Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2018; comparative results are for the periods ended December 31, 2017. Financial statements are unaudited. The company operates community banking businesses in New York’s Hudson Valley, primarily gathering deposits and making loans and investments.
Key financial results
| Metric | Three months ended Dec. 31, 2018 | Year-over-year change | Six months ended Dec. 31, 2018 | Year-over-year change |
|---|---|---|---|---|
| Interest income | $11.4 million | +21.3% | $22.4 million | +21.1% |
| Net interest income | $10.0 million | +18.2% | $19.7 million | +18.2% |
| Net income | $4.6 million | +27.8% | $9.0 million | +26.8% |
| Basic EPS | $0.54 | vs. $0.43 | $1.05 | vs. $0.84 |
| Net interest margin, GAAP | 3.47% | +18 bps | 3.44% | +12 bps |
| Net interest margin, tax-equivalent | 3.65% | vs. 3.50% | 3.61% | vs. 3.53% |
For the quarter, provision for loan losses was $354,000 versus $352,000 a year earlier; noninterest income was $2.1 million, up 13.5%; and noninterest expense was $6.2 million, up 17.6%. The effective tax rate was 17.2% for the quarter and 18.0% year to date, lower than the comparable prior-year rates, primarily reflecting the Tax Cuts and Jobs Act.
Financial condition, liquidity and capital
- At December 31, 2018, total assets were $1.195 billion, up 3.8% from June 30, 2018. Net loans were $750.4 million, up 6.5%; gross loans grew $46.6 million.
- Total deposits were $1.009 billion, down $16.0 million, or 1.6%, from June 30. Lower municipal money-market balances were partly offset by growth in certificates of deposit and NOW accounts. Brokered CDs were $22.0 million, up from $15.0 million.
- Cash and cash equivalents were $31.9 million, compared with $26.5 million at June 30. Six-month cash flow was $8.9 million provided by operations, $38.1 million used in investing, and $34.6 million provided by financing.
- Total borrowings were $70.1 million, versus $18.2 million at June 30, including $54.7 million of short-term FHLB advances and $15.2 million of long-term FHLB advances. The company attributed increased overnight borrowing to loan and earning-asset growth alongside lower deposits.
- Shareholders’ equity was $104.1 million; equity was 8.71% of assets, compared with 8.35% at June 30. Bank of Greene County and Greene County Commercial Bank met applicable regulatory capital requirements. Bank of Greene County’s reported total risk-based capital ratio was 16.0% and Tier 1 leverage ratio was 8.8%.
- Unfunded loan commitments and unused credit lines totaled $116.3 million. Management said available cash, available-for-sale securities and borrowing capacity should be sufficient to meet current commitments.
Material changes and management commentary
- Earnings growth reflected higher average loan and securities balances and improved asset yields. Loan yield rose 22 basis points in the quarter, while the average rate paid on interest-bearing liabilities increased 14 basis points. Management said higher deposit costs and short-term borrowing costs partly offset asset yield gains.
- Loan growth came mainly from commercial real estate, commercial, residential real estate and multifamily lending. Commercial real estate was 39.5% of gross loans; commercial loans were 13.1%. Management cited expansion in newer markets and loan participations as growth drivers.
- Noninterest expense rose partly because of staffing and costs related to two newer branches, lending and service functions, professional fees, and a $200,000 contribution to the Bank of Greene County Charitable Foundation.
- The company declared a $0.10-per-share dividend for the quarter ended December 31, payable February 28, 2019. The rate equated to $0.40 annualized.
Credit, market risks and unusual items
- Nonperforming assets were $3.7 million, or 0.31% of assets, broadly unchanged from June 30. Nonaccrual loans were $3.6 million; $2.1 million were in foreclosure. There were $9.5 million of past-due loans, including $2.1 million 60–89 days past due. No loans were classified doubtful or loss.
- The allowance for loan losses was $12.7 million, or 1.66% of gross loans, versus 1.68% at June 30. Six-month net charge-offs were $58,000, compared with $369,000 a year earlier. Management noted estimates are judgmental and regulatory reviews could require additional reserves.
- Management identified interest-rate and credit risk as the most significant risks. It cautioned that higher long-term rates could slow loan demand and refinancing; declines in real-estate values could increase delinquencies and losses. The company also relies on deposit flows and wholesale borrowing to fund lending.
- Securities had $2.275 million of gross unrealized losses at December 31. Management attributed declines to interest rates, wider credit spreads and market illiquidity, and reported no other-than-temporary impairment or securities sales.
- The company adopted accounting standards for revenue recognition and equity-security measurement. Adoption of the equity standard resulted in a $114,000 cumulative increase to retained earnings, not current-period earnings. For future CECL implementation, management had not quantified the allowance impact, expected a significant change in allowance methodology, and was evaluating alternatives.
- No formal earnings or operating guidance was provided. Management’s outlook is subject to interest rates, economic and real-estate conditions, regulation, credit quality, competition and deposit flows. The company reported no material legal proceedings and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether deposit trends, municipal account movements and brokered-CD usage continue, and how short-term borrowing affects funding costs and net interest margin.
- Commercial real-estate and commercial-loan concentration, participation exposures, delinquency trends, foreclosure outcomes and adequacy of the allowance.
- How rising or falling rates affect asset yields, deposit pricing, securities values and loan demand.
- The eventual CECL allowance methodology and quantified impact when available.
- Whether elevated expense growth from branch expansion, staffing and other items moderates, and whether earnings growth is sustained.