Greene County Bancorp, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2014, compared primarily with the year ended June 30, 2013. Although the request metadata says “2013 Q4,” this filing is an annual report for FY2014; it also provides unaudited quarterly results, including FY2014’s fourth quarter.
Business context
The company is a bank holding company operating The Bank of Greene County, a community savings bank with 12 full-service branches in New York’s Hudson Valley, and Greene County Commercial Bank, which serves local municipalities. Lending and investing are funded primarily by customer deposits. The majority owner is Greene County Bancorp, MHC, with 54.7% of the company’s common shares.
Financial results and condition
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Total assets | $674.2 million | $633.6 million | Up 6.4% |
| Net loans | $399.3 million | $359.4 million | Up 11.1% |
| Total deposits | $589.6 million | $558.4 million | Up 5.6% |
| FHLB borrowings | $17.7 million | $14.6 million | Up $3.1 million |
| Shareholders’ equity | $61.2 million | $56.1 million | Up 9.1% |
| Net interest income | $21.4 million | $21.2 million | Up $158,000 |
| Net income | $6.53 million | $6.37 million | Up 2.5% |
| Basic / diluted EPS | $1.55 / $1.54 | $1.52 / $1.51 | Up $0.03 per share |
Total interest income declined 1.1% to $23.8 million, while interest expense fell 15.3% to $2.4 million. Net interest margin contracted 20 basis points to 3.34%, and net interest rate spread declined 19 basis points to 3.27%. Return on average assets was 0.99% versus 1.03%; return on average equity was 11.18% versus 11.66%. The efficiency ratio increased to 60.40% from 58.88%.
Provision for loan losses decreased to $1.50 million from $1.75 million. Net charge-offs rose to $1.12 million from $883,000. The allowance for loan losses was $7.42 million, or 1.83% of loans, compared with $7.04 million, or 1.92%, a year earlier. Nonperforming assets were $6.64 million (0.98% of assets), down from $7.18 million; nonperforming loans were 1.54% of net loans, down from 1.92%.
Cash and cash equivalents were $13.8 million at year-end, versus $6.2 million. Operating cash flow was $11.4 million; investing activities used $36.8 million and financing activities provided $33.0 million. The company reported $61.2 million in equity, equal to 9.1% of assets. The Bank of Greene County and Greene County Commercial Bank both exceeded regulatory capital requirements and were classified as well-capitalized.
For FY2014’s fourth quarter, the filing reports net income of $1.553 million, basic and diluted EPS of $0.37, net interest income of $5.430 million, and provision for loan losses of $391,000. These quarterly figures are unaudited.
Material changes and notable items
- Loan growth, particularly in nonresidential real estate, drove balance-sheet expansion. Nonresidential mortgage loans increased $22.6 million and residential mortgage loans increased $14.8 million.
- Deposits shifted toward lower-cost transaction and savings accounts: noninterest-bearing deposits rose 16.4% and NOW deposits rose 11.1%; certificates of deposit fell 13.0%.
- Lower asset yields in the prolonged low-rate environment pressured interest income and margins. Average earning-asset yield fell 30 basis points to 3.71%, despite 6.9% growth in average interest-earning assets.
- Noninterest expense rose $667,000, mainly due to higher salaries and benefits, including $664,000 of increased expense associated with the phantom stock option plan, and higher professional fees. The company recorded $786,800 of phantom-plan compensation expense; $714,500 of vested awards was scheduled for cash payment in the first quarter of FY2015.
- The company transferred $11.7 million of available-for-sale securities to held-to-maturity, including an $805,000 unrealized loss that is being accreted over the securities’ remaining lives. Management reported no other-than-temporary impairment charge.
- FHLB term borrowings increased to $14.5 million, with a weighted-average rate of 1.45% and weighted-average maturity of 48 months. Management said the additional long-term funding was intended to mitigate the effect of rising rates.
- The quarterly cash dividend was $0.175 per share during FY2014; after year-end, the board declared $0.18 per share, payable August 29, 2014. The MHC waived its right to receive dividends through the quarter ending March 31, 2015, subject to required approvals.
Outlook, risks and contingencies
The filing provides no numerical earnings or revenue guidance. Management expects that rising long-term rates could reduce new loan demand and refinancing activity. Its principal market risks include interest-rate movements, competition, local economic conditions, deposit flows, loan and investment portfolio quality, and changes in laws and regulation. Management describes interest-rate exposure as within policy limits, but its EVE model estimates a 29.78% decline under an instantaneous 300-basis-point rate increase; the company notes that model assumptions and actual results may differ.
Credit risks include concentrations in New York real estate and commercial lending, potential declines in collateral values, and the extended time required to complete foreclosures under New York law. At year-end, $3.0 million of nonaccrual loans were in foreclosure; five foreclosed properties totaled $473,000. Troubled debt restructurings and borrower forbearance arrangements remain relevant, and four loans modified as troubled debt restructurings in the prior year subsequently defaulted during FY2014.
Unfunded loan commitments totaled $37.8 million, versus $33.3 million in FY2013; management anticipated sufficient funds to meet current commitments. Certificates of deposit due within one year totaled $34.8 million. Routine legal proceedings were described as immaterial. The company warned that Dodd-Frank implementation and new capital rules could increase compliance costs and constrain capital distributions. New regulatory capital rules were scheduled to begin applying to the Bank on January 1, 2015, with the capital conservation buffer phased in through 2019.
BDO USA, LLP issued an unqualified audit opinion on the consolidated financial statements. Management concluded internal control over financial reporting was effective; the auditor did not provide an attestation on those controls because the company qualified for an exemption.
Important facts for investors to verify
- Confirm the filing period: the report covers the fiscal year ended June 30, 2014, not a fiscal year labeled 2013 Q4.
- Track net interest margin and asset yields, especially if market rates rise or deposit costs reprice faster than loan yields.
- Review nonperforming loans, charge-offs, foreclosures, restructured loans, and allowance adequacy against continued loan growth.
- Assess the concentration and performance of nonresidential real estate and commercial loans, including collateral values and borrower cash flows.
- Monitor deposit retention, municipal funding needs, FHLB borrowing levels, and the company’s ability to meet $37.8 million of commitments.
- Check whether phantom-plan cash payments and other employee-benefit expenses affect FY2015 earnings, and whether dividend waivers and regulatory requirements affect distributions.