-for-sale unrealized loss increased, contributing to a $2.6 million six-month after-tax other comprehensive loss and accumulated other comprehensive loss of $3.7 million.
- Gross loans rose $36.8 million. Commercial real estate loans increased $61.4 million, while commercial loans fell $52.9 million, largely because PPP loans declined to $15.0 million from $67.4 million as loans were forgiven. PPP fee income recognized was $1.0 million for the quarter and $2.5 million for the six-month period.
- The allowance for loan losses was $21.7 million, or 1.89% of gross loans. Six-month net charge-offs were $252,000, down from $626,000 in the prior-year period.
Outlook, risks, and contingencies
- Management anticipated Federal Reserve rate increases in 2022 and said they were expected to benefit the company’s interest spread and margin, though the benefit could be gradual. This is an expectation, not quantified company guidance.
- Credit quality warrants attention: nonaccrual loans rose to $3.9 million from $2.3 million at June 30, and nonperforming assets increased to 0.17% of assets from 0.11%. Management attributed the increase principally to new delinquencies. Classified loans totaled $47.4 million; commercial real estate and commercial relationships were downgraded due to cash-flow and payment deterioration.
- COVID-19 impacts remain uncertain. Payment deferrals had fallen to two loans totaling $264,000 from eight loans totaling $8.0 million at June 30. Management cautioned that pandemic effects could affect borrowers, credit losses, earnings, liquidity, and capital.
- Liquidity included $355.5 million of unused lines of credit, according to management. The filing reports $128.5 million in unfunded loan commitments, $91.9 million in unused customer lines of credit, and $229,000 in standby letters of credit. Management expected available cash, securities, and borrowing capacity to cover current commitments.
- Other risks include interest-rate sensitivity, deposit flows, competition, economic conditions, regulation, and operational and cybersecurity-related risks. The filing reports no material legal proceedings. The company had not yet calculated CECL’s adoption impact; it expected a significant change to its allowance methodology, with the initial effect on financial position not yet quantified.
The board declared a $0.13-per-share dividend payable February 28, 2022. The quarterly rate matched the prior quarter and equated to an annual rate of $0.52 per share.
Most important facts for investors to verify
- Confirm the reporting-period convention: the filing is for the quarter ended December 31, 2021, or fiscal Q2 2022.
- Track the rise in nonaccrual loans and classified commercial credits, including subsequent payment performance and allowance adequacy.
- Assess whether deposit and earning-asset growth can support net interest income as margins compress, and whether anticipated rate increases improve results as management expects.
- Review securities valuation and interest-rate exposure, including the effect of unrealized losses on equity and the large held-to-maturity portfolio.
- Monitor the use and cost of short-term borrowings, subordinated debt, and available liquidity as assets and lending commitments grow.
- Seek the eventual CECL transition estimate and assess how PPP forgiveness-related fee income and other unusual income items affect earnings comparability.