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EX-32.2 - EXHIBIT 32.2 - GREENE COUNTY BANCORP INCex32_2.htm
EX-32.1 - EXHIBIT 32.1 - GREENE COUNTY BANCORP INCex32_1.htm
EX-31.2 - EXHIBIT 31.2 - GREENE COUNTY BANCORP INCex31_2.htm
EX-31.1 - EXHIBIT 31.1 - GREENE COUNTY BANCORP INCex31_1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT


GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number  0-25165


United States
 
14-1809721
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer  Identification Number)

302 Main Street, Catskill, New York
 
12414
(Address of principal executive office)
 
(Zip code)

Registrant's telephone number, including area code: (518) 943-2600
 
Check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes:      No:
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes:      No: ☐ 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  
Accelerated filer ☐
Non-accelerated filer    
Smaller reporting company  ☒
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes:   No:  

As of November 10, 2016, the registrant had 8,492,614 shares of common stock outstanding at $ 0.10 par value per share.
 


GREENE COUNTY BANCORP, INC.

INDEX

PART I.
FINANCIAL INFORMATION
 
   
Page
Item 1.
Financial Statements (unaudited)
 
 
3
 
4
 
5
 
6
 
7
 
8-26
     
Item 2.
27-39
     
Item 3.
39
     
Item 4.
39
     
PART II.
OTHER INFORMATION
 
     
Item 1.
40
     
Item 1A.
40
     
Item 2.
40
     
Item 3.
40
     
Item 4.
40
     
Item 5.
40
     
Item 6.
40
     
 
41
 
Exhibit 31.1 302 Certification of Chief Executive Officer
 
 
Exhibit 31.2 302 Certification of Chief Financial Officer
 
 
Exhibit 32.1 906 Statement of Chief Executive Officer
 
 
Exhibit 32.2 906 Statement of Chief Financial Officer
 
 
Exhibit 101 Extensible Business Reporting Language (XBRL)
 
 
2

Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of September 30, 2016 and June 30, 2016
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
September 30, 2016
   
June 30, 2016
 
Total cash and cash equivalents
 
$
19,986
   
$
15,895
 
                 
Long term certificate of deposit
   
2,145
     
2,210
 
Securities available-for-sale, at fair value
   
91,205
     
100,123
 
Securities held-to-maturity, at amortized cost (fair value $215,766 at September 30, 2016; $214,058 at June 30, 2016)
   
207,601
     
204,935
 
Federal Home Loan Bank stock, at cost
   
2,220
     
2,752
 
                 
Loans
   
557,821
     
531,290
 
Allowance for loan losses
   
(9,976
)
   
(9,485
)
Unearned origination fees and costs, net
   
1,044
     
959
 
Net loans receivable
   
548,889
     
522,764
 
                 
Premises and equipment
   
14,058
     
14,176
 
Accrued interest receivable
   
3,701
     
3,610
 
Foreclosed real estate
   
284
     
370
 
Prepaid expenses and other assets
   
3,026
     
1,946
 
Total assets
 
$
893,115
   
$
868,781
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest-bearing deposits
 
$
95,008
   
$
88,254
 
Interest-bearing deposits
   
677,587
     
650,633
 
Total deposits
   
772,595
     
738,887
 
                 
Borrowings from Federal Home Loan Bank, short-term
   
14,300
     
26,100
 
Borrowings from Federal Home Loan Bank, long-term
   
20,300
     
20,300
 
Accrued expenses and other liabilities
   
9,506
     
9,193
 
Total liabilities
   
816,701
     
794,480
 
                 
SHAREHOLDERS' EQUITY
               
Preferred stock, Authorized - 1,000,000 shares; Issued - None
   
-
     
-
 
Common stock, par value $.10 per share; Authorized - 12,000,000 shares; Issued – 8,611,340 shares Outstanding 8,487,614 shares at September 30, 2016, and 8,475,614 shares at June 30, 2016
   
861
     
861
 
Additional paid-in capital
   
10,943
     
10,872
 
Retained earnings
   
65,943
     
63,805
 
Accumulated other comprehensive loss
   
(866
)
   
(725
)
Treasury stock, at cost 123,726 shares at September 30, 2016, and 135,726 shares at June 30, 2016
   
(467
)
   
(512
)
Total shareholders’ equity
   
76,414
     
74,301
 
Total liabilities and shareholders’ equity
 
$
893,115
   
$
868,781
 
 
See notes to consolidated financial statements
 
3

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended September 30, 2016 and 2015
(Unaudited)
(In thousands, except share and per share amounts)

   
2016
   
2015
 
Interest income:
           
Loans
 
$
6,053
   
$
5,293
 
Investment securities - taxable
   
150
     
134
 
Mortgage-backed securities
   
784
     
767
 
Investment securities - tax exempt
   
824
     
667
 
Interest-bearing deposits and federal funds sold
   
3
     
2
 
Total interest income
   
7,814
     
6,863
 
                 
Interest expense:
               
Interest on deposits
   
606
     
531
 
Interest on borrowings
   
121
     
83
 
Total interest expense
   
727
     
614
 
                 
Net interest income
   
7,087
     
6,249
 
Provision for loan losses
   
543
     
374
 
Net interest income after provision for loan losses
   
6,544
     
5,875
 
                 
Noninterest income:
               
Service charges on deposit accounts
   
773
     
717
 
Debit card fees
   
491
     
452
 
Investment services
   
70
     
93
 
E-commerce fees
   
32
     
24
 
Other operating income
   
183
     
198
 
Total noninterest income
   
1,549
     
1,484
 
                 
Noninterest expense:
               
Salaries and employee benefits
   
2,668
     
2,424
 
Occupancy expense
   
380
     
363
 
Equipment and furniture expense
   
120
     
120
 
Service and data processing fees
   
448
     
410
 
Computer software, supplies and support
   
146
     
133
 
Advertising and promotion
   
123
     
101
 
FDIC insurance premiums
   
114
     
100
 
Legal and professional fees
   
198
     
260
 
Other
   
557
     
647
 
Total noninterest expense
   
4,754
     
4,558
 
                 
Income before provision for income taxes
   
3,339
     
2,801
 
Provision for income taxes
   
832
     
651
 
Net income
 
$
2,507
   
$
2,150
 
                 
Basic earnings per share
 
$
0.30
   
$
0.25
 
Basic average shares outstanding
   
8,483,179
     
8,446,312
 
Diluted earnings per share
 
$
0.30
   
$
0.25
 
Diluted average shares outstanding
   
8,497,669
     
8,498,760
 
Dividends per share
 
$
0.0950
   
$
0.0925
 
 
See notes to consolidated financial statements
 
4

Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2016 and 2015
(Unaudited)
(In thousands)

   
2016
   
2015
 
Net Income
 
$
2,507
   
$
2,150
 
Other comprehensive income:
               
Unrealized holding gains on available-for-sale securities, net of income taxes of ($101) and $21, respectively
    (142 )     34  
               
Accretion of unrealized loss on securities transferred to held-to-maturity, net of income taxes of $1 and $4, respectively
   
1
     
6
 
                 
Total other comprehensive income, net of taxes
   
(141
)
   
40
 
                 
Comprehensive income
 
$
2,366
   
$
2,190
 

See notes to consolidated financial statements.
 
5

Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Three Months Ended September 30, 2016 and 2015
(Unaudited)
(In thousands)

   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Treasury
Stock
   
Total
Shareholders'
Equity
 
Balance at June 30, 2015
 
$
431
   
$
11,220
   
$
56,696
   
$
(798
)
 
$
(629
)
 
$
66,920
 
Options exercised
           
10
                     
16
     
26
 
Dividends declared
                   
(355
)
                   
(355
)
Net income
                   
2,150
                     
2,150
 
Other comprehensive income, net of taxes
                           
40
             
40
 
Balance at September 30, 2015
 
$
431
   
$
11,230
   
$
58,491
   
$
(758
)
 
$
(613
)
 
$
68,781
 

   
Common
Stock
   
Additional
Paid-In
 Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss
   
Treasury
Stock
   
Total
Shareholders'
Equity
 
Balance at June 30, 2016
 
$
861
   
$
10,872
   
$
63,805
   
$
(725
)
 
$
(512
)
 
$
74,301
 
Options exercised
           
30
                     
45
     
75
 
Tax benefit of stock based compensation
           
41
                             
41
 
Dividends declared
                   
(369
)
                   
(369
)
Net income
                   
2,507
                     
2,507
 
Other comprehensive income, net of taxes
                           
(141
)
           
(141
)
Balance at September 30, 2016
 
$
861
   
$
10,943
   
$
65,943
   
$
(866
)
 
$
(467
)
 
$
76,414
 
 
See notes to consolidated financial statements.
 
6

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2016 and 2015
(Unaudited)
(In thousands)
   
2016
   
2015
 
Cash flows from operating activities:
           
Net Income
 
$
2,507
   
$
2,150
 
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation
   
159
     
158
 
Deferred income tax expense
   
801
     
751
 
Net amortization of premiums and discounts
   
223
     
174
 
Net amortization of deferred loan costs and fees
   
118
     
102
 
Provision for loan losses
   
543
     
374
 
Losses on sale of foreclosed real estate
   
47
     
106
 
Excess tax benefit from share based compensation
   
(41
)
   
-
 
Net decrease in accrued income taxes
   
(1,554
)
   
(764
)
Net increase in accrued interest receivable
   
(90
)
   
(159
)
Net decrease in prepaid and other assets
   
207
     
209
 
Net decrease in other liabilities
   
(81
)
   
(702
)
Net cash provided by operating activities
   
2,839
     
2,399
 
                 
Cash flows from investing activities:
               
Securities available-for-sale:
               
Proceeds from maturities
   
24,481
     
15,735
 
Purchases of securities
   
(16,443
)
   
(26,970
)
Principal payments on securities
   
620
     
1,512
 
Securities held-to-maturity:
               
Proceeds from maturities
   
3,253
     
2,788
 
Purchases of securities
   
(7,648
)
   
(10,860
)
Principal payments on securities
   
1,525
     
2,403
 
Net redemption of Federal Home Loan Bank Stock
   
532
     
662
 
Maturity of long term certificate of deposit
   
65
     
-
 
Net increase in loans receivable
   
(26,786
)
   
(17,756
)
Proceeds from sale of foreclosed real estate
   
39
     
223
 
Purchases of premises and equipment
   
(41
)
   
(119
)
Net cash used by investing activities
   
(20,403
)
   
(32,382
)
                 
Cash flows from financing activities
               
Net decrease in short-term FHLB advances
   
(11,800
)
   
(14,700
)
Payment of cash dividends
   
(369
)
   
(355
)
Proceeds from issuance of stock options
   
75
     
26
 
Excess tax benefit from share based compensation
   
41
     
-
 
Net increase in deposits
   
33,708
     
41,591
 
Net cash provided by financing activities
   
21,655
     
26,562
 
                 
Net increase (decrease) in cash and cash equivalents
   
4,091
     
(3,421
)
Cash and cash equivalents at beginning of period
   
15,895
     
15,538
 
Cash and cash equivalents at end of period
 
$
19,986
   
$
12,117
 
                 
Non-cash investing activities:
               
Foreclosed loans transferred to foreclosed real estate
 
$
-
   
$
318
 
Cash paid during period for:
               
Interest
 
$
729
   
$
613
 
Income taxes
 
$
1,585
   
$
664
 
 
See notes to consolidated financial statements
 
7

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Three Months Ended September 30, 2016 and 2015

(1)
Basis of Presentation

Within the accompanying unaudited consolidated statement of financial condition, and related notes to the consolidated financial statements, June 30, 2016 data was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, The Bank of Greene County (the “Bank”) and Greene Risk Management, Inc., and the Bank’s wholly owned subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd.  The consolidated financial statements at and for the three months ended September 30, 2016 and 2015 are unaudited.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  To the extent that information and notes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2016, such information and notes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications, if any, had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three months ended September 30, 2016 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2017.   These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

CRITICAL ACCOUNTING POLICIES

Greene County Bancorp, Inc.’s critical accounting policies relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.  The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing portfolio.  The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans for which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses.  However, this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters.  This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

Securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio.  Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security, on which there is an unrealized loss, is impaired on an other-than-temporary basis.  The Company considers many factors, including the severity and duration of the impairment; the intent and ability of the Company to hold the equity security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, the intent to sell the security, the likelihood to be required to sell the security before it recovers the entire amortized cost, external credit ratings and recent downgrades.  The Company is required to record other-than-temporary impairment charges through earnings, if it has the intent to sell, or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis.  In addition, the Company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell.  Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis.  Non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as the Company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis.

(2)
Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its subsidiaries, The Bank of Greene County and Greene Risk Management, Inc.  The Bank of Greene County has 13 full-service offices, an operations center and lending center located in its market area within the Hudson Valley Region of New York State.    The Bank of Greene County is primarily engaged in the business of attracting deposits from the general public in The Bank of Greene County’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities.  Greene Risk Management, Inc. is a pooled captive insurance company, which provides additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.  The Bank of Greene County also owns and operates two subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd. Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities. Greene Property Holdings, Ltd.is a real estate investment trust, which holds mortgages and notes which were originated through and serviced by The Bank of Greene County.
 
8

(3)
Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could materially differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the assessment of other-than-temporary security impairment.

While management uses available information to recognize losses on loans, future additions to the allowance for loan losses (the “Allowance”) may be necessary, based on changes in economic conditions, asset quality or other factors.  In addition, various regulatory authorities, as an integral part of their examination process, periodically review the Allowance.  Such authorities may require the Company to recognize additions to the Allowance based on their judgments of information available to them at the time of their examination.

Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss is expected, external credit ratings and recent downgrades.  Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value through earnings.

(4)
Securities

Securities at September 30, 2016 consisted of the following:
 
(In thousands)
 
Amortized Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated Fair
Value
 
Securities available-for-sale:
                       
U.S. government sponsored enterprises
 
$
4,582
   
$
272
   
$
-
   
$
4,854
 
State and political subdivisions
   
52,450
     
4
     
-
     
52,454
 
Mortgage-backed securities-residential
   
5,971
     
168
     
7
     
6,132
 
Mortgage-backed securities-multi-family
   
22,357
     
1,125
     
2
     
23,480
 
Asset-backed securities
   
4
     
-
     
-
     
4
 
Corporate debt securities
   
4,024
     
96
     
-
     
4,120
 
Total debt securities
   
89,388
     
1,665
     
9
     
91,044
 
Equity securities
   
62
     
99
     
-
     
161
 
Total securities available-for-sale
   
89,450
     
1,764
     
9
     
91,205
 
Securities held-to-maturity:
                               
U.S. government sponsored enterprises
   
2,000
     
2
     
-
     
2,002
 
State and political subdivisions
   
103,351
     
4,622
     
13
     
107,960
 
Mortgage-backed securities-residential
   
12,500
     
505
     
-
     
13,005
 
Mortgage-backed securities-multi-family
   
86,609
     
3,040
     
9
     
89,640
 
Corporate debt securities
   
1,000
     
4
     
-
     
1,004
 
Other securities
   
2,141
     
15
     
1
     
2,155
 
Total securities held-to-maturity
   
207,601
     
8,188
     
23
     
215,766
 
Total securities
 
$
297,051
   
$
9,952
   
$
32
   
$
306,971
 
 
9

Securities at June 30, 2016 consisted of the following:

(In thousands)
 
Amortized Cost
   
Gross Unrealized
Gains
   
Gross Unrealized
Losses
   
Estimated
Fair Value
 
Securities available-for-sale:
                       
U.S. government sponsored enterprises
 
$
4,587
   
$
304
   
$
-
   
$
4,891
 
State and political subdivisions
   
60,491
     
8
     
-
     
60,499
 
Mortgage-backed securities-residential
   
6,360
     
185
     
5
     
6,540
 
Mortgage-backed securities-multi-family
   
22,594
     
1,285
     
-
     
23,879
 
Asset-backed securities
   
5
     
-
     
-
     
5
 
Corporate debt securities
   
4,028
     
129
     
-
     
4,157
 
Total debt securities
   
98,065
     
1,911
     
5
     
99,971
 
Equity securities
   
62
     
90
     
-
     
152
 
Total securities available-for-sale
   
98,127
     
2,001
     
5
     
100,123
 
Securities held-to-maturity:
                               
U.S. government sponsored enterprises
   
2,000
     
32
     
-
     
2,032
 
State and political subdivisions
   
99,040
     
5,003
     
3
     
104,040
 
Mortgage-backed securities-residential
   
13,543
     
606
     
-
     
14,149
 
Mortgage-backed securities-multi-family
   
87,204
     
3,471
     
4
     
90,671
 
Corporate debt securities
   
1,000
     
-
     
-
     
1,000
 
Other securities
   
2,148
     
18
     
-
     
2,166
 
Total securities held-to-maturity
   
204,935
     
9,130
     
7
     
214,058
 
Total securities
 
$
303,062
   
$
11,131
   
$
12
   
$
314,181
 

Greene County Bancorp, Inc.’s current policies generally limit securities investments to U.S. Government and securities of government sponsored enterprises, federal funds sold, municipal bonds, corporate debt obligations and certain mutual funds.  In addition, the Company’s policies permit investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage obligations issued by these entities.  As of September 30, 2016, all mortgage-backed securities including collateralized mortgage obligations were securities of government sponsored enterprises, no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio.  The Company’s investments in state and political subdivisions securities generally are municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured.  The obligations issued by school districts are supported by state aid.  Primarily, these investments are issued by municipalities within New York State.

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2016.


   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
(In thousands, except number of securities)
 
Fair
Value
   
Unrealized
Losses
   
Number of
Securities
   
Fair
Value
   
Unrealized
Losses
   
Number of
Securities
   
Fair
Value
   
Unrealized
 Losses
   
Number of
Securities
 
Securities available-for-sale:
                                                     
Mortgage-backed securities-residential
 
$
896
   
$
7
     
1
   
$
-
   
$
-
     
-
   
$
896
   
$
7
     
1
 
Mortgage-backed securities-multi-family
   
1,734
     
2
     
1
     
-
     
-
     
-
     
1,734
     
2
     
1
 
Total securities available-for-sale
   
2,630
     
9
     
2
     
-
     
-
     
-
     
2,630
     
9
     
2
 
Securities held-to-maturity:
                                                                       
State and political subdivisions
   
2,319
     
12
     
25
     
139
     
1
     
1
     
2,458
     
13
     
26
 
Mortgage-backed securities-multi-family
   
2,532
     
9
     
3
     
-
     
-
     
-
     
2,532
     
9
     
3
 
Other securities
   
224
     
1
     
1
     
-
     
-
     
-
     
224
     
1
     
1
 
Total securities held-to-maturity
   
5,075
     
22
     
29
     
139
     
1
     
1
     
5,214
     
23
     
30
 
Total securities
 
$
7,705
   
$
31
     
31
   
$
139
   
$
1
     
1
   
$
7,844
   
$
32
     
32
 
 
10

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2016.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
(In thousands, except number of securities)
 
Fair
Value
   
Unrealized
Losses
   
Number of
Securities
   
Fair
Value
   
Unrealized
Losses
   
Number of
Securities
   
Fair
Value
   
Unrealized
Losses
   
Number of
Securities
 
Securities available-for-sale:
                                                     
Mortgage-backed securities-residential
 
$
924
   
$
5
     
1
   
$
-
   
$
-
     
-
   
$
924
   
$
5
     
1
 
Total securities available-for-sale
   
924
     
5
     
1
     
-
     
-
     
-
     
924
     
5
     
1
 
Securities held-to-maturity:
                                                                       
State and political subdivisions
   
272
     
2
     
1
     
175
     
1
     
2
     
447
     
3
     
3
 
Mortgage-backed securities-multi-family
   
499
     
4
     
4
     
-
     
-
     
-
     
499
     
4
     
4
 
Total securities held-to-maturity
   
771
     
6
     
5
     
175
     
1
     
2
     
946
     
7
     
7
 
Total securities
 
$
1,695
   
$
11
     
6
   
$
175
   
$
1
     
2
   
$
1,870
   
$
12
     
8
 

When the fair value of a held-to-maturity or available-for-sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present.  The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover.  The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

For debt securities, OTTI is considered to have occurred if (1) the Company intends to sell the security, (2) it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis, or (3) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.  In determining the present value of expected cash flows, the Company discounts the expected cash flows at the effective interest rate implicit in the security at the date of acquisition.  In estimating cash flows expected to be collected, the Company uses available information with respect to security prepayment speeds, default rates and severity.  In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”).  Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis.  Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized.  For securities classified as held-to-maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.  For equity securities, the entire amount of OTTI is recognized in income.  Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2016.  Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads at the end of the quarter.

There were no transfers of securities available-for-sale to held-to-maturity during the quarters ended September 30, 2016 or 2015. During the quarters ended September 30, 2016 and 2015, there were no sales of securities and no gains or losses were recognized.  There was no other-than-temporary impairment loss recognized during the quarters ended September 30, 2016 and 2015.
 
11

The estimated fair values of debt securities at September 30, 2016, by contractual maturity are shown below.  Expected maturities may differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands)

Available-for-sale debt securities
 
Amortized Cost
   
Fair Value
 
Within one year
 
$
53,409
   
$
53,429
 
After one year through five years
   
7,647
     
7,999
 
After five years through ten years
   
-
     
-
 
After ten years
   
-
     
-
 
Total available-for-sale debt securities
   
61,056
     
61,428
 
Mortgage-backed and asset-backed securities
   
28,332
     
29,616
 
Equity securities
   
62
     
161
 
Total available-for-sale securities
   
89,450
     
91,205
 
                 
Held-to-maturity debt securities
               
Within one year
   
14,965
     
15,224
 
After one year through five years
   
54,258
     
55,949
 
After five years through ten years
   
27,985
     
29,590
 
After ten years
   
11,284
     
12,358
 
Total held-to-maturity debt securities
   
108,492
     
113,121
 
Mortgage-backed
   
99,109
     
102,645
 
Total held-to-maturity securities
   
207,601
     
215,766
 
Total securities
 
$
297,051
   
$
306,971
 

As of September 30, 2016 and June 30, 2016, respectively, securities with an aggregate fair value of $287.4 million and $291.6 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  As of September 30, 2016 and June 30, 2016, securities with an aggregate fair value of $4.1 million and $4.2 million, respectively, were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window.  Greene County Bancorp, Inc. did not participate in any securities lending programs during the quarters ended September 30, 2016 or 2015.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula.  This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par.  As a result of these restrictions, FHLB stock is carried at cost.  FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value.  Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following:   its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position.  After evaluating these considerations, Greene County Bancorp, Inc. concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no other-than-temporary impairment charge was recorded during the fiscal quarters ended September 30, 2016 or 2015.
 
12

(5)
Loans and Allowance for Loan Losses

Loan segments and classes at September 30, 2016 and June 30, 2016 are summarized as follows:
 
(In thousands)
 
September 30, 2016
   
June 30, 2016
 
Residential real estate:
           
Residential real estate
 
$
235,279
   
$
234,992
 
Residential construction and land
   
5,199
     
5,575
 
Multi-family
   
3,893
     
3,918
 
Commercial real estate:
               
Commercial real estate
   
210,448
     
192,678
 
Commercial construction
   
25,428
     
20,159
 
Consumer loan:
               
Home equity
   
20,795
     
20,893
 
Consumer installment
   
4,470
     
4,350
 
Commercial loans
   
52,309
     
48,725
 
Total gross loans
   
557,821
     
531,290
 
Allowance for loan losses
   
(9,976
)
   
(9,485
)
Deferred fees and costs
   
1,044
     
959
 
Loans receivable, net
 
$
548,889
   
$
522,764
 

Management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality and profitability of the Company’s loan portfolio.  The credit quality grade helps management make a consistent assessment of each loan relationship’s credit risk. Consistent with regulatory guidelines, The Bank of Greene County provides for the classification of loans considered being of lesser quality.  Such ratings coincide with the “Substandard,” “Doubtful” and “Loss” classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. Substandard assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in assets classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a full loss reserve and/or charge-off is not warranted. Assets that do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated “Special Mention.”   Management also maintains a listing of loans designated “Watch.” These loans represent borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk.

When The Bank of Greene County classifies problem assets as either Substandard or Doubtful, it generally establishes a specific valuation allowance or “loss reserve” in an amount deemed prudent by management.  General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular loans.  When The Bank of Greene County identifies problem loans as being impaired, it is required to evaluate whether the Bank will be able to collect all amounts due either through repayments or the liquidation of the underlying collateral.  If it is determined that impairment exists, the Bank is required either to establish a specific allowance for losses equal to the amount of impairment of the assets, or to charge-off such amount.  The Bank of Greene County’s determination as to the classification of its loans and the amount of its valuation allowance is subject to review by its regulatory agencies, which can order the establishment of additional general or specific loss allowances.  The Bank of Greene County reviews its portfolio monthly to determine whether any assets require classification in accordance with applicable regulations.

The Bank primarily has four segments within its loan portfolio that it considers when measuring credit quality: residential real estate loans, commercial real estate loans, consumer loans and commercial loans.  The residential real estate portfolio consists of residential, construction, and multifamily loan classes. Commercial real estate loans consist of commercial real estate and commercial construction loan classes. Consumer loans consist of home equity loan and consumer installment loan classes. The inherent risk within the loan portfolio varies depending upon each of these loan types.

The Bank of Greene County’s primary lending activity is the origination of residential mortgage loans, including home equity loans, which are collateralized by residences.   Generally, residential mortgage loans are made in amounts up to 89.9% of the appraised value of the property.  However, The Bank of Greene County will originate residential mortgage loans with loan-to-value ratios of up to 95.0%, with private mortgage insurance.  In the event of default by the borrower, The Bank of Greene County will acquire and liquidate the underlying collateral. By originating the loan at a loan-to-value ratio of 89.9% or less or obtaining private mortgage insurance, The Bank of Greene County limits its risk of loss in the event of default.  However, the market values of the collateral may be adversely impacted by declines in the economy.  Home equity loans may have an additional inherent risk if The Bank of Greene County does not hold the first mortgage.  The Bank of Greene County may stand in a secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.
 
13

Construction lending generally involves a greater degree of risk than other residential mortgage lending.  The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property within specified cost limits.  The Bank of Greene County completes inspections during the construction phase prior to any disbursements.  The Bank of Greene County limits its risk during the construction as disbursements are not made until the required work for each advance has been completed.  Construction delays may further impair the borrower’s ability to repay the loan.

Loans collateralized by commercial real estate, and multi-family dwellings, such as apartment buildings generally are larger than residential loans and involve a greater degree of risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of commercial real estate loans makes them more difficult for management to monitor and evaluate.

Consumer loans generally have shorter terms and higher interest rates than residential mortgage loans. In addition, consumer loans expand the products and services offered by The Bank of Greene County to better meet the financial services needs of its customers.  Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the nature of the underlying collateral.  Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower’s personal financial stability.  Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Commercial lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate mortgage lending. Real estate lending is generally considered to be collateral-based, with loan amounts based on fixed loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.

Loan balances by internal credit quality indicator as of September 30, 2016 are shown below.
                             
(In thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential real estate
 
$
232,386
   
$
573
   
$
93
   
$
2,227
   
$
235,279
 
Residential construction and land
   
5,199
     
-
     
-
     
-
     
5,199
 
Multi-family
   
3,797
     
-
     
-
     
96
     
3,893
 
Commercial real estate
   
207,481
     
-
     
180
     
2,787
     
210,448
 
Commercial construction
   
25,428
     
-
     
-
     
-
     
25,428
 
Home equity
   
20,461
     
284
     
12
     
38
     
20,795
 
Consumer installment
   
4,433
     
37
     
-
     
-
     
4,470
 
Commercial loans
   
50,913
     
-
     
347
     
1,049
     
52,309
 
Total gross loans
 
$
550,098
   
$
894
   
$
632
   
$
6,197
   
$
557,821
 
 
14

Loan balances by internal credit quality indicator as of June 30, 2016 are shown below.

(In thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential real estate
 
$
232,321
   
$
757
   
$
94
   
$
1,820
   
$
234,992
 
Residential construction and land
   
5,575
     
-
     
-
     
-
     
5,575
 
Multi-family
   
3,820
     
-
     
-
     
98
     
3,918
 
Commercial real estate
   
190,293
     
52
     
531
     
1,802
     
192,678
 
Commercial construction
   
20,159
     
-
     
-
     
-
     
20,159
 
Home equity
   
20,555
     
321
     
12
     
5
     
20,893
 
Consumer installment
   
4,340
     
10
     
-
     
-
     
4,350
 
Commercial loans
   
47,598
     
26
     
8
     
1,093
     
48,725
 
Total gross loans
 
$
524,661
   
$
1,166
   
$
645
   
$
4,818
   
$
531,290
 

The Company had no loans classified Doubtful or Loss at September 30, 2016 or June 30, 2016.

Nonaccrual Loans

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  A nonaccrual loan is defined as a loan in which collectability is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan.  A loan does not have to be 90 days delinquent in order to be classified as nonaccrual.   Nonaccrual loans consisted primarily of loans secured by real estate at September 30, 2016 and June 30, 2016. Loans on nonaccrual status totaled $4.2 million at September 30, 2016, of which $1.7 million were in the process of foreclosure. At September 30, 2016, there were 11 residential loans in the process of foreclosure totaling $1.1 million. Included in nonaccrual loans were $1.9 million of loans which were less than 90 days past due at September 30, 2016, but have a recent history of delinquency greater than 90 days past due. These loans will be returned to accrual status once they have demonstrated a history of timely payments.  Included in total loans past due were $75,000 of loans which were making payments pursuant to forbearance agreements.  Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment).  During this term of the forbearance agreement, the Bank has agreed not to continue foreclosure proceedings.  Loans on nonaccrual status totaled $3.3 million at June 30, 2016 of which $1.5 million were in the process of foreclosure. At June 30, 2016, there were nine residential loans in the process of foreclosure totaling $867,000. Included in nonaccrual loans were $1.9 million of loans which were less than 90 days past due at June 30, 2016, but have a recent history of delinquency greater than 90 days past due.

The following table sets forth information regarding delinquent and/or nonaccrual loans as of September 30, 2016:
                                               
(In thousands)
 
30-59
days
past due
   
60-89
days
past due
   
90 days
or more
past due
   
Total
past due
   
Current
   
Total
Loans
   
Loans on
Non-
accrual
 
Residential real estate
 
$
1,420
   
$
271
   
$
1,332
   
$
3,023
   
$
232,256
   
$
235,279
   
$
1,619
 
Residential construction and land
   
20
     
-
     
-
     
20
     
5,179
     
5,199
     
-
 
Multi-family
   
-
     
-
     
-
     
-
     
3,893
     
3,893
     
-
 
Commercial real estate
   
725
     
401
     
1,059
     
2,185
     
208,263
     
210,448
     
2,356
 
Commercial construction
   
-
     
-
     
-
     
-
     
25,428
     
25,428
     
-
 
Home equity
   
54
     
284
     
38
     
376
     
20,419
     
20,795
     
50
 
Consumer installment
   
48
     
37
     
-
     
85
     
4,385
     
4,470
     
-
 
Commercial loans
   
111
     
-
     
-
     
111
     
52,198
     
52,309
     
198
 
Total gross loans
 
$
2,378
   
$
993
   
$
2,429
   
$
5,800
   
$
552,021
   
$
557,821
   
$
4,223
 
 
15

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2016:

(In thousands)
 
30-59
days
past due
   
60-89
days
past due
   
90 days
or more
past due
   
Total
past due
   
Current
   
Total Loans
   
Loans on
Non-
accrual
 
Residential real estate
 
$
1,533
   
$
637
   
$
938
   
$
3,108
   
$
231,884
   
$
234,992
   
$
1,207
 
Residential construction and land
   
-
     
-
     
-
     
-
     
5,575
     
5,575
     
-
 
Multi-family
   
47
     
-
     
-
     
47
     
3,871
     
3,918
     
-
 
Commercial real estate
   
324
     
793
     
590
     
1,707
     
190,971
     
192,678
     
1,899
 
Commercial construction
   
-
     
-
     
-
     
-
     
20,159
     
20,159
     
-
 
Home equity
   
17
     
321
     
17
     
355
     
20,538
     
20,893
     
18
 
Consumer installment
   
34
     
10
     
-
     
44
     
4,306
     
4,350
     
-
 
Commercial loans
   
392
     
112
     
-
     
504
     
48,221
     
48,725
     
202
 
Total gross loans
 
$
2,347
   
$
1,873
   
$
1,545
   
$
5,765
   
$
525,525
   
$
531,290
   
$
3,326
 

The Bank of Greene County had accruing loans delinquent more than 90 days totaling $75,000 and $84,000 as of September 30, 2016 and June 30, 2016, respectively.  The loans delinquent more than 90 days and accruing consist of loans that are well collateralized and the borrowers have demonstrated the ability and willingness to pay.  The borrower has made arrangements with the Bank to bring the loan current within a specified time period and has made a series of payments as agreed.

The table below details additional information related to nonaccrual loans for the three months ended September 30:

(In thousands)
 
2016
   
2015
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
 
$
80
   
$
101
 
Interest income that was recorded on nonaccrual loans
   
28
     
49
 

Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  Generally, The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are reviewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Based on this evaluation, a delinquent loan’s risk rating may be downgraded to either pass-watch, special mention, or substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation.  Loans that have been modified as a troubled debt restructuring are included in impaired loans.  The measurement of impairment is generally based on the discounted cash flows based on the original rate of the loan before the restructuring, unless it is determined that the restructured loan is collateral dependent.  If the restructured loan is deemed to be collateral dependent, impairment is based on the fair value of the underlying collateral.
 
16

The tables below detail additional information on impaired loans at the date or periods indicated:
 
   
As of September 30, 2016
   
For the three months ended
September 30, 2016
 
(In thousands)
 
Recorded
Investment
   
Unpaid
Principal
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
With no related allowance recorded:
                   
Residential real estate
 
$
375
   
$
375
   
$
-
   
$
375
   
$
-
 
Commercial real estate
   
1,020
     
1,226
     
-
     
1,021
     
10
 
Home equity
   
5
     
5
     
-
     
5
     
-
 
Total impaired loans with no allowance
   
1,400
     
1,606
     
-
     
1,401
     
10
 
                                         
With an allowance recorded:
                                       
Residential real estate
   
1,343
     
1,343
     
283
     
1,345
     
12
 
Commercial real estate
   
401
     
401
     
59
     
402
     
4
 
Commercial loans
   
82
     
82
     
2
     
83
     
2
 
Total impaired loans with allowance
   
1,826
     
1,826
     
344
     
1,830
     
18
 
                                         
Total impaired:
                                       
Residential real estate
   
1,718
     
1,718
     
283
     
1,720
     
12
 
Commercial real estate
   
1,421
     
1,627
     
59
     
1,423
     
14
 
Home equity
   
5
     
5
     
-
     
5
     
-
 
Commercial loans
   
82
     
82
     
2
     
83
     
2
 
Total impaired loans
 
$
3,226
   
$
3,432
   
$
344
   
$
3,231
   
$
28
 

   
As of June 30, 2016
   
For the three months ended
September 30, 2015
 
(In thousands)
 
Recorded
Investment
   
Unpaid
Principal
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
With no related allowance recorded:
                   
Residential real estate
 
$
266
   
$
266
   
$
-
   
$
349
   
$
2
 
Commercial real estate
   
1,024
     
1,231
     
-
     
1,199
     
6
 
Home equity
   
5
     
5
     
-
     
134
     
1
 
Total impaired loans with no allowance
   
1,295
     
1,502
     
-
     
1,682
     
9
 
                                         
With an allowance recorded:
                                       
Residential real estate
   
1,457
     
1,457
     
267
     
1,404
     
14
 
Commercial real estate
   
405
     
405
     
61
     
671
     
6
 
Commercial loans
   
85
     
85
     
2
     
92
     
1
 
Total impaired loans with allowance
   
1,947
     
1,947
     
330
     
2,167
     
21
 
                                         
Total impaired loans:
                                       
Residential real estate
   
1,723
     
1,723
     
267
     
1,753
     
16
 
Commercial real estate
   
1,429
     
1,636
     
61
     
1,870
     
12
 
Home equity
   
5
     
5
     
-
     
134
     
1
 
Commercial loans
   
85
     
85
     
2
     
92
     
1
 
Total impaired loans
 
$
3,242
   
$
3,449
   
$
330
   
$
3,849
   
$
30
 

There were no loans that have been modified as a troubled debt restructuring during the three months ended September 30, 2016 or 2015.
 
17

There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to June 30, 2016 or 2015 which have subsequently defaulted during the three months ended September 30, 2016 or 2015, respectively.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for the loan loss allowance.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The Bank of Greene County considers smaller balance residential mortgages, home equity loans, commercial loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience.  Larger balance residential, commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The Bank of Greene County charges loans off against the allowance for credit losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers.  Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses, unless equitable arrangements are made.   For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably estimated.

The following tables set forth the activity and allocation of the allowance for loan losses by loan category during and at the periods indicated.  The allowance is allocated to each loan category based on historical loss experience and economic conditions.
 
   
Activity for the three months ended September 30, 2016
 
(In thousands)
 
Balance at
June 30, 2016
   
Charge-offs
   
Recoveries
   
Provision
   
Balance at
September 30, 2016
 
Residential real estate
 
$
2,396
   
$
-
   
$
-
   
$
(154
)
 
$
2,242
 
Residential construction and land
   
75
     
-
     
-
     
(12
)
   
63
 
Multi-family
   
22
     
-
     
-
     
(4
)
   
18
 
Commercial real estate
   
4,541
     
-
     
-
     
440
     
4,981
 
Commercial construction
   
502
     
-
     
-
     
126
     
628
 
Home equity
   
309
     
-
     
-
     
(58
)
   
251
 
Consumer installment
   
228
     
72
     
17
     
(5
)
   
168
 
Commercial loans
   
1,412
     
-
     
3
     
77
     
1,492
 
Unallocated
   
-
     
-
     
-
     
133
     
133
 
Total
 
$
9,485
   
$
72
   
$
20
   
$
543
   
$
9,976
 
 
18

 
Allowance for Loan Losses
   
Loans Receivable
 
   
Ending Balance
September 30, 2016
Impairment Analysis
   
Ending Balance
September 30, 2016
Impairment Analysis
 
(In thousands)
 
Individually
Evaluated
   
Collectively
Evaluated
   
Individually
Evaluated
   
Collectively
Evaluated
 
Residential real estate
 
$
283
   
$
1,959
   
$
1,718
   
$
233,561
 
Residential construction and land
   
-
     
63
     
-
     
5,199
 
Multi-family
   
-
     
18
     
-
     
3,893
 
Commercial real estate
   
59
     
4,922
     
1,421
     
209,027
 
Commercial construction
   
-
     
628
     
-
     
25,428
 
Home equity
   
-
     
251
     
5
     
20,790
 
Consumer installment
   
-
     
168
     
-
     
4,470
 
Commercial loans
   
2
     
1,490
     
82
     
52,227
 
Unallocated
   
-
     
133
     
-
     
-
 
Total
 
$
344
   
$
9,632
   
$
3,226
   
$
554,595
 
 
   
Activity for the three months ended September 30, 2015
 
(In thousands)
 
Balance at
June 30, 2015
   
Charge-offs
   
Recoveries
   
Provision
   
Balance at
September 30, 2015
 
Residential real estate
 
$
2,454
   
$
-
   
$
-
   
$
(68
)
 
$
2,386
 
Residential construction and land
   
50
     
-
     
-
     
12
     
62
 
Multi-family
   
40
     
-
     
-
     
(15
)
   
25
 
Commercial real estate
   
3,699
     
14
     
17
     
112
     
3,814
 
Commercial construction
   
233
     
-
     
-
     
(71
)
   
162
 
Home equity
   
314
     
-
     
-
     
5
     
319
 
Consumer installment
   
223
     
78
     
25
     
70
     
240
 
Commercial loans
   
1,129
     
-
     
-
     
123
     
1,252
 
Unallocated
   
-
     
-
     
-
     
206
     
206
 
Total
 
$
8,142
   
$
92
   
$
42
   
$
374
   
$
8,466
 
 
   
Allowance for Loan Losses
   
Loans Receivable
 
   
Ending Balance
June 30, 2016
Impairment Analysis
   
Ending Balance
June 30, 2016
Impairment Analysis
 
(In thousands)
 
Individually Evaluated
   
Collectively Evaluated
   
Individually Evaluated
   
Collectively Evaluated
 
Residential real estate
 
$
267
   
$
2,129
   
$
1,723
   
$
233,269
 
Residential construction and land
   
-
     
75
     
-
     
5,575
 
Multi-family
   
-
     
22
     
-
     
3,918
 
Commercial real estate
   
61
     
4,480
     
1,429
     
191,249
 
Commercial construction
   
-
     
502
     
-
     
20,159
 
Home equity
   
-
     
309
     
5
     
20,888
 
Consumer installment
   
-
     
228
     
-
     
4,350
 
Commercial loans
   
2
     
1,410
     
85
     
48,640
 
Unallocated
   
-
     
-
     
-
     
-
 
Total
 
$
330
   
$
9,155
   
$
3,242
   
$
528,048
 
 
19

Foreclosed real estate (FRE)

FRE consists of properties acquired through mortgage loan foreclosure proceedings or in full or partial satisfaction of loans. The following table sets forth information regarding FRE as of September 30, 2016 and June 30, 2016:

(in thousands)
 
September 30, 2016
   
June 30, 2016
 
Residential real estate
 
$
22
   
$
61
 
Land
   
54
     
65
 
Commercial real estate
   
208
     
244
 
Total foreclosed real estate
 
$
284
   
$
370
 

(6)
Fair Value Measurements and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated.  The estimated fair value amounts have been measured as of September 30, 2016 and June 30, 2016 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
 
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
 
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
 
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:
 
         
Fair Value Measurements Using
 
         
Quoted Prices In
Active Markets For
Identical Assets
   
Significant Other
Observable Inputs
   
Significant
Unobservable Inputs
 
(In thousands)
 
September 30, 2016
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
                       
U.S. Government sponsored enterprises
 
$
4,854
   
$
-
   
$
4,854
   
$
-
 
State and political subdivisions
   
52,454
     
-
     
52,454
     
-
 
Mortgage-backed securities-residential
   
6,132
     
-
     
6,132
     
-
 
Mortgage-backed securities-multi-family
   
23,480
     
-
     
23,480
     
-
 
Asset-backed securities
   
4
     
4
     
-
     
-
 
Corporate debt securities
   
4,120
     
4,120
     
-
     
-
 
Equity securities
   
161
     
161
     
-
     
-
 
Securities available-for-sale
 
$
91,205
   
$
4,285
   
$
86,920
   
$
-
 
 
20

         
Fair Value Measurements Using
 
         
Quoted Prices
In Active Markets For
Identical Assets
   
Significant
Other Observable
Inputs
   
Significant
Unobservable
Inputs
 
(In thousands)
 
June 30, 2016
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
                       
U.S. Government sponsored enterprises
 
$
4,891
   
$
-
   
$
4,891
   
$
-
 
State and political subdivisions
   
60,499
     
-
     
60,499
     
-
 
Mortgage-backed securities-residential
   
6,540
     
-
     
6,540
     
-
 
Mortgage-backed securities-multi-family
   
23,879
     
-
     
23,879
     
-
 
Asset-backed securities
   
5
     
5
     
-
     
-
 
Corporate debt securities
   
4,157
     
4,157
     
-
     
-
 
Equity securities
   
152
     
152
     
-
     
-
 
Securities available-for-sale
 
$
100,123
   
$
4,314
   
$
95,809
   
$
-
 

Certain investments that are actively traded and have quoted market prices have been classified as Level 1 valuations.  Other available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed.  Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses.  Impaired loans are those loans for which the Company has measured impairment generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount may not necessarily represent the actual fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

                     
Fair Value Measurements Using
 
(In thousands)
 
Recorded
Investment
   
Related
Allowance
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
September 30, 2016
                                   
Impaired loans
 
$
579
   
$
172
   
$
407
   
$
-
   
$
-
   
$
407
 
Foreclosed real estate
   
284
     
-
     
284
     
-
     
-
     
284
 
                                                 
June 30, 2016
                                               
Impaired loans
 
$
655
   
$
164
   
$
491
   
$
-
   
$
-
   
$
491
 
Foreclosed real estate
   
370
     
-
     
370
     
-
     
-
     
370
 
 
21

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were utilized to determine fair value:
 
(Dollars in thousands)
 
Fair Value
 
Valuation Technique
Unobservable Input
 
Range
   
Weighted
Average
 
September 30, 2016
                     
Impaired Loans
 
$
407
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
5.83%-42.52
%
   
21.61
%
             
Liquidation expenses(3)
   
3.45%-8.35
%
   
4.88
%
Foreclosed real estate
   
284
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
0.00%-54.17
%
   
4.16
%
             
Liquidation expenses(3)
   
0.42%-12.67
%
   
8.54
%
June 30, 2016
                           
Impaired loans
 
$
491
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
16.50%-38.85
%
   
21.01
%
             
Liquidation expenses(3)
   
4.09%-8.35
%
   
4.92
%
Foreclosed real estate
   
370
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
0.00%-54.17
%
   
8.83
%
             
Liquidation expenses(3)
   
0.42%-12.67
%
   
7.81
%
 
(1)
Fair value is generally determined through independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.
(2)
Appraisals may be adjusted downwards by management for qualitative factors such as economic conditions.  Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received or age of the appraisal.
(3)
Appraisals are adjusted downwards by management for qualitative factors such as the estimated costs to liquidate the collateral.

The carrying amounts reported in the statements of financial condition for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate their fair values.  Fair values of securities are based on quoted market prices (Level 1), where available, or matrix pricing (Level 2), which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.  The carrying amount of Federal Home Loan Bank stock approximates fair value due to its restricted nature.  Fair values for variable rate loans that reprice frequently, with no significant credit risk, are based on carrying value.  Fair value for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  Fair values disclosed for demand and savings deposits are equal to carrying amounts at the reporting date.  The carrying amounts for variable rate money market deposits approximate fair values at the reporting date.  Fair values for fixed rate certificates of deposit are estimated using discounted cash flows and interest rates currently being offered in the market on similar certificates.  Fair value for Federal Home Loan Bank long term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings.  The carrying value of short-term Federal Home Loan Bank borrowings approximates its fair value.

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers.  At September 30, 2016 and June 30, 2016, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

The carrying amounts and estimated fair value of financial instruments are as follows:

(In thousands)
 
September 30, 2016
   
Fair Value Measurements Using
 
   
Carrying
Amount
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Cash and cash equivalents
 
$
19,986
   
$
19,986
   
$
19,986
   
$
-
   
$
-
 
Long term certificate of deposit
   
2,145
     
2,145
     
2,145
     
-
     
-
 
Securities available-for-sale
   
91,205
     
91,205
     
4,285
     
86,920
     
-
 
Securities held-to-maturity
   
207,601
     
215,766
     
-
     
215,766
     
-
 
Federal Home Loan Bank stock
   
2,220
     
2,220
     
-
     
2,220
     
-
 
Net loans
   
548,889
     
561,866
     
-
     
-
     
561,866
 
Accrued interest receivable
   
3,701
     
3,701
     
-
     
3,701
     
-
 
Deposits
   
772,595
     
772,785
     
-
     
772,785
     
-
 
Federal Home Loan Bank borrowings
   
34,600
     
34,730
     
-
     
34,730
     
-
 
Accrued interest payable
   
72
     
72
     
-
     
72
     
-
 
 
22

(In thousands)
 
June 30, 2016
   
Fair Value Measurements Using
 
   
Carrying
Amount
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Cash and cash equivalents
 
$
15,895
   
$
15,895
   
$
15,895
   
$
-
   
$
-
 
Long term certificate of deposit
   
2,210
     
2,210
     
2,210
     
-
     
-
 
Securities available-for-sale
   
100,123
     
100,123
     
4,314
     
95,809
     
-
 
Securities held-to-maturity
   
204,935
     
214,058
     
-
     
214,058
     
-
 
Federal Home Loan Bank stock
   
2,752
     
2,752
     
-
     
2,752
     
-
 
Net loans
   
522,764
     
533,721
     
-
     
-
     
533,721
 
Accrued interest receivable
   
3,610
     
3,610
     
-
     
3,610
     
-
 
Deposits
   
738,887
     
739,087
     
-
     
739,087
     
-
 
Federal Home Loan Bank borrowings
   
46,400
     
46,562
     
-
     
46,562
     
-
 
Accrued interest payable
   
74
     
74
     
-
     
74
     
-
 

(7)
Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period.  There were no anti-dilutive securities or contracts outstanding during the quarters ended September 30, 2016 and 2015.  On February 17, 2016, the Company announced that its Board of Directors has declared a 2-for-1 stock split on the Company’s common stock.  The stock split was paid on March 15, 2016 to stockholders of record as of March 7, 2016. Weighted-average number of shares outstanding and earnings per share have been restated for September 30, 2015 as if the new shares had been issued and outstanding at the same time as the original shares.

   
Net Income
   
Weighted Average
Number Of
Shares Outstanding
   
Earnings
per Share
 
                   
Three months ended September 30, 2016
 
$
2,507,000
             
Basic
           
8,483,179
   
$
0.30
 
Effect of dilutive stock options
           
14,490
     
-
 
Diluted
           
8,497,669
   
$
0.30
 
                         
Three months ended September 30, 2015
 
$
2,150,000
                 
Basic
           
8,446,312
   
$
0.25
 
Effect of dilutive stock options
           
52,448
     
-
 
Diluted
           
8,498,760
   
$
0.25
 

(8)
Dividends

On July 19, 2016, the Board of Directors declared a cash dividend for the quarter ended June 30, 2016 of $0.095 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.38 per share, compared to an annual cash dividend rate of $0.37 declared during the previous quarter.  The dividend was payable to stockholders of record as of August 15, 2016, and was paid on August 31, 2016.  The MHC has waived its right to receive dividends declared on its shares of the Company’s common stock for the quarter ended June 30, 2016.

(9)
Impact of Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU) (ASU 2014-09) to amend its guidance on “Revenue from Contracts with Customers (Topic 606).  The objective of the ASU is to align the recognition of revenue with the transfer of promised goods or services provided to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services.  This ASU will replace most existing revenue recognition guidance under GAAP when it becomes effective. In August, 2015, the FASB issued an amendment (ASU 2015-14) which defers the effective date of this new guidance by one year. More detailed implementation guidance on Topic 606 was issued in March 2016 (ASU 2016-08), April 2016 (ASU 2016-10) and May 2016 (ASU 2016-12), and the effective date and transition requirements for these ASUs are the same as the effective date and transition requirements of ASU 2014-09.  The amendments in ASU 2014-09 are effective for public business entities for annual periods, beginning after December 15, 2017.  The Company has not yet determined the effect of the standard on its ongoing financial reporting.
 
23

In August 2014, the FASB issued an amendment (ASU 2014-14) to its guidance on “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40)”.  The objective of the ASU is to reduce the diversity in how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure, to provide more decision-useful information about a creditor’s foreclosed mortgage loans that are expected to be recovered, at least in part, through government guarantees.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Public entities would be permitted to elect to early adopt for annual reporting periods beginning after December 15, 2016.  The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In January 2015, the FASB issued an Update (ASU 2015-01) to its guidance on “Income Statement-Extraordinary and Unusual Items (Subtopic 225-20)”.  The objective of the ASU is to simplify the income statement presentation by eliminating the concept of extraordinary items, and will align GAAP more closely with International Accounting Standards which prohibits the presentation and disclosure of extraordinary items.  The amendments in this Update were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

In January 2016, the FASB issued an Update (ASU 2016-01) to its guidance on “Financial Instruments (Subtopic 825-10)”.  This amendment addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments.  These amendments require equity securities to be measured at fair value with changes in the fair value to be recognized through net income. The amendments also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption of the amendments in this Update is not permitted.  The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In February 2016, the FASB issued an Update (ASU 2016-02) to its guidance on “Leases (Topic 842)”.  The new leases standard applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to existing U.S. GAAP. Classification depends on the same five criteria used by lessees plus certain additional factors. The subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases, and operating leases. However, the new standard updates certain aspects of the lessor accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic 606. Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In March 2016, the FASB issued an Update (ASU 2016-09) to its guidance on “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”.  This amendment is intended to simplify the accounting for stock compensation.  The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In June 2016, the FASB issued an Update (ASU 2016-13) to its guidance on “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above. Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.  For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. An entity will apply the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach).  The Company is currently evaluating the potential impact on our consolidated results of operations or financial position.
 
24

(10)
Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension cost related to the defined benefit pension plan for the three months ended September 30, 2016 and 2015 were as follows:

   
Three months ended September 30,
 
(In thousands)
 
2016
   
2015
 
Interest cost
 
$
54
   
$
58
 
Expected return on plan assets
   
(69
)
   
(77
)
Amortization of net loss
   
49
     
34
 
Net periodic pension cost
 
$
34
   
$
15
 

The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan during fiscal 2017.

SERP

The Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP Plan”), effective as of July 1, 2010. The SERP Plan benefits certain key senior executives of the Bank who have been selected by the Board to participate. The SERP Plan is intended to provide a benefit from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”).  The SERP Plan is more fully described in Note 9 of the consolidated financial statements and notes thereto for the year ended June 30, 2016.

The net periodic pension costs related to the SERP Plan for the three months ended September 30, 2016 and 2015 were $77,000 and $58,000, respectively, consisting primarily of service costs and interest costs. The total liability for the SERP Plan was $2.3 million and $2.0 million as of September 30, 2016 and June 30, 2016, respectively.  The total liability for the SERP Plan includes both accumulated net periodic pension costs and participant contributions.

(11)
Stock-Based Compensation

At September 30, 2016, Greene County Bancorp, Inc. had two stock-based compensation plans, which are described more fully in Note 10 of the consolidated financial statements and notes thereto for the year ended June 30, 2016.  All share and per share data has been restated in all periods presented to reflect the 2-for-1 stock split, which was paid on March 15, 2016, as if the new share options had been granted at the same time as the original share options.

Stock Option Plan

At September 30, 2016 and 2015, all granted shares related to the 2008 Option Plan were fully vested, with no remaining compensation cost to be recognized.  A summary of the Company’s stock option activity and related information for its option plan for the three months ended September 30, 2016 and 2015 is as follows:
 
   
2016
   
2015
 
   
Shares
   
Weighted Average Exercise
Price Per Share
   
Shares
   
Weighted Average Exercise
Price Per Share
 
Outstanding at beginning of year
   
64,770
   
$
6.25
     
95,670
   
$
6.25
 
Exercised
   
(12,000
)
 
$
6.25
     
(4,200
)
 
$
6.25
 
Outstanding at period end
   
52,770
   
$
6.25
     
91,470
   
$
6.25
 
Exercisable at period end
   
52,770
   
$
6.25
     
91,470
   
$
6.25
 
 
25

The following table presents stock options outstanding and exercisable at September 30, 2016:

Options Outstanding and Exercisable
 
Range of
Exercise Prices
   
Number
Outstanding
   
Weighted Average Remaining
Contractual Life
   
Weighted Average Exercise Price
 
$
6.25
     
52,770
     
2.00
   
$
6.25
 

The total intrinsic value of the options exercised during the three months ended September 30, 2016 and 2015, was approximately $206,000 and $33,000, respectively. There were no stock options granted during the three months ended September 30, 2016 or 2015.

Phantom Stock Option Plan and Long-term Incentive Plan

The Greene County Bancorp, Inc. 2011 Phantom Stock Option and Long-term Incentive Plan (the “Plan”) was adopted effective July 1, 2011, to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s shareholders. The Plan is intended to provide benefits to employees and directors of the Company or any subsidiary as designated by the Compensation Committee of the Board of Directors of the Company (“Committee”).   A phantom stock option represents the right to receive a cash payment on the date the award vests. The Plan is more fully described in Note 9 of the consolidated financial statements and notes thereto for the year ended June 30, 2016.

A summary of the Company’s phantom stock option activity and related information for its option plan for the three months ended September 30, 2016 and 2015 is as follows:
 
   
2016
   
2015
 
Number of options outstanding at beginning of year
   
1,353,554
     
1,257,508
 
Options granted
   
578,200
     
493,760
 
Options paid in cash upon vesting
   
-
     
(396,714
)
Number of options outstanding at period end
   
1,931,754
     
1,354,554
 

At September 30, 2016, there were 408,034 options that were vested totaling $845,200, which will be paid out in cash during the three months ended December 31, 2016. The Company paid out $710,500 in cash during the three months ended September 30, 2015 on options vested. The Company recognized $241,000 and $180,000 in compensation costs related to the phantom stock option plan during the three months ended September 30, 2016 and 2015, respectively.  The total liability for the long-term incentive plan was $1.7 million and $1.4 million as of September 30, 2016 and June 30, 2016, respectively.

(12)
Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss as of September 30, 2016 and June 30, 2016 are presented in the following table:

(In thousands)
           
Accumulated other comprehensive (loss) income:
 
September 30, 2016
   
June 30, 2016
 
Unrealized gain on available-for-sale securities, net of tax
 
$
1,082
   
$
1,224
 
Unrealized loss on securities transferred to held-to-maturity, net of tax
   
(1
)
   
(2
)
Net losses and past service liability for defined benefit plan, net of tax
   
(1,947
)
   
(1,947
)
Accumulated other comprehensive loss
 
$
(866
)
 
$
(725
)

(13)
Subsequent events

On October 26, 2016, the Board of Directors declared a cash dividend for the quarter ended September 30, 2016 of $0.095 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.38 per share, which was the same rate as the dividend declared during the previous quarter.  The dividend will be payable to stockholders of record as of November 15, 2016, and will be paid on November 30, 2016.  The MHC intends to waive its receipt of this dividend.
 
26

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation

Overview of the Company’s Activities and Risks

Greene County Bancorp, Inc.’s results of operations depend primarily on its net interest income, which is the difference between the income earned on Greene County Bancorp, Inc.’s loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by Greene County Bancorp, Inc.’s provision for loan losses, gains and losses from sales of securities, noninterest income and noninterest expense.  Noninterest income consists primarily of fees and service charges.  Greene County Bancorp, Inc.’s noninterest expense consists principally of compensation and employee benefits, occupancy, equipment and data processing, and other operating expenses. Results of operations are also significantly affected by general economic and competitive conditions, changes in interest rates, as well as government policies and actions of regulatory authorities. Additionally, future changes in applicable law, regulations or government policies may materially affect Greene County Bancorp, Inc.

To operate successfully, the Company must manage various types of risk, including but not limited to, market or interest rate risk, credit risk, transaction risk, liquidity risk, security risk, strategic risk, reputation risk and compliance risk.  While all of these risks are important, the risks of greatest significance to the Company relate to market or interest rate risk and credit risk.

Market risk is the risk of loss from adverse changes in market prices and/or interest rates.  Since net interest income (the difference between interest earned on loans and investments and interest paid on deposits and borrowings) is the Company’s primary source of revenue, interest rate risk is the most significant non-credit related market risk to which the Company is exposed.  Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of the Company’s assets and liabilities.

Interest rate risk is the exposure of the Company’s net interest income to adverse movements in interest rates.  In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancings, and the flow and mix of deposits.

Credit risk is the risk to the Company’s earnings and shareholders’ equity that results from customers, to whom loans have been made and to the issuers of debt securities in which the Company has invested, failing to repay their obligations.  The magnitude of risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased.

Special Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements.  Greene County Bancorp, Inc. desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all such forward-looking statements.  These forward-looking statements, which are included in this Management’s Discussion and Analysis and elsewhere in this quarterly report, describe future plans or strategies and include Greene County Bancorp, Inc.’s expectations of future financial results.   The words “believe,” “expect,” “anticipate,” “project,” and similar expressions identify forward-looking statements.  Greene County Bancorp, Inc.’s ability to predict results or the effect of future plans or strategies or qualitative or quantitative changes based on market risk exposure is inherently uncertain.  Factors that could affect actual results include but are not limited to:
 
(a)
changes in general market interest rates,
(b)
general economic conditions, including unemployment rates and real estate values,
(c)
legislative and regulatory changes,
(d)
monetary and fiscal policies of the U.S. Treasury and the Federal Reserve,
(e)
changes in the quality or composition of The Bank of Greene County’s loan portfolio or the consolidated investment portfolios of The Bank of Greene County and Greene County Bancorp, Inc.,
(f)
deposit flows,
(g)
competition, and
(h)
demand for financial services in Greene County Bancorp, Inc.’s market area.

These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements, since results in future periods may differ materially from those currently expected because of various risks and uncertainties.
 
27

Non-GAAP Financial Measures

Regulation G, a rule adopted by the Securities and Exchange Commission (SEC), applies to certain SEC filings, including earnings releases, made by registered companies that contain “non-GAAP financial measures.”  GAAP is generally accepted accounting principles in the United States of America.  Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure (if a comparable GAAP measure exists) and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures.  The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP.  When these exempted measures are included in public disclosures, supplemental information is not required. Financial institutions like the Company and its subsidiary banks are subject to an array of bank regulatory capital measures that are financial in nature but are not based on GAAP and are not easily reconcilable to the closest comparable GAAP financial measures, even in those cases where a comparable measure exists. The Company follows industry practice in disclosing its financial condition under these various regulatory capital measures, including period-end regulatory capital ratios for itself and its subsidiary banks, in its periodic reports filed with the SEC, and does so without compliance with Regulation G, on the widely-shared assumption that the SEC regards such non-GAAP measures to be exempt from Regulation G.  The Company uses in this Report additional non-GAAP financial measures that are commonly utilized by financial institutions and have not been specifically exempted by the SEC from Regulation G. The Company provides, as supplemental information, such non-GAAP measures included in this Report as described immediately below.

Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income, as a component of the tabular presentation by financial institutions of Selected Financial Information regarding their recently completed operations, as well as disclosures based on that tabular presentation, is commonly presented on a tax-equivalent basis.  That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total.  This adjustment is considered helpful in comparing one financial institution's net interest income to that of another institution or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations.  Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets.  For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. While we present net interest income and net interest margin utilizing GAAP measures (no tax-equivalent adjustments) as a component of the tabular presentation within our disclosures, we do provide as supplemental information net interest income and net interest margin on a tax-equivalent basis.
 
28

Comparison of Financial Condition as of September 30, 2016 and June 30, 2016

ASSETS

Total assets of the Company were $893.1 million at September 30, 2016 as compared to $868.8 million at June 30, 2016, an increase of $24.3 million, or 2.8%.  Securities available-for-sale and held-to-maturity amounted to $298.8 million, or 33.5% of assets, at September 30, 2016 as compared to $305.1 million, or 35.1% of assets, at June 30, 2016, a decrease of $6.3 million, or 2.1%.   Net loans grew by $26.1 million, or 5.0%, to $548.9 million at September 30, 2016 as compared to $522.8 million at June 30, 2016.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased $4.1 million to $20.0 million at September 30, 2016 from $15.9 million at June 30, 2016.  The level of cash and cash equivalents is a function of the daily account clearing needs and deposit levels as well as activities associated with securities transactions and loan funding.  All of these items can cause cash levels to fluctuate significantly on a daily basis.

SECURITIES

Securities available-for-sale and held-to-maturity decreased $6.3 million, or 2.1%, to $298.8 million at September 30, 2016 as compared to $305.1 million at June 30, 2016.  Securities purchases totaled $24.1 million during the quarter ended September 30, 2016 and consisted of state and political subdivision securities. Principal pay-downs and maturities during the quarter amounted to $29.9 million, of which $2.2 million were mortgage-backed securities, and $27.7 million were state and political subdivision securities. At September 30, 2016, 52.1% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promote Greene County Bancorp, Inc.’s participation in the communities in which it operates. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.

   
September 30, 2016
   
June 30, 2016
 
(Dollars in thousands)
 
Balance
   
Percentage
of portfolio
   
Balance
   
Percentage
of portfolio
 
Securities available-for-sale:
                       
U.S. government sponsored enterprises
 
$
4,854
     
1.6
%
 
$
4,891
     
1.6
%
State and political subdivisions
   
52,454
     
17.5
     
60,499
     
19.8
 
Mortgage-backed securities-residential
   
6,132
     
2.0
     
6,540
     
2.1
 
Mortgage-backed securities-multifamily
   
23,480
     
7.9
     
23,879
     
7.8
 
Asset-backed securities
   
4
     
0.0
     
5
     
0.0
 
Corporate debt securities
   
4,120
     
1.4
     
4,157
     
1.4
 
Total debt securities
   
91,044
     
30.4
     
99,971
     
32.7
 
Equity securities
   
161
     
0.1
     
152
     
0.1
 
Total securities available-for-sale
   
91,205
     
30.5
     
100,123
     
32.8
 
Securities held-to-maturity:
                               
U.S. government sponsored enterprises
   
2,000
     
0.7
     
2,000
     
0.7
 
State and political subdivisions
   
103,351
     
34.6
     
99,040
     
32.5
 
Mortgage-backed securities-residential
   
12,500
     
4.2
     
13,543
     
4.4
 
Mortgage-backed securities-multifamily
   
86,609
     
29.0
     
87,204
     
28.6
 
Corporate debt securities
   
1,000
     
0.3
     
1,000
     
0.3
 
Other securities
   
2,141
     
0.7
     
2,148
     
0.7
 
Total securities held-to-maturity
   
207,601
     
69.5
     
204,935
     
67.2
 
Total securities
 
$
298,806
     
100.0
%
 
$
305,058
     
100.0
%

LOANS

Net loans receivable increased $26.1 million, or 5.0%, to $548.9 million at September 30, 2016 from $522.8 million at June 30, 2016.  The loan growth experienced during the quarter consisted primarily of $17.8 million in commercial real estate loans, $5.3 million in commercial construction loans, and $3.6 million in commercial loans. Balances within all other loan categories were relatively flat when comparing September 30, 2016 and June 30, 2016.  We believe that the continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth. If long term rates begin to rise, the Company anticipates some slowdown in new loan demand as well as refinancing activities.  The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products.  A significant decline in home values, however, in the Company’s markets could have a negative effect on the consolidated results of operations, as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios.  Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status.  Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.
 
29

(Dollars in thousands)
 
September 30, 2016
   
June 30, 2016
 
   
Balance
   
Percentage of
Portfolio
   
Balance
   
Percentage of
Portfolio
 
Residential real estate
 
$
235,279
     
42.2
%
 
$
234,992
     
44.2
%
Residential construction and land
   
5,199
     
0.9
     
5,575
     
1.1
 
Multi-family
   
3,893
     
0.7
     
3,918
     
0.7
 
Commercial real estate
   
210,448
     
37.7
     
192,678
     
36.3
 
Commercial construction
   
25,428
     
4.6
     
20,159
     
3.8
 
Home equity
   
20,795
     
3.7
     
20,893
     
3.9
 
Consumer installment
   
4,470
     
0.8
     
4,350
     
0.8
 
Commercial loans
   
52,309
     
9.4
     
48,725
     
9.2
 
Total gross loans
   
557,821
     
100.0
%
   
531,290
     
100.0
%
Allowance for loan losses
   
(9,976
)
           
(9,485
)
       
Deferred fees and costs
   
1,044
             
959
         
Total net loans
 
$
548,889
           
$
522,764
         

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.  The Bank of Greene County considers smaller balance residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience.  Larger balance residential and commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements.  The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Bank of Greene County charges loans off against the allowance for loan losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers.  Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses, unless equitable arrangements are made.  For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably estimated. The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by charge-offs.
 
30

Analysis of allowance for loan losses activity

   
At or for the Three Months Ended
September 30,
 
(Dollars in thousands)
 
2016
   
2015
 
Balance at the beginning of the period
 
$
9,485
   
$
8,142
 
Charge-offs:
               
Commercial real estate
   
-
     
14
 
Consumer installment
   
72
     
78
 
Total loans charged off
   
72
     
92
 
                 
Recoveries:
               
Commercial real estate
   
-
     
17
 
Consumer installment
   
17
     
25
 
Commercial loans
   
3
     
-
 
Total recoveries
   
20
     
42
 
                 
Net charge-offs
   
52
     
50
 
                 
Provisions charged to operations
   
543
     
374
 
Balance at the end of the period
  $
9,976
    $
8,466
 
                 
Net charge-offs to average loans outstanding (annualized)
   
0.04
%
   
0.04
%
Net charge-offs to nonperforming assets (annualized)
   
4.54
%
   
3.93
%
Allowance for loan losses to nonperforming loans
   
232.11
%
   
198.87
%
Allowance for loan losses to total loans receivable
   
1.79
%
   
1.81
%

Nonaccrual Loans and Nonperforming Assets

Loans are reviewed on a regular basis to assess collectability of all principal and interest payments due.  Management determines that a loan is impaired or nonperforming when it is probable at least a portion of the principal or interest will not be collected in accordance with contractual terms of the note.  When a loan is determined to be impaired, the measurement of the loan is based on present value of estimated future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.

Generally, management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis.  The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  Generally, The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Based on this evaluation, a delinquent loan’s risk rating may be downgraded to either pass-watch, special mention, or substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation. A loan does not have to be 90 days delinquent in order to be classified as nonperforming.  Foreclosed real estate is considered to be a nonperforming asset.
 
31

Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)
 
At September 30, 2016
   
At June 30, 2016
 
Nonaccruing loans:
           
Residential real estate
 
$
1,619
 
 
$
1,207
 
Commercial real estate
   
2,356
     
1,899
 
Home equity
   
50
     
18
 
Commercial
   
198
     
202
 
Total nonaccruing loans
   
4,223
     
3,326
 
90 days & accruing
               
Residential real estate
   
75
     
77
 
Total 90 days & accruing
   
75
     
77
 
Total nonperforming loans
   
4,298
     
3,403
 
Foreclosed real estate:
               
Residential real estate
   
22
     
61
 
Land
   
54
     
65
 
Commercial real estate
   
208
     
244
 
Total foreclosed real estate
   
284
     
370
 
Total nonperforming assets
 
$
4,582
 
 
$
3,773
 
                 
Troubled debt restructuring:
               
Nonperforming (included above)
 
$
1,632
 
 
$
1,645
 
Performing (accruing and excluded above)
   
929
     
934
 
                 
Total nonperforming assets as a percentage of total assets
   
0.51
%
   
0.43
%
Total nonperforming loans to net loans
   
0.78
%
   
0.65
%

The table below details additional information related to nonaccrual loans for the three months ended September 30:

(In thousands)
 
2016
   
2015
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
 
$
80
   
$
101
 
Interest income that was recorded on nonaccrual loans
   
28
     
49
 

Nonperforming assets amounted to $4.6 million at September 30, 2016 and $3.8 million as of June 30, 2016, an increase of $809,000 or 21.4%. Nonaccrual loans consisted primarily of loans secured by real estate at September 30, 2016 and June 30, 2016. Loans on nonaccrual status totaled $4.2 million at September 30, 2016, of which $1.7 million were in the process of foreclosure. At September 30, 2016, there were 11 residential loans in the process of foreclosure totaling $1.1 million. Included in nonaccrual loans were $1.9 million of loans which were less than 90 days past due at September 30, 2016, but have a recent history of delinquency greater than 90 days past due. These loans will be returned to accrual status once they have demonstrated a history of timely payments.  Included in total loans past due were $75,000 of loans which were making payments pursuant to forbearance agreements.  Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment).  During this term of the forbearance agreement, the Bank has agreed not to continue foreclosure proceedings.  While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years.  The growth in nonperforming assets is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.

Impaired Loans

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment”.  A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.
 
32

The table below details additional information on impaired loans as of the dates indicated:

(In thousands)
 
September
30, 2016
   
June 30,
2016
   
September
30, 2015
 
Balance of impaired loans, with a valuation allowance
 
$
1,826
   
$
1,947
   
$
2,047
 
Allowances relating to impaired loans included in allowance for loan losses
   
344
     
330
     
341
 
Balance of impaired loans, without a valuation allowance
   
1,400
     
1,295
     
1,629
 
Average balance of impaired loans for the quarters ended
   
3,231
     
3,247
     
3,849
 
Interest income recorded on impaired loans during the quarters ended
   
28
     
24
     
30
 

Total impaired loans amounted to $3.2 million at September 30, 2016 and June 30, 2016.

DEPOSITS

Total deposits increased to $772.6 million at September 30, 2016 from $738.9 million at June 30, 2016, an increase of $33.7 million, or 4.6%. Noninterest-bearing deposits increased $6.8 million, or 7.6%, NOW deposits increased $38.7 million, or 12.5%, and money market deposits increased $911,000, or 0.8%, when comparing September 30, 2016 and June 30, 2016. These increases were partially offset by decreases of savings deposits of $1.9 million, or 1.1%, and certificates of deposit of $10.8 million, or 21.3%, when comparing September 30, 2016 and June 30, 2016. These increases were the result of a $36.4 million increase in municipal deposits at Greene County Commercial Bank, primarily from continued growth in new account relationships as well as tax collection.  Included within certificates of deposits at June 30, 2016 were $10.0 million in brokered certificates of deposit. These brokered certificates of deposit matured during the quarter ended September 30, 2016.

(In thousands)
 
At
September 30, 2016
   
Percentage of
Portfolio
   
At
June 30, 2016
   
Percentage of
Portfolio
 
Noninterest-bearing deposits
 
$
95,008
     
12.3
%
 
$
88,254
     
11.9
%
Certificates of deposit
   
39,865
     
5.2
     
50,666
     
6.9
 
Savings deposits
   
175,439
     
22.7
     
177,309
     
24.0
 
Money market deposits
   
113,816
     
14.7
     
112,905
     
15.3
 
NOW deposits
   
348,467
     
45.1
     
309,753
     
41.9
 
Total deposits
 
$
772,595
     
100.0
%
 
$
738,887
     
100.0
%

BORROWINGS

At September 30, 2016, The Bank of Greene County had pledged approximately $216.7 million of its residential mortgage portfolio as collateral for borrowing and stand-by letters of credit at the Federal Home Loan Bank of New York (“FHLB”).  The maximum amount of funding available from the FHLB was $179.2 million at September 30, 2016, of which $34.6 million in borrowings were outstanding at September 30, 2016.  There were $14.3 million in short term borrowings outstanding at September 30, 2016.  Interest rates on short term borrowings are determined at the time of borrowing.  The remaining $20.3 million consisted of long-term fixed rate, fixed term advances with a weighted average rate of 1.48% and a weighted average maturity of 27 months.  The Bank of Greene County has established an Irrevocable Letter of Credit Reimbursement Agreement with the FHLB, whereby upon The Bank of Greene County’s request, on behalf of Greene County Commercial Bank, an irrevocable stand-by letter of credit is issued to secure municipal transactional deposit accounts.  At September 30, 2016, there were no outstanding letters of credit.

The Bank of Greene County also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings.  At September 30, 2016, approximately $4.1 million of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window. There were no balances outstanding with the Federal Reserve Bank at September 30, 2016 or 2015.

The Bank of Greene County has established unsecured lines of credit with Atlantic Central Bankers Bank and another financial institution for $6.0 million and $5.0 million, respectively. Greene County Bancorp, Inc. has also established an unsecured line of credit with Atlantic Central Bankers Bank for $5.0 million.  The lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing.  At September 30, 2016 and 2015, there were no balances outstanding on either of these lines of credit, and there was no activity during the quarters ended September 30, 2016 and 2015.
 
33

Scheduled maturities of long-term borrowings at September 30, 2016 were as follows:

(In thousands)
     
Within the twelve months ended September 30,
     
2017
 
$
2,500
 
2018
   
5,500
 
2019
   
4,500
 
2020
   
6,000
 
2021
   
1,800
 
   
$
20,300
 

EQUITY

Shareholders’ equity increased to $76.4 million at September 30, 2016 from $74.3 million at June 30, 2016, as net income of $2.5 million was partially offset by a $141,000 increase in other accumulated comprehensive loss and dividends declared and paid of $369,000.  Other changes in equity, an increase of $116,000, were the result of options exercised with the Company’s 2008 Stock Option Plan.

Selected Equity Data:
     
   
September 30, 2016
   
June 30, 2016
 
Shareholders’ equity to total assets, at end of period
   
8.56
%
   
8.55
%
                 
Book value per share
 
$
9.00
   
$
8.77
 
Closing market price of common stock
 
$
16.67
   
$
16.27
 

   
For the quarter ended September 30,
 
   
2016
   
2015
 
Average shareholders’ equity to average assets
   
8.70
%
   
9.12
%
Dividend payout ratio1
   
31.67
%
   
37.00
%
Actual dividends paid to net income2
   
14.72
%
   
16.51
%

1The dividend payout ratio has been calculated based on the dividends declared per share divided by basic earnings per share.  No adjustments have been made for dividends waived by Greene County Bancorp, MHC (“MHC”), the owner of 54.3% of the Company’s shares outstanding.
2 Dividends declared divided by net income.  The MHC waived its right to receive dividends declared during the three months ended September 30, 2016 and 2015.  The MHC’s ability to waive the receipt of dividends is dependent upon annual approval of its members as well as receiving the non-objection of the Federal Reserve Board.
 
34

Comparison of Operating Results for the Three Months Ended September 30, 2016 and 2015

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the quarters ended September 30, 2016 and 2015.  For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, are expressed both in dollars and rates.  No tax equivalent adjustments were made.  Average balances were based on daily averages.  Average loan balances include nonperforming loans.  The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

   
2016
   
2015
 
(Dollars in thousands)
 
Average
Outstanding
Balance
 
Interest
Earned / Paid
   
Average
Yield / Rate
   
Average
Outstanding
Balance
 
Interest
Earned / Paid
   
Average
Yield /
Rate
 
Interest-earning Assets:
                                       
Loans receivable, net1
 
$
542,670
 
 
 
$
6,053
     
4.46
%
 
$
458,848
 
 
 
$
5,293
     
4.61
%
Securities2
   
301,908
       
1,733
     
2.30
     
263,133
       
1,551
     
2.36
 
Interest-bearing bank balances and federal funds
   
1,099
       
3
     
1.09
     
1,040
       
2
     
0.77
 
FHLB stock
   
2,859
       
25
     
3.50
     
1,948
       
17
     
3.49
 
Total interest-earning assets
   
848,536
       
7,814
     
3.68
%
   
724,969
       
6,863
     
3.79
%
Cash and due from banks
   
7,866
                       
7,861
                   
Allowance for loan losses
   
(9,579
)
                     
(8,266
)
                 
Other noninterest-earning assets
   
18,232
                       
18,399
                   
Total assets
 
$
865,055
                     
$
742,963
                   
                                                     
Interest-Bearing Liabilities:
                                                   
Savings and money market deposits
 
$
291,468
 
 
 
$
232
     
0.32
%
 
$
270,805
 
 
 
$
215
     
0.32
%
NOW deposits
   
309,748
       
297
     
0.38
     
251,710
       
240
     
0.38
 
Certificates of deposit
   
42,819
       
77
     
0.72
     
42,847
       
76
     
0.71
 
Borrowings
   
48,792
       
121
     
0.99
     
29,574
       
83
     
1.12
 
Total interest-bearing liabilities
   
692,827
       
727
     
0.42
%
   
594,936
       
614
     
0.41
%
Noninterest-bearing deposits
   
88,285
                       
74,233
                   
Other noninterest-bearing liabilities
   
8,667
                       
6,063
                   
Shareholders' equity
   
75,276
                       
67,731
                   
Total liabilities and equity
 
$
865,055
                     
$
742,963
                   
                                                     
Net interest income
       
 
 
$
7,087
                 
 
 
$
6,249
         
Net interest rate spread
                     
3.26
%
                     
3.38
%
Net earnings assets
 
$
155,709
                     
$
130,033
                   
Net interest margin
                     
3.34
%
                     
3.45
%
Average interest-earning assets to average interest-bearing liabilities
   
122.47
 
%
                   
121.86
 
 %
               
          

1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2Includes tax-free securities, mortgage-backed securities, and asset-backed securities.

Taxable-equivalent net interest income and net interest margin
 
   
For the quarter ended September 30,
 
(Dollars in thousands)
 
2016
   
2015
 
Net interest income (GAAP)
 
$
7,087
   
$
6,249
 
Tax-equivalent adjustment(1)
   
520
     
433
 
Net interest income (fully taxable-equivalent)
 
$
7,607
   
$
6,682
 
                 
Average interest-earning assets
 
$
848,536
   
$
724,969
 
Net interest margin (fully taxable-equivalent)
   
3.59
%
   
3.69
%

1Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. The rate used for this adjustment was 34% for federal income taxes and 3.32% and 3.63% for the quarters ended September 30, 2016 and 2015, respectively, for New York State income taxes.
 
35

Rate / Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected Greene County Bancorp, Inc.’s interest income and interest expense during the periods indicated.  Information is provided in each category with respect to:
 
(i)
Change attributable to changes in volume (changes in volume multiplied by prior rate);
(ii)
Change attributable to changes in rate (changes in rate multiplied by prior volume); and
(iii)
The net change.
 
The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

   
Three months ended September 30,
 
   
2016 versus 2015
 
   
Increase/(Decrease)
   
Total
 
   
Due To
   
Increase/
 
(Dollars in thousands)
 
Volume
   
Rate
   
(Decrease)
 
Interest-earning Assets:
                 
Loans receivable, net1
 
$
937
   
$
(177
)
 
$
760
 
Securities2
   
223
     
(41
)
   
182
 
Interest-bearing bank balances and federal funds
   
-
     
1
     
1
 
FHLB stock
   
8
     
-
     
8
 
Total interest-earning assets
   
1,168
     
(217
)
   
951
 
                         
Interest-Bearing Liabilities:
                       
Savings and money market deposits
   
17
     
-
     
17
 
NOW deposits
   
57
     
-
     
57
 
Certificates of deposit
   
-
     
1
     
1
 
Borrowings
   
49
     
(11
)
   
38
 
Total interest-bearing liabilities
   
123
     
(10
)
   
113
 
Net change in net interest income
 
$
1,045
   
$
(207
)
 
$
838
 


1 Calculated net of deferred loan fees, loan discounts, and loans in process.
2 Includes tax-free securities, mortgage-backed securities, and asset-backed securities.

GENERAL

Return on average assets and return on average equity are common methods of measuring operating results.  Annualized return on average assets remained unchanged at 1.16% for the quarters ended September 30, 2016 and 2015, respectively.  Annualized return on average equity increased to 13.32% for the quarter ended September 30, 2016 as compared to 12.70% for the quarter ended September 30, 2015.  The increase in return on average equity was primarily the result of an increase in net interest income resulting from growth in earning assets, resulting in higher net income.  Net income amounted to $2.5 million and $2.2 million for the quarters ended September 30, 2016 and 2015, respectively.  Average assets increased $122.1 million, or 16.4% to $865.1 million for the quarter ended September 30, 2016 as compared to $743.0 million for the quarter ended September 30, 2015.  Average equity increased $7.6 million, or 11.2%, to $75.3 million for the quarter ended September 30, 2016 as compared to $67.7 million for the quarter ended September 30, 2015.
 
36

INTEREST INCOME

Interest income amounted to $7.8 million for the quarter ended September 30, 2016 as compared to $6.9 million for the quarter ended September 30, 2015, an increase of $951,000, or 13.9%.  The increase in average loan and securities balances had the greatest impact on interest income when comparing the quarters ended September 30, 2016 and 2015, which was offset by a decrease in the yield on loans and securities. Average loan balances increased $83.8 million while the yield on loans decreased 15 basis points when comparing the quarters ended September 30, 2016 and 2015.   Average securities increased $38.8 million and the yield on such securities decreased 6 basis points when comparing the quarters ended September 30, 2016 and 2015.

INTEREST EXPENSE

Interest expense amounted to $727,000 for the quarter ended September 30, 2016 as compared to $614,000 for the quarter ended September 30, 2015, an increase of $113,000 or 18.4%.  Increases in the average balances on interest-bearing liabilities and an increase in the rate paid contributed to the increase in interest expense.  As illustrated in the rate/volume table, interest expense increased $123,000 due to a $97.9 million increase in the average balances on interest-bearing liabilities.  The rate paid on interest-bearing liabilities increased 1 basis point to 0.42% for the quarter ended September 30, 2016 compared to 0.41% for the quarter ended September 30, 2015.  The average balance of NOW deposits grew by $58.0 million when comparing the quarters ended September 30, 2016 and 2015. The average balance of savings and money market deposits increased $20.7 million and average balance of certificates of deposit remained unchanged when comparing the quarters ended September 30, 2016 and 2015. The average balance on borrowings increased $19.2 million, and the rate decreased 13 basis points when comparing the quarters ended September 30, 2016 and 2015.

NET INTEREST INCOME

Net interest income increased $838,000 to $7.1 million for the quarter ended September 30, 2016 from $6.2 million for the quarter ended September 30, 2015.  Net interest spread decreased 12 basis points to 3.26% as compared to 3.38% when comparing the quarters ended September 30, 2016 and 2015, respectively.  Net interest margin decreased 11 basis points to 3.34% for the quarter ended September 30, 2016 as compared to 3.45% for the quarter ended September 30, 2015.  The growth in average loan and securities balances, led to an increase in net interest income when comparing the quarters ended September 30, 2016 and 2015.

Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. Tax equivalent net interest margin was 3.59% and 3.69% for the quarter ended September 30, 2016 and 2015, respectively.

Due to the large portion of fixed-rate residential mortgages in the Company’s portfolio, interest rate risk is a concern and the Company will continue to monitor and adjust the asset and liability mix as much as possible to take advantage of the benefits and reduce the risks or potential negative effects of a rising rate environment.  Management attempts to mitigate the interest rate risk through balance sheet composition.  Several strategies are used to help manage interest rate risk such as maintaining a high level of liquid assets such as short-term federal funds sold and various investment securities and maintaining a high concentration of less interest-rate sensitive and lower-costing core deposits.

PROVISION FOR LOAN LOSSES

Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary.  The amount recognized for the provision for loan losses is determined by management based on its ongoing analysis of the adequacy of the allowance for loan losses.  The provision for loan losses amounted to $543,000 and $374,000 for the quarters ended September 30, 2016 and 2015, respectively.  The level of provision has increased as the result of continued growth in commercial real estate and commercial loans.  Allowance for loan losses to total loans receivable were 1.79% as of September 30, 2016 and June 30, 2016.  Nonperforming loans amounted to $4.3 million and $3.4 million at September 30, 2016 and June 30, 2016, respectively.  Net charge-offs amounted to $52,000 and $50,000 for the quarters ended September 30, 2016 and 2015, respectively, an increase of $2,000.   At September 30, 2016, nonperforming assets were 0.51% of total assets and nonperforming loans were 0.78% of net loans.   The Company has not been an originator of “no documentation” mortgage loans, and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime.
 
37

NONINTEREST INCOME
 
   
For the three months
ended September 30,
   
Change from Prior Year
 
Noninterest income:
 
2016
   
2015
   
Amount
   
Percent
 
Service charges on deposit accounts
 
$
773
   
$
717
   
$
56
     
7.81
%
Debit card fees
   
491
     
452
     
39
     
8.63
 
Investment services
   
70
     
93
     
(23
)
   
(24.73
)
E-commerce fees
   
32
     
24
     
8
     
33.33
 
Other operating income
   
183
     
198
     
(15
)
   
(7.58
)
Total noninterest income
 
$
1,549
   
$
1,484
   
$
65
     
4.38
%

Noninterest income increased $65,000, or 4.4%, and totaled $1.5 million for the quarters ended September 30, 2016 and 2015, primarily due to increases in service charges and debit card fees resulting from continued growth in the number of checking accounts with debit cards.  These increases were partially offset by lower sales commissions earned in investment services and lower other operating income.

NONINTEREST EXPENSE

   
For the three months
ended September 30,
   
Change from Prior Year
 
Noninterest expense:
 
2016
   
2015
   
Amount
   
Percent
 
Salaries and employee benefits
 
$
2,668
   
$
2,424
   
$
244
     
10.07
%
Occupancy expense
   
380
     
363
     
17
     
4.68
 
Equipment and furniture expense
   
120
     
120
     
-
     
0.00
 
Service and data processing fees
   
448
     
410
     
38
     
9.27
 
Computer software, supplies and support
   
146
     
133
     
13
     
9.77
 
Advertising and promotion
   
123
     
101
     
22
     
21.78
 
FDIC insurance premiums
   
114
     
100
     
14
     
14.00
 
Legal and professional fees
   
198
     
260
     
(62
)
   
(23.85
)
Other
   
557
     
647
     
(90
)
   
(13.91
)
Total noninterest expense
 
$
4,754
   
$
4,558
   
$
196
     
4.30
%

Noninterest expense increased $196,000, or 4.3%, to $4.8 million for the quarter ended September 30, 2016 as compared to $4.6 million for the quarter ended September 30, 2015. This increase was primarily due to an increase in salaries and employee benefits expenses, resulting from additional staffing within our lending department and customer service center.  Partially offsetting the aforementioned increases were decreases in legal and professional fees and lower expenses related to foreclosed real estate included in other expenses.

INCOME TAXES

The provision for income taxes directly reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements.  The effective tax rate was 24.9% for the quarter ended September 30, 2016, compared to 23.2% for the quarter ended September 30, 2015.   The effective tax rate is impacted by the benefits derived from tax exempt bond and loan income, the Company’s real estate investment trust subsidiary income, as well as the tax benefits derived from premiums paid to the Company’s pooled captive insurance subsidiary.
 
LIQUIDITY AND CAPITAL RESOURCES

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices.  Greene County Bancorp, Inc.’s most significant form of market risk is interest rate risk since the majority of Greene County Bancorp, Inc.’s assets and liabilities are sensitive to changes in interest rates.  Greene County Bancorp, Inc.’s primary sources of funds are deposits and proceeds from principal and interest payments on loans, mortgage-backed securities and debt securities, with lines of credit available through the Federal Home Loan Bank and Atlantic Central Bankers Bank as needed.  While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and lending activities are greatly influenced by general interest rates, economic conditions and competition.
 
38

The Bank of Greene County’s unfunded loan commitments and unused lines of credit are as follows at September 30, 2016:

(In thousands)
 
2016
 
Unfunded loan commitments
 
$
41,875
 
Unused lines of credit
   
46,806
 
Total commitments
 
$
88,681
 

Greene County Bancorp, Inc. anticipates that it will have sufficient funds available to meet current loan commitments based on the level of cash and cash equivalents as well as the available-for-sale investment portfolio and borrowing capacity.

The Bank of Greene County and Greene County Commercial Bank met all applicable regulatory capital requirements at September 30, 2016 and June 30, 2016.  Consolidated shareholders’ equity represented 8.6% of total assets at September 30, 2016 and at June 30, 2016.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.
 
Item 4.
Controls and Procedures

Under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the  Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and in timely altering them to material information relating to the Company (or its consolidated subsidiaries) required to be filed in its periodic SEC filings.

There has been no change in the Company's internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
 
39

Part II.    Other Information

  Item 1.
Legal Proceedings
Greene County Bancorp, Inc. and its subsidiaries are not engaged in any material legal proceedings at the present time.

Item 1A.
Risk Factors
Not applicable to smaller reporting companies.
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
a)
Not applicable
b)
Not applicable
c)
Not applicable

Item 3.
Defaults Upon Senior Securities
Not applicable

Item 4.
Mine Safety Disclosures
Not applicable

Item 5.
Other Information
a)
Not applicable
b)
There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.

Item 6.
Exhibits
 
 
Exhibits
 
 
Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
 
Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
 
Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
 
Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350
 
101
The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended September 30, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) Consolidated Statements of Cash Flows and (iv) related notes, tagged as blocks of text.
 
40

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.
 
Greene County Bancorp, Inc.

Date:  November 10, 2016

By: /s/ Donald E. Gibson

Donald E. Gibson
President and Chief Executive Officer
 
Date:  November 10, 2016

By: /s/ Michelle M. Plummer

Michelle M. Plummer, CPA
Executive Vice President, Chief Financial Officer, and Chief Operating Officer
 
 
41