form10qmarch312011.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

OR

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


GREENE COUNTY BANCORP, INC.

(Exact name of 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 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      X    

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 May 13, 2011, the registrant had 4,145,828 shares of common stock outstanding at $ .10 par value per share.

 
 

 


 
GREENE COUNTY BANCORP, INC.
     
         
         
         
 
INDEX
     
         
         
         
PART I.
FINANCIAL INFORMATION
     
     
Page
 
Item 1.
Financial Statements (unaudited)
     
 
*   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 of Financial Condition and Results of Operation
   
         
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
   
         
Item 4.
Controls and Procedures
   
         
PART II.
OTHER INFORMATION
     
         
Item 1.
Legal Proceedings
   
         
Item 1A.
Risk Factors
   
         
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
         
Item 3.
Defaults Upon Senior Securities
   
         
Item 4.
[Removed and Reserved]
   
         
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
   

 
 









Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of March 31, 2011 and June 30, 2010
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
March 31, 2011
   
June 30, 2010
 
Cash and due from banks
  $ 24,761     $ 9,253  
Federal funds sold
    3,835       390  
    Total cash and cash equivalents
    28,596       9,643  
                 
Long term certificate of deposit
    ---       1,000  
Securities available for sale, at fair value
    94,938       89,805  
Securities held to maturity, at amortized cost
    117,634       77,520  
Federal Home Loan Bank stock, at cost
    1,232       1,866  
                 
Loans
    301,071       299,200  
  Allowance for loan losses
    (4,876 )     (4,024 )
  Unearned origination fees and costs, net
    456       406  
    Net loans receivable
    296,651       295,582  
                 
Premises and equipment
    15,515       14,804  
Accrued interest receivable
    2,828       2,731  
Foreclosed real estate
    563       ---  
Prepaid expenses and other assets
    2,487       2,372  
               Total assets
  $ 560,444     $ 495,323  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 48,959     $ 44,239  
Interest bearing deposits
    449,890       377,493  
    Total deposits
    498,849       421,732  
                 
Borrowings from FHLB, short-term
    ---       9,100  
Borrowings from FHLB, long-term
    12,000       17,000  
Accrued expenses and other liabilities
    2,864       2,988  
                Total liabilities
    513,713       450,820  
                 
Shareholders’ equity:
               
Preferred stock,
               
  Authorized   -   1,000,000 shares; Issued - None
    ---       ---  
Common stock, par value $.10 per share;
               
   Authorized  - 12,000,000 shares
               
   Issued          -   4,305,670 shares
               
   Outstanding -   4,145,828 shares at March 31, 2011
               
                            4,118,912 shares at June 30, 2010;
    431       431  
Additional paid-in capital
    10,945       10,666  
Retained earnings
    36,282       33,692  
Accumulated other comprehensive income
    279       1,123  
Treasury stock, at cost 159,842 shares at March 31, 2011
               
                                     186,758 shares at June 30, 2010
    (1,206 )     (1,409 )
               Total shareholders’ equity
    46,731       44,503  
               Total liabilities and shareholders’ equity
  $ 560,444     $ 495,323  
See notes to consolidated financial statements.

 
 

 

        Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Nine Months Ended March 31, 2011 and 2010
(Unaudited)
 (In thousands, except share and per share amounts)
Interest income:
 
2011
   
2010
 
    Loans
  $ 13,434     $ 12,830  
    Investment securities - taxable
    875       852  
    Mortgage-backed securities
    2,821       2,805  
    Investment securities - tax exempt
    879       783  
    Interest bearing deposits and federal funds sold
    32       13  
Total interest income
    18,041       17,283  
                 
Interest expense:
               
    Interest on deposits
    3,007       3,596  
    Interest on borrowings
    422       486  
Total interest expense
    3,429       4,082  
                 
Net interest income
    14,612       13,201  
Provision for loan losses
    1,179       984  
Net interest income after provision for loan losses
    13,433       12,217  
                 
Non-interest income:
               
    Service charges on deposit accounts
    1,733       2,105  
    Debit card fees
    925       784  
    Investment services
    199       207  
    E-commerce fees
    83       78  
    Net gain (loss) on sale of available-for-sale securities
    233       (5 )
    Other operating income
    390       355  
Total non-interest income
    3,563       3,524  
                 
Non-interest expense:
               
    Salaries and employee benefits
    6,025       5,353  
    Occupancy expense
    973       945  
    Equipment and furniture expense
    401       487  
    Service and data processing fees
    1,111       999  
    Computer software, supplies and support
    207       258  
    Advertising and promotion
    245       192  
    FDIC insurance premiums
    468       422  
    Legal and professional fees
    273       315  
    Other
    1,358       1,245  
Total non-interest expense
    11,061       10,216  
                 
Income before provision for income taxes
    5,935       5,525  
Provision for income taxes
    2,020       1,899  
Net income
  $ 3,915     $ 3,626  
                 
Basic EPS
  $ 0.95     $ 0.88  
Basic average shares outstanding
    4,131,052       4,110,014  
Diluted EPS
  $ 0.94     $ 0.88  
Diluted average shares outstanding
    4,162,716       4,135,000  
Dividends per share
  $ 0.725     $ 0.51  
See notes to consolidated financial statements.

 Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands, except share and per share amounts)
Interest income:
 
2011
   
2010
 
    Loans
  $ 4,388     $ 4,374  
    Investment securities - taxable
    298       260  
    Mortgage-backed securities
    998       993  
    Investment securities - tax exempt
    303       267  
    Interest bearing deposits and federal funds sold
    12       3  
Total interest income
    5,999       5,897  
                 
Interest expense:
               
    Interest on deposits
    962       1,130  
    Interest on borrowings
    117       153  
Total interest expense
    1,079       1,283  
                 
Net interest income
    4,920       4,614  
Provision for loan losses
    343       307  
Net interest income after provision for loan losses
    4,577       4,307  
                 
Non-interest income:
               
    Service charges on deposit accounts
    560       599  
    Debit card fees
    306       257  
    Investment services
    51       73  
    E-commerce fees
    28       25  
    Net gain on sale of available-for-sale securities
    21       ---  
    Other operating income
    136       132  
Total non-interest income
    1,102       1,086  
                 
Non-interest expense:
               
    Salaries and employee benefits
    2,054       1,792  
    Occupancy expense
    362       333  
    Equipment and furniture expense
    121       189  
    Service and data processing fees
    413       343  
    Computer software, supplies and support
    72       79  
    Advertising and promotion
    55       77  
    FDIC insurance premiums
    187       151  
    Legal and professional fees
    92       130  
    Other
    460       437  
Total non-interest expense
    3,816       3,531  
                 
Income before provision for income taxes
    1,863       1,862  
Provision for income taxes
    624       636  
Net income
  $ 1,239     $ 1,226  
                 
Basic EPS
  $ 0.30     $ 0.30  
Basic average shares outstanding
    4,142,160       4,116,779  
Diluted EPS
  $ 0.30     $ 0.30  
Diluted average shares outstanding
    4,172,127       4,137,447  
Dividends per share
  $ 0.175     $ 0.17  
See notes to consolidated financial statements.


 Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Nine Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands)
 
2011
 
2010
Net income
$3,915
 
$3,626
       
Other comprehensive (loss) income:
     
Securities:
     
Unrealized holding (losses) gains on available for sale securities, arising
     
  during the nine months ended March 31, 2011 and 2010,
     
  net of income taxes of ($469) and $173, respectively.
(742)
 
274
       
Accretion of unrealized loss on securities transferred to held-to-maturity,
     
  net of income taxes of $21 and $31, respectively
34
 
50
       
Reclassification adjustment for (gain) loss on sale of available-for-sale
     
  securities realized in net income, net of income taxes
     
  of ($90), and $2, respectively
(143)
 
3
       
Pension actuarial gain, net of tax
7
 
---
       
Other comprehensive (loss) income
(844)
 
327
       
Comprehensive income
$3,071
 
$3,953
       


Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands)
 
2011
 
2010
Net income
$1,239
 
$1,226
       
Other comprehensive loss:
     
Securities:
     
Unrealized holding losses on available for sale securities, arising
     
  during the three months ended March 31, 2011 and 2010,
     
  net of income taxes of ($172) and ($75), respectively.
(272)
 
(119)
       
Accretion of unrealized loss on securities transferred to held-to-maturity,
     
  net of income taxes of $7 and $13, respectively
11
 
21
       
Reclassification adjustment for (gain) loss on sale of available-for-sale
     
  securities realized in net income, net of income taxes
     
  of ($8), and $0, respectively
(13)
 
---
       
Pension actuarial gain, net of tax
2
 
---
Other comprehensive loss
(272)
 
(98)
       
Comprehensive income
$967
 
$1,128
See notes to consolidated financial statements.

 
 

 


Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Nine Months Ended March 31, 2011 and 2010
(Unaudited)
(In thousands)


       
Accumulated
   
   
Additional
 
Other
 
Total
 
Common
Paid – In
Retained
Comprehensive
Treasury
Shareholders’
 
Stock
Capital
Earnings
Income
Stock
Equity
             
Balance at
           
June 30, 2009
$431    
     $10,508    
          $30,045    
          $792    
              ($1,512)    
          $40,264    
             
Stock options exercised
 
           (66)    
   
                    103    
                   37    
               
Stock options compensation
 
           168    
     
                 168    
             
Dividends declared
   
          (921)    
   
                  (921)    
             
Net income
   
          3,626    
   
               3,626    
             
Total other comprehensive income, net of taxes
     
          327    
 
                   327    
Balance at
           
March 31, 2010
$431    
     $10,610    
          $32,750    
          $1,119    
             ($1,409)    
             $43,501    

Balance at
June 30, 2010
$431  
     $10,666   
          $33,692  
          $1,123  
               ($1,409) 
$44,503    
             
Stock options exercised
 
           109   
   
                    203 
312    
             
Tax effect of stock options
 
              3   
     
3    
              
Stock options compensation
 
          167   
     
167    
             
Dividends declared
   
          (1,325)  
   
(1,325)    
             
Net income
   
           3,915  
   
3,915    
             
Total other comprehensive (loss), net of taxes
     
          (844)  
 
(844)    
Balance at
           
March 31, 2011
$431  
     $10,945   
          $36,282  
          $279  
                 ($1,206) 
$46,731    
             

See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2011 and 2010
(Unaudited)
                                                                              (In thousands)
 
2011
   
2010
 
Cash flows from operating activities:
           
Net Income
  $ 3,915     $ 3,626  
Adjustments to reconcile net income to net cash provided by operating activities:
               
     Depreciation
    536       700  
     Net amortization of premiums and discounts
    767       616  
     Net amortization of deferred loan costs and fees
    175       135  
     Provision for loan losses
    1,179       984  
     Stock option compensation
    167       168  
     Net (gain) loss on sale of available-for-sale securities
    (233 )     5  
     Net loss on sale of foreclosed real estate
    ---       8  
     Net (decrease) increase in accrued income taxes
    (432 )     1,007  
     Net increase in accrued interest receivable
    (97 )     (285 )
     Net decrease (increase) decrease in prepaid and other assets
    320       (1,863 )
     Net increase (decrease) in other liabilities
    421       (646 )
          Net cash provided by operating activities
    6,718       4,455  
                 
Cash flows from investing activities:
               
   Securities available-for-sale:
               
     Proceeds from maturities
    7,411       7,000  
     Proceeds from sale of securities
    7,729       1,820  
     Purchases of securities
    (30,308 )     (1,069 )
     Principal payments on securities
    8,497       7,272  
   Securities held-to-maturity:
               
     Proceeds from maturities
    13,827       7,327  
     Purchases of securities
    (58,412 )     (9,403 )
     Principal payments on securities
    4,086       4,523  
   Net redemption of Federal Home Loan Bank Stock
    634       90  
   Maturity of long term certificate of deposit
    1,000       ---  
   Net increase in loans receivable
    (2,986 )     (21,253 )
   Proceeds from sale of foreclosed real estate
    ---       207  
   Purchases of premises and equipment
    (1,247 )     (358 )
          Net cash used in investing activities
    (49,769 )     (3,844 )
                 
Cash flows from financing activities:
               
   Net decrease in short-term borrowings
    (9,100 )     (2,000 )
   Repayment of long-term borrowings
    (5,000 )     ---  
   Payment of cash dividends
    (1,325 )     (921 )
   Proceeds from stock options exercised
    312       37  
   Net increase in deposits
    77,117       17,198  
          Net cash provided by financing activities
    62,004       14,314  
                 
Net increase in cash and cash equivalents
    18,953       14,925  
Cash and cash equivalents at beginning of period
    9,643       9,443  
Cash and cash equivalents at end of period
  $ 28,596     $ 24,368  
Non-cash investing activities:
               
   Foreclosed loans transferred to foreclosed real estate
  $ 563     $ 65  
Cash paid during the period:
               
   Interest
  $ 3,434     $ 4,082  
   Income taxes
    2,453       943  
See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Three and Nine Months Ended March 31, 2011 and 2010


(1)  Basis of Presentation

The accompanying consolidated statement of financial condition as of June 30, 2010 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 nine months ended March 31, 2011 and 2010 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 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-K for the year ended June 30, 2010, 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 nine months ended March 31, 2011 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2011.   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 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.

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, 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 has twelve 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, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss of the entire amortized cost 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.


 
 

 
 
(4)      Securities

Securities at March 31, 2011 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
(In thousands)
                       
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 28,441     $ 105     $ 771     $ 27,775  
  State and political subdivisions
    6,820       246       ---       7,066  
  Mortgage-backed securities-residential
    29,338       800       174       29,964  
  Mortgage-backed securities-multi-family
    21,798       991       ---       22,789  
  Asset-backed securities
    27       ---       1       26  
  Corporate debt securities
    6,887       322       ---       7,209  
Total debt securities
    93,311       2,464       946       94,829  
  Equity securities and other
    68       41       ---       109  
Total securities available-for-sale
    93,379       2,505       946       94,938  
Securities held-to-maturity:
                               
  U.S. treasury securities
    11,070       ---       20       11,050  
  U.S. government sponsored enterprises
    4,997       23       ---       5,020  
  State and political subdivisions
    35,522       74       24       35,572  
  Mortgage-backed securities-residential
    58,801       1,428       95       60,134  
  Mortgage-backed securities-multi-family
    6,826       26       4       6,848  
  Other securities
    418       ---       ---       418  
Total securities held-to-maturity
    117,634       1,551       143       119,042  
Total securities
  $ 211,013     $ 4,056     $ 1,089     $ 213,980  


Securities at June 30, 2010 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
(In thousands)
                       
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 21,942     $ 234     $ ---     $ 22,176  
  State and political subdivisions
    8,392       357       ---       8,749  
  Mortgage-backed securities-residential
    24,838       1,045       ---       25,883  
  Mortgage-backed securities-multi-family
    24,623       1,309       ---       25,932  
  Asset-backed securities
    33       ---       1       32  
  Corporate debt securities
    6,907       97       73       6,931  
Total debt securities
    86,735       3,042       74       89,703  
  Equity securities and other
    67       35       ---       102  
Total securities available-for-sale
    86,802       3,077       74       89,805  
Securities held-to-maturity:
                               
  U.S. government sponsored enterprises
    7,004       64       ---       7,068  
  State and political subdivisions
    29,821       25       ---       29,846  
  Mortgage-backed securities-residential
    36,277       1,362       ---       37,639  
  Mortgage-backed securities-multi-family
    4,058       11       ---       4,069  
  Other securities
    360       ---       ---       360  
Total securities held-to-maturity
    77,520       1,462       ---       78,982  
Total securities
  $ 164,322     $ 4,539     $ 74     $ 168,787  


 
 

 

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 March 31, 2011.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
(in thousands)
                                   
Securities available-for-sale:
                                   
  U.S. government sponsored enterprises
  $ 18,076     $ 771     $ ---     $ ---     $ 18,076     $ 771  
  Mortgage-backed securities-residential
    6,788       174       ---       ---       6,788       174  
  Asset-backed securities
    ---       ---       26       1       26       1  
Total available-for-sale securities
    24,864       945       26       1       24,890       946  
Securities held-to-maturity:
                                               
  U.S. treasury securities
    9,053       20                       9,053       20  
  State and political subdivisions
    2,674       24       ---       ---       2,674       24  
  Mortgage-backed securities-residential
    13,698       95       ---       ---       13,698       95  
  Mortgage-backed securities-multi-family
    3,981       4       ---       ---       3,981       4  
Total held-to-maturity securities
    29,406       143       ---       ---       29,406       143  
Total securities
  $ 54,270     $ 1,088     $ 26     $ 1     $ 54,296     $ 1,089  

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, 2010.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
(in thousands)
                                   
Securities available-for-sale:
                                   
  Asset-backed securities
  $ ---     $ ---     $ 32     $ 1     $ 32     $ 1  
  Corporate debt securities
    ---       ---       2,492       73       2,492       73  
Total securities
  $ ---     $ ---     $ 2,524     $ 74     $ 2,524     $ 74  

At March 31, 2011, there was one security which has been in a continuous unrealized loss position for more than 12 months and 48 securities that had been in a continuous unrealized loss position for less than 12 months.    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 March 31, 2011.  Management believes that the reasons for the decline in fair value were due to interest rates and widening credit spreads at the end of the quarter.

Gross realized gains and losses on sales of securities or other-than-temporary impairment of securities recognized in income during the nine months ended March 31, 2011 and 2010 are as follows:

   
Nine months ended March 31,
 
(in thousands)
 
2011
   
2010
 
Gross realized gains
  $ 233     $ 32  
Gross realized losses
    ---       (37 )
Other-than-temporary impairment losses
    ---       ---  
Net gains (losses) recognized
  $ 233     $ (5 )

During the nine months ended March 31, 2011, the Company sold $6.6 million of securities issued by U.S. Government sponsored enterprises, and $1.1 million of mortgage-backed securities, which resulted in the recognition of a net gain of $233,000.  During the nine months ended March 31, 2010, the Company sold $1.8 million of corporate debt securities which resulted in the recognition of a net loss of $5,000.  There were no other-than-temporary impairment losses recognized during the three and nine months ended March 31, 2011 and 2010.


 
 

 

The estimated fair value of debt securities at March 31, 2011, 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.

         
            After
   
           After
             
   
             In
   
            One Year
   
           Five Years
             
   
             One Year
   
            Through
   
           Through
   
                 After
       
(Dollars in thousands)
 
             Or Less
   
            Five Years
   
           Ten Years
   
             Ten Years
   
                    Total
 
Securities available-for-sale:
                             
  U.S. Government sponsored enterprises
  $ 1,006     $ 19,631     $ 4,353     $ 2,785     $ 27,775  
  State and political subdivisions
    443       6,274       349       ---       7,066  
  Mortgage-backed securities-residential
    357       1,866       6,214       21,527       29,964  
  Mortgage-backed securities-multi-family
    ---       19,895       2,894       ---       22,789  
  Asset-backed securities
    ---       ---       ---       26       26  
  Corporate debt securities
    ---       2,920       4,007       282       7,209  
Total debt securities
    1,806       50,586       17,817       24,620       94,829  
  Equity securities
    ---       ---       ---       109       109  
Total securities available-for-sale
    1,806       50,586       17,817       24,729       94,938  
Securities held-to-maturity:
                                       
  U.S. treasury securities
    ---       11,050       ---       ---       11,050  
  U.S. government sponsored enterprises
    ---       3,014       2,006       ---       5,020  
  State and political subdivisions
    8,788       15,581       5,723       5,480       35,572  
  Mortgage-backed securities-residential
    ---       2,613       16,319       41,202       60,134  
  Mortgage-backed securities-multi-family
    ---       1,489       5,359       ---       6,848  
  Other securities
    20       3       ---       395       418  
Total securities held-to-maturity
    8,808       33,750       29,407       47,077       119,042  
Total securities
  $ 10,614     $ 84,336     $ 47,224     $ 71,806     $ 213,980  

As of March 31, 2011, securities with an aggregate fair value of $164.4 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  Greene County Bancorp, Inc. did not participate in any securities lending programs during the quarters or nine months ended March 31, 2011 or 2010.

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 quarter and nine months ended March 31, 2011.
 
(5)      Credit Quality of Loans and Allowance for Loan Losses

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 insured financial institutions 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 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 problem assets.  When The Bank of Greene County identifies problem assets as being impaired, it 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 assets 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 inherent risk within the loan portfolio varies depending upon the loan type.   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 85.0% 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 85% or less, The Bank of Greene County limits its risk of loss in the even 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.

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.  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 loans, such as apartment buildings generally are larger than residential loans and involve a greater degree of risk. Commercial mortgage 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 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 lending. Real estate lending is generally considered to be collateral based, with loan amounts based on fixed-rate 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 March 31, 2011 are shown below.

(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 174,824     $ 483     $ 95     $ 3,214     $ 178,616  
Commercial Real Estate
    58,826       339       1,047       2,070       62,282  
Residential Construction & Land
    3,431       ---       ---       13       3,444  
Commercial Construction
    1,666       ---       ---       ---       1,666  
Multi-family
    5,792       ---       ---       581       6,373  
Home Equity
    25,392       117       ---       311       25,820  
Commercial Business
    17,717       233       698       148       18,796  
Consumer Installment
    4,029       4       ---       41       4,074  
Total Gross Loans
  $ 291,677     $ 1,176     $ 1,840     $ 6,378     $ 301,071  

Loan balances by internal credit quality indicator as of June 30, 2010 are shown below.

(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 178,851     $ 1,591     $ 97     $ 1,986     $ 182,525  
Commercial Real Estate
    50,343       740       2,408       1,095       54,586  
Residential Construction & Land
    6,688       ---       ---       13       6,701  
Commercial Construction
    2,656       ---       ---       ---       2,656  
Multi-family
    5,441       ---       ---       594       6,035  
Home Equity
    26,300       105       ---       197       26,602  
Commercial Business
    14,253       717       837       3       15,810  
Consumer Installment
    4,249       18       ---       18       4,285  
Total Gross Loans
  $ 288,781     $ 3,171     $ 3,342     $ 3,906     $ 299,200  

The Company had no loans classified Doubtful or Loss at March 31, 2011 or June 30, 2010.

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 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 March 31, 2011.  While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years.  This growth has been the result of adverse changes within the economy and increases in local unemployment.   The growth is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.   Loans on nonaccrual status totaled $6.3 million at March 31, 2011 of which $2.7 million were in the process of foreclosure and an additional $889,000 were making payments pursuant to a forbearance agreement.  Under the forbearance agreement, the customer has made arrangements with the Bank to bring the loan current over a specified period of time (resulting in an insignificant delay in repayment).  During this period, the Bank has agreed not to continue foreclosure proceedings.  Of the remaining $2.7 million in nonaccrual loans, $1.9 million were less than 90 days past due, or were current at March 31, 2011, 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.

The following table sets forth information regarding delinquent and/or nonaccrual loans as of March 31, 2011:

(in thousands)
            30-59  
            days   
            past due
          60-89  
          days  
          past due
      More than
     90 days  
     past due
        Total   
         past due
                  Current
                    Total
                     Loans
      Loans     
      on       
      Non-accrual
Residential mortgage
$4,955
$1,225
$2,165
$8,345
$170,271
$178,616
$3,214
Commercial Real Estate
2,306
441
1,498
4,245
58,037
62,282
2,041
Residential Construction & Land
30
---
13
43
3,401
3,444
13
Commercial Construction
---
---
---
---
1,666
1,666
---
Multi-family
426
---
155
581
5,792
6,373
581
Home Equity
496
21
195
712
25,108
25,820
311
Commercial Business
1,011
---
83
1,094
17,702
18,796
148
Consumer Installment
83
22
7
112
3,962
4,074
41
Total Gross Loans
$9,307
$1,709
$4,116
$15,132
$285,939
$301,071
$6,349

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2010:

(in thousands)
               30-59  
               days   
             past due
         60-89   
         days   
         past due
                More than
                  90 days  
                past due
            Total   
            past due
                   Current
                 Total
                  Loans
    Loans   
     on      
    Non-accrual
Residential mortgage
$1,058
$1,093
$2,001
$4,152
$178,373
$182,525
$2,001
Commercial Real Estate
701
377
1,095
2,173
52,413
54,586
1,095
Residential Construction & Land
---
---
13
13
6,688
6,701
13
Commercial Construction
---
---
---
---
2,656
2,656
---
Multi-family
---
---
594
594
5,441
6,035
594
Home Equity
17
9
197
223
26,379
26,602
197
Commercial Business
28
271
3
302
15,508
15,810
3
Consumer Installment
147
18
18
183
4,102
4,285
18
Total Gross Loans
$1,951
$1,768
$3,921
$7,640
$291,560
$299,200
$3,921

The Bank of Greene County had no accruing loans delinquent more than 90 days as of March 31, 2011 or June 30, 2010.

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.  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 and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan 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.  As a result, the level of impaired loans may only be a portion of nonaccrual loans.  Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually considered impaired, are either designated as Special Mention or Substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation.

The tables below detail additional information on impaired loans for the periods indicated:

   
As of March 31, 2011
   
For the nine months ended March 31, 2011
 
(in thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 212     $ 276     $ ---     $ 394     $ 4  
With an allowance recorded:
                                       
  Commercial real estate
    373       373       93       374       6  

   
As of June 30, 2010
   
For the nine months ended March 31, 2010
 
(in thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 212     $ 276     $ ---     $ ---     $ ---  
With an allowance recorded:
                                       
   Residential mortgage
    ---       ---       ---       98       3  
 
 
The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the losses 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, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for the loan loss allowance.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.  The Bank of Greene County charges loans off against the allowance for credit losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers.  Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses, unless equitable arrangements are made.   For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably estimated.

The following tables set forth the activity and allocation of the allowance for loan losses by loan category during and at the periods indicated.  The allowance is allocated to each loan category based on historical loss experience and economic conditions.

   
        Balance
         June 30, 2010
   
           Charge-offs
   
            Recoveries
   
              Provision
   
      Balance
    March 31, 2011
 
Residential mortgage
  $ 1,427     $ 140     $ ---     $   443     $ 1,730  
Commercial Real Estate
    1,517         78       ---         461       1,900  
Residential Construction & Land
        48         ---       ---           (23)           25  
Commercial Construction
        49         ---       ---           (18)           31  
Multi-family
      223         ---       ---           18          241  
Home Equity
      205         ---       ---             6          211  
Consumer Installment
      120        185       77         188          200  
Commercial Business
      435           9         8          104          538  
Total
  $ 4,024     $ 412     $ 85     $ 1,179     $ 4,876  

 
 Allowance for Loan Loss
Loans Receivable
 
Ending Balance March 31, 2011
Impairment Analysis
Ending Balance March 31, 2011
Impairment Analysis
 
 
                    Individually
                    Evaluated
                                               Collectively
                                                Evaluated
Individually
Evaluated
                   Collectively
                     Evaluated
 
Residential mortgage
$---
$1,730
$---
$178,616
 
Commercial Real Estate
93
1,807
373
61,909
 
Residential Construction & Land
---
25
---
3,444
 
Commercial Construction
---
31
---
1,666
 
Multi-family
---
241
---
6,373
 
Home Equity
---
211
---
25,820
 
Consumer Installment
---
200
---
18,796
 
Commercial Business
---
538
---
4,074
 
Total
$93
$4,783
$373
$300,698
 

   
         Balance
         June 30, 2009
   
           Charge-offs
   
           Recoveries
   
             Provision
   
          Balance
     March 31, 2010
 
Residential mortgage
  $ 1,439     $   84     $ ---     $ 114     $ 1,469  
Commercial Real Estate
    1,226       230       ---       495       1,491  
Residential Construction & Land
        44       ---       ---           1           45  
Commercial Construction
        31       ---       ---           6           37  
Multi-family
        15         57       ---         96           54  
Home Equity
        221       ---       ---         (16)         205  
Consumer Installment
        133       207         86       124         136  
Commercial Business
        311         65         18       164         428  
Total
  $ 3,420     $ 643     $ 104     $ 984     $ 3,865  
 
(6)      Fair Value Measurements and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated.  The estimated fair value amounts have been measured as of March 31, 2011 and June 30, 2010 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

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

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

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:
         
Fair Value Measurements Using
 
   
                                March 31, 
   
Quoted Prices In Active Markets For Identical Assets
   
Significant Other Observable Inputs
   
         Significant      Unobservable Inputs
 
(In thousands)
    2011          
 (Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
                         
  U.S. Government sponsored enterprises
  $ 27,775     $ ---     $ 27,775     $ ---  
  State and political subdivisions
      7,066       ---         7,066       ---  
  Mortgage-backed securities-residential
    29,964       21,238         8,726       ---  
  Mortgage-backed securities-multi-family
    22,789       22,789       ---       ---  
  Asset-backed securities
           26             26       ---       ---  
  Corporate debt securities
      7,209        7,209       ---       ---  
  Equity securities
         109            109       ---       ---  
Securities available-for-sale
  $ 94,938     $ 51,371     $   43,567     $ ---  


 
 

 


   
Fair Value Measurements Using
 
 
June
    Quoted Prices In Active Markets For Identical Assets
    Significant Other Observable Inputs
 
  Significant Unobservable Inputs
 
(In thousands)
30, 2010
(Level 1)
(Level 2)
(Level 3)
Assets:
       
  U.S. Government sponsored enterprises
$22,176
$---
$22,176
$---
  State and political subdivisions
    8,749
---
    8,749
---
  Mortgage-backed securities-residential
  25,883
19,108
     6,775
---
  Mortgage-backed securities-multi-family
  25,932
25,932
---
---
  Asset-backed securities
         32
32
---
---
  Corporate debt securities
    6,931
6,931
---
---
  Equity securities
       102
102
---
---
Securities available-for-sale
$89,805
$52,105
 $37,700
$---

Certain investments that are actively traded and have quoted market prices have been classified as Level 1 valuations.  Other available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.   During the nine months ended March 31, 2011 there were no transfers of securities between Level 1 and Level 2.

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed.  Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses.  Impaired loans are those loans for which the Company has re-measured impairment generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.  At March 31, 2011 loans subject to nonrecurring fair value measurement had a gross carrying amount of $373,000, and allocation of the allowance for loan losses of $93,000, and fair value of $280,000.   At June 30, 2010, no loans were recorded at fair value.  These loans are included in total non-performing assets.  Change in fair value of each of the impaired loans for the three and nine months ended March 31, 2011 was immaterial.  During the nine months ended March 31, 2011, one multi-family mortgage loan was transferred to foreclosed real estate (FRE) at its fair value of $200,000, and one residential mortgage loan was transferred at its fair value of $363,000.  No FRE was recorded at fair value at June 30, 2010.  No other financial assets or liabilities (such as FRE) were re-measured at March 31, 2011 or June 30, 2010 on a nonrecurring basis.

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

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers.  At March 31, 2011 and June 30, 2010, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

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

(in thousands)
 
March 31, 2011
   
June 30, 2010
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
Cash and cash equivalents
  $ 28,596     $ 28,596     $ 9,643     $ 9,643  
Long term certificate of deposit
    ---       ---       1,000       1,000  
Securities available-for-sale
    94,938       94,938       89,805       89,805  
Securities held-to-maturity
    117,634       119,042       77,520       78,982  
Federal Home Loan Bank stock
    1,232       1,232       1,866       1,866  
Net loans
    296,651       303,876       295,582       300,395  
Accrued interest receivable
    2,828       2,828       2,731       2,731  
Deposits
    498,849       499,601       421,732       422,693  
Federal Home Loan Bank borrowings
    12,000       12,530       26,100       26,791  
Accrued interest payable
    104       104       109       109  
 
(7)      Earnings Per Share (“EPS”)

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period.  There were no anti-dilutive securities or contracts outstanding during the three and nine months ended March 31, 2011 and 2010.

         
Weighted Average Number
       
   
Net Income
   
Of Shares Outstanding
   
     Earnings per      Share
 
Nine months ended
                 
March 31, 2011
  $ 3,915,000              
   Basic
            4,131,052     $ 0.95  
   Effect of dilutive stock options
            31,664       (0.01 )
   Diluted
            4,162,716     $ 0.94  
                         
Nine months ended
                       
March 31, 2010
  $ 3,626,000                  
   Basic
            4,110,014     $ 0.88  
   Effect of dilutive stock options
            24,986       (0.00 )
   Diluted
            4,135,000     $ 0.88  

         
Weighted Average Number
       
   
Net Income
   
Of Shares Outstanding
   
Earnings per Share
 
Three months ended
                 
March 31, 2011
  $ 1,239,000              
   Basic
            4,142,160     $ 0.30  
   Effect of dilutive stock options
            29,967       (0.00 )
   Diluted
            4,172,127     $ 0.30  
                         
Three months ended
                       
March 31, 2010
  $ 1,226,000                  
   Basic
            4,116,779     $ 0.30  
   Effect of dilutive stock options
            20,668       (0.00 )
   Diluted
            4,137,447     $ 0.30  
 
 
(8)      Dividends

On January 18, 2011, the Board of Directors declared a quarterly cash dividend of $0.175 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.70 per share, which was the same as the dividend declared during the previous quarter.  The dividend was paid to stockholders of record as of February 15, 2011, on March 1, 2011. It should be noted that Greene County Bancorp, Inc.’s mutual holding company continues to waive receipt of dividends on the shares it owns.
 
(9)      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.
 
(10)     Impact of Recent Accounting Pronouncements

In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). Under the proposed roadmap, the Company may be required to prepare financial statements in accordance with IFRS as early as 2015. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.

In January 2010, the FASB issued amendments to its guidance on “Fair Value Measurements and Disclosures – Overall Subtopic”  The amendment requires new disclosures as follows:  (1) For transfers in and out of Level 1 and 2 fair value measurements, a reporting entity should disclose separately the amounts of significant transfers and describe the reasons for the transfers, and (2) for the reconciliation for value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).  The amendment also clarifies existing disclosure requirements relating to the level of disaggregation of each class of assets or liabilities within a line item in the statement of financial position and the inputs and valuation techniques utilized to measure fair value for both recurring and nonrecurring fair value measurements.  Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of these amendments did not and are not expected to have a material effect on our consolidated results of operations or financial position.

 
In July 2010, the FASB issued an amendment to its guidance on “Receivables: Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which will help investors assess the credit risk of a company’s receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures.  This update requires more information about the credit quality of financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators.  Both new and existing disclosures must be disaggregated by portfolio segment or class.  The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.  The amendments in this update apply to all public and nonpublic entities with financing receivables.  Financing receivables include loans and trade accounts receivable.  However, short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from these disclosure amendments.  The amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010.  The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The adoption of these amendments did not have a material effect on our consolidated results of operations or financial position.
 
 
In January 2011, the FASB issued amendments to this guidance. The amendments temporarily delay the effective date of the disclosures about troubled debt restructurings for public entities. In April 2011, the FASB issued additional guidance regarding “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”.  This additional guidance clarifies which loan modifications constitute troubled debt restructurings.  It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. This new guidance is to be effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption.
 
 
(11)      Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension costs (income) related to the defined benefit pension plan for the three and nine months ended March 31, 2011 and 2010 were as follows:

   
Three months ended March 31,
   
Nine months ended March 31,
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
Interest cost
  $ 51     $ 50     $ 153     $ 152  
Expected return on plan assets
    (55 )     (53 )     (165 )     (161 )
Amortization of net loss
    7       2       23       6  
  Net periodic pension cost (income)
  $ 3     $ (1 )   $ 11     $ (3 )

The Company made a $40,000 contribution during the nine months ended March 31, 2011 and does not expect to make any further contributions to the defined benefit pension plan during fiscal 2011.

SERP

On June 21, 2010, the Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP Plan”), effective as of July 1, 2010. The SERP Plan will benefit certain key senior executives of the Bank who are selected by the Board to participate.

The SERP Plan is intended to provide a benefit from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). Accordingly, the SERP Plan obligates the Bank to make a contribution to each executive’s account on the first business day of each July and permits each executive to defer up to 50% of his or her base salary and 100% of his or her annual bonus to the SERP Plan, subject to the requirements of Section 409A of the Internal Revenue Code (“Code”). In addition, the Bank may, but is not required to, make additional discretionary contributions to the executives’ accounts from time to time. An executive becomes vested in the Bank’s contributions after 10 calendar years of service following the effective date of the SERP Plan, and is fully vested immediately for all deferral of salary and bonus. However, the Executive will vest in the present value of his or her account in the event of death, disability or a change in control of the Bank or the Company. In the event the executive is terminated involuntarily or resigns for good reason following a change in control, the present value of all remaining Bank contributions is accelerated and paid to the executive’s account, subject to potential reduction to avoid an excess parachute payment under Code Section 280G. In the event of the executive’s death, disability or termination within two years after a change in control, executive’s account will be paid in a lump sum to the executive or his beneficiary, as applicable. In the event executive is entitled to a benefit from the SERP Plan due to retirement or other termination of employment, the benefit will be paid in 10 annual installments.

The net periodic pension costs related to the SERP for the three and nine months ended March 31, 2011 were $13,000 and $39,000, respectively, consisting primarily of service costs.  Interest costs associated with this plan were not material for the three and nine months ended March 31, 2011.
 
(12)      Stock-Based Compensation

At March 31, 2011, Greene County Bancorp, Inc. had one stock-based compensation plan, which is described more fully in Note 9 of the consolidated financial statements and notes thereto for the year ended June 30, 2010.

The Company recognized $56,000, and $167,000 in compensation costs and related income tax benefit of $5,700 and $17,000 related to the 2008 Option Plan for the quarters and nine months ended March 31, 2011 and 2010 respectively.  At March 31, 2011, there was $74,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted.  That cost is expected to be recognized over a weighted-average period of four months.

A summary of the Company’s stock option activity and related information for its option plans for the nine months ended March 31, 2011 and 2010 is as follows:


   
2011
   
2010
 
         
Weighted Average
         
Weighted Average
 
         
Exercise
         
Exercise
 
         
Price
         
Price
 
   
Shares
   
Per Share
   
Shares
   
Per Share
 
Outstanding at beginning of year
    171,750     $ 12.36       196,660     $ 11.33  
Exercised
    (26,916 )     11.61       (15,730 )   $  4.36  
Forfeited
    ---       ---       (9,180 )   $  3.94  
Outstanding at period end
    144,834     $ 12.50       171,750     $ 12.36  
Exercisable at period end
    90,338     $ 12.50       62,085     $ 12.11  

The following table presents stock options outstanding and exercisable at March 31, 2011:

Options Outstanding and Exercisable
 
Range of Exercise Prices
 
Number Outstanding
Weighted Average Remaining Contractual Life
Weighted Average Exercise Price
$12.50
90,338
7.50
$12.50

The total intrinsic value of the options exercised during the three and nine months ended March 31, 2011 was approximately $69,000, and $160,000, respectively, and for the three and nine months ended March 31, 2010 was approximately $52,000, and $164,000, respectively.  There were no stock options granted during the nine months ended March 31, 2011 and 2010.   The Company had 54,496 non-vested options outstanding at March 31, 2011 and 109,665 non-vested options outstanding at March 31, 2010.
 
(13)      Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income as of March 31, 2011 and June 30, 2010 are presented in the following table:

(in thousands)
           
   
          March 31,
          2011
   
          June 30,
          2010
 
  Unrealized gains on available-for-sale securities, net of tax
  $ 956     $ 1,841  
  Unrealized loss on securities transferred to held-to-maturity, net of tax
    (82 )     (116 )
  Net losses and past service liability for defined benefit plan, net of tax
    (595 )     (602 )
Accumulated other comprehensive income
  $ 279     $ 1,123  
                 
 
(14)      Subsequent events

On April 19, 2011, the Board of Directors declared a quarterly cash dividend of $0.175 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.70 per share, which was the same as the dividend declared during the previous quarter.  The dividend will be payable to stockholders of record as of May 13, 2011, and will be paid on June 1, 2011.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continues to waive receipt of dividends on the shares it owns.

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

Overview of the Company’s Activities and Risks

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

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

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

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

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

Special Note Regarding Forward Looking Statements

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

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

Comparison of Financial Condition as of March 31, 2011 and June 30, 2010

ASSETS

Total assets of the Company were $560.4 million at March 31, 2011 as compared to $495.3 million at June 30, 2010, an increase of $65.1 million, or 13.1%.  Securities available for sale and held to maturity amounted to $212.6 million, or 37.9% of assets, at March 31, 2011 as compared to $167.3 million, or 33.8% of assets, at June 30, 2010, an increase of $45.3 million or 27.1%.   Net loans grew by $1.1 million or 0.4% to $296.7 million at March 31, 2011 as compared to $295.6 million at June 30, 2010.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased to $28.6 million at March 31, 2011 as compared to $9.6 million at June 30, 2010, an increase of $19.0 million.  The level of cash and cash equivalents is a function of the daily account clearing needs and deposit levels as well as activities associated with securities transactions and loan funding.  All of these items can cause cash levels to fluctuate significantly on a daily basis.

SECURITIES

Securities, including both available-for-sale and held-to-maturity issues, increased $45.3 million or 27.1% to $212.6 million at March 31, 2011 as compared to $167.3 million at June 30, 2010.  Securities purchases totaled $88.7 million during the nine months ended March 31, 2011 and consisted primarily of $17.5 million of state and political subdivision securities, $11.1 million in U.S. treasury securities, $18.9 million of U.S. government agency securities, and $41.1 million of mortgage-backed securities. Principal pay-downs and maturities amounted to $33.8 million, of which $12.6 million were mortgage-backed securities, $13.4 million were state and political subdivision securities and $7.8 million were U.S. government agency securities. During the nine months ended March 31, 2011, securities sold totaled $7.7 million consisting of securities issued by U.S. government sponsored enterprises and mortgage-backed securities, resulting in a gain on sale of $233,000.  Additionally, during the nine months ended March 31, 2011, unrealized net gains on securities decreased $1.4 million.  Greene County Bancorp, Inc. holds 20.0% of the securities portfolio at March 31, 2011 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. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.

   
Carrying Value at
 
   
March 31, 2011
   
June 30, 2010
 
(Dollars in thousands)
 
Balance
   
Percentage
of Portfolio
   
Balance
   
Percentage
of Portfolio
 
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 27,775       13.1 %   $ 22,176       13.3 %
  State and political subdivisions
    7,066       3.3       8,749       5.2  
  Mortgage-backed securities-residential
    29,964       14.1       25,883       15.5  
  Mortgage-backed securities-multifamily
    22,789       10.7       25,932       15.5  
  Asset-backed securities
    26       0.0       32       0.0  
  Corporate debt securities
    7,209       3.4       6,931       4.1  
Total debt securities
    94,829       44.6       89,703       53.6  
  Equity securities and other
    109       0.1       102       0.1  
Total securities available-for-sale
    94,938       44.7       89,805       53.7  
Securities held-to-maturity:
                               
  U.S. treasury securities
    11,070       5.2       ---       ---  
  U.S. government sponsored enterprises
    4,997       2.3       7,004       4.2  
  State and political subdivisions
    35,522       16.7       29,821       17.8  
  Mortgage-backed securities-residential
    58,801       27.7       36,277       21.7  
  Mortgage-backed securities-multifamily
    6,826       3.2       4,058       2.4  
  Other securities
    418       0.2       360       0.2  
Total securities held-to-maturity
    117,634       55.3       77,520       46.3  
Total securities
  $ 212,572       100.0 %   $ 167,325       100.0 %


 
 

 

LOANS

Net loans receivable increased to $296.7 million at March 31, 2011 from $295.6 million at June 30, 2010, an increase of $1.1 million, or 0.4%.  The loan growth experienced during the nine months primarily consisted of $7.7 million in commercial real estate loans, and $3.0 million in commercial loans, and was partially offset by a $3.9 million decrease in residential mortgage loans, and a $4.2 million decrease in construction and land 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.  The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products.  It should be noted however that the Company is subject to the effects of any downturn, and especially, a significant decline in home values in the Company’s markets could have a negative effect on the consolidated results of operations.  A significant decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios.  As of March 31, 2011, declines in home values have been modest in the Company’s market area. However, updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status.  Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.

       
   
March 31, 2011
   
June 30, 2010
 
(Dollars in  thousands)
 
Balance
   
Percentage
of Portfolio
   
Balance
   
Percentage
of Portfolio
 
                         
Real estate mortgages:
                       
   Residential
  $ 178,616       59.3 %   $ 182,525       61.0 %
   Commercial
    62,282       20.7       54,586       18.3  
   Construction and land
    5,110       1.7       9,357       3.1  
   Multifamily
    6,373       2.1       6,035       2.0  
Total real estate mortgages
    252,381       83.8       252,503       84.4  
Home equity loans
    25,820       8.6       26,602       8.9  
Commercial loans
    18,796       6.3       15,810       5.3  
Installment loans
    4,074       1.3       4,285       1.4  
Total gross loans
    301,071       100.0 %     299,200       100.0 %
Unearned origination fees and costs, net
    456               406          
Allowance for loan losses
    (4,876 )             (4,024 )        
Total net loans
  $ 296,651             $ 295,582          


 
 

 

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, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses and valuation of FRE.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.  The Bank of Greene County considers residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience.  Commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The 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.

Analysis of allowance for loan losses activity

(Dollars in thousands)
 
Nine months ended
 
   
March 31, 2011
   
March 31, 2010
 
             
Balance at the beginning of the period
  $ 4,024     $ 3,420  
Charge-offs:
               
     Real estate mortgages:
               
        Residential
    140       84  
        Commercial
    78       230  
        Multifamily
    ---       57  
     Commercial loans
    9       65  
     Installment loans
    185       207  
Total loans charged off
    412       643  
                 
Recoveries:
               
     Real estate mortgages:
               
        Residential
    ---       ---  
     Commercial loans
    8       18  
     Installment loans
    77       86  
Total recoveries
    85       104  
                 
Net charge-offs
    327       539  
                 
Provisions charged to operations
    1,179       984  
Balance at the end of the period
  $ 4,876     $ 3,865  
                 
Ratio of annualized net charge-offs to average loans outstanding
    0.15 %     0.26 %
Ratio of annualized net charge-offs to nonperforming assets
    6.31 %     24.44 %
Allowance for loan losses to nonperforming loans
    76.80 %     123.21 %
Allowance for loan losses to total loans receivable
    1.62 %     1.33 %

Nonaccrual Loans and Nonperforming Assets

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis.    The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  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 and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan 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.  As a result, the level of impaired loans may only be a portion of the nonaccrual loans.  Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually considered impaired, are either designated as Special Mention or Substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation.  For further discussion and detail regarding the Allowance for Loan Losses and impaired loans please refer to Footnote (5) Credit Quality of Loans and Allowance for Loan Losses. A loan does not have to be 90 days delinquent in order to be classified as nonperforming.  Foreclosed real estate is considered to be nonperforming.  The Bank of Greene County had no accruing loans delinquent more than 90 days at March 31, 2011 or June 30, 2010.

Analysis of Nonaccrual Loans and Nonperforming Assets

   
At
 
(Dollars in thousands)
 
March 31, 2011
   
June 30, 2010
 
Nonaccrual loans:
           
     Real estate mortgages:
           
           Residential
  $ 3,214     $ 2,001  
           Commercial
    2,041       1,095  
           Construction and land
    13       13  
           Multi-family
    581       594  
     Home equity loans
    311       197  
     Commercial loans
    148       3  
     Installment loans
    41       18  
Total nonaccrual loans
    6,349       3,921  
Foreclosed real estate:
               
     Residential
    363       ---  
     Multi-family
    200       ---  
Foreclosed real estate
    563       ---  
Total nonperforming assets
  $ 6,912     $ 3,921  
                 
Total nonperforming assets as a percentage of total assets
    1.23 %     0.79 %
Total nonperforming loans to total loans, net
    2.14 %     1.33 %


The table below details additional information related to nonaccrual loans for the nine months ended March 31:

(In thousands)
 
2011
   
2010
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
  $ 458     $ 239  
Interest income that was recorded on nonaccrual loans during the quarter  ended
    176       72  

The table below details additional information on impaired loans as of March 31:
(In thousands)
 
2011
   
2010
 
Balance of impaired loans, with a valuation allowance
  $ 373     $ ---  
Allowance relating to impaired loans included in allowance for loan losses
    93       ---  
Balance of impaired loans, without a valuation allowance
    212       ---  
Average balance of impaired loans for the nine months ended
    768       98  
Interest income recorded on impaired loans during the nine months ended
    10       3  

Nonperforming assets amounted to $6.9 million at March 31, 2011 and $3.9 million as of June 30, 2010, an increase of approximately $3.0 million or 76.9% and total impaired loans amounted to $585,000 at March 31, 2011.  There were no impaired loans at March 31, 2010.  It should be noted that total impaired loans increased $373,000 or 175.9% since June 30, 2010 at which time the balance amounted to $212,000 consisting of one loan.  This growth has been the result of adverse changes within the economy and increases in local unemployment.  A charge-off of $137,000 was recognized during the nine months ended March 31, 2011 to write down an impaired loan to its fair value.  This loan has subsequently been transferred to foreclosed assets during the quarter ended March 31, 2011.   Loans on nonaccrual status totaled $6.3 million at March 31, 2011 of which $2.7 million were in the process of foreclosure and an additional $889,000 were making payments pursuant to a forbearance agreement.  Under the forbearance agreement, the customer has made arrangements with the Bank to bring the loan current over a specified period of time (resulting in an insignificant delay in repayment).  During this period, the Bank has agreed not to continue foreclosure proceedings.  Of the remaining $2.7 million in nonaccrual loans, $1.9 million were less than 90 days past due, or were current at March 31, 2011, 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.  While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years.  The growth in nonperforming assets is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.  The majority of The Bank of Greene County loans, including most nonaccrual loans as of March 31, 2011, are small homogenous loan types adequately supported by collateral.  As a result, the level of impaired loans may only be a portion of nonaccrual loans.  Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy.  These loans are included in total non-performing assets.

DEPOSITS

Total deposits increased to $498.8 million at March 31, 2011 from $421.7 million at June 30, 2010, an increase of $77.1 million, or 18.3%.  This increase was primarily the result of an increase of $63.4 million in balances at the Company’s Commercial Bank subsidiary due primarily to the annual collection of taxes by several local school districts.  Interest bearing checking accounts (NOW accounts) increased $46.9 million or 38.6% to $168.3 million at March 31, 2011 as compared to $121.4 million at June 30, 2010.     Savings deposits increased $7.6 million to $102.8 million, money market deposits increased $20.2 million to $84.1 million and noninterest bearing deposits increased $4.7 million to $49.0 million at March 31, 2011.   Certificates of deposit balances decreased $2.2 million between June 30, 2010 and March 31, 2011.

 
 

 

 
 
(Dollars in thousands)
                       
   
     At
     March 31, 2011
   
Percentage
of Portfolio
   
       At
         June 30, 2010
   
Percentage
of Portfolio
 
Noninterest bearing deposits
  $ 48,959       9.8 %   $ 44,239       10.5 %
Certificates of deposit
    94,722       19.0       96,909       23.0  
Savings deposits
    102,818       20.6       95,249       22.6  
Money market deposits
    84,053       16.9       63,899       15.1  
NOW deposits
    168,297       33.7       121,436       28.8  
Total deposits
  $ 498,849       100.0 %   $ 421,732       100.0 %

BORROWINGS

At March 30, 2011, The Bank of Greene County had pledged approximately $154.3 million of its residential mortgage portfolio as collateral for borrowing at the Federal Home Loan Bank (“FHLB”).   The maximum amount of funding available from the FHLB through either overnight advances or term borrowings was $137.3 million at March 31, 2011, of which $12.0 million in term borrowings was outstanding at March 31, 2011.   Interest rates on overnight borrowings are determined at the time of borrowing.   As a result of growth in deposits during the nine months ended March 31, 2011, short-term borrowings of $9.1 million at June 30, 2011 were repaid.  There were no overnight borrowings outstanding at March 31, 2011.  Also during the nine months and quarter ended March 31, 2011, $5.0 million in term borrowings matured and were repaid.   Term borrowings consisted of $7.0 million of fixed rate, fixed term advances with a weighted average rate of 3.49% and a weighted average maturity of 25 months.  The remaining $5.0 million borrowing, which carried a 3.64% interest rate and a maturity of 27 months at March 31, 2011, is unilaterally convertible by the FHLB under certain market interest rate scenarios, including three-month LIBOR at or above 7.50%, into replacement advances for the same or lesser principal amount based on the then current market rates.  If the Bank chooses not to accept the replacement funding, the Bank must repay this convertible advance, including any accrued interest, on the interest payment date.

The Bank also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings.  At March 31, 2011, approximately $6.7 million of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window.  There were no balances outstanding with the Federal Reserve Bank at March 31, 2011.

On October 8, 2010, The Bank of Greene County established an unsecured line of credit with Atlantic Central Bankers Bank for $6 million.  The line of credit provides for overnight borrowing and the interest rate is determined at the time of the borrowing.  At March 31, 2011 and June 30, 2010 there were no balances outstanding with Atlantic Central Bankers Bank.

Scheduled maturities of term borrowings at March 31, 2011 were as follows:
(In thousands)
     
Fiscal year end
     
2012
  $ 3,000  
2013
    1,000  
2014
    6,000  
2015
    2,000  
    $ 12,000  

EQUITY
Shareholders’ equity increased to $46.7 million at March 31, 2011 from $44.5 million at June 30, 2010, as net income of $3.9 million was partially offset by dividends declared and paid of $1.3 million. Additionally, shareholders’ equity decreased $844,000 as a result of a decrease in other comprehensive income.  Other changes in equity, totaling a $482,000 increase, were the result of activities associated with the various stock-based compensation plans of the Company, including the 2000 and 2008 Stock Option Plans.
 
Comparison of Operating Results for the Nine Months and Quarter Ended March 31, 2011 and 2010

Average Balance Sheet

The following tables set forth certain information relating to Greene County Bancorp, Inc. for the nine months and quarters ended March 31, 2011 and 2010.  For the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, are expressed both in dollars and rates.  No tax equivalent adjustments were made.  Average balances were based on daily averages.  Average loan balances include non-performing loans.  The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

                                                                                     Nine Months Ended March 31, 2011 and 2010
  
(Dollars in thousands)
 
         2011
   
         2011
   
            2011
   
         2010
   
         2010
   
         2010
 
   
         Average
   
         Interest
   
          Average
   
         Average
   
         Interest
   
         Average
 
   
         Outstanding
   
         Earned/
   
          Yield/
   
         Outstanding
   
         Earned/
   
          Yield/
 
   
         Balance
   
         Paid
   
          Rate
   
         Balance
   
         Paid
   
         Rate
 
Interest earning assets:
                                   
   Loans receivable, net1
  $ 301,333     $ 13,434       5.94 %   $ 282,579     $ 12,830       6.05 %
   Securities2
    186,406       4,510       3.23       157,430       4,377       3.70  
   Federal funds
    3,917       6       0.20       2,744       2       0.10  
   Interest bearing bank balances
    11,771       26       0.30       4,725       11       0.31  
   FHLB stock
    1,456       65       5.95       1,483       63       5.66  
       Total interest earning assets
    504,883       18,041       4.76 %     448,961       17,283       5.13 %
Cash and due from banks
    7,190                       6,521                  
Allowance for loan losses
    (4,382 )                     (3,625 )                
Other non-interest earning assets
    18,845                       18,315                  
     Total assets
  $ 526,536                     $ 470,172                  
                                                 
Interest bearing liabilities:
                                               
   Savings and money market deposits
  $ 164,537     $ 837       0.68 %   $ 145,612     $ 867       0.79 %
   NOW deposits
    153,256       753       0.66       123,888       1,140       1.22  
   Certificates of deposit
    96,780       1,417       1.95       96,703       1,589       2.19  
   Borrowings
    16,981       422       3.31       20,307       486       3.19  
      Total interest bearing liabilities
    431,554       3,429       1.06 %     386,510       4,082       1.41 %
Non-interest bearing deposits
    46,663                       39,446                  
Other non-interest bearing liabilities
    2,539                       2,269                  
Shareholders’ equity
    45,780                       41,947                  
     Total liabilities and equity
  $ 526,536                     $ 470,172                  
                                                 
Net interest income
          $ 14,612                     $ 13,201          
                                                 
Net interest rate spread
                    3.70 %                     3.72 %
                                                 
Net earning assets
  $ 73,329                     $ 62,451                  
                                                 
Net interest margin
                    3.86 %                     3.92 %
                                                 
Average interest earning assets to
                                               
average interest bearing liabilities
                    116.99 %                     116.16 %
 
___________________________________________________
1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2Includes tax-free securities, mortgage-backed securities, asset-backed securities and long term certificates of deposit.

                                                                              Quarter Ended March 31, 2011 and 2010

(Dollars in thousands)
 
         2011
   
         2011
   
         2011
   
         2010
   
         2010
   
         2010
 
   
         Average
   
         Interest
   
         Average
   
         Average
   
         Interest
   
         Average
 
   
         Outstanding
   
         Earned/
   
         Yield/
   
         Outstanding
   
         Earned/
   
         Yield/
 
   
         Balance
   
         Paid
   
         Rate
   
         Balance
   
         Paid
   
         Rate
 
Interest earning assets:
                                   
   Loans receivable, net1
  $ 300,242     $ 4,388       5.85 %   $ 289,112     $ 4,374       6.05 %
   Securities2
    205,145       1,578       3.08       152,897       1,499       3.92  
   Federal funds
    4,628       3       0.26       1,788       1       0.22  
   Interest bearing bank balances
    13,784       9       0.26       6,233       2       0.13  
   FHLB stock
    1,297       21       6.48       1,445       21       5.81  
       Total interest earning assets
    525,096       5,999       4.57 %     451,475       5,897       5.22 %
Cash and due from banks
    7,270                       6,616                  
Allowance for loan losses
    (4,653 )                     (3,738 )                
Other non-interest earning assets
    19,576                       19,517                  
     Total assets
  $ 547,289                     $ 473,870                  
                                                 
Interest bearing liabilities:
                                               
   Savings and money market deposits
  $ 171,717     $ 269       0.63 %   $ 148,298     $ 279       0.75 %
   NOW deposits
    166,856       249       0.60       125,052       360       1.15  
   Certificates of deposit
    95,581       444       1.86       95,630       491       2.05  
   Borrowings
    13,444       117       3.48       19,399       153       3.15  
      Total interest bearing liabilities
    447,598       1,079       0.96 %     388,379       1,283       1.32 %
Non-interest bearing deposits
    50,954                       39,951                  
Other non-interest bearing liabilities
    2,460                       2,524                  
Shareholders’ equity
    46,277                       43,016                  
     Total liabilities and equity
  $ 547,289                     $ 473,870                  
                                                 
Net interest income
          $ 4,920                     $ 4,614          
                                                 
Net interest rate spread
                    3.61 %                     3.90 %
                                                 
Net earning assets
  $ 77,498                     $ 63,096                  
                                                 
Net interest margin
                    3.75 %                     4.09 %
                                                 
Average interest earning assets to
                                               
average interest bearing liabilities
                    117.31 %                     116.25 %

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

 
 

 

Rate / Volume Analysis

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

   
Nine Months
Ended March 31,
   
Three Months
Ended March 31,
 
(Dollars in thousands)
 
2011 versus 2010
   
2011 versus 2010
 
   
Increase/(Decrease)
   
        Total
   
Increase/(Decrease)
   
        Total
 
   
Due to
   
        Increase/
   
Due to
   
        Increase/
 
Interest-earning assets:
 
Volume
   
Rate
   
        (Decrease)
   
Volume
   
Rate
   
        (Decrease)
 
 Loans receivable, net1
  $ 840     $ (236 )   $ 604     $ 163     $ (149 )   $ 14  
 Securities2
    735       (602 )     133       443       (364 )     79  
 Federal funds
    1       3       4       2       ---       2  
 Interest-bearing bank balances
    15       ---       15       4       3       7  
 FHLB stock
    (1 )     3       2       (2 )     2       ---  
Total interest-earning assets
    1,590       (832 )     758       610       (508 )     102  
                                                 
Interest-bearing liabilities:
                                               
  Savings and money market deposits
    102       (132 )     (30 )     39       (49 )     (10 )
  NOW deposits
    223       (610 )     (387 )     96       (207 )     (111 )
  Certificates of deposit
    1       (173 )     (172 )     ---       (47 )     (47 )
  Borrowings
    (82 )     18       (64 )     (51 )     15       (36 )
Total interest-bearing liabilities
    244       (897 )     (653 )     84       (288 )     (204 )
Net interest income
  $ 1,346     $ 65     $ 1,411     $ 526     $ (220 )   $ 306  
                                                 
______________________________________________
1 Calculated net of deferred loan fees, loan discounts, and loans in process.
2 Includes tax-free securities, mortgage-backed securities, asset-backed securities and long term certificates of deposit.

GENERAL

Return on average assets and return on average equity are common methods of measuring operating results.  Annualized return on average assets decreased to 0.99% for the nine months and 0.91% for the quarter ended March 31, 2011 as compared to 1.03% for the nine months and the quarter ended March 31, 2010.  Annualized return on average equity decreased to 11.40% for the nine months and decreased to 10.71% for the quarter ended March 31, 2011 as compared to 11.53% for the nine months and 11.40% for the quarter ended March 31, 2010.  The decrease in return on average assets and return on average equity was primarily the result of higher noninterest expense, partially offset by slower growth in net interest income resulting in a narrowing of the net interest spread and net interest margin.   Net income amounted to $3.9 million and $3.6 million for the nine months ended March 31, 2011 and 2010, respectively, an increase of $289,000 or 8.0% and amounted to $1.2 million for both the quarters ended March 31, 2011 and 2010.   Average assets increased $56.3 million, or 12.0% to $526.5 million for the nine months ended March 31, 2011 as compared to $470.2 million for the nine months ended March 31, 2010.  Average equity increased $3.9 million, or 9.3%, to $45.8 million for the nine months ended March 31, 2011 as compared to $41.9 million for the nine months ended March 31, 2010.  Average assets increased $73.4 million, or 15.5% to $547.3 million for the quarter ended March 31, 2011 as compared to $473.9 million for the quarter ended March 31, 2010.  Average equity increased $3.3 million, or 7.7% to $46.3 million for the quarter ended March 31, 2011 as compared to $43.0 million for the quarter ended March 31, 2010.

INTEREST INCOME

Interest income amounted to $18.0 million for the nine months ended March 31, 2011 as compared to $17.3 million for the nine months ended March 31, 2010, an increase of $758,000 or 4.4%.  Interest income amounted to $6.0 million for the quarter ended March 31, 2011 as compared to $5.9 million for the quarter ended March 31, 2010, an increase of $102,000 or 1.7%.  The increase in loan and securities volume had the greatest impact on interest income when comparing the nine months and quarters ended March 31, 2011 and 2010.  Average loan balances increased $18.7 million for the nine months ended March 31, 2011 as compared to March 31, 2010 while the yield decreased by 11 basis points when comparing the same periods.  Average loan balances increased $11.1 million for the quarter ended March 31, 2011 as compared to the quarter ended March 31, 2010 and the yield decreased by 20 basis points when comparing the same periods.  Average securities balances increased $29.0 million for the nine months ended March 31, 2011 as compared to March 31, 2010 while the yield decreased by 47 basis points when comparing the same periods.  Average securities balances increased $52.2 million for the quarter ended March 31, 2011 as compared to the quarter ended March 31, 2010 and the yield decreased 84 basis points when comparing the same periods.   Average balances on short term investments such as interest bearing bank balances and federal funds sold increased $8.2 million and $10.4 million, respectively, when comparing the nine months and quarters ended March 31, 2011 and 2010.   The yield on interest bearing bank balances decreased one basis point when comparing the nine months ended March 31, 2011 and 2010, and increased 13 basis points when comparing the quarters ended March 31, 2011 and 2010.  The yield on federal funds sold increased 10 basis points when comparing the nine months ended March 31, 2011 and 2010, and increased 4 basis points when comparing the quarters ended March 31, 2011 and 2010.

INTEREST EXPENSE

Interest expense amounted to $3.4 million for the nine months ended March 31, 2011, as compared to $4.1 million for the nine months ended March 31, 2010, a decrease of $653,000.  Interest expense amounted to $1.1 million for the quarter ended March 31, 2011, as compared to $1.3 million for the quarter ended March 31, 2010, a decrease of $204,000.  Decreases in rates on interest-bearing liabilities had the greatest impact on overall interest expense on the quarter and nine months ended March 31, 2011 as compared to March 31, 2010.

As illustrated in the Rate/Volume Analysis Table, interest expense was reduced $897,000 and $288,000 when comparing the nine months and quarters ended March 31, 2011 and 2010, respectively, due to decreases of 35 basis points and 36 basis points, respectively, in the average rate on interest-bearing liabilities in those same periods.  This decrease was partially offset by a $244,000 and $84,000 increase in interest expense due to a $45.0 million and $59.2 million increase in average balances when comparing the nine months and quarters ended March 31, 2011 and 2010, respectively.

The average rate paid on NOW deposits decreased 56 basis points and 55 basis points, respectively, when comparing the nine months and quarters ended March 31, 2011 and 2010. The average balance of such accounts grew by $29.4 million for the nine months ended March 31, 2011 and increased by $41.8 million for the quarter ended March 31, 2011.  The average balance of certificates of deposit grew by $77,000 and the average rate paid decreased by 24 basis points when comparing the nine months ended March 31, 2011 and 2010.  The average balance of certificates of deposit decreased by $49,000 and the average rate paid decreased by 19 basis points when comparing the quarters ended March 31, 2011 and 2010.  The average balance of savings and money market deposits increased by $18.9 million when comparing the nine months ended March 31, 2011 and 2010 and increased by $23.4 million when comparing the quarters ended March 31, 2011 and 2010. The average rate paid on savings and money markets decreased 11 basis points and 12 basis points when comparing the nine months and quarters ended March 31, 2011 and 2010, respectively.   The average balance of borrowings decreased $3.3 million and $6.0 million when comparing the nine months and quarters ended March 31, 2011 and 2010.  The rate paid on these borrowings increased 12 basis points and 33 basis points when comparing the same periods.

NET INTEREST INCOME

Net interest income increased $1.4 million to $14.6 million for the nine months ended March 31, 2011 compared to $13.2 million for the nine months ended March 31, 2010 and increased $306,000 to $4.9 million for the quarter ended March 31, 2011 compared to $4.6 million for the quarter ended March 31, 2010.     Net interest spread decreased 2 basis points to 3.70% for the nine months ended March 31, 2011 from 3.72% for the nine months ended March 31, 2010, and decreased 29 basis points to 3.61% for the quarter ended March 31, 2011 from 3.90% for the quarter ended March 31, 2010.  Net interest margin decreased 6 basis points to 3.86% for the nine months ended March 31, 2011 from 3.92% for the nine months ended March 31, 2010, and decreased 34 basis points to 3.75% for the quarter ended March 31, 2011 as compared to 4.09% for the quarter ended March 31, 2010.  The increase in average balances of loans and securities, along with a decrease in rates paid on deposit accounts, partially offset by decreases in yields from earning assets, primarily led to an increase in net interest income when comparing the nine months and quarters ended March 31, 2011 and 2010.

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

Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary.   The provision for loan losses amounted to $1.2 million and $1.0 million for the nine months ended March 31, 2011 and 2010, respectively, an increase of $195,000 or 19.8%.  The provision for loan losses amounted to $343,000 and $307,000 for the quarters ended March 31, 2011 and 2010, respectively, an increase of $36,000, or 11.7%.  The increase in the level of provision was partially a result of the shift to a greater level of commercial real estate and commercial loans, and an increase in the amount of nonperforming assets, primarily in residential mortgages and commercial real estate loans. The commercial real estate and commercial loan portfolio has grown as a percent of total loans from 24.8% at March 31, 2010 to 27.0% at March 31, 2011.   Generally, commercial loans are considered to have greater credit risk, and require a higher level of allowance for loan loss.   Nonperforming assets amounted to $6.9 million and $3.2 million at March 31, 2011 and 2010, respectively, an increase of $3.7 million or 115.6%.  Of this increase, $1.3 million was in residential mortgage loans, $1.2 million was in commercial real estate loans, and $453,000 was in multi-family loans. Foreclosed assets increased $563,000 from March 31, 2010 to March 31, 2011. Net charge-offs amounted to $327,000 and $539,000 for the nine months ended March 31, 2011 and 2010, respectively.  The increase in the level of nonperforming assets reflected the decline in the overall economy. As a result, the level of allowance for loan losses to total loans receivable has been increased to 1.62% as of March 31, 2011 as compared to 1.33% as of March 31, 2010.  At March 31, 2011 and June 30, 2010, nonperforming assets were 1.23% and 0.79%, respectively, of total assets and nonperforming loans were 2.14% and 1.33%, respectively, of total loans.   The Company has not been an originator of “no documentation” mortgage loans and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime.

NONINTEREST INCOME

Noninterest income increased $39,000 and $16,000 when comparing the nine months and quarters ended March 31, 2011 and 2010, respectively.  Noninterest income amounted to $3.6 million and $1.1 million for the nine months and quarter ended March 31, 2011, respectively. The Company recorded a net gain on sale of investments during the nine months and quarter ended March 31, 2011 totaling $233,000 and $21,000, respectively and a net loss on sale of investments during the nine months ended March 31, 2010 totaling $5,000.   Excluding these items, noninterest income decreased $199,000 when comparing the nine months ended March 31, 2011 and 2010, and $5,000 when comparing the quarters ended March 31, 2011 and 2010. These decreases were primarily the result of lower service charges on deposit accounts, primarily NSF fees, which decreased $372,000 and $39,000 for the nine months and quarters ended March 31, 2011 and 2010, respectively, resulting from changes implemented related to the Company’s overdraft protection program.  Debit card fees increased $141,000 and $49,000 when comparing the nine months and quarters ended March 31, 2011 and 2010, respectively, as a result of a higher volume of transactions due to growth in the number of checking accounts with debit cards.

NONINTEREST EXPENSE

Noninterest expense increased $845,000 or 8.3% to $11.1 million for the nine months ended March 31, 2011 as compared to $10.2 million for the nine months ended March 31, 2010.  Noninterest expense increased $285,000 or 8.1% to $3.8 million for the quarter ended March 31, 2011 as compared to $3.5 million for the quarter ended March 31, 2010. The increases for both the nine months and the quarter ended March 31, 2011 was primarily the result of an increase in salaries and benefits as well as higher advertising and promotional expenses due to the opening of the new Germantown branch in October 2010.   Noninterest expenses also increased during the nine months and quarter ended March 31, 2011 due to costs incurred related to foreclosed real estate.

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 34.0% for the nine months ended March 31, 2011, compared to 34.4% for the nine months ended March 31, 2010.  The effective tax rate was 33.5% for the quarter ended March 31, 2011, compared to 34.2% for the quarter ended March 31, 2010.

LIQUIDITY AND CAPITAL RESOURCES

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

Mortgage loan commitments, including construction and land loan commitments, totaled $9.9 million at March 31, 2011.  The unused portion of overdraft lines of credit amounted to $739,000, the unused portion of home equity lines of credit amounted to $9.1 million, and the unused portion of commercial lines of credit and commercial loan commitments amounted to $7.9 million at March 31, 2011.  Greene County Bancorp, Inc. anticipates that it will have sufficient funds available to meet current loan commitments based on the level of cash and cash equivalents as well as the available for sale investment portfolio and borrowing capacity.

The Bank of Greene County and Greene County Commercial Bank met all applicable regulatory capital requirements at March 31, 2011 and June 30, 2010.  Consolidated shareholders’ equity represented 8.3% of total assets at March 31, 2011 and 9.0% of total assets of June 30, 2010.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4.     Controls and Procedures

Under the supervision and with the participation of the Company's management, including its Chief  Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the  Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and in timely altering them to material information relating to the Company (or its consolidated subsidiaries) required to be filed in its periodic SEC filings.
 
There has been no change in the Company's internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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

       Item 1A.   Risk Factors
                    Not applicable to smaller reporting companies.


       Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
a)  
Not applicable
b)  
Not applicable
No shares repurchased during the quarter ended March 31, 2011.

       Item 3.     Defaults Upon Senior Securities
                    Not applicable

       Item 4.     [Removed and reserved.]
 
 
       Item 5.     Other Information
a)  
Not applicable
b)  
There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.

       Item 6.     Exhibits

Exhibits
31.1 Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
31.2 Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
32.1 Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
32.2 Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350

 
 

 


SIGNATURES



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


Greene County Bancorp, Inc.

Date:  May 16, 2011

By: /s/ Donald E. Gibson



Donald E. Gibson
President and Chief Executive Officer





Date:  May 16, 2011

By: /s/ Michelle M. Plummer



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



 
 

 

EXHIBIT 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Donald E. Gibson, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Greene County Bancorp, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this  quarterly report, fairly present in all material respects the consolidated financial condition, consolidated results of operations and consolidated cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: May 16, 2011                                                                                  /s/ Donald E. Gibson 
         Donald E. Gibson
 
     President and Chief Executive Officer

 
 

 

EXHIBIT 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michelle M. Plummer, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Greene County Bancorp, Inc.;

2.
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this  quarterly report, fairly present in all material respects the consolidated financial condition, consolidated results of operations and consolidated cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 16, 2011                                                                                  /s/ Michelle M. Plummer 
         Michelle M. Plummer
 
     Executive Vice President, Chief Financial Officer, and Chief Operating Officer
 
 
 
 

EXHIBIT 32.1

Statement of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Donald E. Gibson, President and Chief Executive Officer, of Greene County Bancorp, Inc. (the “Company”) certifies in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the quarter ended March 31, 2011 and that to the best of his knowledge:

1.  
the report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.  
the information contained in the report fairly presents, in all material respects, the consolidated financial condition and consolidated results of operations of the Company as of the dates and for the periods covered by the report.

This statement is authorized to be attached as an exhibit to the report so that this statement will accompany the report at such time as the report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 USC 1350.  It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.


Date: May 16, 2011                                                                                  /s/ Donald E. Gibson 
         Donald E. Gibson
 
     President and Chief Executive Officer



 
 

 

EXHIBIT 32.2

Statement of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



Michelle M. Plummer, Chief Financial Officer, of Greene County Bancorp, Inc. (the “Company”) certifies in her capacity as an officer of the Company that he or she has reviewed the Quarterly Report of the Company on Form 10-Q for the quarter ended March 31, 2011 and that to the best of her knowledge:

1.  
the report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.  
the information contained in the report fairly presents, in all material respects, the consolidated financial condition and consolidated results of operations of the Company as of the dates and for the periods covered by the report.


This statement is authorized to be attached as an exhibit to the report so that this statement will accompany the report at such time as the report is filed with the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 USC 1350.  It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934, as amended.


Date: May 16, 2011                                                                                   /s/ Michelle M. Plummer 
          Michelle M. Plummer
 
      Executive Vice President, Chief Financial Officer, and Chief Operating Officer