Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and six months ended December 31, 2020 (the second quarter of fiscal 2021), compared primarily with the periods ended December 31, 2019. Although the request metadata says 2020 Q2, the filing’s stated period is December 31, 2020. Dollar amounts below are in millions unless noted.
Business context and financial performance
The company operates The Bank of Greene County and related subsidiaries, serving the Hudson Valley and Capital District regions of New York. Its core business is gathering deposits and investing them in loans and securities.
| Metric | Three months ended Dec. 31, 2020 | Year-over-year change | Six months ended Dec. 31, 2020 | Year-over-year change |
|---|---|---|---|---|
| Net interest income | $13.6 | +$2.7; +24.7% | $25.4 | +$4.0; +18.7% |
| Provision for loan losses | $1.3 | Compared with $0.7 | $2.5 | Compared with $1.2 |
| Noninterest income | $2.4 | +$0.1; +3.4% | $4.5 | -$0.1; -2.4% |
| Noninterest expense | $7.5 | +$1.0; +15.4% | $14.7 | +$1.7; +13.2% |
| Net income | $6.2 | +$1.1; +21.2% | $11.1 | +$1.1; +11.0% |
| Diluted EPS | $0.73 | Compared with $0.60 | $1.30 | Compared with $1.17 |
| Net interest margin (GAAP) | 2.96% | Down 15 bps | 2.88% | Down 30 bps |
Net interest income benefited from substantial growth in average loans and securities, lower deposit costs, and $1.5 million of PPP fee income recognized as loans were forgiven. Those benefits were partly offset by lower loan and securities yields. Return on average assets was 1.33% for the quarter and 1.24% for the six-month period; the filing attributes declines versus prior-year periods mainly to balance-sheet growth outpacing earnings growth.
Balance sheet, cash flow, debt, and liquidity
- Assets: $1.865 billion at December 31, up $188.1 million (11.2%) from June 30, 2020. Securities totaled $740.9 million, up $130.5 million; net loans were $1.032 billion, up $38.0 million.
- Deposits: $1.680 billion, up $178.6 million (11.9%) from June 30. Growth included municipal deposits, new customer relationships, and deposits associated with the new Wolf Road branch.
- Cash and cash flows: Cash and equivalents were $57.0 million, up from $40.5 million at June 30. For the six months, operating cash flow was $11.3 million, investing cash outflow was $172.7 million, and financing cash inflow was $177.9 million, producing a $16.6 million increase in cash.
- Borrowings: The company had $6.1 million of FHLB advances and $19.6 million of subordinated notes, net of issuance costs. It issued $20 million of 4.75% fixed-to-floating subordinated notes due in 2030, callable in 2025. No short-term borrowings were outstanding at period-end; unused lines of credit were reported at $347.4 million.
- Liquidity and capital: Management reported liquidity measures of 3.39% for cash equivalents relative to deposits and short-term borrowings, and 32.69% when cash, unpledged securities, and additional borrowing capacity are included. The Bank of Greene County and Greene County Commercial Bank met applicable regulatory capital requirements. Company equity was $138.7 million; equity-to-assets was 7.44%.
Material changes, outlook, risks, and unusual items
- COVID-19 remains a key credit and operating uncertainty. Payment deferrals declined to $14.5 million across 66 loans at December 31 from $193.5 million across 706 loans at June 30. Deferrals were not reported as delinquent under applicable guidance, and interest continued to be recognized during deferral periods.
- Loans rated special mention or substandard increased to $38.2 million from $32.8 million, which management attributed to pandemic-related cash-flow and revenue weakness. These newly classified loans were performing at December 31. Nonaccrual loans fell to $2.8 million from $4.1 million; nonperforming assets were $3.1 million, or 0.17% of assets.
- The allowance for loan losses rose to $18.3 million from $16.4 million. Its ratio to gross loans was 1.74%, or 1.85% excluding SBA-guaranteed PPP loans. Management increased provisions in response to pandemic uncertainty, loan growth, adverse classifications, and a $0.5 million commercial-loan charge-off.
- PPP loans outstanding were $62.1 million across 826 loans, down from $99.8 million across 1,267 loans at June 30, principally due to forgiveness. The bank reported an average $82.2 million of PPP loans during the quarter.
- Management expects the low interest-rate environment to continue pressuring net interest spread and margin during fiscal 2021. It cited interest-rate risk, credit risk, economic conditions, pandemic-related policy changes, deposit flows, and competition as factors that could cause results to differ from expectations. No earnings or revenue guidance was provided.
- Expenses rose partly because of staffing for the Albany-area branch opened in September 2020 and additional lending, technology, and branch personnel. In January 2021, the bank purchased $40 million of bank-owned life insurance on selected eligible employees. A quarterly dividend of $0.12 per share was declared after quarter-end, payable February 26, 2021.
- The company had $194.6 million of unfunded loan commitments, unused lines of credit, and standby letters of credit. Its reported maximum credit exposure on risk participation agreements was $6.1 million across ten counterparties.
Important facts for investors to verify
- Whether pandemic-related deferrals ending will lead to renewed delinquencies, defaults, or additional allowance provisions, particularly among commercial real estate and commercial borrowers.
- The quality and concentration of the $740.9 million securities portfolio, including the large municipal allocation, and the availability of securities pledged as collateral.
- The sustainability of earnings growth after the reported $1.5 million of PPP fee income, alongside lower net interest margins and higher operating expenses.
- The terms, future interest cost, and regulatory-capital treatment of the $20 million subordinated notes, and the effect of the subsequent $40 million BOLI purchase on liquidity and returns.
- The company’s planned CECL adoption: management had not quantified the expected allowance impact and anticipated a significant change in its allowance methodology.