form10qsb123107.htm

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

FORM 10-QSB

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2007

OR

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


GREENE COUNTY BANCORP, INC.

(Exact name of small business issuer 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:       X                              No:                       

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.

Yes:                         No:     X                          
 
As of February 12, 2008, the registrant had 4,305,670 shares of common stock issued at $ 0.10 par value, and 4,137,138 shares were outstanding.

Transitional Small Business Disclosure
Format: Yes:                          No:       X                           
   
 
 

 


 
GREENE COUNTY BANCORP, INC.
     
         
         
         
INDEX
       
         
         
         
PART I.
FINANCIAL INFORMATION
     
     
Page
 
Item 1.
Financial Statements
     
 
*   Consolidated Statements of Financial Condition
   
 
*   Consolidated Statements of Income
   
 
*   Consolidated Statements of Comprehensive Income
   
 
*   Consolidated Statements of Changes in Shareholders’ Equity
   
 
*   Consolidated Statements of Cash Flows
   
 
*   Notes to Consolidated Financial Statements
   
         
Item 2.
Management’s Discussion and Analysis or Plan of Operation
   
         
Item 3.
Controls and Procedures
   
         
PART II.
OTHER INFORMATION
     
         
Item 1.
Legal Proceedings
   
         
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
         
Item 3.
Defaults Upon Senior Securities
   
         
Item 4.
Submission of Matters to a Vote of Security Holders
   
         
Item 5.
Other Information
   
         
Item 6.
Exhibits
   
         
 
Signatures
   
 
   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
   


 
 

 

Part I.    Item 1.
Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of December 31, 2007 and June 30, 2007
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
December 31, 2007
   
June 30, 2007
 
Cash and due from banks
  $ 8,115     $ 11,127  
Federal funds sold
    916       2,899  
    Total cash and cash equivalents
    9,031       14,026  
                 
Securities available for sale, at fair value
    78,619       87,184  
Securities held to maturity, at amortized cost
    16,385       ---  
Federal Home Loan Bank stock, at cost
    837       657  
                 
Loans
    224,045       208,705  
Less: Allowance for loan losses
    (1,694 )     (1,486 )
         Unearned origination fees and costs, net
    111       61  
    Net loans receivable
    222,462       207,280  
                 
Premises and equipment
    14,228       13,712  
Accrued interest receivable
    1,989       1,955  
Prepaid expenses and other assets
    444       1,012  
               Total assets
  $ 343,995     $ 325,826  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 40,912     $ 44,020  
Interest bearing deposits
    256,279       240,156  
    Total deposits
    297,191       284,176  
                 
Borrowings from FHLB
    9,000       5,000  
Accrued expenses and other liabilities
    1,298       1,235  
                Total liabilities
    307,489       290,411  
                 
SHAREHOLDERS’ EQUITY
               
Preferred stock,
               
  Authorized 1,000,000 shares; none issued
    ---       ---  
Common stock, par value $.10 per share;
               
   Authorized:12,000,000 shares
               
   Issued: 4,305,670 shares
               
   Outstanding:  4,144,454 shares at December 31, 2007
               
          and 4,151,066 shares at June 30, 2007;
    431       431  
Additional paid-in capital
    10,368       10,319  
Retained earnings
    26,219       25,962  
Accumulated other comprehensive income (loss)
    477       (400 )
Treasury stock, at cost 161,216 shares at December 31,
               
        2007, and 154,604 shares at June 30, 2007
    (950 )     (828 )
 Unearned ESOP shares, at cost
    (39 )     (69 )
               Total shareholders’ equity
    36,506       35,415  
               Total liabilities and shareholders’ equity
  $ 343,995     $ 325,826  
                 
See notes to consolidated financial statements.
               


 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Six Months Ended December 31, 2007 and 2006
(Unaudited)
(In thousands, except share and per share amounts)
                 
       
2007
   
2006
 
Interest income:
             
Loans
    $ 7,214     $ 6,482  
Investment securities – taxable
      504       320  
Mortgage-backed securities
      868       751  
Tax exempt securities
      539       551  
Interest bearing deposits and federal funds sold
      256       190  
Total interest income
      9,381       8,294  
                     
Interest expense:
                 
Interest on deposits
      3,726       2,922  
Interest on borrowings
      93       93  
Total interest expense
      3,819       3,015  
                     
Net interest income
      5,562       5,279  
                     
Provision for loan losses
      278       111  
                     
Net interest income after provision for loan losses
      5,284       5,168  
                     
Noninterest income:
                 
Service charges on deposit accounts
      1,327       1,057  
Debit card fees
      387       290  
Investment services
      187       163  
Gain on sale of premises and equipment
      ---       257  
Other operating income
      355       327  
Total noninterest income
      2,256       2,094  
                     
Noninterest expense:
                 
Salaries and employee benefits
      3,108       2,790  
Occupancy expense
      458       353  
Equipment and furniture expense
      424       396  
Service and data processing fees
      525       474  
Computer supplies and support
      158       118  
Office supplies
      84       80  
Other
      1,097       883  
Total noninterest expense
      5,854       5,094  
                     
Income before provision for income taxes
      1,686       2,168  
Provision for income taxes
      491       657  
Net income
    $ 1,195     $ 1,511  
                     
Basic EPS
    $ 0.29     $ 0.37  
Basic shares outstanding
      4,137,088       4,119,836  
Diluted EPS
    $ 0.29     $ 0.36  
Diluted average shares outstanding
      4,182,920       4,190,163  
Dividends per share
    $ 0.39     $ 0.23  
See notes to consolidated financial statements.
                 

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended December 31, 2007 and 2006
(Unaudited)
(Dollars in thousands, except share and per share amounts)
                 
       
2007
   
2006
 
Interest income:
             
Loans
    $ 3,656     $ 3,303  
Investment securities – taxable
      248       159  
Mortgage-backed securities
      475       391  
Tax exempt securities
      264       282  
Interest bearing deposits and federal funds sold
      129       88  
Total interest income
      4,772       4,223  
                     
Interest expense:
                 
Interest on deposits
      1,924       1,546  
Interest on borrowings
      47       47  
Total interest expense
      1,971       1,593  
                     
Net interest income
      2,801       2,630  
                     
Provision for loan losses
      135       66  
                     
Net interest income after provision for loan losses
      2,666       2,564  
                     
Noninterest income:
                 
Service charges on deposit accounts
      696       586  
Debit card fees
      204       151  
Investment services
      95       72  
Gain on sale of premises and equipment
      ---       257  
Other operating income
      165       137  
Total noninterest income
      1,160       1,203  
                     
Noninterest expense:
                 
Salaries and employee benefits
      1,588       1,412  
Occupancy expense
      238       196  
Equipment and furniture expense
      210       200  
Service and data processing fees
      268       257  
Computer supplies and support
      78       62  
Office supplies
      42       52  
Other
      525       482  
Total noninterest expense
      2,949       2,661  
                     
Income before provision for income taxes
      877       1,106  
Provision for income taxes
      251       349  
Net income
    $ 626     $ 757  
                     
Basic EPS
    $ 0.15     $ 0.18  
Basic shares outstanding
      4,136,620       4,122,029  
Diluted EPS
    $ 0.15     $ 0.18  
Diluted average shares outstanding
      4,180,155       4,192,392  
Dividends per share
    $ 0.14       ---  
See notes to consolidated financial statements.
                 

 
 

 

 Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Six Months Ended December 31, 2007 and 2006
(Unaudited)
(In thousands)


 
2007
 
2006
       
Net income
$1,195
 
$1,511
       
Other comprehensive income:
     
       
Unrealized holding gain arising during the six months
     
  ended December 31, 2007 and 2006, net of income
     
  tax expense of $560 and $329, respectively.
877
 
516
       
       
Total other comprehensive income
877
 
516
       
Comprehensive income
$2,072
 
$2,027
       
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended December 31, 2007 and 2006
(Unaudited)
(In thousands)


 
2007
 
2006
       
Net income
$626
 
$757
       
Other comprehensive income:
     
       
Unrealized holding gain arising during the three months
     
  ended December 31, 2007 and 2006, net of income
     
  tax expense of $269 and $34, respectively.
422
 
53
       
       
Total other comprehensive income
422
 
53
       
Comprehensive income
$1,048
 
$810
       


See notes to consolidated financial statements.

 
 

 


Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended December 31, 2007 and 2006
(Unaudited)
(Dollars in thousands)


       
Accumulated
     
   
Additional
 
Other
 
Unearned
Total
 
Capital
Paid – In
Retained
Comprehensive
Treasury
ESOP
Shareholders’
 
Stock
Capital
Earnings
Income
Stock
Shares
Equity
       
(loss)
     
Balance at
             
June 30, 2006
$431
$10,300
$24,588
($747)
($860)
($131)
$33,581
               
ESOP shares earned
 
76
     
32
108
               
Options exercised
 
(2)
   
9
 
7
               
Dividends declared
   
(424)
     
(424)
               
Net income
   
1,511
     
1,511
               
Unrealized gain on securities,  net
     
516
   
516
               
Balance at
             
December 31, 2006
$431
$10,374
$25,675
($231)
($851)
($99)
$35,299
               
Balance at
             
June 30, 2007
$431
$10,319
$25,962
($400)
($828)
($69)
$35,415
               
ESOP shares earned
 
55
     
30
85
               
Options exercised
 
(9)
   
31
 
22
               
Tax effect, Options
 
3
       
3
               
Shares repurchased
       
(153)
 
(153)
               
Dividends declared
   
(720)
     
(720)
               
Net income
   
1,195
     
1,195
               
Adoption of FIN 48
   
(218)
     
(218)
               
Unrealized gain on securities,  net
     
877
   
877
               
Balance at
             
December 31, 2007
$431
$10,368
$26,219
$477
($950)
($39)
$36,506

See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2007and 2006
(Unaudited)
(In thousands)

       
2007
   
2006
 
Cash flows from operating activities:
             
Net Income
    $ 1,195     $ 1,511  
Adjustments to reconcile net income to cash provided by operating activities:
                 
Depreciation
      509       452  
Net amortization of security premiums and discounts
      139       448  
Provision for loan losses
      278       111  
ESOP compensation earned
      85       108  
Gain on sale of premises and equipment
      ---       (257 )
Net decrease in accrued income taxes
      (122 )     (127 )
Net increase in accrued interest receivable
      (34 )     (74 )
Net decrease in prepaid and other assets
      104       25  
Net (decrease) increase in other liabilities
      (126 )     165  
Net cash provided by operating activities
      2,028       2,362  
                     
Cash flows from investing activities:
                 
Available for sale securities:
                 
Proceeds from maturities and calls of securities
      5,652       2,980  
Purchases of securities
      (18,235 )     (3,823 )
Principal payments on securities
      5,731       9,404  
Held to maturity securities:
                 
Proceeds from maturities and calls of securities
      130       ---  
Principal payments on securities
      20       ---  
Net increase in loans receivable
      (15,460 )     (12,131 )
Proceeds from sale of premises and equipment
      2       350  
Purchases of premises and equipment
      (1,027 )     (3,059 )
Net cash used in investing activities
      (23,187 )     (6,279 )
                     
Cash flows from financing activities:
                 
Proceeds of FHLB borrowings
      4,000       ---  
Dividends paid
      (720 )     (424 )
Proceeds from exercise of stock options
      22       7  
Repurchase of stock
      (153 )     ---  
Net increase in deposits
      13,015       2,870  
Net cash provided by financing activities
      16,164       2,453  
                     
Net decrease in cash and cash equivalents
      (4,995 )     (1,464 )
                     
Cash and cash equivalents at beginning of period
      14,026       15,852  
                     
Cash and cash equivalents at end of period
    $ 9,031     $ 14,388  

See notes to consolidated financial statements.
     

 
 

 

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Six Months and Three Months Ended December 31, 2007 and 2006


(1) Basis of Presentation

The accompanying consolidated balance sheet information as of June 30, 2007 was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, The Bank of Greene County (the “Bank”) and the Bank’s wholly owned subsidiary, Greene County Commercial Bank.  The consolidated financial statements at and for the three and six months ended December 31, 2007 and 2006 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-QSB and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  To the extent that information and footnotes 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-KSB for the year ended June 30, 2007, such information and footnotes 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 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 month periods ended December 31, 2007 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2008.


CRITICAL ACCOUNTING POLICY

Greene County Bancorp, Inc.’s most critical accounting policy relates to the allowance for loan losses.  It 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 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 collectibility 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.

Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and Staff Accounting Bulletin 59, “Noncurrent Marketable Equity Securities,” require companies to perform periodic reviews of individual securities in their investment portfolios to determine whether decline in the value of a security is other than temporary.  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, 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 with the write-down recorded as a realized loss.
 
(2) Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its subsidiaries.  The Bank of Greene County has ten full-service offices and an operations center located in its market area consisting of Greene County, Columbia County and southern Albany County, New York.    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 County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities.
 
 
(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 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 our Allowance.  Such authorities may require us 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, 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 with the write-down recorded as a realized loss.

(4) Earnings Per Share

Basic earnings per share (“EPS”) 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 and unvested restricted stock) issued became vested during the period.  Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for either the basic or diluted earnings per share calculations.

 
 

 


 
Net Income
Weighted Average Number of Shares
Outstanding
Earnings Per Share
Six Months Ended
     
       
December 31, 2007:
$1,195,000
   
   Basic
 
4,137,088
$0.29
   Effect of dilutive stock options
 
 
 
      and unearned restricted stock
 
45,832
(0.00)
   Diluted
 
4,182,920
$0.29
   
 
 
December 31, 2006:
$1,511,000
   
   Basic
 
4,119,836
$0.37
   Effect of dilutive stock options
 
 
 
      and unearned restricted stock
 
70,327
(0.01)
   Diluted
 
4,190,163
$0.36
       
       
 
Net Income
Weighted Average Number of Shares
Outstanding
Earnings Per Share
Three Months Ended
     
       
December 31, 2007:
$626,000
   
   Basic
 
4,136,620
$0.15
   Effect of dilutive stock options
     
      and unearned restricted stock
 
43,535
(0.00)
   Diluted
 
4,180,155
$0.15
       
December 31, 2006:
$757,000
   
   Basic
 
4,122,029
$0.18
   Effect of dilutive stock options
     
      and unearned restricted stock
 
70,363
(0.00)
   Diluted
 
4,192,392
$0.18
 
(5) Dividends

On October 16, 2007, the Board of Directors declared a quarterly cash dividend of $0.14 per share of Greene County Bancorp, Inc.’s common stock.  The dividend reflected an annual cash dividend rate of $0.56 per share, which represented an increase from the previous annual dividend rate of $0.50 per share.  The dividend was payable to stockholders of record as of November 15, 2007, and paid on December 1, 2007.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continued to waive receipt of dividends on the 2,304,632 shares of Company common stock it owns for the current period.  The Company also changed its policy of paying dividends quarterly, rather than semi-annually, effective December 1, 2007.


(6)  Impact of Inflation and Changing Prices

The consolidated financial statements of Greene County Bancorp, Inc. and notes thereto, presented elsewhere herein, have been prepared in accordance with generally accepted accounting principles in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation.  The impact of inflation is reflected in the increased cost of Greene County Bancorp, Inc.’s operations.  Unlike most industrial companies, nearly all the assets and liabilities of Greene County Bancorp, Inc. are monetary.  As a result, interest rates have a greater impact on Greene County Bancorp, Inc.’s performance than do the effects of general levels of inflation.  Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.


(7)  Impact of Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFASNo. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years.  The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 157 on itsconsolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b, “Effective Date of FASB Statement No. 157,” that would permit a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies Statement 157 in interim or annual financial statements before proposed FSP 157-b is finalized. The Company is currently evaluating the impact, if any, that the adoption of FSP 157-b will have on the Company’s financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115”  SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value.  Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date.  SFAS No. 159 is effective for the Company beginning July 1, 2008.  The Company is evaluating the impact, if any, the adoption of SFAS No. 159 will have on its consolidated financial position, results of operations and cash flows.

In March 2007, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 06-11 “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”  EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for non-vested equity-classified employee share-based payment awards as an increase to additional paid-in capital.  EITF 06-11 is effective for fiscal years beginning after September 15, 2007.  The Company does not expect EITF 06-11 will have a material impact on its consolidated financial statements.

In December 2007, the FASB issued statement No. 141 (R) “Business Combinations”. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company, based on current circumstances,believes that this new pronouncement willnothave a material impact on the Company’s financial statements.

In December 2007, the FASB issued statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51”. This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company believes that this new pronouncement willnothave a material impact on the Company’s financial statements.

Staff Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of Section D.2 of Topic 14,Share-Based Payment,”of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007.  SAB 110 is effective January 1, 2008. The Company does not expect SAB 109 to have a material impact on its financial statements.

Staff Accounting Bulletin No. 109 (SAB 109), "Written Loan Commitments Recorded at Fair Value Through Earnings" expresses the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles. To make the staff's views consistent with current authoritative accounting guidance, the SAB revises and rescinds portions of SAB No. 105, "Application of Accounting Principles to Loan Commitments."  Specifically, the SAB revises the SEC staff's views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. The SAB retains the staff's views on incorporating expected net future cash flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Company does not expect SAB 109 to have a material impact on its financial statements.


 (8)  Stock-Based Compensation

At December 31, 2007, Greene County Bancorp, Inc. had two stock-based compensation plans, which are described more fully in Note 9 of the consolidated financial statements and notes thereto for the year ended June 30, 2007.  The Company adopted SFAS 123(R), “Share-Based Payments” effective July 1, 2006.  SFAS No. 123 (R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that the employees provide service in exchange for the award.  Public companies were required to adopt the standard using a modified prospective method and they were given the option to elect to restate prior periods using the modified retrospective method.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of adoption of previously issued and outstanding awards over the remaining vesting period of such awards.  Greene County Bancorp, Inc. chose the modified prospective method.  However, since all outstanding options vested prior to July 1, 2006, there was no stock-based compensation expense to be recorded during the quarters and six months ended December 31, 2007 and 2006, and, therefore, no effect on net income or earnings per share; consequently, no table illustrating the impact of share-based compensation on earnings for the quarters and six months ended December 31, 2007 or 2006 is included.

 
 

 

A summary of the Company’s stock option activity and related information for its option plan for the six months ended December 31, 2007 and 2006 is as follows:

 
2007
 
2006
     
Weighted average
     
Weighted average
     
Exercise
     
Exercise
     
Price
     
Price
 
Shares
 
Per Share
 
Shares
 
Per Share
Outstanding at beginning of period
72,664
 
$4.55
 
100,084
 
$4.38
Shares granted
---
 
---
 
---
 
---
Exercised
(5,580)
 
$3.94
 
(1,580)
 
$3.94
Forfeited
---
 
---
 
---
 
---
Outstanding at period end
67,084
 
$4.60
 
98,504
 
$4.39
Exercisable at period end
67,084
 
$4.60
 
98,504
 
$4.39

The following table presents stock options outstanding and exercisable at December 30, 2007:

Options Outstanding and Exercisable
Exercise Prices
Number Outstanding
Weighted Average Remaining Contractual Life
Weighted Average Exercise Price
$3.94
58,584
2.25
$3.94
$9.20
8,500
4.25
$9.20
 
67,084
2.50
$4.60

The total intrinsic value of the options exercised during the six and three months ended December 31, 2007, was approximately $48,000 and $43,000, respectively.  The total intrinsic value of the options outstanding and exercisable at December 31, 2007, was approximately $499,000.  There were no stock options granted during the six and three months ended December 31, 2007 and 2006.  The Company had no non-vested options outstanding at or during the six months ended December 31, 2007 and 2006.

(9)  Stock Repurchase Program

On August 22, 2007, the Board of Directors authorized a stock repurchase program pursuant to which the Company intends to repurchase up to 5% of its outstanding shares (excluding shares held by Greene County Bancorp, MHC, the Company’s mutual holding company), or up to 92,346 shares.  As of December 31, 2007, the Company had repurchased 12,192 shares pursuant to this program at an average cost of $12.53 per share.

(10)  Income Taxes

In July 2006, the Financial Accounting Standards Board (“FASB”) released Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement 109” (“FIN 48”). Effective for fiscal years beginning after December 15, 2006, FIN 48 provides guidance on the financial statement recognition and measurement for income tax positions that the Company has taken or expects to take in its income tax returns. It also provides related guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN 48 on July 1, 2007. The adoption required the Company to recognize a $218,000 increase in our liability for unrecognized tax benefit.

As of July 1, 2007, the Company had a liability for unrecognized tax benefits of $186,000. The Company recognizes penalties and accrued interest related to unrecognized tax benefits in tax expense. As of July 1, 2007, the Company had a liability of approximately $32,000 for penalties and interest.

Actual income taxes paid may vary from estimates depending upon changes in income tax laws, actual results of operations, and the final audit of tax returns by taxing authorities. Tax assessments may arise several years after tax returns have been filed. The Company reviews its tax balances quarterly and as new information becomes available, the balances are adjusted, as appropriate. The Company is currently under examination by the Internal Revenue Service for fiscal years ended June 30, 2004 through June 30, 2006.  The Company is no longer subject to federal and state income tax examinations by tax authorities for years before June 30, 2004.

(11) Subsequent Event

On January 16, 2008, the Board of Directors declared a quarterly cash dividend of $0.15 per share of Greene County Bancorp, Inc. common stock.  The dividend reflected an annual cash dividend rate of $0.60 cents per share, which represented an increase from the annual cash dividend rate of $0.56 per share.  The dividend will be payable to stockholders of record as of February 15, 2008, and will be paid on March 1, 2008.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continued to waive receipt of dividends on the 2,304,632 shares of Company common stock it owns for the current period.

 
 

 

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,
(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, Greene County Commercial Bank 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.

 
 

 

Comparison of Financial Condition as of December 31, 2007 and June 30, 2007


ASSETS

Total assets of the Company increased to $344.0 million at December 31, 2007 from $325.8 million at June 30, 2007.  The asset composition shifted toward loans, which amounted to $222.5 million, or 64.7% of total assets at December 31, 2007, as compared to $207.3 million, or 63.6% of total assets at June 30, 2007.  Securities, including both available for sale and held to maturity investments, also increased during the six months ended December 31, 2007, and represented $95.0 million or 27.6% of total assets at December 31, 2007 as compared to $87.2 million or 26.8% of total assets at June 30, 2007.

SECURITIES AVAILABLE FOR SALE

Securities available for sale decreased to $78.6 million at December 31, 2007 as compared to $87.2 million at June 30, 2007, a decrease of $8.6 million, or 9.9%.  The decline in the available for sale portfolio was the result of the reclassification of $16.5 million of local state and political subdivision securities to held-to- maturity securities.  This decline was partially offset by securities purchases of $18.2 million during the six months ended December 31, 2007 less maturities and principal repayments of $11.4 million.  Repayments and maturities consisted of $5.0 million in mortgage-backed securities, and $4.4 million in state and political subdivision securities and $2.0 million in U.S. government agency securities.   Purchases of $18.2 million consisted of $11.1 million in mortgage-backed securities, $4.4 million in state and political subdivision or tax-free securities, $1.5 million in corporate debt securities, $1.0 million in U.S. government agency securities, and $200,000 in FHLB stock.   Additionally, during the six months ended December 31, 2007, available for sale securities increased from an unrealized loss of $655,000 to an unrealized gain of $782,000.

 (Dollars in thousands)
                       
   
Fair value at
Dec. 31, 2007
   
Percentage
of portfolio
   
Fair value at
June 30, 2007
   
Percentage
of portfolio
 
   
 
               
 
 
U.S. government agencies
  $ 19,053       24.2 %   $ 19,628       22.5 %
State and political subdivisions
    12,928       16.4       29,034       33.3  
Mortgage-backed securities
    44,797       57.0       38,157       43.8  
Asset-backed securities
    67       0.1       76       0.1  
Corporate debt securities
    1,485       1.9       ---       ---  
Total debt securities
    78,330       99.6       86,895       99.7  
                                 
Equity securities and other
    289       0.4       289       0.3  
                                 
Total securities available-for-sale
  $ 78,619       100.0 %   $ 87,184       100.0 %


HELD-TO-MATURITY SECURITIES

At December 1, 2007, Greene County Bancorp, Inc. reclassified $16.5 million in local, state and political subdivision securities from available-for-sale securities to held-to-maturity securities.  The Company has the ability and intent to hold these securities until maturity.  The issues transferred consisted of local municipal bonds which are considered illiquid and have no quoted market values.  Management estimated that the aggregate fair value of these securities at the time of transfer was equal to their aggregate amortized cost.  These securities will continue to be recorded at amortized cost.  The balance of these securities decreased by $150,000 due to maturities and principal repayments for the six-month period ended December 31, 2007.   Greene County Bancorp, Inc. held 30.8% of the securities portfolio, including both available-for-sale and held-to-maturity securities, at December 31, 2007 in 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.


LOANS

Net loans receivable increased to $222.5 million at December 31, 2007 from $207.3 million at June 30, 2007, an increase of $15.2 million, or 7.3%.  The loan growth experienced during the six months primarily consisted of $10.2 million in residential mortgages, $3.5 million in home equity loans, and $1.2 million in commercial real estate loans.  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 slow down in new loan demand as well as refinancing activities.  It appears consumers continue to use the equity in their homes and credit cards to fund financing needs for some activities, where in the past an installment loan may have been the choice.  The low financing options from auto makers continued to cut into the Bank’s automobile loan generation.


(Dollars in thousands)
                       
   
At
Dec. 31, 2007
   
Percentage
of portfolio
   
At
June 30, 2007
   
Percentage
of portfolio
 
Real estate mortgages
                       
   Residential
  $ 160,398       71.6 %   $ 150,215       72.0 %
   Commercial
    26,917       12.0       25,740       12.3  
Home equity loans
    23,259       10.4       19,719       9.5  
Commercial loans
    8,747       3.9       8,391       4.0  
Installment loans
    4,214       1.9       4,057       1.9  
Passbook loans
    510       0.2       583       0.3  
Total loans
  $ 224,045       100.0 %   $ 208,705       100.0 %
Less: Allowance for loan losses
    (1,694 )             (1,486 )        
         Unearned origination fees and costs, net
    111               61          
Net loans receivable
  $ 222,462             $ 207,280          


 
 

 

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 all loans on which full collectibility 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 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 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 net charge-offs.  The level of the provision for the six months ended December 31, 2007, was driven by the continued good asset quality.  Any future increase in the allowance for loan losses or loan charge-offs could have a material adverse effect on Greene County Bancorp, Inc.’s results of operations and financial condition.

Analysis of allowance for loan losses activity

(Dollars in thousands)
 
Six months ended
 
   
December 31, 2007
   
December 31, 2006
 
             
Balance at the beginning of the period
  $ 1,486     $ 1,314  
Charge-offs:
               
     Commercial loan
    15       7  
     Installment loans to individuals
    16       15  
     Overdraft protection
    115       68  
Total loans charged off
    146       90  
                 
Recoveries:
               
     Residential mortgage
    27       ---  
     Installment loans to individuals
    19       15  
     Overdraft protection
    30       18  
Total recoveries
    76       33  
                 
Net charge-offs
    70       57  
                 
Provisions charged to operations
    278       111  
Balance at the end of the period
  $ 1,694     $ 1,368  
                 
Ratio of net charge-offs to average loans outstanding, annualized
    0.06 %     0.06 %
Ratio of net charge-offs to nonperforming assets, annualized
    7.93 %     28.57 %
Allowance for loan loss to nonperforming loans
    95.92 %     342.86 %
Allowance for loan loss to total loans receivable
    0.76 %     0.67 %


Nonaccrual Loans and Nonperforming Assets

Loans are reviewed on a regular basis.  Management determines that a loan is impaired or nonperforming when it is probable at least a portion of the loan will not be collected in accordance with its contractual terms due to an irreversible deterioration in the financial condition of the borrower or the value of the underlying collateral.  When a loan is determined to be impaired, the measurement of the loan impairment is based on the 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.  Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  Nonaccrual is defined as a loan in which collectibility is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan does not have to be 90 days delinquent in order to be classified as nonperforming.  Foreclosed real estate is considered nonperforming.  The Bank of Greene County had no accruing loans delinquent 90 days or more at December 31, 2007 or June 30, 2007.

Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)
 
At December 31, 2007
   
At June 30, 2007
 
Nonaccruing loans:
           
  Real estate mortgage loans:
           
      Residential mortgages loans (one- to four-family)
  $ 686     $ 451  
      Commercial mortgage loans
    442       111  
      Multifamily mortgage loans
    28       ---  
   Home equity
    302       110  
   Commercial loans
    251       ---  
   Installment loans to individuals
    57       10  
Total nonaccruing loans
    1,766       682  
                 
Foreclosed real estate
    ---       ---  
Total nonperforming assets
  $ 1,766     $ 682  
                 
Total nonperforming assets
   as a percentage of total assets
    0.51 %     0.21 %
                 
Total nonperforming loans to total loans
    0.79 %     0.33 %
                 

During the six months ended December 31, 2007 and 2006, The Bank of Greene County had no impaired loans.  Accordingly, no specific valuation allowance for impaired loans was recorded.  Interest income related to nonaccrual loans was not material in the quarters and six month periods ended December 31, 2007 and 2006.


DEPOSITS

Total deposits increased to $297.2 million at December 31, 2007 from $284.2 million at June 30, 2007, an increase of $13.0 million, or 4.6%.  The net growth in deposits was primarily due to a $10.8 million increase in municipal deposits at Greene County Commercial Bank. The Company has seen a shift from savings and money market deposits to NOW deposits as customers try to shop for the best rates while still maintaining liquidity.  The Company continues to try to encourage customers to open noninterest bearing deposit accounts through various marketing strategies, including gifts.

(Dollars in  thousands)
                       
   
At
Dec. 31, 2007
   
Percentage
of portfolio
   
At
June 30, 2007
   
Percentage
of portfolio
 
                         
Noninterest bearing deposits
  $ 40,912       13.8 %   $ 44,020       15.5 %
Certificates of deposit
    81,939       27.6       74,563       26.2  
Savings deposits
    66,697       22.4       71,830       25.3  
Money market deposits
    31,335       10.5       37,710       13.3  
NOW deposits
    76,308       25.7       56,053       19.7  
Total deposits
  $ 297,191       100.0 %   $ 284,176       100.0 %



BORROWINGS

At December 31, 2007, The Bank of Greene County had available an overnight line of credit and a one-month overnight repricing line of credit, each in the amount of $31.8 million with the Federal Home Loan Bank.   The Bank of Greene County had $4.0 million outstanding on the overnight line of credit at
December 31, 2007.

At December 31, 2007, The Bank of Greene County had the following term borrowings from the FHLB:

Amount
Rate
Maturity Date
$5,000,000
3.64% - convertible
10/24/2013

The $5.0 million borrowing, which carried a 3.64% interest rate at December 31, 2007, is convertible by FHLB under certain market interest rate scenarios, including three-month LIBOR at or above 7.5%.  FHLB has the option to convert existing advances into replacement advances for the same or lesser principal amount based on the then current market rates.  If the Bank chooses not to replace the funding, the Bank must repay this convertible advance, including any accrued interest, on the interest payment date.

EQUITY

Shareholders’ equity increased to $36.5 million at December 31, 2007 from $35.4 million at June 30, 2007, as net income of $1.2 million was partially offset by dividends declared and paid of $720,000. An improvement of $877,000 in the fair value of the available-for-sale investment portfolio, net of tax, resulted in accumulated other comprehensive income of $477,000 at December 31, 2007 compared to accumulated other comprehensive loss of $400,000 at June 30, 2007.  The Company recorded an adjustment, effective July 1, 2007, reducing retained earnings by $218,000 as a result of implementing FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109”.  Other changes in equity, totaling a $110,000 increase, were the result of activities associated with the various stock-based compensation plans of the Company including the 2000 Stock Option Plan and ESOP Plan.  5,580 options were exercised during the six months ended December 31, 2007.   On August 22, 2007, the Board of Directors authorized a stock repurchase program pursuant to which the Company intends to repurchase up to 5% of its outstanding shares (excluding shares held by Greene County Bancorp, MHC, the Company’s mutual holding company), or up to 92,346 shares.  During the six months ended December 31, 2007, the Company repurchased 12,192 shares.  As a result of this stock repurchase and the exercise of stock options during the period, treasury shares were increased to 161,216.



 
 

 

Comparison of Operating Results for the Six Months and Quarter Ended December 31, 2007 and 2006

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the six months and quarters ended December 31, 2007 and 2006.  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 for the quarters and six months ended December 31, 2007 and 2006.  Average loan balances include non-performing loans.  The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

Six Months Ended December 31, 2007 and 2006
(Dollars in thousands)
2007
2007
2007
2006
2006
2006
 
Average
Interest
Average
Average
Interest
Average
 
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
 
Balance
Paid
Rate
Balance
Paid
Rate
Interest earning assets:
           
   Loans receivable, net1
$217,494
$7,214
6.63%
$197,153
$6,482
6.58%
   Securities, available for sale2
86,569
1,833
  4.23
84,611
1,601
  3.78
   Securities, held to maturity3
2,761
52
  3.77
---
---
---
   Federal funds
7,147
172
  4.81
5,122
134
  5.23
   Interest bearing bank balances
3,888
84
  4.32
2,597
56
  4.31
   FHLB stock
663
26
  7.84
643
21
  6.53
       Total interest earning assets
318,522
9,381
  5.89%
290,126
8,294
  5.72%
Cash and due from banks
5,508
 
 
6,639
   
Allowance for loan losses
(1,564)
   
(1,322)
   
Other non-interest earning assets
15,071
   
13,898
   
     Total assets
$337,537
   
$309,341
   
             
             
Interest bearing liabilities:
           
   Savings and money market deposits
$108,192
$1,054
  1.95%
$124,697
$1,240
  1.99%
   NOW deposits
67,566
922
  2.73
42,209
521
  2.47
   Certificates of deposit
79,694
1,750
  4.39
62,403
1,161
  3.72
   Borrowings
5,130
93
  3.63
5,001
93
  3.72
      Total interest bearing liabilities
260,582
3,819
  2.93%
234,310
3,015
  2.57%
Non-interest bearing deposits
40,760
   
40,036
   
Other non-interest bearing liabilities
314
   
609
   
Shareholders’ equity
35,881
   
34,386
   
     Total liabilities and equity
$337,537
   
$309,341
   
             
Net interest income
 
$5,562
   
$5,279
 
             
Net interest rate spread
   
2.96%
   
3.15%
             
Net interest margin
   
3.49%
   
3.64%
             
Average interest earning assets to
           
average interest bearing liabilities
   
122.23%
   
123.82%

1 Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2 Includes tax-free securities, mortgage-backed securities and asset-backed securities.
3 Held to maturity securities include only tax-free municipal issues.

 
 

 

Rate / Volume Analysis

The following Rate / Volume tables present 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.

       
Six Months
Ended December 31,
 
(Dollars in thousands)
   
2007 versus 2006
 
       
Increase/(Decrease)
   
Total
 
       
Due to
   
Increase/
 
Interest-earning assets:
   
Volume
   
Rate
   
(Decrease)
 
Loans receivable, net1
    $ 682     $ 50     $ 732  
Securities, available for sale2
      38       194       232  
Securities, held to maturity3
      52       ---       52  
Federal funds
      49       (11 )     38  
Interest-bearing bank balances
      28       ---       28  
FHLB stock
      1       4       5  
Total interest-earning assets
      850       237       1,087  
                             
Interest-bearing liabilities:
                         
Savings deposits
      (161 )     (25 )     (186 )
NOW deposits
      341       60       401  
Certificates of deposit
      357       232       589  
Borrowings
      2       (2 )     --  
Total interest-bearing liabilities
      539       265       804  
Net interest income
    $ 311     $ (28 )   $ 283  


1 Calculated net of deferred loan fees, loan discounts, loans in process and loan loss reserves.
2 Includes tax-free securities, mortgage-backed securities and asset-backed securities.
3 Held to maturity securities include only tax-free municipal issues.

 
 

 

Quarter Ended December 31, 2007 and 2006

(Dollars in thousands)
2007
2007
2007
2006
2006
2006
 
Average
Interest
Average
Average
Interest
Average
 
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
 
Balance
Paid
Rate
Balance
Paid
Rate
Interest earning assets:
           
   Loans receivable, net1
$221,451
$3,656
6.60%
$199,941
$3,303
6.61%
   Securities, available for sale2
85,887
921
  4.29
83,576
821
  3.93
   Securities, held to maturity3
5,521
52
  3.77
---
---
---
   Federal funds
8,335
97
  4.66
4,765
62
  5.20
   Interest bearing bank balances
3,212
32
  3.99
2,388
26
  4.36
   FHLB stock
669
14
  8.37
643
11
  6.84
       Total interest earning assets
325,075
4,772
  5.87%
291,313
4,223
  5.80%
Cash and due from banks
5,298
   
6,650
 
 
Allowance for loan losses
(1,619)
   
(1,331)
   
Other non-interest earning assets
14,730
   
14,474
   
     Total assets
$343,484
   
$311,106
   
             
             
Interest bearing liabilities:
           
   Savings and money market deposits
$104,455
$496
  1.90%
$118,631
$591
  1.99%
   NOW deposits
75,863
540
  2.85
49,115
345
  2.81
   Certificates of deposit
81,651
888
  4.35
62,946
610
  3.88
   Borrowings
5,261
47
  3.57
5,000
47
  3.76
      Total interest bearing liabilities
267,230
1,971
  2.95%
235,692
1,593
  2.70%
Non-interest bearing deposits
39,997
   
39,839
   
Other non-interest bearing liabilities
73
   
674
   
Shareholders’ equity
36,184
   
34,901
   
     Total liabilities and equity
$343,484
   
$311,106
   
             
Net interest income
 
$2,801
   
$2,630
 
             
Net interest rate spread
   
2.92%
   
3.10%
             
Net interest margin
   
3.45%
   
3.61%
             
Average interest earning assets to
           
average interest bearing liabilities
   
121.65%
   
123.60%

                                                             
1 Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2 Includes tax-free securities, mortgage-backed securities and asset-backed securities.
3 Held to maturity securities include only tax-free municipal issues.


       
Three Months
Ended December 31,
 
(Dollars in thousands)
   
2007 versus 2006
 
       
Increase/(Decrease)
   
Total
 
       
Due to
   
Increase/
 
Interest-earning assets:
   
Volume
   
Rate
   
(Decrease)
 
Loans receivable, net1
    $ 358     $ (5 )   $ 353  
Securities, available for sale2
      23       77       100  
Securities, held to maturity3
      52       ---       52  
Federal funds
      42       (7 )     35  
Interest-bearing bank balances
      8       (2 )     6  
FHLB stock
      ---       3       3  
Total interest-earning assets
      483       66       549  
                             
Interest-bearing liabilities:
                         
Savings deposits
      (69 )     (26 )     (95 )
NOW deposits
      190       5       195  
Certificates of deposit
      197       81       278  
Borrowings
      2       (2 )     ---  
Total interest-bearing liabilities
      320       58       378  
Net interest income
    $ 163     $ 8     $ 171  

                                                
1 Calculated net of deferred loan fees, loan discounts, loans in process and loan loss reserves.
2 Includes tax-free securities, mortgage-backed securities and asset-backed securities.
3 Held to maturity securities include only tax-free municipal issues.

OVERVIEW

Annualized return on average assets and return on average equity are common methods of measuring operating results.  Annualized return on average assets decreased to 0.71% for the six months and 0.73% for the quarter ended December 31, 2007, as compared to 0.98% for the six months and 0.97% for the quarter ended December 31, 2006.  Annualized return on average equity decreased to 6.66% for the six months and 6.91% for the quarter ended December 31, 2007 as compared to 8.79% for the six months and 8.68% for the quarter ended December 31, 2006.  The year to date decrease in return on average assets and return on average equity was primarily the result of higher noninterest expenses, partially offset by higher noninterest income and net interest income.  Net income amounted to $1.2 million and $1.5 million for the six months ended December 31, 2007 and 2006, respectively, a decrease of $316,000 or 20.9% and amounted to $626,000 and $757,000 for the quarters ended December 31, 2007 and 2006, respectively, a decrease of $131,000 or 17.3%.  Average assets amounted to $337.5 million for the six month period ended December 31, 2007 as compared to $309.3 million for the same period ended December 31, 2006, an increase of $28.2 million or 9.1%.  Average assets amounted to $343.5 million for the quarter ended December 31, 2007 as compared to $311.1 million for the quarter ended December 31, 2006, an increase of $32.4 million or 10.4%.  Average equity amounted to $35.9 million for the six month period ended December 31, 2007 as compared to $34.4 million for the same period ended December 31, 2006, an increase of $1.5 million or 4.4%.  Average equity amounted to $36.2 million for the quarter ended December 31, 2007 as compared to $34.9 million for the quarter ended December 31, 2006, an increase of $1.3 million or 3.7%.


INTEREST INCOME

Interest income amounted to $9.4 million for the six months ended December 31, 2007 as compared to $8.3 million for the six months ended December 31, 2006, an increase of $1.1 million or 13.3%.  Interest income amounted to $4.8 million for the quarter ended December 31, 2007 as compared to $4.2 million for the quarter ended December 31, 2006, an increase of $549,000 or 13.0%.  The increase in loan volume complemented by an increase in the yield on interest earning assets had the greatest impact on interest income when comparing the six months and quarters ended December 31, 2007 and 2006.  Average loan balances increased $20.3 million for the six months ended December 31, 2007 as compared to December 31, 2006 and the yield increased by 5 basis points when comparing the same periods.  Average loan balances increased $21.5 million for the quarter ended December 31, 2007 as compared to the quarter ended December 31, 2006 and the yield decreased by one basis point when comparing the same periods.  The overall impact on interest income from securities available for sale was positive with an increase in average balances of $2.0 million which was complemented by a 45 basis point increase in yield when comparing the six months ended December 31, 2007 and 2006 and a $2.3 million increase in average balances and a 36 basis point increase in yield when comparing the quarters ended December 31, 2007 and 2006.   For the six months and quarter ended December 31, 2007, average securities held to maturity totaled $2.8 million and $5.5 million, respectively, as a result of a reclassification from the available-for-sale portfolio.  The average yield on these investments was 3.77% for the current quarter and six month period ended December 31, 2007.  The reclassification of securities which were tax free securities out of available-for-sale to held-to-maturity contributed to the improvement in yield on securities available-for-sale.  No tax effective adjustments were made.  Average balances on short term investments such as interest bearing bank balances and federal funds sold increased $3.3 million and $4.4 million when comparing the six months and quarters ended December 31, 2007 and 2006.  Most of the increase in income from short term investments was offset by a lower yield on such investments, primarily as a result of the short-term interest rate decreases implemented by the Federal Open Market Committee during the latter part of calendar 2007.  Although the Federal Open Market Committee increased short-term rates several times during calendar 2006, the long-term rates continued to remain relatively unchanged and low.


INTEREST EXPENSE

Interest expense amounted to $3.8 million for the six months ended December 31, 2007, as compared to $3.0 million for the six months ended December 31, 2006, an increase of $804,000.  Interest expense amounted to $2.0 million for the quarter ended December 31, 2007, as compared to $1.6 million for the quarter ended December 31, 2006, an increase of $378,000.  Increases in average balances on interest-bearing liabilities had the greatest impact on overall interest expense.  The average balance of interest bearing liabilities amounted to $260.6 million and the average rate increased to 2.93% for the six months ended December 31, 2007 as compared to an average balance of $234.3 million with an average rate of 2.57% for the six months ended December 31, 2006, an increase in average interest bearing liabilities of $26.3 million and an increase in average rate of 36 basis points.  The average balance of interest bearing liabilities amounted to $267.2 million and the average rate increased to 2.95% for the quarter ended December 31, 2007 as compared to an average balance of $235.7 million with an average rate of 2.70% for the quarter ended December 31, 2006, an increase in average interest bearing liabilities of $31.5 million and an increase in average rate of 25 basis points.  The average rate paid on NOW deposits increased 26 basis points and 4 basis points, respectively, when comparing the six months and quarters ended December 31, 2007 and 2006, and the average balance of such accounts grew by $25.4 million and $26.7 million, respectively, when comparing the same periods, contributing to the overall increase in interest expense.  The average balance of certificates of deposit grew by $17.3 million and the average rate paid increased by 67 basis points when comparing the six months ended December 31, 2007 and 2006.  The average balance of certificates of deposit grew by $18.7 million and the average rate paid increased by 47 basis points when comparing the quarters ended December 31, 2007 and 2006.  The average balance of savings and money market deposits fell by $16.5 million and $14.2 million when comparing the six months and quarters ended December 31, 2007 and 2006.  The average rate paid on savings and money markets decreased 4 basis points and 9 basis points when comparing the same periods.  Interest paid on borrowings remained consistent when comparing the six months and quarters ended December 31, 2007 and 2006 due to the fact that increases in average borrowings were offset by lower rates paid on those borrowings.




NET INTEREST INCOME

Net interest income increased $283,000 to $5.6 million for the six months ended December 31, 2007 compared to December 31, 2006 and increased $171,000 to $2.8 million for the quarter ended December 31, 2007 compared to December 31, 2006.     Net interest spread decreased 19 basis points to 2.96% for the six months ended December 31, 2007 from 3.15% for the six months ended December 31, 2006, and 18 basis points to 2.92% for the quarter ended December 31, 2007 as compared to 3.10% for the quarter ended December 31, 2006.  Net interest margin decreased 15 basis points to 3.49% for the six months ended December 31, 2007 from 3.64% for the six months ended December 31, 2006, and 16 basis points to 3.45% for the quarter ended December 31, 2007 as compared to 3.61% for the quarter ended December 31, 2006.  The tightening of the net interest spread and margin hindered net interest income growth when comparing the six months and quarters ended December 31, 2007 and 2006.

Due to the large portion of fixed rate residential mortgages in the Company’s asset portfolio, interest rate risk is a concern and the Company will continue to monitor the situation and attempt to 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

The provision for loan losses amounted to $278,000 and $111,000 for the six months ended December 31, 2007 and 2006, respectively, an increase of $167,000.  The provision for loan losses amounted to $135,000 and $66,000 for the quarters ended December 31, 2007 and 2006, respectively, an increase of $69,000.  The increase in the level of provision was primarily a result of growth in the loan portfolio, an increase in nonperforming loans and an increase in the amount of loan charge-offs, which were predominently associated with the overdraft protection program.  Net charge-offs associated with the overdraft protection program increased $35,000, or 70.0% when comparing the six months ended December 31, 2007 and 2006.


NONINTEREST INCOME

Noninterest income amounted to $2.3 million for the six months ended December 31, 2007 as compared to $2.1 million for the six months ended December 31, 2006, an increase of $162,000 or 7.7%.  Noninterest income amounted to $1.2 million for both the quarters ended December 31, 2007 and 2006.   During the six months and quarter ended December 31, 2006, a pretax gain of approximately $257,000 related to the sale of the former Coxsackie branch building was recognized in noninterest income.  There were no significant sales of assets during the six months and quarter ended December 31, 2007.  Service charges on deposit accounts increased $270,000 and $110,000 for the six months and quarter ended December 31, 2007, respectively, due to higher levels of insufficient funds charges as a result of changes implemented in the Overdraft Privilege Program.  Debit card fees increased $97,000 and $53,000, respectively, for the same periods primarily due to a higher volume of transactions.


NONINTEREST EXPENSE

Noninterest expense amounted to $5.9 million for the six months ended December 31, 2007 as compared to $5.1 million for the six months ended December 31, 2006, an increase of $760,000 or 14.9%.  Noninterest expense amounted to $2.9 million for the quarter ended December 31, 2007 as compared to $2.7 million for the quarter ended December 31, 2006, an increase of $288,000 or 10.8%.  Salaries and employee benefits increased $318,000 when comparing the six months ended December 31, 2007 and 2006; and $176,000 when comparing the quarters ended December 31, 2007 and 2006.  These increases were primarily due to an increase in the number of employees resulting from the addition of three new branches (two branches which opened in the third quarter of fiscal 2007 and one branch which has opened in January 2008) and expansion of the commercial lending department, as well as a $75,000 payment associated with the retirement of a senior officer.  These salary increases were partially offset by a decrease of $65,000 in retirement expense associated with the Defined Benefit Pension Plan, partially offset by an increase in 401(k) contribution expense of $20,000 resulting from increases in employer match during fiscal 2007.  Occupancy expense and equipment and furniture expense, in the aggregate, increased approximately $133,000 and $52,000 when comparing the six months and quarters ended December 31, 2007 and 2006 due to higher utility costs, building maintenance and increased depreciation expense associated with the opening of the new operations center in Catskill and the opening of two new branches in Catskill and Greenport.  All other noninterest expenses, in the aggregate, increased approximately $309,000 and $60,000 when comparing the six months and quarters ended December 31, 2007 and 2006 due to increased costs related to debit card transactions and the loyalty program, marketing costs related to deposit product promotions, and increased assessments resulting from the conversion of the Bank from a New York State chartered financial institution to a Federally chartered institution.


INCOME TAXES

The provision for income taxes reflected the expected tax associated with the revenue generated for the given period and certain regulatory requirements.  The effective tax rate was 29.1% for the six months ended December 31, 2007, compared to 30.3% for the six months ended December 31, 2006.  The effective tax rate was 28.6% for the quarter ended December 31, 2007, compared to 31.6% for the quarter ended December 31, 2006.  The decreases in effective rates for the periods ended December 31, 2007 were the result of decreased pre-tax income and the resultant increased percentage of tax exempt interest earned in total taxable income.


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 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.

Mortgage loan commitments totaled $7.4 million at December 31, 2007.  The unused portion of overdraft lines of credit amounted to $8.6 million, the unused portion of home equity lines of credit amounted to $6.5 million, and the unused portion of commercial lines of credit amounted to $3.9 million at December 31, 2007.  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 from Federal Home Loan Bank of New York.

During the current fiscal year, The Bank of Greene County expects to open one new branch location located in Chatham, New York.  It is expected that this branch will be opened during the third quarter of fiscal 2008.   It is expected that the Company will have sufficient cash or other means of liquidity to fund this project.

The Bank of Greene County and Greene County Commercial Bank met all regulatory capital requirements at December 31, 2007 and June 30, 2007.  The Company’s consolidated shareholder’s equity represented 10.6% of total assets at December 31, 2007 and 10.9% of total assets of June 30, 2007.

 
 

 


Item 3.  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.


 
 

 

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 2.     Unregistered Sales of Equity Securities and Use of Proceeds
a.)  
Not applicable
b.)  
Not applicable
c.)  
The following table presents a summary of the Company’s shares repurchased during the quarter ended December 31, 2007

Period
Total Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Program (1)
Maximum Number of Shares That May yet be Purchased Under the Program (1)
October 1 – October 31, 2007
3,100
$12.36
3,380
88,966
November 1 – November 30, 2007
3,948
$11.84
7,328
85,018
December 1 - December 31, 2007
4,864
$13.18
12,192
80,154

(1) On August 22, 2007, the Board of Directors authorized a stock repurchase program pursuant to which the Company intends to repurchase up to 5% of its outstanding shares (excluding shares held by Greene County Bancorp, MHC, the Company’s mutual holding company), or up to 92,346 shares.  As of December 31, 2007, the Company had repurchased 12,192 shares in accordance with the stock repurchase program.

       Item 3.     Defaults Upon Senior Securities
                    Not applicable

       Item 4.     Submission of Matters to a Vote of Security Holders

                    On October 24, 2007, the Company held an annual meeting of shareholders.  At the meeting, proposals to (1) elect Donald Gibson, Paul Slutzky and David H. Jenkins, to serve as directors of the Company for terms of three years and until their respective successors have been elected, and (2) ratify the engagement of Beard Miller Company LLP, to be the Company’s auditors for the June 30, 2008 fiscal year were approved.  There were no broker non-votes.  The votes cast for and against these proposals were as follows:

Election to the Board of Directors                                     For                                  Withheld

Donald Gibson                                                                 3,813,573                                 40,506
David H. Jenkins                                                              3,842,381                                 11,657
Paul Slutzky                                                                      3,841,356                                 12,682

Ratification of Appointment of Beard Miller Company LLP
     For                       Against                            Abstain

Number of votes                                                               3,844,976                       269                                   8,834

The Board of Directors consists of the following members:  Donald E. Gibson, David H. Jenkins, Dennis O’Grady, Arthur Place, Charles Schaefer, Paul Slutzky Martin C. Smith, and J. Bruce Whittaker.

       Item 5.     Other Information

 
(a)