Business context and reporting period
Greene County Bancorp, Inc. is a bank holding company operating The Bank of Greene County and related subsidiaries in New York’s Hudson Valley. This Form 10-Q covers the quarter and six months ended December 31, 2014 (the company’s fiscal second quarter); comparisons are with the corresponding 2013 periods unless noted. Financial statements are unaudited. Amounts below are in millions of dollars unless stated otherwise.
Key financial results
| Metric | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2014 | Comparable 2013 period |
|---|---|---|---|
| Interest income | $6.407 | $12.648 | $5.951 quarter; $11.777 six months |
| Net interest income | $5.844 | $11.523 | $5.369 quarter; $10.617 six months |
| Provision for loan losses | $0.305 | $0.716 | $0.508 quarter; $0.821 six months |
| Noninterest income | $1.440 | $2.909 | $1.316 quarter; $2.666 six months |
| Noninterest expense | $4.496 | $8.773 | $3.751 quarter; $7.563 six months |
| Net income | $1.811 | $3.586 | $1.725 quarter; $3.479 six months |
| Diluted EPS | $0.43 | $0.84 | $0.41 quarter; $0.82 six months |
Quarterly net income rose 5.0%; six-month net income increased 3.1%. Net interest margin was 3.43% for the quarter and 3.44% for the six months, up 4 and 5 basis points, respectively. The six-month net interest spread was 3.37%, up 5 basis points. Return on average assets and equity were 1.04% and 11.39% for the quarter; management attributed lower returns year over year primarily to asset and equity growth outpacing earnings growth.
Financial position, liquidity and cash flow
- At December 31, assets were $712.4 million, up 5.7% from June 30, 2014. Net loans were $422.7 million, up 5.9%; securities totaled $250.1 million, up 5.0%.
- Deposits declined 1.1% to $583.2 million from $589.6 million. Cash and cash equivalents were $14.9 million, versus $13.8 million.
- FHLB borrowings totaled $59.0 million, compared with $17.65 million at June 30, including $43.5 million short-term and $15.5 million long-term. The company said increased long-term borrowing was intended to strengthen its interest-rate-risk position and help fund loan growth. It reported $166.5 million of FHLB funding capacity, with $59.0 million borrowed and $0.2 million in standby letters of credit outstanding.
- Six-month operating cash flow was $5.4 million, compared with $6.7 million in 2013. Investing activities used $38.7 million, chiefly reflecting loan growth and securities purchases; financing provided $34.3 million, including $40.35 million of net short-term FHLB advances. Cash increased by $1.1 million during the period.
- Shareholders’ equity was $64.5 million, or 9.05% of assets, versus $61.2 million and 9.1% at June 30. Book value per share was $15.28. Management said the banks met applicable regulatory capital requirements and expected to meet the new rules effective January 1, 2015.
Material changes, outlook and risks
- Loan growth was concentrated in nonresidential real estate, construction and commercial lending. Management cited customer demand and low interest rates, while warning that higher long-term rates could slow originations and refinancing.
- Credit measures were mixed: nonperforming loans were $6.3 million versus $6.2 million at June 30; nonperforming assets were $6.9 million, up $0.23 million, though their share of assets eased to 0.96% from 0.98%. Nonaccrual loans were $5.8 million, including $2.8 million in foreclosure. The allowance was $7.8 million, 1.81% of gross loans; six-month net charge-offs were $0.339 million, down from $0.690 million.
- Noninterest expense grew 16.0% for six months and 19.9% for the quarter, exceeding income growth. Increases included compensation, debit-card processing and technology costs, and legal and professional fees related in part to forming Greene Risk Management, a pooled captive insurance subsidiary in December 2014. The quarter included $99,000 of foreclosed-real-estate write-downs.
- Management reported no securities sales or other-than-temporary impairment charges and attributed unrealized security losses to interest rates and wider credit spreads. Securities with $1.806 million of gross unrealized losses were reported at December 31; management did not consider them other-than-temporarily impaired.
- No numerical earnings or growth guidance was provided. Management said available cash, securities and borrowing capacity should be sufficient for current loan commitments. Key stated risks include interest-rate exposure, credit quality, economic and real-estate conditions, deposit flows, competition, and regulatory changes.
- The board declared a $0.18-per-share dividend for the December quarter, payable February 27, 2015. The majority-shareholder MHC did not intend to waive that dividend; future waivers remained subject to member approval and regulatory non-objection. No material legal proceedings were reported.
Important facts for investors to verify
- Whether loan growth and a rise in FHLB funding sustain net interest income without increasing funding costs or interest-rate exposure.
- Trends in nonperforming loans, foreclosures, delinquencies, collateral values and allowance adequacy, particularly as nonperforming assets increased in dollars.
- Whether the elevated growth in operating expenses moderates, and the ongoing costs and benefits of the captive insurance subsidiary.
- Deposit trends and liquidity capacity, including the composition, maturity and cost of short- and long-term borrowings.
- Actual regulatory capital ratios under the new rules; the filing states compliance expectations but does not provide a clear set of those ratios here.
- Approval and regulatory status of future MHC dividend waivers, and the resulting effect on cash distributions.