Business context and reporting period
Greene County Bancorp, Inc. is a New York community banking holding company operating through The Bank of Greene County and related subsidiaries. This filing covers the three months ended September 30, 2021—the company’s fiscal first quarter of fiscal 2022—and compares results with the quarter ended September 30, 2020. Balance-sheet changes are compared with June 30, 2021. The filing’s cover and statements identify September 30, 2021 as the reporting date.
Financial performance and condition
- Profitability: Net income rose 46% to $7.1 million from $4.9 million; diluted EPS increased to $0.84 from $0.57. Annualized return on average assets was 1.28% versus 1.14%, and return on average equity was 18.60% versus 14.89%.
- Net interest: Net interest income grew 22% to $14.4 million. Net interest margin declined to 2.67% from 2.79%; on a tax-equivalent basis it was 2.81% versus 2.98%. Net interest rate spread was 2.64% versus 2.72%.
- Other income and expenses: Noninterest income increased 41% to $2.9 million, including $301,000 of bank-owned life insurance income. Noninterest expense rose 12% to $8.0 million. Provision for loan losses was $988,000, down from $1.2 million; income-tax provision was $1.3 million, with a 15.1% effective tax rate versus 11.7%.
- Assets, loans, and deposits: Total assets were $2.283 billion, up 3.8% from June 30. Net loans were $1.097 billion, up 1.0%; deposits were $2.056 billion, up 2.6%. Securities totaled $988.3 million, up 11.3%, reflecting investment of excess cash following deposit growth.
- Credit quality: Allowance for loan losses was $20.5 million, or 1.83% of gross loans (1.90% excluding PPP loans). Nonperforming loans were $1.9 million, down from $2.3 million at June 30; nonperforming assets were $2.0 million, or 0.09% of assets. Substandard and special-mention loans totaled $47.6 million. Net charge-offs were $163,000.
- Cash flow and liquidity: Operating cash flow was $6.9 million versus $5.5 million a year earlier. Investing activities used $120.7 million, while financing activities provided $77.3 million; cash and equivalents declined $36.4 million during the quarter to $113.3 million. The company reported $594.9 million of available unused credit lines and $307.3 million of FHLB funding capacity; no FHLB or short-term borrowings were outstanding at quarter-end.
- Debt and capital: The company issued $30 million of 3.00% fixed-to-floating subordinated notes due 2031 in September; net subordinated notes payable were $49.2 million at quarter-end. Shareholders’ equity was $154.8 million, and the Bank of Greene County’s total risk-based capital ratio was 16.9%. Both subsidiary banks met applicable regulatory capital requirements.
Material changes versus the prior comparable period
- Interest income rose 17% to $15.6 million, supported by growth in average loans and securities and recognition of PPP loan fees. Interest expense fell 20% to $1.2 million as deposit funding costs declined, partly offset by higher borrowing costs.
- Average interest-earning assets increased $460.5 million, while the yield on those assets fell 25 basis points. Lower asset yields contributed to the decline in net interest margin despite higher net interest income.
- PPP fee income recognized in interest income was $1.5 million, compared with $16,000 a year earlier. Outstanding PPP loans declined to $37.4 million from $67.4 million at June 30, 2021, as loans were forgiven.
- Compared with June 30, commercial real estate loans increased $38.2 million, while commercial loans decreased $32.3 million. Deposit growth was primarily attributed to municipal tax-collection balances and new account relationships.
- Other comprehensive loss was $1.4 million, reflecting unrealized losses on available-for-sale securities; accumulated other comprehensive loss increased to $2.5 million. This reduced comprehensive income to $5.8 million despite net income of $7.1 million.
Outlook, commentary, and risks
The filing provides no specific earnings or revenue guidance. Management expects the low interest-rate environment to continue weighing on net interest spread and margin during fiscal 2022, while saying interest-rate risk remains within established limits. Management also notes that COVID-19’s longer-term effects on the economy, borrowers, earnings, allowance, capital, and liquidity remain uncertain.
Credit risks include potential deterioration in borrowers’ repayment capacity, particularly in commercial real estate and commercial lending. Management downgraded certain commercial relationships during the quarter and continues monitoring adversely classified and payment-deferred loans. Six loans totaling $7.1 million remained on COVID-related payment deferral at September 30, down from eight loans totaling $8.0 million at June 30. Deferral loans are not necessarily reported as delinquent or troubled debt restructurings under the applicable relief provisions.
Other notable items include a $7.0 million purchase of bank-owned life insurance during the quarter, a charitable contribution that contributed to higher expenses, and a quarterly dividend of $0.13 per share. The board declared the same per-share dividend for the next quarter, payable November 30, 2021. The company said it had no material legal proceedings; disclosure controls were deemed effective. The company is evaluating CECL adoption, expected to affect its credit-loss methodology, but had not estimated the adoption impact.
Important facts for investors to verify
- Confirm the fiscal-period convention: the filing reports the quarter ended September 30, 2021, although the request labels the period “2021 Q1.”
- Assess whether the $1.5 million of PPP fee recognition and elevated asset growth are repeatable, and how PPP runoff affects future interest income and loan balances.
- Track margin trends, including the effect of low rates, the expanded securities portfolio, and the new subordinated debt.
- Review commercial real estate and commercial loan classifications, payment deferrals, nonaccrual loans, and the adequacy of the allowance as economic conditions change.
- Monitor securities valuation and accumulated other comprehensive loss, as well as the company’s CECL implementation estimate when available.
- Reconcile liquidity and available borrowing capacity with deposit concentration and the substantial securities pledged as collateral.