Greene County Bancorp: Growing Upstate NY Community Bank (NASDAQ:GCBC)

Prepared by Tara, Senior Analyst of the team at BAD BEAT Investing

We were asked by a member about Greene County Bancorp (NASDAQ:GCBC). This is a stock we had never looked at. We (Quad 7 Capital) have staff from the Catskill, NY, area, where this company was founded. Greene County Bancorp is the holding company for the Bank of Greene County and its subsidiary Greene County Commercial Bank. Despite the COVID pressures on community banks, this bank has held up pretty well all things considered. The company just reported earnings, and the results were strong. We like shares here under $22 if you can get them based on the valuation, growing revenues, and the long-term prospects for financials. Sure, right now, there is pain in banking. In the near term, it will be volatile. Keep in mind that Greene County Bancorp has exposure to upstate New York markets, and so the market has hammered this name because of lockdown orders and the unemployment rates in New York. The economy is still in pain here in New York as reopening has been so very slow. Further interest rates remain low, making it hard for banks to make money on deposits they take in and loan out. In addition, a lot of borrowers are facing increased pressure. Let us discuss.


This regional bank is focused entirely on traditional community banking. Greene County Bancorp takes in deposits from customers at a low interest rate and makes loans to other customers at a higher rate. It is a model that has worked for centuries, though, in recent months, has been painful with the sharp shift in the economy and interest rates so low. Increased loan activity, as well as overall higher returns on assets, helped lead to revenue strength relative to expectations, and revenues did rise. The return on average assets and return on average equity came in at 1.14% and 14.89%, respectively. This is a decrease from last year. There are a lot of assets under management, but the lower returns did not lower revenues (they were up 8.8%) or earnings per share ($0.57 vs. $0.57 last year).

Book value expanded year over year to $15.62 up 14.4% year over year. We also like the name in the last few months’ decline because it is not about where the company has been, it’s about where it is going. Shares seem to be catching a bid from the recent lows. Loan growth, deposit growth, and a stabilization in the cost of funds have helped, despite interest rates being so low.

Growing loans and deposits

Remember, loans and deposits are critical for small regional banks such as Greene County Bancorp. The bank continues to grow both loans and deposits over time. Growth in loans and deposits is absolutely necessary for any bank, small or large. Even when we cover large banks, which have complicated balance sheets and are in all areas of banking such as trading, investments, etc., we always point out that traditional banking is what grows the business.

For Greene County Bancorp, the loan portfolio saw growth of $225.3 million.

The types of loans show us that the bank is lending more to homeowners and using caution in the riskier commercial loan side of the business. Net loans receivable increased $35.3 million, or 3.5%, to $1.0 billion at September 30, 2020, from $993.5 million at June 30, 2020. Of the $1.0 billion in net loans receivable at September 30, 2020, $100.5 million were Paycheck Protection Program loans. The loan growth experienced during the three months consisted primarily of $34.2 million in commercial real estate loans and $10.2 million in residential real estate loans. This growth was partially offset by a $2.1 million decrease in residential construction and land loans, $3.7 million decrease in commercial construction loans, $1.4 million decrease in home equity loans and $1.2 million increase in allowance for loan losses.

Total average deposits were up. Deposits totaled $1.6 billion at September 30, 2020, and $1.5 billion at June 30, 2020, an increase of $117.9 million, or 7.9%. Noninterest-bearing deposits increased $17.5 million, or 12.7%, NOW deposits increased $103.0 million, or 10.8%, and savings deposits increased $2.2 million, or 0.9%, when comparing September 30, 2020, and June 30, 2020. These increases were offset by a decrease in money market deposits of $4.3 million, or 3.2%, and a decrease in certificates of deposits of $442,000, or 1.2%, when comparing September 30, 2020, and June 30, 2020. Typically deposits increase during the first quarter of the company’s fiscal year as a result of an increase in municipal deposits at Greene County Commercial Bank, primarily from tax collection and new account relationships. Overall, we think this is a conservative lender and carefully considers each and every borrower and every potential property/project that its loan is going to finance. Now, given the COVID-19 issues, we have been concerned with the provision for loan losses.

Non-performing assets decline

A critical aspect to consider for all banks is the quality of the assets on the books. Loan growth is a strength, but only if the loans are quality. There was an increase in the provision for loan losses in earlier quarters, driven by the growth in the loans and the uncertainty around the current economic environment resulting from COVID-19.

We expected the level of provision for loan losses in 2020 to continue to reflect the overall growth of the bank’s loan portfolio, but as we saw with other banks in Q3, this was not exactly the case. They were pretty flat for Greene County Bancorp.

Non-performing assets as a percentage of total assets keep improving. Non-performing loans actually rose very slightly $750,000 compared to the year-ago quarter. Let us dig in more here to understand. Loans classified as substandard or special mention totaled $38.9 million at the end of the quarter compared to $32.8 million at the end of the sequential quarter, an increase of $6.1 million. The increase in classified loans is due to a deterioration of borrowers’ cash flow in their most recent financial statements. These loans were performing as of September 30, 2020, very important to realize this. Reserves on loans classified as substandard or special mention totaled $3.9 million at quarter end compared to $2.4 million at the end of the sequential quarter, an increase of $1.5 million which is attributable to the increase in classified loans.

Here is the best news on this front. None of the bank’s loans were classified as “doubtful” or “loss” at the end of the quarter. However, allowance for loan losses to total loans receivable was 1.68% at the end of the quarter, and 1.62% at the end of the sequential quarter. Considering where all the other banks came in following their recent Q3 reports, this was pretty decent.


We view this earnings report positive. Revenue growth was a positive despite the pressure in interest rates as well as COVID-19-related loan payment reductions/deferrals. However, loan and deposit growth continues, and asset quality metrics are overall decent. There is still concern over loan losses, but all things considered, things appear to be in great shape. Overall, performance was strong. The bank is opening new branches, and serving its customers as best it can. From an investment standpoint, consider shares below $22.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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