Greene County Bancorp, Inc. (NASDAQ:GCBC) is a regional bank stock serving the people of upstate New York. Shares have pulled back over 30% in the last few months, and we believe this is overdone. We have initiated our earnings coverage of a swath of regional banks, and we are seeing some clear winners, some middle-of-the-pack runners, and some losers. We would consider Greene County Bancorp, Inc. a middle-of-the-pack runner with a strong likelihood of rebounding. Why do we believe this?
Well, Greene County Bancorp, Inc. just put out a strong quarterly and fiscal H1 earnings report. We continue to expect some choppy trading in the coming months for the overall market. We think that this will allow you to get GCBC shares under $50 here, which we consider a very attractive level for entry. We believe the setup for banks is strong over the next few years. Although we are expecting a mild recession, we think that GCBC stock moves higher beyond 2023, after bottoming out this year, in our opinion. If the market cools and brings this into the $40s, we think you can do some buying for a trade. Let us discuss the earnings.
Results for the first 6 months of the fiscal year
Greene County Bancorp, Inc. reported net revenues of $18.8 million in its fiscal first half. This was a decent performance, growing 6.4% from last year. The top-line beat was a driver of strength, but banks are prepping for recession and preparing for losses, which weighed somewhat on earnings.
Margins were actually pressured here because the bank was quick to raise rates it paid on deposits. Net interest rate margin decreased when comparing the six months ended December 31, 2022 and 2021. However, net interest margin increased 2 basis points to 2.57% for Q2 versus Q2 of last year, which was 2.55%. Net interest margin decreased 4 basis points to 2.57% got H1 versus H1 last year. The decrease was from higher interest expense, despite increases in loan yields.
Net income was $16.2 million, or $1.91 per share compared to $14.0 million, or $1.64 per share in H1 last year. That is very solid growth despite the margin issues from higher costs of deposits. Keep in mind that loans grew. Average loan balances increased $241.2 million in H1 compared to last year.
Efficiency of the bank
When analyzing banks, the efficiency ratio is important to monitor. We continue to argue that the strongest banks have an efficiency ratio under 60%. Greene County’s efficiency ratio is strong, but it did worsen. For Q2, the ratio was 52.88%, a bearish shift from the 47.13% last year. For H1 as a whole, we also saw a decline in efficiency to 49.66% versus 46.54% a year ago. Why the decline? It really comes down to paying more on deposits and the yields on loans slowly improving as loan balances have grown slowly. We anticipate yields to grow in 2023 as new loans are issued. With a mild recession likely, watching trends on loan growth is key. We do not foresee a substantial decline, but keep an eye on it.
We should also point out that despite lower margins, slightly, and efficiency dipping, the return metrics are improving. The H1 return on assets improved to 1.27% from 1.23% a year ago. Further, the return on average equity is also improving, coming in at 20.03% versus 18.04% a year ago. Unlike many banks, the allowance for loan losses to total loans declined to 1.6% from 1.89% a year ago, though non-performing assets ticked higher to 0.21% of assets versus 0.17% of assets in H1 last year.
Overall Greene County Bancorp, Inc. metrics were clearly mixed, but GCBC shares have pulled back nearly 30 points, or almost 40% from highs. This incredible decline has come in the last 6 weeks, and we believe this is overdone. While Greene County Bancorp, Inc. does not pay a massive dividend, we believe GCBC stock finds support in the $40s on valuation and takes a turn higher. This one can be traded.
Overall, the Greene County Bancorp, Inc. metrics are clearly mixed, but GCBC shares have pulled back nearly 30 points, or almost 40% from highs. This incredible decline has come in the last 6 weeks, and we believe this is overdone. While Greene County Bancorp, Inc. stock does not pay a massive dividend, we believe GCBC stock will find support in the $40s on valuation and takes a turn higher. This one can be traded.