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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 DECEMBER 31, 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 February 13, 2017, the registrant had 8,502,614 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
 
8-27
     
Item 2.
28-41
     
Item 3.
41
     
Item 4.
41
     
PART II.
OTHER INFORMATION
 
     
Item 1.
42
     
Item 1A.
42
     
Item 2.
42
     
Item 3.
42
     
Item 4.
42
     
Item 5.
42
     
Item 6.
42
     
 
43
 
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 December 31, 2016 and June 30, 2016
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
December 31, 2016
   
June 30, 2016
 
Total cash and cash equivalents
 
$
15,575
   
$
15,895
 
                 
Long term certificate of deposit
   
2,145
     
2,210
 
Securities available-for-sale, at fair value
   
85,710
     
100,123
 
Securities held-to-maturity, at amortized cost (fair value $212,534 at December 31, 2016; $214,058 at June 30, 2016)
   
210,983
     
204,935
 
Federal Home Loan Bank stock, at cost
   
3,730
     
2,752
 
                 
Loans
   
600,882
     
531,290
 
Allowance for loan losses
   
(10,421
)
   
(9,485
)
Unearned origination fees and costs, net
   
866
     
959
 
Net loans receivable
   
591,327
     
522,764
 
                 
Premises and equipment
   
13,928
     
14,176
 
Accrued interest receivable
   
3,790
     
3,610
 
Foreclosed real estate
   
338
     
370
 
Prepaid expenses and other assets
   
4,455
     
1,946
 
Total assets
 
$
931,981
   
$
868,781
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest-bearing deposits
 
$
88,957
   
$
88,254
 
Interest-bearing deposits
   
686,108
     
650,633
 
Total deposits
   
775,065
     
738,887
 
                 
Borrowings from Federal Home Loan Bank, short-term
   
45,700
     
26,100
 
Borrowings from other banks, short-term
   
100
     
-
 
Borrowings from Federal Home Loan Bank, long-term
   
22,450
     
20,300
 
Accrued expenses and other liabilities
   
10,287
     
9,193
 
Total liabilities
   
853,602
     
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 8,502,614 shares at December 31, 2016, and 8,475,614 shares at June 30, 2016
   
861
     
861
 
Additional paid-in capital
   
10,990
     
10,872
 
Retained earnings
   
68,496
     
63,805
 
Accumulated other comprehensive loss
   
(1,558
)
   
(725
)
Treasury stock, at cost 108,726 shares at December 31, 2016, and 135,726 shares at June 30, 2016
   
(410
)
   
(512
)
Total shareholders’ equity
   
78,379
     
74,301
 
Total liabilities and shareholders’ equity
 
$
931,981
   
$
868,781
 
 
See notes to consolidated financial statements
 
3

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three and Six Months Ended December 31, 2016 and 2015
(Unaudited)
(In thousands, except share and per share amounts)

   
For the three months ended
December 31,
   
For the six months ended
December 31,
 
   
2016
   
2015
   
2016
   
2015
 
Interest income:
                       
Loans
 
$
6,382
   
$
5,479
   
$
12,435
   
$
10,772
 
Investment securities - taxable
   
146
     
139
     
296
     
273
 
Mortgage-backed securities
   
1,099
     
786
     
1,883
     
1,553
 
Investment securities - tax exempt
   
852
     
730
     
1,676
     
1,397
 
Interest-bearing deposits and federal funds sold
   
5
     
2
     
8
     
4
 
Total interest income
   
8,484
     
7,136
     
16,298
     
13,999
 
                                 
Interest expense:
                               
Interest on deposits
   
648
     
540
     
1,254
     
1,071
 
Interest on borrowings
   
105
     
86
     
226
     
169
 
Total interest expense
   
753
     
626
     
1,480
     
1,240
 
                                 
Net interest income
   
7,731
     
6,510
     
14,818
     
12,759
 
Provision for loan losses
   
586
     
343
     
1,129
     
717
 
Net interest income after provision for loan losses
   
7,145
     
6,167
     
13,689
     
12,042
 
                                 
Noninterest income:
                               
Service charges on deposit accounts
   
820
     
766
     
1,593
     
1,483
 
Debit card fees
   
510
     
453
     
1,001
     
905
 
Investment services
   
67
     
78
     
137
     
171
 
E-commerce fees
   
31
     
17
     
63
     
41
 
Other operating income
   
184
     
217
     
367
     
415
 
Total noninterest income
   
1,612
     
1,531
     
3,161
     
3,015
 
                                 
Noninterest expense:
                               
Salaries and employee benefits
   
2,787
     
2,514
     
5,455
     
4,938
 
Occupancy expense
   
339
     
333
     
719
     
696
 
Equipment and furniture expense
   
132
     
118
     
252
     
238
 
Service and data processing fees
   
499
     
508
     
947
     
918
 
Computer software, supplies and support
   
148
     
96
     
294
     
229
 
Advertising and promotion
   
85
     
94
     
208
     
195
 
FDIC insurance premiums
   
93
     
104
     
207
     
204
 
Legal and professional fees
   
220
     
277
     
418
     
537
 
Other
   
485
     
636
     
1,042
     
1,283
 
Total noninterest expense
   
4,788
     
4,680
     
9,542
     
9,238
 
                                 
Income before provision for income taxes
   
3,969
     
3,018
     
7,308
     
5,819
 
Provision for income taxes
   
1,043
     
698
     
1,875
     
1,349
 
Net income
 
$
2,926
   
$
2,320
   
$
5,433
   
$
4,470
 
                                 
Basic earnings per share
 
$
0.34
   
$
0.27
   
$
0.64
   
$
0.53
 
Basic average shares outstanding
   
8,491,929
     
8,451,848
     
8,487,554
     
8,449,080
 
Diluted earnings per share
 
$
0.34
   
$
0.27
   
$
0.64
   
$
0.53
 
Diluted average shares outstanding
   
8,509,316
     
8,502,966
     
8,503,913
     
8,500,912
 
Dividends per share
 
$
0.0950
   
$
0.0925
   
$
0.1900
   
$
0.1850
 

See notes to consolidated financial statements
 
4

Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended December 31, 2016 and 2015
(Unaudited)
(In thousands)

   
For the three months ended
December 31,
   
For the six months ended
December 31,
 
   
2016
   
2015
   
2016
   
2015
 
Net Income
 
$
2,926
   
$
2,320
   
$
5,433
   
$
4,470
 
Other comprehensive (loss) income:
                               
Unrealized holding (losses) gains on available-for-sale securities, net of income taxes of ($430) and ($35), for the three months, and  ($530) and ($14), for the six months ended December 31, 2016 and 2015 respectively
   
(693
)
   
(55
)
   
(834
)
   
(21
)
                                 
Accretion of unrealized loss on securities transferred to held-to-maturity, net of income taxes of $0 and $0 for the three months, and $1 and $4 for the six months ended December 31, 2016 and 2015, respectively
   
1
     
1
     
1
     
7
 
Total other comprehensive (loss) income, net of taxes
   
(692
)
   
(54
)
   
(833
)
   
(14
)
                                 
Comprehensive income
 
$
2,234
   
$
2,266
   
$
4,600
   
$
4,456
 

See notes to consolidated financial statements.
 
5

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

   
Common
Stock
   
Additional
 Paid-In
Capital
   
Retained
 Earnings
   
Accumulated
Other
Comprehensive
Loss
   
Treasury
 Stock
   
Total
Shareholders'
 Equity
 
Balance at June 30, 2015
 
$
431
   
$
11,220
   
$
56,696
   
$
(798
)
 
$
(629
)
 
$
66,920
 
Options exercised
           
33
                     
50
     
83
 
Tax benefit of stock based compensation
           
6
                             
6
 
Dividends declared
                   
(715
)
                   
(715
)
Net income
                   
4,470
                     
4,470
 
Other comprehensive loss, net of taxes
                           
(14
)
           
(14
)
Balance at December 31, 2015
 
$
431
   
$
11,259
   
$
60,451
   
$
(812
)
 
$
(579
)
 
$
70,750
 
 
   
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
           
67
                     
102
     
169
 
Tax benefit of stock based compensation
           
51
                             
51
 
Dividends declared
                   
(742
)
                   
(742
)
Net income
                   
5,433
                     
5,433
 
Other comprehensive loss, net of taxes
                           
(833
)
           
(833
)
Balance at December 31, 2016
 
$
861
   
$
10,990
   
$
68,496
   
$
(1,558
)
 
$
(410
)
 
$
78,379
 
 
See notes to consolidated financial statements.
 
6

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2016 and 2015
(Unaudited)
(In thousands)

   
2016
   
2015
 
Cash flows from operating activities:
           
Net Income
 
$
5,433
   
$
4,470
 
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation
   
319
     
316
 
Deferred income tax expense
   
(2,196
)
   
(2,451
)
Net amortization of premiums and discounts
   
443
     
341
 
Net amortization of deferred loan costs and fees
   
251
     
190
 
Provision for loan losses
   
1,129
     
717
 
Losses on sale of foreclosed real estate
   
61
     
177
 
Excess tax benefit from share based compensation
   
(51
)
   
(6
)
Net increase in accrued income taxes
   
2,438
     
3,104
 
Net increase in accrued interest receivable
   
(179
)
   
(232
)
Net increase in prepaid and other assets
   
(291
)
   
(342
)
Net (decrease) increase in other liabilities
   
(786
)
   
165
 
Net cash provided by operating activities
   
6,571
     
6,449
 
                 
Cash flows from investing activities:
               
Securities available-for-sale:
               
Proceeds from maturities
   
37,123
     
23,524
 
Purchases of securities
   
(29,683
)
   
(34,067
)
Principal payments on securities
   
5,573
     
2,846
 
Securities held-to-maturity:
               
Proceeds from maturities
   
5,795
     
5,558
 
Purchases of securities
   
(17,646
)
   
(18,679
)
Principal payments on securities
   
5,397
     
4,351
 
Net purchase of Federal Home Loan Bank Stock
   
(978
)
   
(288
)
Maturity of long term certificate of deposit
   
65
     
-
 
Net increase in loans receivable
   
(70,066
)
   
(35,933
)
Proceeds from sale of foreclosed real estate
   
94
     
684
 
Purchases of premises and equipment
   
(71
)
   
(141
)
Net cash used by investing activities
   
(64,397
)
   
(52,145
)
                 
Cash flows from financing activities
               
Net increase in short-term advances
   
19,700
     
4,900
 
Proceeds from long-term FHLB advances
   
2,650
     
1,500
 
Repayment of long-term FHLB advances
   
(500
)
   
-
 
Payment of cash dividends
   
(742
)
   
(715
)
Proceeds from issuance of stock options
   
169
     
83
 
Excess tax benefit from share based compensation
   
51
     
6
 
Net increase in deposits
   
36,178
     
46,472
 
Net cash provided by financing activities
   
57,506
     
52,246
 
                 
Net (decrease) increase in cash and cash equivalents
   
(320
)
   
6,550
 
Cash and cash equivalents at beginning of period
   
15,895
     
15,538
 
Cash and cash equivalents at end of period
 
$
15,575
   
$
22,088
 
                 
Non-cash investing activities:
               
Foreclosed loans transferred to foreclosed real estate
 
$
123
   
$
318
 
Cash paid during period for:
               
Interest
 
$
1,471
   
$
1,230
 
Income taxes
 
$
1,633
   
$
696
 
 
See notes to consolidated financial statements
 
7

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Three and Six Months Ended December 31, 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 and six months ended December 31, 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 and six months ended December 31, 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 December 31, 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
 
$
4,576
   
$
170
   
$
-
   
$
4,746
 
State and political subdivisions
   
54,297
     
-
     
-
     
54,297
 
Mortgage-backed securities-residential
   
5,641
     
75
     
54
     
5,662
 
Mortgage-backed securities-multi-family
   
17,727
     
383
     
101
     
18,009
 
Asset-backed securities
   
4
     
-
     
-
     
4
 
Corporate debt securities
   
2,771
     
66
     
3
     
2,834
 
Total debt securities
   
85,016
     
694
     
158
     
85,552
 
Equity securities
   
62
     
96
     
-
     
158
 
Total securities available-for-sale
   
85,078
     
790
     
158
     
85,710
 
Securities held-to-maturity:
                               
U.S. government sponsored enterprises
   
4,000
     
-
     
55
     
3,945
 
State and political subdivisions
   
108,775
     
2,045
     
431
     
110,389
 
Mortgage-backed securities-residential
   
11,505
     
330
     
2
     
11,833
 
Mortgage-backed securities-multi-family
   
83,648
     
752
     
1,071
     
83,329
 
Corporate debt securities
   
1,000
     
-
     
-
     
1,000
 
Other securities
   
2,055
     
-
     
17
     
2,038
 
Total securities held-to-maturity
   
210,983
     
3,127
     
1,576
     
212,534
 
Total securities
 
$
296,061
   
$
3,917
   
$
1,734
   
$
298,244
 
 
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 December 31, 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 December 31, 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:
                                                     
State and political subdivisions
 
$
793
   
$
-
     
1
   
$
-
   
$
-
     
-
   
$
793
   
$
-
     
1
 
Mortgage-backed securities-residential
   
1,240
     
46
     
1
     
876
     
8
     
1
     
2,116
     
54
     
2
 
Mortgage-backed securities-multi-family
   
5,668
     
101
     
3
     
-
     
-
     
-
     
5,668
     
101
     
3
 
Corporate debt securities
   
263
     
3
     
2
     
-
     
-
     
-
     
263
     
3
     
2
 
Total securities available for sale
   
7,964
     
150
     
7
     
880
     
8
     
1
     
8,844
     
158
     
8
 
Securities held to maturity:
                                                                       
U.S. government sponsored enterprises
   
1,945
     
55
     
1
     
-
     
-
     
-
     
1,945
     
55
     
1
 
State and political subdivisions
   
26,934
     
429
     
133
     
103
     
2
     
1
     
27,037
     
431
     
134
 
Mortgage-backed securities-residential
   
1,884
     
2
     
1
     
-
     
-
     
-
     
1,884
     
2
     
1
 
Mortgage-backed securities-multi-family
   
55,346
     
1,071
     
24
     
-
     
-
     
-
     
55,346
     
1,071
     
24
 
Other securities
   
962
     
16
     
1
     
74
     
1
     
1
     
1,036
     
17
     
2
 
Total securities held to maturity
   
87,071
     
1,573
     
160
     
177
     
3
     
2
     
87,248
     
1,576
     
162
 
Total securities
 
$
95,035
   
$
1,723
     
167
   
$
1,057
   
$
11
     
3
   
$
96,092
   
$
1,734
     
170
 
 
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 December 31, 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 three and six months ended December 31, 2016 or 2015. During the three and six months ended December 31, 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 three and six months ended December 31, 2016 and 2015.
 
11

The estimated fair values of debt securities at December 31, 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
 
$
55,006
   
$
55,055
 
After one year through five years
   
6,638
     
6,822
 
After five years through ten years
   
-
     
-
 
After ten years
   
-
     
-
 
Total available-for-sale debt securities
   
61,644
     
61,877
 
Mortgage-backed and asset-backed securities
   
23,372
     
23,675
 
Equity securities
   
62
     
158
 
Total available-for-sale securities
   
85,078
     
85,710
 
                 
Held-to-maturity debt securities
               
Within one year
   
15,632
     
15,754
 
After one year through five years
   
56,769
     
57,364
 
After five years through ten years
   
32,225
     
32,621
 
After ten years
   
11,204
     
11,633
 
Total held-to-maturity debt securities
   
115,830
     
117,372
 
Mortgage-backed
   
95,153
     
95,162
 
Total held-to-maturity securities
   
210,983
     
212,534
 
Total securities
 
$
296,061
   
$
298,244
 

As of December 31, 2016 and June 30, 2016, respectively, securities with an aggregate fair value of $279.7 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 December 31, 2016 and June 30, 2016, securities with an aggregate fair value of $2.8 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 three and six months ended December 31, 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 three and six months ended December 31, 2016 or 2015.
 
12

(5)
Loans and Allowance for Loan Losses

Loan segments and classes at December 31, 2016 and June 30, 2016 are summarized as follows:

(In thousands)
 
December 31, 2016
   
June 30, 2016
 
Residential real estate:
           
Residential real estate
 
$
238,431
   
$
234,992
 
Residential construction and land
   
4,980
     
5,575
 
Multi-family
   
3,904
     
3,918
 
Commercial real estate:
               
Commercial real estate
   
246,306
     
192,678
 
Commercial construction
   
25,651
     
20,159
 
Consumer loan:
               
Home equity
   
20,660
     
20,893
 
Consumer installment
   
4,714
     
4,350
 
Commercial loans
   
56,236
     
48,725
 
Total gross loans
   
600,882
     
531,290
 
Allowance for loan losses
   
(10,421
)
   
(9,485
)
Deferred fees and costs
   
866
     
959
 
Loans receivable, net
 
$
591,327
   
$
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 December 31, 2016 are shown below.


(In thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential real estate
 
$
235,628
   
$
755
   
$
93
   
$
1,955
   
$
238,431
 
Residential construction and land
   
4,980
     
-
     
-
     
-
     
4,980
 
Multi-family
   
3,810
     
-
     
-
     
94
     
3,904
 
Commercial real estate
   
243,664
     
100
     
178
     
2,364
     
246,306
 
Commercial construction
   
25,651
     
-
     
-
     
-
     
25,651
 
Home equity
   
20,469
     
-
     
-
     
191
     
20,660
 
Consumer installment
   
4,688
     
26
     
-
     
-
     
4,714
 
Commercial loans
   
54,845
     
72
     
347
     
972
     
56,236
 
Total gross loans
 
$
593,735
   
$
953
   
$
618
   
$
5,576
   
$
600,882
 
 
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 December 31, 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 December 31, 2016 and June 30, 2016. Loans on nonaccrual status totaled $3.8 million at December 31, 2016, of which $1.5 million were in the process of foreclosure. At December 31, 2016, there were 12 residential loans in the process of foreclosure totaling $895,000. Included in nonaccrual loans were $1.9 million of loans which were less than 90 days past due at December 31, 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 $183,000 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 December 31, 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
 
$
928
   
$
455
   
$
1,038
   
$
2,421
   
$
236,010
   
$
238,431
   
$
1,351
 
Residential construction and land
   
18
     
-
     
-
     
18
     
4,962
     
4,980
     
-
 
Multi-family
   
-
     
-
     
-
     
-
     
3,904
     
3,904
     
-
 
Commercial real estate
   
1,007
     
959
     
613
     
2,579
     
243,727
     
246,306
     
1,936
 
Commercial construction
   
-
     
-
     
-
     
-
     
25,651
     
25,651
     
-
 
Home equity
   
25
     
-
     
191
     
216
     
20,444
     
20,660
     
191
 
Consumer installment
   
51
     
26
     
-
     
77
     
4,637
     
4,714
     
-
 
Commercial loans
   
458
     
72
     
116
     
646
     
55,590
     
56,236
     
276
 
Total gross loans
 
$
2,487
   
$
1,512
   
$
1,958
   
$
5,957
   
$
594,925
   
$
600,882
   
$
3,754
 
 
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 $73,000 and $77,000 as of December 31, 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 and six months ended December 31:

   
For the three months
ended December 31,
   
For the six months
ended December 31
 
(In thousands)
 
2016
   
2015
   
2016
   
2015
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
 
$
56
   
$
58
   
$
136
   
$
159
 
Interest income that was recorded on nonaccrual loans
   
26
     
50
     
54
     
99
 

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 December 31, 2016
   
For the three months ended
December 31, 2016
   
For the six months ended
December 31, 2016
 
(In thousands)
 
Recorded
 Investment
   
Unpaid
Principal
   
Related
Allowance
   
Average
Recorded
 Investment
   
Interest Income
Recognized
   
Average
Recorded
 Investment
   
Interest
 Income
Recognized
 
With no related allowance recorded:
                                             
Residential real estate
 
$
266
   
$
266
   
$
-
   
$
266
   
$
-
   
$
266
   
$
-
 
Commercial real estate
   
427
     
427
     
-
     
821
     
4
     
921
     
14
 
Home equity
   
-
     
-
     
-
     
2
     
-
     
4
     
-
 
Commercial loans
   
195
     
195
     
-
     
65
     
1
     
33
     
1
 
Impaired loans with no allowance
   
888
     
888
     
-
     
1,154
     
5
     
1,224
     
15
 
                                                         
With an allowance recorded:
                                                       
Residential real estate
   
1,235
     
1,235
     
244
     
1,238
     
12
     
1,241
     
24
 
Commercial real estate
   
1,450
     
1,656
     
221
     
749
     
7
     
576
     
11
 
Commercial loans
   
81
     
81
     
2
     
81
     
-
     
82
     
2
 
Impaired loans with allowance
   
2,766
     
2,972
     
467
     
2,068
     
19
     
1,899
     
37
 
                                                         
Total impaired:
                                                       
Residential real estate
   
1,501
     
1,501
     
244
     
1,504
     
12
     
1,507
     
24
 
Commercial real estate
   
1,877
     
2,083
     
221
     
1,570
     
11
     
1,497
     
25
 
Home equity
   
-
     
-
     
-
     
2
     
-
     
4
     
-
 
Commercial loans
   
276
     
276
     
2
     
146
     
1
     
115
     
3
 
Total impaired loans
 
$
3,654
   
$
3,860
   
$
467
   
$
3,222
   
$
24
   
$
3,123
   
$
52
 

   
As of June 30, 2016
   
For the three months ended
December 31, 2015
   
For the six months ended
December 31, 2015
 
(In thousands)
 
Recorded
Investment
   
Unpaid
Principal
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest Income
 Recognized
   
Average
Recorded
Investment
   
Interest Income
Recognized
 
With no related allowance recorded:
                                             
Residential real estate
 
$
266
   
$
266
   
$
-
   
$
185
   
$
-
   
$
267
   
$
2
 
Commercial real estate
   
1,024
     
1,231
     
-
     
1,086
     
11
     
1,143
     
17
 
Home equity
   
5
     
5
     
-
     
46
     
-
     
90
     
1
 
Impaired loans with no allowance
   
1,295
     
1,502
     
-
     
1,317
     
11
     
1,500
     
20
 
                                                         
With an allowance recorded:
                                                       
Residential real estate
   
1,457
     
1,457
     
267
     
1,382
     
14
     
1,393
     
28
 
Commercial real estate
   
405
     
405
     
61
     
461
     
6
     
566
     
12
 
Commercial loans
   
85
     
85
     
2
     
89
     
2
     
91
     
3
 
Impaired loans with allowance
   
1,947
     
1,947
     
330
     
1,932
     
22
     
2,050
     
43
 
                                                         
Total impaired:
                                                       
Residential mortgage
   
1,723
     
1,723
     
267
     
1,567
     
14
     
1,660
     
30
 
Nonresidential mortgage
   
1,429
     
1,636
     
61
     
1,547
     
17
     
1,709
     
29
 
Home equity
   
5
     
5
     
-
     
46
     
-
     
90
     
1
 
Commercial loans
   
85
     
85
     
2
     
89
     
2
     
91
     
3
 
Total impaired loans
 
$
3,242
   
$
3,449
   
$
330
   
$
3,249