Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2017. The filing covers the company’s fiscal second quarter of fiscal 2018; the financial statements are unaudited and amounts are generally in thousands unless stated otherwise.
Business context
The company operates The Bank of Greene County and related subsidiaries in New York’s Hudson Valley. Its principal activities are gathering deposits and investing in loans and securities. Results depend mainly on net interest income, credit quality, interest rates, deposit flows, and noninterest fees and expenses.
Financial performance
| Metric | Three months ended Dec. 31, 2017 | Year-over-year change | Six months ended Dec. 31, 2017 | Year-over-year change |
|---|---|---|---|---|
| Interest income | $9.42 million | +11.0% | $18.51 million | +13.5% |
| Net interest income | $8.46 million | +9.4% | $16.63 million | +12.2% |
| Provision for loan losses | $352,000 | Down from $586,000 | $699,000 | Down from $1.13 million |
| Noninterest income | $1.89 million | +17.1% | $3.63 million | +14.7% |
| Noninterest expense | $5.31 million | +10.9% | $10.21 million | +7.0% |
| Net income | $3.64 million | +24.4% | $7.11 million | +30.9% |
| Basic / diluted EPS | $0.43 / $0.43 | Prior year: $0.34 / $0.34 | $0.84 / $0.83 | Prior year: $0.64 / $0.64 |
| Net interest margin, GAAP | 3.29% | Down 21 basis points | 3.32% | Down 10 basis points |
Higher average loan and securities balances drove interest-income and net-interest-income growth, while higher deposit costs and lower securities yields pressured margins. Fee growth was led by deposit service charges and debit card fees. Compensation and benefits were the largest source of expense growth, reflecting additional staffing and support for business expansion.
Financial position, cash flow, and liquidity
- Assets and lending: Total assets were $1.061 billion at December 31, up 8.0% from June 30, 2017. Net loans rose 6.4% to $663.9 million; gross loans were $674.4 million. Growth was concentrated in commercial loans, commercial real estate, and residential real estate.
- Deposits and funding: Deposits increased 7.1% to $920.8 million, including a $39.9 million increase in municipal deposits. Total FHLB borrowings were $40.45 million, including $20.3 million short term and $20.15 million long term; short-term borrowings were $6.9 million at June 30. The company reported unused credit lines and borrowing capacity, and said available liquidity was sufficient for current loan commitments.
- Cash flow: For the six months, operating activities provided $8.8 million, investing activities used $68.7 million, and financing activities provided $71.4 million. Cash and equivalents increased $11.4 million to $27.7 million, supported chiefly by deposit growth and short-term FHLB advances.
- Capital and equity: Shareholders’ equity was $89.6 million, or 8.44% of assets, compared with $83.5 million, or 8.50%, at June 30. The Bank of Greene County reported total risk-based capital of 15.7% and a Tier 1 leverage ratio of 8.5%; both bank subsidiaries met applicable regulatory capital requirements.
- Dividends: The quarterly dividend was $0.0975 per share, equivalent to an annual rate of $0.39. A further $0.0975 dividend was declared for the quarter ended December 31, payable February 28, 2018.
Material changes, outlook, and risks
- Tax legislation: The December 2017 Tax Cuts and Jobs Act prompted a $251,000 discrete tax benefit from remeasuring deferred tax balances. The company reported effective tax rates of 22.3% for the quarter and 24.0% for the six-month period. Future federal corporate tax rates are lower, while fiscal 2018 uses a blended statutory rate. Estimates may change as the law is clarified.
- Asset quality: Nonperforming assets were $4.57 million, or 0.43% of assets, versus $4.44 million, or 0.45%, at June 30. Nonaccrual loans were $3.66 million; $1.9 million were in foreclosure. Special-mention loans rose by $10.8 million to $11.3 million; management said these loans were performing but warranted closer monitoring. The allowance was $11.35 million, or 1.68% of gross loans.
- Investment portfolio: Securities totaled $342.1 million. Management reported no other-than-temporary impairment and attributed unrealized losses principally to interest rates, wider credit spreads, market illiquidity, and the lower tax benefit on tax-exempt securities following the federal tax-rate reduction. The portfolio is substantially invested in municipal and mortgage-backed securities.
- Management outlook: No quantified earnings or growth guidance was provided. Management said continued low rates and customer relationships supported loan growth, but rising long-term rates could slow new loan demand and refinancing. The company highlighted interest-rate risk from fixed-rate residential mortgages and credit risk from economic weakness or declining real-estate values.
- Other matters: The company identified adoption of the expected-credit-loss standard (CECL) as a significant methodology change under evaluation, but had not estimated its impact on the allowance. Management did not expect the revenue-recognition standard to materially change annual revenue. No material legal proceedings were reported; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether deposit and loan growth can continue without further net-interest-margin compression as deposit rates and funding costs rise.
- Trends in special-mention loans, foreclosures, nonaccrual balances, charge-offs, and the adequacy of the allowance as the loan portfolio expands.
- The effect of municipal-deposit concentration, short-term FHLB funding, and pledged collateral on liquidity and funding flexibility.
- How the lower corporate tax rate affects recurring earnings, tax-exempt investment yields, and the company’s effective tax rate after the one-time deferred-tax remeasurement.
- The eventual CECL adoption impact on the allowance, retained earnings, and capital; the filing says the effect had not yet been quantified.
- Share-count consistency: the filing reports 8,506,614 shares outstanding at December 31, 2017 and 8,513,614 at February 14, 2018.