Greene County Bancorp, Inc. — Form 10-Q Summary
Business context and period. The company operates The Bank of Greene County and related subsidiaries, serving the Hudson Valley region of New York through 15 full-service offices. This is its fiscal first quarter, for the three months ended September 30, 2018; income and cash flow comparisons are with the three months ended September 30, 2017. Balance-sheet comparisons are with June 30, 2018. Amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Quarter / period end | Comparable period / prior date |
|---|---|---|
| Net interest income | $9.657 | $8.170 |
| Net interest margin (GAAP) | 3.41% | 3.35% |
| Net interest margin (tax-equivalent) | 3.57% | 3.62% |
| Noninterest income | $2.052 | $1.740 |
| Noninterest expense | $5.961 | $4.893 |
| Provision for loan losses | $0.354 | $0.347 |
| Net income / diluted EPS | $4.380 / $0.51 | $3.472 / $0.41 |
| Cash from operating activities | $2.904 | $6.478 |
- Net interest income rose 18.2%; total interest income increased 20.9% to $10.997 million, while interest expense rose 45.8% to $1.340 million. Management attributed higher income mainly to growth in average loan and securities balances, with improved yields also contributing. Funding costs increased with higher average interest-bearing liabilities and rates.
- Net income increased 26.1%. The effective tax rate fell to 18.8% from 25.7%, primarily reflecting the federal corporate tax-rate reduction under the Tax Cuts and Jobs Act. Annualized return on average assets was 1.52% versus 1.40%; return on average equity was 17.92% versus 16.33%.
- Total assets were $1,187.9 million, up 3.2% from June 30. Net loans increased 2.9% to $724.5 million; total securities were $400.4 million. Gross loans grew by $20.4 million, with growth in residential, multifamily, commercial real estate and commercial lending.
- Deposits declined 2.2% to $1,002.5 million. Cash and cash equivalents were $35.1 million, up from $26.5 million. The company used $58.8 million of short-term FHLB advances; total FHLB borrowings were $76.0 million, including $17.2 million long-term. The filing reports additional borrowing capacity and unused credit lines.
- Shareholders’ equity was $99.6 million, or 8.39% of assets. The Bank of Greene County reported total risk-based capital of 15.7%, common equity tier 1 of 14.5%, and a tier 1 leverage ratio of 8.6%; Greene County Commercial Bank also exceeded applicable capital requirements.
Changes, outlook, risks and notable items
- Noninterest expense increased 21.8%, led by salary and benefit costs, which rose 20.7%. Management cited staffing for two new branches, including the Woodstock branch opened during the quarter, plus lending, customer-service and investment-center staffing and higher professional fees.
- Management said delayed municipal tax bills postponed typical seasonal deposit growth into October. A $15.0 million balance of brokered certificates of deposit matured and was not renewed. Deposit mix shifted, including lower money-market, savings and certificate balances.
- Asset quality remained relatively stable: nonperforming assets were $3.5 million, or 0.29% of assets, versus $3.7 million, or 0.32%, at June 30. Nonaccrual loans were $3.4 million; $1.8 million were in foreclosure. The allowance was $12.3 million, 1.67% of gross loans; net charge-offs were $70,000 versus $271,000 a year earlier. Management reported no loans classified doubtful or loss and no securities impairment charge.
- The securities portfolio had $4.8 million of gross unrealized losses at quarter-end. Management attributed declines to interest rates, wider credit spreads and market illiquidity, and concluded the securities were not other-than-temporarily impaired. Approximately $387.1 million of securities were pledged to secure certain municipal deposits.
- Management said rising long-term rates could slow loan demand and refinancing. It identified interest-rate and credit risks as significant, including sensitivity to changes in rates, deposit flows, economic conditions, real-estate values and loan-portfolio quality. It also noted that declines in home values could increase delinquencies and losses.
- The company expects sufficient funds to meet current loan commitments, supported by cash, available-for-sale securities and borrowing capacity. Unfunded loan commitments and unused lines totaled $99.2 million. No specific earnings or revenue guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Adoption of ASU 2016-01 resulted in a $114,000 cumulative adjustment to retained earnings for equity securities; subsequent fair-value changes are recognized in earnings. The company is evaluating CECL, effective for it in fiscal years beginning after December 15, 2019; it expects a significant change to allowance methodology but had not estimated the adoption impact. The next quarterly dividend was declared at $0.10 per share, payable November 30, 2018.
Most important facts for investors to verify
- Whether municipal deposits returned after tax-bill delays and whether the $58.8 million short-term FHLB borrowing was repaid or replaced.
- Whether loan and securities growth can continue to outpace rising deposit and borrowing costs, and how margins respond to interest-rate changes.
- Trends in commercial real-estate and commercial loan concentrations, criticized loans, nonaccruals, foreclosures and allowance adequacy.
- Whether branch expansion and staffing expenses produce sufficient revenue growth, given noninterest expense grew faster than net interest and fee income combined.
- The eventual CECL implementation impact, including the allowance estimate, methodology and effect on capital and reported financial position.