Greene County Bancorp, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020, with comparison to the year ended June 30, 2019. Although the request refers to 2019 Q4, this filing reports FY2020; its unaudited fiscal fourth-quarter results are also summarized below. Amounts are U.S. dollars.
Business context and financial performance
The company is a community banking holding company serving New York’s Hudson Valley through The Bank of Greene County and its subsidiaries. At June 30, 2020, the Bank operated 16 full-service offices. Its principal activities are gathering retail and municipal deposits and investing them in loans and securities.
| Metric | FY2020 / June 30, 2020 | FY2019 / June 30, 2019 |
|---|---|---|
| Total assets | $1.677 billion | $1.269 billion |
| Net loans | $993.5 million | $785.7 million |
| Total deposits | $1.501 billion | $1.121 billion |
| Total borrowings | $25.5 million | $21.6 million |
| Shareholders’ equity | $128.8 million | $112.4 million |
| Net interest income | $44.8 million | $40.0 million |
| Provision for loan losses | $3.9 million | $1.7 million |
| Net income | $18.7 million; $2.20 per diluted share | $17.5 million; $2.05 per diluted share |
| Net interest margin | 3.09% | 3.39% |
| Return on average assets | 1.27% | 1.46% |
FY2020 operating cash flow was $26.7 million; investing activities used $397.3 million, principally reflecting loan growth and securities purchases; financing activities provided $381.5 million, largely from deposit growth. Cash and cash equivalents ended the year at $40.5 million. The filing does not provide a separate free-cash-flow measure.
Fiscal Q4 2020 net income was $4.7 million, or $0.55 per basic and diluted share. Quarterly net interest income was $12.3 million, provision for loan losses $1.2 million, noninterest income $1.9 million, and noninterest expense $7.6 million.
Material changes versus FY2019
- Net income rose 7.1%, while assets grew 32.1%, deposits 34.0%, and net loans 26.4%.
- Net interest income increased $4.8 million as earning assets expanded, but net interest margin and spread each declined 30 basis points. The average yield on earning assets fell to 3.67% from 3.92%; the average cost of interest-bearing liabilities rose to 0.69% from 0.64%.
- The loan-loss provision increased $2.2 million. The allowance rose to $16.4 million from $13.2 million; its ratio to total loans was 1.62%, or 1.80% excluding fully SBA-guaranteed PPP loans.
- Noninterest expense increased 8.4% to $27.8 million, mainly from staffing and data-processing costs. Noninterest income increased 3.5% to $8.7 million, including higher debit-card fees and a $131,000 commercial-loan prepayment penalty.
- Equity rose in dollars, but equity-to-assets declined to 7.68% from 8.85%, reflecting rapid balance-sheet growth. Book value per share increased to $15.13 from $13.16.
Outlook, management commentary, risks and unusual items
- COVID-19 and credit: The Bank originated 1,267 PPP loans totaling $99.8 million, guaranteed 100% by the SBA, and deferred fees of $3.9 million. It received deferral requests for 706 loans totaling $193.5 million. Management warned that pandemic-related closures and economic weakness could increase defaults and losses; deferrals were not reported as delinquent under applicable guidance.
- Asset quality: Nonperforming assets were $4.1 million, or 0.24% of assets, versus $3.7 million, or 0.29%, a year earlier. Loans rated special mention or substandard increased to $32.8 million from $17.1 million; management said these loans were performing at year-end. Commercial real estate and commercial lending have grown, increasing exposure to borrower cash flows and local economic conditions.
- Rates and margin: Management expected the Federal Reserve’s March 2020 rate cuts to pressure interest spread and margin in FY2021. Interest-rate risk, including sensitivity to falling rates, remains a principal market risk.
- Liquidity and funding: Deposits were the principal funding source. The company had $17.9 million in short-term borrowings from other banks and $7.6 million in long-term FHLB borrowings at year-end. Of the short-term borrowings, $10.9 million was through the Federal Reserve’s PPP Liquidity Facility and was repaid in July 2020. The company also had $70.7 million of municipal letters of credit outstanding.
- Capital and shareholder returns: The Bank and Greene County Commercial Bank were categorized as well capitalized. The company repurchased 24,400 shares under a 200,000-share authorization. A subsequent quarterly dividend of $0.12 per share was announced and paid in August 2020.
- Other items: Adoption of the lease accounting standard resulted in recognition of $1.6 million of operating lease liabilities at year-end. The company reported no material pending legal proceedings and no securities impairment charge. Its auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- How the $193.5 million of COVID-related loan deferrals performed after the initial deferral periods, and whether further modifications or credit losses followed.
- Whether reserve levels remain adequate as special-mention/substandard loans and commercial exposures evolve; confirm the treatment of PPP loans and deferred SBA fees.
- FY2021 net interest margin and funding costs after the rate cuts, given management’s stated expectation of margin pressure.
- Deposit stability and available liquidity, including municipal funding needs, collateral pledged, borrowing capacity, and repayment of PPP Liquidity Facility advances.
- Regulatory capital ratios and the effect of continued asset growth, dividends, and share repurchases on capital and liquidity.