Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2017 (the company’s fiscal first quarter of fiscal 2018), compared with the three months ended September 30, 2016 for operating results. Balance-sheet comparisons are primarily against June 30, 2017. The filing is unaudited.
Business context and financial results
The company operates The Bank of Greene County and related subsidiaries in New York’s Hudson Valley. Its core activities are gathering deposits and investing in loans and securities. Figures below are in U.S. dollars; financial statement amounts are generally presented in millions.
- Net income: $3.472 million, up 38.5% from $2.507 million; diluted EPS was $0.41 versus $0.30.
- Net interest income: $8.170 million, up 15.3% from $7.087 million. Net interest margin was 3.35%, up 1 basis point; fully taxable-equivalent margin was 3.62%, versus 3.59%.
- Interest income and costs: Interest income rose 16.3% to $9.089 million, while interest expense increased 26.4% to $0.919 million. Average earning assets grew to $975.0 million from $848.5 million; the average rate paid on interest-bearing liabilities rose to 0.46% from 0.42%.
- Credit provision and allowance: Provision for loan losses was $0.347 million, down from $0.543 million. Net charge-offs increased to $0.271 million from $0.052 million. The allowance was $11.098 million, or 1.71% of gross loans, compared with $11.022 million and 1.79% at June 30.
- Other income and expenses: Noninterest income rose 12.3% to $1.740 million, chiefly on higher deposit service charges and debit-card fees. Noninterest expense increased 2.9% to $4.893 million, primarily from salaries and employee benefits and data-processing costs.
- Returns and dividends: Annualized return on average assets was 1.40% versus 1.16%; return on average equity was 16.33% versus 13.32%. Quarterly dividends were $0.0975 per share, up from $0.0950 a year earlier. A further $0.0975 dividend was declared after quarter-end.
Financial position, cash flow, and liquidity
- Scale and growth: Total assets were $1.038 billion, up $55.4 million, or 5.6%, from June 30. Net loans rose 2.3% to $638.4 million; securities totaled $326.5 million.
- Deposits: Deposits increased 6.8% to $917.6 million. Management attributed the increase mainly to $62.9 million of additional municipal deposits, partly offset by the maturity and nonrenewal of $15.0 million of brokered certificates of deposit.
- Cash flow: Operating activities provided $6.478 million; investing activities used $25.297 million; financing activities provided $48.961 million. Cash and cash equivalents increased $30.142 million to $46.419 million, with deposit growth the principal financing source.
- Debt and funding: Borrowings were $20.850 million, compared with $29.550 million at June 30. The balance consisted primarily of $20.150 million of long-term FHLB advances; a $0.700 million unsecured bank line balance was also outstanding. The company reported no FHLB short-term advances at quarter-end. It had additional borrowing capacity and unused credit lines.
- Capital: Shareholders’ equity was $86.9 million; equity equaled 8.37% of assets. The Bank of Greene County reported total risk-based capital of 15.6%, a Tier 1 leverage ratio of 8.5%, and stated that it met applicable regulatory capital requirements.
Material changes and credit quality
- Growth in average loans and securities drove most of the increase in net interest income. Loan yield slipped 4 basis points year over year, while securities yield rose 12 basis points.
- Gross loans increased $14.4 million from June 30, led by commercial loans, commercial real estate, and commercial construction. Commercial real estate and residential real estate together represented about 78.5% of gross loans.
- Nonperforming assets declined to $4.130 million from $4.440 million; nonperforming loans were $3.378 million. Nonaccrual loans were $3.310 million, including $1.6 million in foreclosure proceedings. Management noted that foreclosure activity had grown substantially over several years.
- Loans classified as special mention increased $10.9 million from June 30 to $11.485 million. The company said these loans were performing but had borrower cash-flow weaknesses warranting closer monitoring. No loans were classified doubtful or loss.
- Available-for-sale securities had $23,000 of gross unrealized losses and held-to-maturity securities had $360,000. Management attributed declines to interest rates, wider credit spreads, and market illiquidity, and reported no other-than-temporary impairment.
Outlook, risks, and unusual items
- The filing provides no numerical earnings or revenue guidance. Management said loan growth had benefited from low interest rates and customer relationships, and anticipated that higher long-term rates could slow new loan demand and refinancing.
- Principal risks identified include interest-rate exposure and credit risk. Management highlighted the fixed-rate residential mortgage portfolio and the potential effects of changing rates on funding costs, lending, prepayments, and deposits. A decline in local home values could raise delinquencies and losses.
- The company reported that it does not originate subprime or “no documentation” mortgages. Securities were largely municipal obligations and government-sponsored mortgage-backed securities; management said its mortgage-backed holdings did not contain subprime loans.
- The company was in early-stage evaluation of the expected-credit-loss standard, CECL, and anticipated a significant effect on its allowance methodology; it had not yet estimated the financial-position impact. Management did not expect a material impact on results of operations from initial adoption.
- Other notable developments: a new Copake, New York branch opened October 16, 2017; the next quarterly dividend was declared October 17. Management reported effective disclosure controls, no material change in internal control over financial reporting, and no material legal proceedings.
Important facts for investors to verify
- Whether the increase in special-mention loans and net charge-offs leads to further credit deterioration, provision expense, or allowance needs.
- The composition, stability, collateral arrangements, and cost of municipal deposits, including the effect of the large quarter-end inflow.
- Exposure to interest-rate changes, particularly the effect on deposit pricing, loan yields, and the securities portfolio.
- The eventual CECL methodology, implementation readiness, and allowance impact; the filing says the estimate was not yet calculated.
- Whether loan growth, deposit growth, and margin trends continue after this quarter; management cautioned that interim results are not necessarily indicative of full-year results.