Greene County Bancorp, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2019. The filing also provides fourth-quarter results; although the request metadata says “2018 Q4,” the reported fourth quarter is for fiscal 2019. Unless stated otherwise, amounts below are in U.S. dollars.
Business context
Greene County Bancorp is a bank holding company operating The Bank of Greene County, a community bank in New York’s Hudson Valley, and Greene County Commercial Bank, which primarily serves municipalities. The banks gather deposits and invest mainly in real estate, commercial and consumer loans, and securities. The Bank operated 15 full-service branches at fiscal year-end; a 16th branch opened in July 2019. Greene County Bancorp, MHC owned 54% of the company.
Financial performance and condition
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total assets at year-end | $1.269 billion | $1.151 billion |
| Net loans at year-end | $785.7 million | $704.4 million |
| Total deposits at year-end | $1.121 billion | $1.025 billion |
| FHLB borrowings at year-end | $21.6 million | $18.2 million |
| Shareholders’ equity at year-end | $112.4 million | $96.2 million |
| Net interest income | $40.0 million | $34.9 million |
| Net income | $17.5 million | $14.4 million |
| Basic and diluted EPS | $2.05 | $1.69 |
- Net income rose 21.5%, with growth in net interest income and noninterest income and a lower income-tax provision, partly offset by higher operating expenses.
- Net interest margin increased to 3.39% from 3.31%; net interest spread was 3.28% versus 3.23%. Return on average assets was 1.46% and return on average equity was 16.83%. The efficiency ratio rose slightly to 53.09% from 52.75%.
- Interest income increased 19.0% to $46.3 million, while interest expense rose 57.5% to $6.3 million. The average cost of interest-bearing liabilities increased to 0.64% from 0.46%.
- Noninterest income increased 11.8% to $8.4 million. Noninterest expense increased 14.8% to $25.7 million, principally from compensation, staffing, branch expansion and other operating costs.
- Provision for loan losses was $1.7 million. The allowance was $13.2 million, or 1.65% of gross loans, compared with $12.0 million, or 1.68%, a year earlier. Net charge-offs were $483,000.
- Nonperforming assets were $3.7 million, or 0.29% of assets, versus $3.7 million, or 0.32%, in FY2018. Nonaccrual loans totaled $3.6 million; $1.6 million was in foreclosure. There were $6.7 million of substandard loans and $10.4 million designated special mention.
- Operating cash flow was $21.6 million. Investing activities used $115.3 million, largely reflecting loan growth and securities purchases; financing activities provided $96.7 million, mainly from deposit growth. Cash and cash equivalents ended the year at $29.5 million.
- Deposits grew 9.3%; NOW deposits increased $125.6 million. There were no brokered certificates of deposit at year-end, compared with $15.0 million a year earlier. Equity was 8.85% of assets. Both banks exceeded regulatory capital requirements and were categorized as well capitalized.
- Fiscal 2019 dividends were $0.40 per share. Subsequent to year-end, the board approved a quarterly dividend of $0.11 per share, equivalent to an annual rate of $0.44, a 10% increase.
Fourth-quarter results and changes
For the quarter ended June 30, 2019, net income was $4.164 million and EPS was $0.49, compared with $3.619 million and $0.42 in the year-earlier quarter. Net interest income was $10.322 million versus $9.424 million. The quarter included a $601,000 loan-loss provision and $6.982 million of noninterest expense.
Year over year, assets grew 10.2%, net loans 11.5%, deposits 9.3% and equity 16.8%. Loan growth was led by commercial real estate and commercial lending. Commercial real estate loans represented 41.3% of gross loans; total real estate lending represented 83.4%. Securities increased 8.0% to $426.9 million, with state and political subdivision securities making up 58.3% of the portfolio.
Outlook, risks and unusual items
- Outlook: Management gave no specific earnings or growth guidance. It said rising long-term rates could slow new loan demand and refinancing. Management described the modeled net-interest-income exposure to rising rates as relatively low and identified declining rates as the larger NII risk. Its economic-value-of-equity model showed declines under both rising and falling rate shocks, within stated policy limits.
- Credit and concentration risk: The bank is concentrated in its regional economy and real estate lending. Management noted that falling local property values could weaken originations, collateral values and credit quality. Commercial real estate, construction and commercial business loans carry risks associated with borrower cash flow, property performance and economic conditions.
- Interest-rate risk: A substantial fixed-rate loan portfolio may reprice more slowly than deposits and borrowings. The company does not use derivative hedges. Its securities also face interest-rate, prepayment and reinvestment risks.
- Liquidity and commitments: Unfunded loan commitments and unused lines totaled $125.1 million, versus $95.5 million in FY2018. Municipal letters of credit outstanding were $80.6 million, secured by loans. Management expected sufficient liquidity to meet current commitments.
- Contingencies: Estimated exposure on risk-participation agreements was $1.2 million, spread across three counterparties; there was no exposure at the prior year-end. Management said routine legal proceedings were immaterial.
- Accounting and tax items: The effective tax rate fell to 16.9% from 22.1%, reflecting the lower federal corporate rate and other tax benefits. The filing reports a $251,000 discrete tax benefit from the 2017 Tax Act in FY2018. The company was evaluating CECL adoption; it had not estimated the allowance impact and anticipated a significant change to its methodology. Management did not expect a material impact on results of operations from adoption.
- Audit and controls: The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether commercial real estate and commercial loan growth remains within the company’s underwriting, borrower and geographic risk limits.
- Subsequent trends in nonaccrual loans, foreclosures, criticized loans, charge-offs and allowance coverage, including the effects of the CECL transition.
- Deposit growth, municipal deposit seasonality, funding costs and reliance on FHLB borrowings and collateralized letters of credit.
- Actual net interest income and economic-value sensitivity as rates change, particularly given rising deposit costs and the fixed-rate loan book.
- Execution and costs of branch expansion, including the Valatie branch opened after year-end, and whether expense growth is matched by revenue growth.
- The effect of future MHC dividend-waiver approvals and the board’s dividend decisions on public shareholders.