Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2011 (the company’s fiscal second quarter and first half of fiscal 2012). The financial statements are unaudited; balance-sheet comparisons are with June 30, 2011. Unless stated otherwise, amounts below are in U.S. dollars.
Business context and financial performance
The company operates community-banking subsidiaries serving Greene, Columbia and southern Albany counties in New York, with lending and securities investments funded primarily by deposits.
- Quarter: Net income was $1.495 million, up 10.6% from $1.352 million; diluted EPS was $0.36 versus $0.32. Net interest income rose 6.7% to $5.223 million. Net interest margin was 3.88%, up from 3.80%.
- Six months: Net income was $3.004 million, up 12.3% from $2.676 million; diluted EPS was $0.72 versus $0.64. Net interest income increased 7.5% to $10.422 million. Net interest margin was unchanged at 3.92%.
- For the six months, interest income rose 2.7% to $12.363 million while interest expense fell 17.4% to $1.941 million. Provision for loan losses increased to $896,000 from $836,000. Noninterest income was $2.422 million, down from $2.461 million; noninterest expense was $7.426 million, up from $7.245 million.
- Annualized return on average assets was 1.09% for the six months and 1.07% for the quarter; return on average equity was 12.20% and 11.98%, respectively. Management attributed improved returns mainly to higher net interest income.
Financial position, cash flow and liquidity
- Total assets were $559.6 million at December 31, up 2.2% from June 30. Net loans rose 3.6% to $311.8 million; total securities declined 3.9% to $206.0 million.
- Deposits increased 5.1% to $494.0 million. Noninterest-bearing deposits were $53.8 million. Management attributed part of the increase to municipal deposits, including school-district tax collections; NOW balances also grew, while certificates of deposit declined.
- Cash and cash equivalents were $20.1 million, up from $10.0 million. Six-month operating cash flow was $4.2 million, versus $4.5 million; investing activities used $3.3 million, while financing activities provided $9.2 million.
- FHLB borrowings totaled $12.0 million, all long-term, compared with $26.3 million at June 30, including $14.3 million of short-term advances. The company reported $123.3 million of available FHLB funding capacity and no outstanding Federal Reserve discount-window or Atlantic Central Bankers Bank borrowings.
- Shareholders’ equity was $50.6 million, or 9.1% of assets, versus $48.1 million and 8.8% at June 30. The banks met applicable regulatory capital requirements. The filing does not provide a specific consolidated regulatory capital ratio.
Credit quality and material changes
- Nonperforming assets increased 12.5% to $7.6 million, or 1.35% of assets; nonaccrual loans rose 14.6% to $7.2 million. Nonperforming loans were 2.31% of net loans. There were no accruing loans delinquent more than 90 days.
- The allowance for loan losses increased to $5.617 million, or 1.77% of gross loans, from $5.069 million, or 1.66%, at June 30. Six-month net charge-offs were $348,000 versus $211,000. Management cited economic conditions, local unemployment and Hurricane Irene-related exposure.
- Of nonaccrual loans, $3.5 million were in foreclosure and $1.1 million were subject to forbearance arrangements. Management noted New York foreclosure procedures can take more than two years. Impaired loans were $2.3 million, down from $2.9 million at June 30.
- The company recorded a $130,000 charge-off related to Hurricane Irene flood damage. Foreclosed real estate was $361,000; the filing also reports an $82,000 write-down of a foreclosed property following a sales contract below carrying value and a six-month loss on foreclosed assets of approximately $132,000.
- Available-for-sale securities had $178,000 of gross unrealized losses at December 31, versus $509,000 at June 30. Management concluded there was no other-than-temporary impairment; it attributed fair-value declines to interest rates and wider credit spreads.
- Dividend per share was $0.175 for the quarter, unchanged from the prior quarter but below $0.375 in the comparable prior-year quarter. The board declared another $0.175 quarterly dividend in January 2012, subject to the stated dividend-waiver process for the mutual holding company.
Outlook, risks and other items
The filing provides no formal earnings or revenue guidance. Management said continued low rates and customer relationships supported loan growth, but anticipated that higher long-term rates could slow new lending and refinancing. It highlighted interest-rate and credit risk, including sensitivity to rates given the fixed-rate residential mortgage portfolio, economic and unemployment conditions, real-estate values, deposit flows, competition, regulation and loan portfolio quality. A significant decline in local home values could increase delinquencies and losses. Management said Hurricane Irene-affected loans were being monitored and collateral values and insurance proceeds assessed.
Noninterest expense increases included legal and professional costs associated with foreclosures and strategic implementation, data-processing costs, and foreclosed-asset losses; lower FDIC premiums partly offset these increases. The company formed a real-estate investment trust subsidiary, and certain loans were transferred to it on January 4, 2012; management expected no material consolidated impact. Management reported effective disclosure controls and no material change in internal control over financial reporting. The company reported no material legal proceedings.
Important facts for investors to verify
- Whether the rise in nonaccrual loans, nonperforming assets and net charge-offs continues, and whether the allowance adequately reflects portfolio and local economic risks.
- The performance and collateral recovery of foreclosed and forborne loans, including the effects of lengthy New York foreclosure timelines.
- The financial impact of Hurricane Irene-related property damage and the adequacy of insurance recoveries and loan-loss provisions.
- Whether net interest margin and funding costs hold up as rates, deposit mix and loan yields change; confirm management’s interest-rate sensitivity disclosures in the full filing.
- The sustainability of deposit growth, particularly municipal deposits, and the company’s available liquidity and borrowing capacity.
- The dividend-waiver approval status and any subsequent material developments concerning the new real-estate subsidiary.