Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter ended March 31, 2019, and the nine months then ended (fiscal 2019 third quarter). This differs from the request metadata’s “2018 Q3.” Financial amounts below are in U.S. dollars; “million” is used where appropriate.
Business context and financial results
The company operates the Bank of Greene County and related subsidiaries in New York’s Hudson Valley, gathering deposits and investing in loans and securities. For the three months ended March 31, 2019, net income was $4.36 million, or $0.51 per basic and diluted share, compared with $3.68 million, or $0.43 per share, a year earlier. For the nine months, net income was $13.32 million ($1.56 per basic and diluted share), versus $10.79 million ($1.27 basic; $1.26 diluted).
- Interest and margins: Third-quarter interest income was $11.71 million, up 18.2%; interest expense rose 65.6% to $1.68 million. Net interest income increased 13.2% to $10.03 million. GAAP net interest margin was 3.34%, up from 3.24%; the nine-month margin was 3.41%, versus 3.29%.
- Other income and expenses: Quarterly noninterest income increased 8.1% to $2.01 million. Noninterest expense rose 12.2% to $6.49 million, primarily reflecting staffing and costs for new branches and lending/customer-service capacity. For nine months, noninterest income was $6.20 million (+13.1%) and expense was $18.69 million (+16.9%).
- Credit costs: Quarterly provision for loan losses was $350,000, compared with $345,000; nine-month provision was $1.06 million, compared with $1.04 million. Nine-month net charge-offs were $236,000, down from $444,000.
- Balance sheet: At March 31, total assets were $1.274 billion, up 10.6% from June 30, 2018. Net loans were $763.3 million (+8.4%); total securities were $395.5 million, essentially unchanged. Shareholders’ equity was $108.3 million, versus $96.2 million; equity was 8.50% of assets and book value was $12.68 per share.
- Funding and liquidity: Deposits totaled $1.140 billion, up 11.2% from June 30, 2018. Cash and cash equivalents increased to $88.4 million from $26.5 million, mainly due to municipal tax-collection deposits. Long-term FHLB borrowings were $12.65 million, down from $18.15 million; no short-term borrowings were outstanding at period-end. The company reported $127.0 million in unfunded loan commitments and unused lines of credit and expects available cash, securities and borrowing capacity to cover commitments.
- Cash flow: Nine-month operating cash flow was $15.2 million; investing activities used $60.6 million, including $60.3 million of net loan growth; financing activities provided $107.4 million, mainly from a $114.5 million increase in deposits. Cash increased $61.9 million to $88.4 million.
- Capital: The Bank of Greene County reported total risk-based capital of 16.3%, Tier 1 risk-based capital of 15.0%, and a Tier 1 leverage ratio of 8.8% at March 31, 2019. Management stated the banks met applicable regulatory capital requirements.
Material changes versus comparable periods
- Growth in loans and securities lifted average interest-earning assets and interest income. Loan yield increased 23 basis points in the quarter and 20 basis points for nine months versus the prior-year periods.
- Funding costs increased: the average rate paid on interest-bearing liabilities rose to 0.67% from 0.44% for the quarter and to 0.61% from 0.45% for nine months. Management attributed the increase to higher deposit rates, deposit growth and borrowing costs.
- Quarterly and nine-month net income grew 18.5% and 23.1%, respectively. Return on average assets was 1.43% for the quarter and 1.51% for nine months; return on average equity was 16.44% and 17.45%, respectively, both above prior-year levels.
- Nonperforming assets declined to $3.04 million (0.24% of assets) from $3.70 million (0.32%) at June 30, 2018. Nonaccrual loans fell to $2.99 million from $3.52 million. The allowance was $12.85 million; management reported an allowance-to-total-loans ratio of 1.66% at March 31, 2019.
- Deposit mix shifted toward NOW accounts, which increased $151.8 million from June 30, while certificates of deposit declined $15.6 million. The $15.0 million of brokered certificates reported at June 30 was no longer outstanding at March 31.
Outlook, risks, contingencies and unusual items
- No specific earnings or financial guidance is provided. Management said loan growth could slow if long-term rates rise and refinancing activity declines. It identified interest-rate and credit risk as the principal risks, including sensitivity from fixed-rate residential mortgages and exposure to economic and real-estate conditions.
- Management cited commercial and commercial-real-estate loan growth, including participations with other community banks; these loan relationships can be larger and more complex. It also warned that declining home values could increase delinquencies, defaults and losses.
- At March 31, $1.5 million of nonaccrual loans were in foreclosure; 12 residential loans totaling $1.4 million were in foreclosure. A further $175,000 of past-due loans were subject to forbearance arrangements. The company had no loans classified doubtful or loss.
- The company reported $579,000 of gross unrealized losses on securities but concluded none were other-than-temporarily impaired, attributing declines to interest rates, wider credit spreads and market illiquidity. No securities were sold and no impairment losses were recorded in the reported periods.
- Management expects adoption of the current expected credit loss standard (CECL) to affect financial position and significantly change the allowance methodology; the impact had not yet been quantified. Adoption of the leases standard was expected to gross up the balance sheet for right-of-use assets and lease liabilities, but not materially affect results of operations.
- Effective tax rates declined, principally reflecting the federal corporate tax-rate reduction to 21%. The company recorded a $200,000 contribution to its charitable foundation during the nine months. A $0.10-per-share dividend was declared after quarter-end, payable May 31, 2019. No material legal proceedings were reported; management said disclosure controls were effective and there was no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended period: the filing is for the quarter ended March 31, 2019, not 2018 Q3.
- Track whether deposit and loan growth persists and whether higher deposit costs pressure net interest margin.
- Review commercial real-estate and commercial-loan concentrations, credit grades, delinquencies, foreclosure progress and allowance adequacy.
- Assess the effect of municipal deposit fluctuations on cash and funding needs, and the company’s capacity to meet commitments.
- Monitor CECL implementation and its eventual effect on the allowance and reported capital; the filing gives no quantified estimate.
- Reconcile any analysis using the allowance ratio: MD&A reports 1.66% at March 31, 2019 and 1.68% at June 30, 2018.