Greene County Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter ended December 31, 2019, with six-month results compared with the six months ended December 31, 2018. This is fiscal 2020’s second quarter; it does not match the “2019 Q2” period in the request metadata. Figures below are unaudited and, unless noted, in millions of dollars.
Business context and financial performance
The company operates The Bank of Greene County and related subsidiaries in New York’s Hudson Valley. Its principal business is gathering deposits and investing them in loans and securities; net interest income is its main revenue source.
| Metric | Quarter ended Dec. 31, 2019 | Prior-year quarter | Six months ended Dec. 31, 2019 | Prior-year six months |
|---|---|---|---|---|
| Net interest income | $10.9 | $10.0 | $21.4 | $19.7 |
| Provision for loan losses | $0.7 | $0.4 | $1.2 | $0.7 |
| Noninterest income | $2.3 | $2.1 | $4.6 | $4.2 |
| Noninterest expense | $6.5 | $6.2 | $13.0 | $12.2 |
| Net income | $5.1 | $4.6 | $10.0 | $9.0 |
| Diluted earnings per share | $0.60 | $0.54 | $1.17 | $1.05 |
Quarterly net income rose 11.5%; six-month net income rose 11.1%. Quarterly net interest margin declined to 3.11% from 3.47%; six-month margin was 3.18% versus 3.44%. Management attributed margin pressure mainly to higher deposit funding costs and lower securities yields, partly offset by asset growth. Six-month return on average assets was 1.46% and return on average equity was 17.16%, down from 1.55% and 17.98%, respectively.
Financial position, cash flow and liquidity
- At December 31, 2019, total assets were $1,443.951 million, up 13.8% from June 30, 2019. Net loans were $851.1 million, up 8.3%; total securities were $525.0 million, up 23.0%.
- Deposits were $1,244.7 million, up 11.1% from June 30. NOW deposits increased $123.1 million; they represented 61.9% of deposits at period-end.
- Cash and cash equivalents were $34.5 million, compared with $29.5 million at June 30. For the six months, operating cash flow was $11.3 million, investing cash use was $168.8 million, and financing cash provided was $162.6 million; cash increased $5.0 million.
- FHLB borrowings totaled $61.5 million: $48.9 million short-term and $12.6 million long-term. The company reported $232.1 million of maximum FHLB funding capacity, with $75.6 million of standby letters of credit outstanding. No balances were outstanding on disclosed unsecured credit lines or at the Federal Reserve discount window.
- Shareholders’ equity was $120.5 million, or 8.35% of assets, versus $112.4 million and 8.85% at June 30. The Bank of Greene County and Greene County Commercial Bank met applicable regulatory capital requirements.
- Six-month net charge-offs were $0.46 million, versus $0.06 million a year earlier. The allowance was $14.0 million, or 1.62% of gross loans. Nonperforming assets were $3.7 million, 0.25% of assets; nonaccrual loans were $3.4 million, down from $3.6 million at June 30.
Material changes and management commentary
- Growth in loans and securities drove higher interest income, but interest expense increased 62% in the quarter and 57% for the six-month period, reflecting higher average deposit balances and rates—particularly on NOW accounts.
- Loan growth was concentrated in commercial real estate, commercial construction and commercial loans. Commercial real estate was 41.7% of gross loans; commercial construction was 6.6%.
- Provision expense increased as loans grew and adversely classified loans rose to $24.7 million from $17.1 million at June 30. Management cited a construction loan downgraded to special mention after project cost overruns and delinquent payments; the loan was performing at December 31 and remained under close review. No loans were classified doubtful or loss.
- Noninterest income growth reflected debit-card fees, deposit service charges and investment services. Expense growth included staffing for a new Kinderhook-Valatie branch opened in July 2019 and additional lending, customer service and investment-center staff. FDIC assessment credits partially offset expenses.
- Management stated that available cash, the available-for-sale portfolio and borrowing capacity should be sufficient to meet current loan commitments. It expects some slowdown in new lending and refinancing if long-term rates rise. No specific earnings or revenue guidance was provided.
Risks, contingencies and unusual items
- Interest-rate risk is a principal exposure: the company has fixed-rate residential mortgages and management monitors asset-liability mix, funding costs and deposit sensitivity. Credit risk also remains important, especially in commercial real estate, construction and larger commercial relationships.
- Unfunded loan commitments and unused lines of credit totaled $133.8 million. Estimated credit exposure under risk participation agreements was $2.1 million, versus $1.2 million at June 30.
- Available-for-sale and held-to-maturity securities had $0.4 million of gross unrealized losses at December 31. Management attributed declines to rates, wider credit spreads and market illiquidity, and reported no other-than-temporary impairment or securities sales.
- The company adopted lease accounting in July 2019 and recognized $1.7 million of operating lease right-of-use assets and $1.7 million of liabilities; management said the adoption did not materially affect income or cash flows. The company is evaluating CECL, expects a significant effect on its allowance methodology, and had not quantified the adoption impact.
- The board declared a quarterly dividend of $0.11 per share in January 2020, payable February 28. A 200,000-share repurchase authorization was adopted in September; 1,400 shares had been repurchased by December 31. No material legal proceedings were reported.
Important facts for investors to verify
- Whether continued asset growth can offset further deposit-cost increases and net interest margin compression.
- Credit quality trends in commercial real estate and construction, including the special-mention construction loan, classified loans, charge-offs and allowance adequacy.
- Funding mix and liquidity: growth in NOW deposits, short-term FHLB advances, collateral availability and capacity to fund commitments.
- The eventual CECL adoption methodology and its effect on the allowance, capital and reported results.
- Execution and capital implications of the new branch, dividend policy and share repurchase program.