Greene County Bancorp, Inc. — Form 10-Q
Period: Quarter and nine months ended March 31, 2013; balance sheet compared with June 30, 2012. The request metadata says “2012 Q3,” but the filing covers the third quarter of fiscal 2013.
Business context
The company operates two banking subsidiaries serving customers and municipalities in Greene, Columbia and southern Albany counties, New York. Its main activities are gathering deposits and investing in loans and securities.
Financial performance and condition
| Metric | Period / date | Comparison |
|---|---|---|
| Net income | Nine months: $4.97 million; quarter: $1.54 million | Nine months rose 10.8% from $4.49 million; quarter rose from $1.48 million |
| Diluted EPS | Nine months: $1.18; quarter: $0.36 | Prior-year periods: $1.07 and $0.35 |
| Net interest income | Nine months: $16.07 million; quarter: $5.30 million | Up 3.1% and 2.8%, respectively |
| Net interest margin | Nine months: 3.61%; quarter: 3.49% | Down 29 and 36 basis points, respectively |
| Provision for loan losses | Nine months: $1.32 million; quarter: $331,000 | Prior-year periods: $1.44 million and $541,000 |
| Total assets | March 31: $650.2 million | Up 10.1% from June 30, 2012 |
| Net loans | March 31: $350.1 million | Up 7.1% from June 30, 2012 |
| Deposits | March 31: $586.7 million | Up 14.6%; much of the increase reflected municipal tax collections |
| Cash and cash equivalents | March 31: $38.4 million | Up from $7.7 million at June 30, 2012 |
| Borrowings | March 31: $4.0 million long-term; no short-term FHLB advances | Total borrowings were $21.0 million at June 30, 2012 |
| Shareholders’ equity | March 31: $55.8 million | 8.6% of assets, versus 8.9% at June 30, 2012 |
| Operating cash flow | Nine months: $5.73 million | Down from $6.82 million; investing cash outflow was $31.14 million and financing cash inflow was $56.10 million |
The company reported a 3.52% net interest rate spread for the nine-month period, down from 3.78%. It paid $1.80 million in dividends during the period; the quarterly dividend was $0.175 per share. Both banking subsidiaries met applicable regulatory capital requirements.
Material changes and credit quality
- Loan growth and lower deposit and borrowing costs supported higher net interest income, while yields on loans and securities declined. Nine-month interest income was nearly flat, and the company’s net interest margin compressed.
- Nonperforming assets were $7.48 million, or 1.15% of assets, versus $7.28 million at June 30, 2012. Nonaccrual loans were $6.86 million, including $4.1 million in foreclosure. Total impaired loans increased to $7.94 million from $4.71 million; management said a lower threshold for individual impairment review contributed to the increase.
- The allowance for loan losses rose to $6.92 million, or 1.94% of gross loans, from $6.18 million, or 1.86%, at June 30. Nine-month net charge-offs were $571,000. Management cited economic conditions, local unemployment and elevated problem assets.
- Municipal deposits contributed substantially to deposit growth and may be seasonal. The company purchased $59.8 million of securities during the nine months, while total securities increased 2.2% to $239.0 million.
Outlook, risks and unusual items
- No specific earnings or financial guidance was provided. Management said it expected available cash, available-for-sale securities and borrowing capacity to be sufficient for current loan commitments.
- Management identified interest-rate and credit risk as the most significant risks. It cautioned that rising long-term rates could slow loan demand and refinancing, and that declines in local real estate values could increase delinquencies and losses. The company has significant fixed-rate residential mortgage exposure.
- The company prepaid $6.0 million of long-term borrowings during the nine months and recorded $155,000 in prepayment penalties, including $112,000 in the quarter. The quarter’s higher expenses also reflected salary, benefits and staffing costs.
- Management reported no other-than-temporary impairment charges on securities; gross unrealized securities losses were $726,000 at March 31. Securities-related fair values may change with interest rates and credit spreads.
- A $261,000 residential mortgage was modified as a troubled debt restructuring during the nine months and remained on nonaccrual status at March 31. The company reported no material legal proceedings and said disclosure controls were effective.
- The board declared a $0.175-per-share dividend on April 16, payable May 31, 2013. The mutual holding company’s dividend waiver required member approval and Federal Reserve non-objection; management said the waiver was approved for this dividend.
Important facts for investors to verify
- Whether municipal-deposit growth persists beyond seasonal tax collections, and how deposits and cash levels evolve.
- Trends in net interest margin, deposit pricing, asset yields and sensitivity to changing interest rates.
- Whether impaired and nonaccrual loans, foreclosures and charge-offs stabilize, and whether the allowance remains adequate.
- The effect of securities portfolio growth, unrealized losses and pledged collateral on liquidity and interest-rate risk.
- Future dividend-waiver approvals and the company’s ability to maintain its dividend alongside capital and loan growth needs.