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


FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2014

OR

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

GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number  0-25165

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

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

Registrant's telephone number, including area code: (518) 943-2600

Check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes: ☒     No: ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes: ☒    No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ☐
Accelerated filer ☐
Non-accelerated filer     ☐
Smaller reporting company ☒

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

As of February 13, 2015, the registrant had 4,222,357shares of common stock outstanding at $ 0.10 par value per share.
 


GREENE COUNTY BANCORP, INC.

INDEX
PART I.
FINANCIAL INFORMATION
 
   
Page
Item 1.
Financial Statements (unaudited)
 
 
3
 
4
 
6
 
7
 
8
 
9-29
     
Item 2.
30-43
     
Item 3.
44
     
Item 4.
44
     
PART II.
OTHER INFORMATION
 
     
Item 1.
45
     
Item 1A.
45
     
Item 2.
45
     
Item 3.
45
     
Item 4.
45
     
Item 5.
45
     
Item 6.
45
     
 
46
 
Exhibit 31.1 302 Certification of Chief Executive Officer
 
 
Exhibit 31.2 302 Certification of Chief Financial Officer
 
 
Exhibit 32.1 906 Statement of Chief Executive Officer
 
 
Exhibit 32.2 906 Statement of Chief Financial Officer
 
 
Exhibit 101 Extensible Business Reporting Language (XBRL)
 
 
2

Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of December 31, 2014 and June 30, 2014
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
December 31, 2014
   
June 30, 2014
 
Total cash and cash equivalents
 
$
14,869
   
$
13,809
 
                 
Long term certificate of deposit
   
250
     
250
 
Securities available for sale, at fair value
   
69,071
     
56,151
 
Securities held to maturity, at amortized cost (fair value $181,981at December 31, 2014; $181,932 at June 30, 2014)
   
181,065
     
181,946
 
Federal Home Loan Bank stock, at cost
   
3,230
     
1,561
 
                 
Loans
   
429,628
     
405,841
 
Allowance for loan losses
   
(7,796
)
   
(7,419
)
Unearned origination fees and costs, net
   
884
     
887
 
Net loans receivable
   
422,716
     
399,309
 
                 
Premises and equipment
   
14,355
     
14,307
 
Accrued interest receivable
   
2,937
     
2,710
 
Foreclosed real estate
   
581
     
473
 
Prepaid expenses and other assets
   
3,348
     
3,645
 
Total assets
 
$
712,422
   
$
674,161
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
 
$
66,348
   
$
67,446
 
Interest bearing deposits
   
516,833
     
522,128
 
Total deposits
   
583,181
     
589,574
 
                 
Borrowings from Federal Home Loan Bank, short-term
   
43,500
     
3,150
 
Borrowings from Federal Home Loan Bank, long-term
   
15,500
     
14,500
 
Accrued expenses and other liabilities
   
5,777
     
5,737
 
Total liabilities
   
647,958
     
612,961
 
                 
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 4,218,857 shares at December 31, 2014, and 4,213,757 shares at June 30, 2014
   
431
     
431
 
Additional paid-in capital
   
11,239
     
11,208
 
Retained earnings
   
54,198
     
51,305
 
Accumulated other comprehensive loss
   
(749
)
   
(1,050
)
Treasury stock, at cost 86,813 shares at December 31, 2014, and 91,913 shares at June 30, 2014
   
(655
)
   
(694
)
Total shareholders’ equity
   
64,464
     
61,200
 
Total liabilities and shareholders’ equity
 
$
712,422
   
$
674,161
 

See notes to consolidated financial statements
 
3

       Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Six Months Ended December 31, 2014 and 2013
(Unaudited)
(In thousands, except share and per share amounts)

   
2014
   
2013
 
Interest income:
       
Loans
 
$
9,783
   
$
9,124
 
Investment securities - taxable
   
277
     
333
 
Mortgage-backed securities
   
1,446
     
1,294
 
Investment securities - tax exempt
   
1,132
     
1,018
 
Interest bearing deposits and federal funds sold
   
10
     
8
 
Total interest income
   
12,648
     
11,777
 
                 
Interest expense:
               
Interest on deposits
   
1,001
     
1,099
 
Interest on borrowings
   
124
     
61
 
Total interest expense
   
1,125
     
1,160
 
                 
Net interest income
   
11,523
     
10,617
 
Provision for loan losses
   
716
     
821
 
Net interest income after provision for loan losses
   
10,807
     
9,796
 
                 
Noninterest income:
               
Service charges on deposit accounts
   
1,446
     
1,331
 
Debit card fees
   
844
     
775
 
Investment services
   
189
     
192
 
E-commerce fees
   
53
     
51
 
Other operating income
   
377
     
317
 
Total noninterest income
   
2,909
     
2,666
 
                 
Noninterest expense:
               
Salaries and employee benefits
   
4,757
     
4,257
 
Occupancy expense
   
668
     
619
 
Equipment and furniture expense
   
253
     
262
 
Service and data processing fees
   
842
     
654
 
Computer software, supplies and support
   
339
     
207
 
Advertising and promotion
   
132
     
136
 
FDIC insurance premiums
   
192
     
192
 
Legal and professional fees
   
592
     
455
 
Other
   
998
     
781
 
Total noninterest expense
   
8,773
     
7,563
 
                 
Income before provision for income taxes
   
4,943
     
4,899
 
Provision for income taxes
   
1,357
     
1,420
 
Net income
 
$
3,586
   
$
3,479
 
                 
Basic earnings per share
 
$
0.85
   
$
0.83
 
Basic average shares outstanding
   
4,215,738
     
4,199,349
 
Diluted earnings per share
 
$
0.84
   
$
0.82
 
Diluted average shares outstanding
   
4,246,793
     
4,237,766
 
Dividends per share
 
$
0.36
   
$
0.35
 
 
See notes to consolidated financial statements
 
4

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended December 31, 2014 and 2013
(Unaudited)
(In thousands, except share and per share amounts)

   
2014
   
2013
 
Interest income:
       
Loans
 
$
4,944
   
$
4,626
 
Investment securities - taxable
   
134
     
167
 
Mortgage-backed securities
   
741
     
644
 
Investment securities - tax exempt
   
580
     
508
 
Interest bearing deposits and federal funds sold
   
8
     
6
 
Total interest income
   
6,407
     
5,951
 
                 
Interest expense:
               
Interest on deposits
   
500
     
549
 
Interest on borrowings
   
63
     
33
 
Total interest expense
   
563
     
582
 
                 
Net interest income
   
5,844
     
5,369
 
Provision for loan losses
   
305
     
508
 
Net interest income after provision for loan losses
   
5,539
     
4,861
 
                 
Noninterest income:
               
Service charges on deposit accounts
   
730
     
655
 
Debit card fees
   
429
     
386
 
Investment services
   
87
     
87
 
E-commerce fees
   
25
     
25
 
Other operating income
   
169
     
163
 
Total noninterest income
   
1,440
     
1,316
 
                 
Noninterest expense:
               
Salaries and employee benefits
   
2,390
     
2,063
 
Occupancy expense
   
344
     
296
 
Equipment and furniture expense
   
177
     
149
 
Service and data processing fees
   
388
     
318
 
Computer software, supplies and support
   
106
     
93
 
Advertising and promotion
   
51
     
69
 
FDIC insurance premiums
   
101
     
103
 
Legal and professional fees
   
379
     
250
 
Other
   
560
     
410
 
Total noninterest expense
   
4,496
     
3,751
 
                 
Income before provision for income taxes
   
2,483
     
2,426
 
Provision for income taxes
   
672
     
701
 
Net income
 
$
1,811
   
$
1,725
 
                 
Basic earnings per share
 
$
0.43
   
$
0.41
 
Basic average shares outstanding
   
4,217,118
     
4,203,985
 
Diluted earnings per share
 
$
0.43
   
$
0.41
 
Diluted average shares outstanding
   
4,248,175
     
4,240,216
 
Dividends per share
 
$
0.180
   
$
0.175
 

See notes to consolidated financial statements
 
5

Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Six Months Ended December 31, 2014 and 2013
(Unaudited)
(In thousands)

   
2014
   
2013
 
Net Income
 
$
3,586
   
$
3,479
 
Other comprehensive income (loss):
               
Unrealized holding gains (losses) on available for sale securities, net of income taxes of $89 and ($434), respectively
   
142
     
(688
)
                 
Accretion of unrealized loss on securities transferred to held to maturity, net of income taxes of $100 and $27, respectively(1)
   
159
     
43
 
                 
Total other comprehensive income (loss), net of taxes
   
301
     
(645
)
                 
Comprehensive income
 
$
3,887
   
$
2,834
 

 
(1)
The accretion of the unrealized holding losses in accumulated other comprehensive income at the date of transfer partially offsets the amortization of the difference between the par value and fair value of the investment securities at the date of transfer, and is an adjustment of interest income.

Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended December 31, 2014 and 2013
(Unaudited)
(In thousands)

   
2014
   
2013
 
Net Income
 
$
1,811
   
$
1,725
 
Other comprehensive income (loss):
               
Unrealized holding gains (losses) on available for sale securities, net of income taxes of $77 and ($77), respectively
   
124
     
(123
)
                 
Accretion of unrealized loss on securities transferred to held to maturity, net of income taxes of $34 and $26, respectively(1)
   
54
     
41
 
                 
Total other comprehensive income (loss), net of taxes
   
178
     
(82
)
                 
Comprehensive income
 
$
1,989
   
$
1,643
 

 
(1)
The accretion of the unrealized holding losses in accumulated other comprehensive income at the date of transfer partially offsets the amortization of the difference between the par value and fair value of the investment securities at the date of transfer, and is an adjustment of interest income.

See notes to consolidated financial statements.
 
6

Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended December 31, 2014 and 2013
(Unaudited)
(In thousands)

   
Common
 Stock
   
Additional
 Paid-In
 Capital
   
Retained
 Earnings
   
Accumulated
 Other
 Comprehensive
 Income
   
Treasury
 Stock
   
Total
Shareholders'
 Equity
 
Balance at June 30, 2013
 
$
431
   
$
11,168
   
$
46,112
   
$
(750
)
 
$
(853
)
 
$
56,108
 
Options exercised
           
(13
)
                   
120
     
107
 
Tax benefit of stock based compensation
           
27
                             
27
 
Dividends declared1
                   
(668
)
                   
(668
)
Net income
                   
3,479
                     
3,479
 
Other comprehensive loss, net of taxes
                           
(645
)
           
(645
)
Balance at December 31, 2013
 
$
431
   
$
11,182
   
$
48,923
   
$
(1,395
)
 
$
(733
)
 
$
58,408
 
                                                 
   
Common
 Stock
   
Additional
 Paid-In
 Capital
   
Retained
 Earnings
   
Accumulated
 Other
 Comprehensive
 Loss
   
Treasury
 Stock
   
Total
 Shareholders'
 Equity
 
Balance at June 30, 2014
 
$
431
     
11,208
   
$
51,305
   
$
(1,050
)
 
$
(694
)
 
$
61,200
 
Options exercised
           
25
                     
39
     
64
 
Tax benefit of stock based compensation
           
6
                             
6
 
Dividends declared1
                   
(693
)
                   
(693
)
Net income
                   
3,586
                     
3,586
 
Other comprehensive income, net of taxes
                           
301
             
301
 
Balance at December 31, 2014
 
$
431
   
$
11,239
   
$
54,198
   
$
(749
)
 
$
(655
)
 
$
64,464
 
 
 
(1)
Dividends declared were $0.36 per share and $0.35 per share for the six months ended December 31, 2014 and 2013. This is based on total number of shares outstanding.  However, Greene County Bancorp, MHC, the owner of 54.6% of the Company’s shares outstanding waived its right to receive dividends during the six months ended December 31, 2014 and 2013.  The MHC’s ability to waive the receipt of dividends is dependent upon annual approval of its members as well as receiving the non-objection of the Federal Reserve Board.

See notes to consolidated financial statements.
 
7

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2014 and 2013
(Unaudited)
(In thousands)

   
2014
   
2013
 
Cash flows from operating activities:
       
Net Income
 
$
3,586
   
$
3,479
 
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation
   
260
     
341
 
Deferred income tax benefit
   
(1,542
)
   
(1,567
)
Net amortization of premiums and discounts
   
627
     
969
 
Net amortization of deferred loan costs and fees
   
182
     
179
 
Provision for loan losses
   
716
     
821
 
Loss (gain) on foreclosed real estate
   
92
     
(5
)
Excess tax benefit from share-based payment arrangements
   
(6
)
   
(27
)
Net increase in accrued income taxes
   
2,837
     
2,909
 
Net increase in accrued interest receivable
   
(227
)
   
(91
)
Net increase in prepaid and other assets
   
(1,264
)
   
(309
)
Net increase (decrease) in other liabilities
   
122
     
(36
)
Net cash provided by operating activities
   
5,383
     
6,663
 
                 
Cash flows from investing activities:
               
Securities available for sale:
               
Proceeds from maturities
   
2,250
     
515
 
Purchases of securities
   
(18,941
)
   
-
 
Principal payments on securities
   
3,805
     
4,383
 
Securities held to maturity:
               
Proceeds from maturities
   
9,822
     
14,864
 
Purchases of securities
   
(12,266
)
   
(11,107
)
Principal payments on securities
   
3,155
     
4,528
 
Net redemption of Federal Home Loan Bank Stock
   
(1,669
)
   
(1,152
)
Net increase in loans receivable
   
(24,807
)
   
(29,061
)
Proceeds from sale of foreclosed real estate
   
302
     
105
 
Purchases of premises and equipment
   
(308
)
   
(346
)
Net cash used by investing activities
   
(38,657
)
   
(17,271
)
                 
Cash flows from financing activities
               
Net increase in short-term FHLB advances
   
40,350
     
21,100
 
Proceeds from long-term FHLB advances
   
1,000
     
4,500
 
Payment of cash dividends
   
(693
)
   
(668
)
Proceeds from issuance of stock options
   
64
     
107
 
Excess tax benefit from share-based payment arrangements
   
6
     
27
 
Net decrease in deposits
   
(6,393
)
   
(9,004
)
Net cash provided by financing activities
   
34,334
     
16,062
 
                 
Net increase in cash and cash equivalents
   
1,060
     
5,454
 
Cash and cash equivalents at beginning of period
   
13,809
     
6,222
 
Cash and cash equivalents at end of period
 
$
14,869
   
$
11,676
 
                 
Non-cash investing activities:
               
Foreclosed loans transferred to foreclosed real estate
 
$
502
     
404
 
Available for sale securities transferred at fair value to held to maturity
   
-
     
11,735
 
Cash paid during period for:
               
Interest
 
$
1,131
   
$
1,156
 
Income taxes
 
$
62
   
$
78
 
 
See notes to consolidated financial statements
 
8

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Six and Three Months Ended December 31, 2014 and 2013
 
(1)
Basis of Presentation

The accompanying unaudited consolidated statement of financial condition as of June 30, 2014 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 and Greene Property Holdings, Ltd.  The consolidated financial statements at and for the six and three months ended December 31, 2014 and 2013 are unaudited.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  To the extent that information and notes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2014, such information and notes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications, if any, had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the six and three months ended December 31, 2014 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2015.   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 loan portfolio.  The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans for which full 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 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 impairment 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. has two wholly-owned subsidiaries, The Bank of Greene County and Greene Risk Management, Inc.  Greene Risk Management, Inc. was formed on December 30, 2014 as a pooled captive insurance company subsidiary, incorporated in the State of Nevada, to provide additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.
 
9

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its banking subsidiaries.  The Bank of Greene County has twelve full-service offices and an administrative office, operations center and lending center located in its market area within the Hudson Valley Region of New York State.    The Bank of Greene County is primarily engaged in the business of attracting deposits from the general public in The Bank of Greene County’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities.  The Bank of Greene County has two subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd.  Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities. Greene Property Holdings, Ltd.is a real estate investment trust, which holds mortgages and notes which were originated through and serviced by The Bank of Greene County.
 
(3)
Use of Estimates

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

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

Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss 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 December 31, 2014 consisted of the following:
 
(In thousands) Securities available for sale:
 
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Estimated Fair Value
 
U.S. government sponsored enterprises
 
$
8,623
   
$
230
   
$
-
   
$
8,853
 
State and political subdivisions
   
20,260
     
16
     
3
     
20,273
 
Mortgage-backed securities-residential
   
8,558
     
181
     
15
     
8,724
 
Mortgage-backed securities-multi-family
   
26,092
     
199
     
106
     
26,185
 
Asset-backed securities
   
14
     
-
     
2
     
12
 
Corporate debt securities
   
4,553
     
306
     
15
     
4,844
 
Total debt securities
   
68,100
     
932
     
141
     
68,891
 
Equity securities
   
62
     
118
     
-
     
180
 
Total securities available for sale
   
68,162
     
1,050
     
141
     
69,071
 
Securities held to maturity:
                               
U.S. government sponsored enterprises
   
2,000
     
-
     
83
     
1,917
 
State and political subdivisions
   
93,968
     
745
     
79
     
94,634
 
Mortgage-backed securities-residential
   
20,185
     
964
     
-
     
21,149
 
Mortgage-backed securities-multi-family
   
64,058
     
872
     
1,490
     
63,440
 
Other securities
   
854
     
-
     
13
     
841
 
Total securities held to maturity
   
181,065
     
2,581
     
1,665
     
181,981
 
Total securities
 
$
249,227
   
$
3,631
   
$
1,806
   
$
251,052
 
 
10

Securities at June 30, 2014 consisted of the following:

(In thousands)
 
 
Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Estimated
Fair Value
 
Securities available for sale:
               
U.S. government sponsored enterprises
 
$
10,648
   
$
250
   
$
-
   
$
10,898
 
State and political subdivisions
   
1,324
     
23
     
-
     
1,347
 
Mortgage-backed securities-residential
   
9,345
     
213
     
13
     
9,545
 
Mortgage-backed securities-multi-family
   
29,268
     
89
     
339
     
29,018
 
Asset-backed securities
   
15
     
-
     
2
     
13
 
Corporate debt securities
   
4,811
     
375
     
16
     
5,170
 
Total debt securities
   
55,411
     
950
     
370
     
55,991
 
Equity securities
   
62
     
98
     
-
     
160
 
Total securities available for sale
   
55,473
     
1,048
     
370
     
56,151
 
Securities held to maturity:
                               
U.S. government sponsored enterprises
   
2,000
     
-
     
102
     
1,898
 
State and political subdivisions
   
91,634
     
787
     
204
     
92,217
 
Mortgage-backed securities-residential
   
22,785
     
1,150
     
-
     
23,935
 
Mortgage-backed securities-multi-family
   
64,605
     
759
     
2,381
     
62,983
 
Other securities
   
922
     
1
     
24
     
899
 
Total securities held to maturity
   
181,946
     
2,697
     
2,711
     
181,932
 
Total securities
 
$
237,419
   
$
3,745
   
$
3,081
   
$
238,083
 
 
Greene County Bancorp, Inc.’s current policies generally limit securities investments to U.S. Government and securities of government sponsored enterprises, federal funds sold, municipal bonds, corporate debt obligations and certain mutual funds.  In addition, the Company’s policies permit investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage obligations.  The Company’s investments in mortgage-backed securities include pass-through securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA.  As of December 31, 2014 and June 30, 2014, no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio.  The Company’s investments in state and political subdivisions securities generally are municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured.  The obligations issued by school districts are supported by state aid.  Primarily, these investments are issued by municipalities within New York State.

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2014.
 
   
Less Than 12 Months
   
More Than 12 Months
 
Total
 
(In thousands, except number of securities)
 
Fair
Value
   
Unrealized Losses
 
Number of Securities
   
Fair
Value
   
Unrealized Losses
   
Number of Securities
 
Fair
Value
   
Unrealized Losses
 
Number of Securities
 
 
Securities available for sale:
                             
State and political subdivisions
 
$
801
   
$
3
   
1
   
$
-
   
$
-
     
-
 
$
801
   
$
3
   
1
 
Mortgage-backed securities-residential
   
4,031
     
15
   
2
     
-
     
-
           
4,031
     
15
   
2
 
Mortgage-backed securities-multi-family
   
3,801
     
41
   
3
     
6,734
     
65
     
3
   
10,535
     
106
   
6
 
Asset-backed securities
   
-
     
-
   
-
     
12
     
2
     
1
   
12
     
2
   
1
 
Corporate debt securities
   
764
     
15
   
3
     
-
     
-
     
-
   
764
     
15
   
3
 
Total securities available for sale
   
9,397
     
74
   
9
     
6,746
     
67
     
4
   
16,143
     
141
   
13
 
Securities held to maturity:
                                                                 
U.S. government sponsored enterprises
   
1,917
     
83
   
1
     
-
     
-
     
-
   
1,917
     
83
   
1
 
State and political subdivisions
   
5,658
     
73
   
26
     
288
     
6
     
6
   
5,946
     
79
   
32
 
Mortgage-backed securities-multi-family
   
26,832
     
1,095
   
7
     
11,726
     
395
     
5
   
38,558
     
1,490
   
12
 
Other securities
   
210
     
2
   
2
     
411
     
11
     
1
   
621
     
13
   
3
 
Total securities held to maturity
   
34,617
     
1,253
   
36
     
12,425
     
412
     
12
   
47,042
     
1,665
   
48
 
Total securities
 
$
44,014
   
$
1,327
   
45
   
$
19,171
   
$
479
     
16
 
$
63,185
   
$
1,806
   
61
 
 
11

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, 2014.

   
Less Than 12 Months
   
More Than 12 Months
 
Total
 
(In thousands, except number of securities)
 
Fair
Value
   
Unrealized
Losses
 
Number of
Securities
   
Fair
Value
   
Unrealized
Losses
   
Number of
Securities
 
Fair
Value
   
Unrealized
Losses
 
Number of
Securities
 
 
Securities available for sale:
                             
Mortgage-backed securities-residential
 
$
4,302
   
$
13
   
2
   
$
-
   
$
-
     
-
 
$
4,302
   
$
13
   
2
 
Mortgage-backed securities-multi-family
   
4,448
     
5
   
3
     
19,404
     
334
     
7
   
23,852
     
339
   
10
 
Asset-backed securities
   
-
     
-
   
-
     
13
     
2
     
1
   
13
     
2
   
1
 
Corporate debt securities
   
767
     
16
   
2
     
-
     
-
     
-
   
767
     
16
   
2
 
Total securities available for sale
   
9,517
     
34
   
7
     
19,417
     
336
     
8
   
28,934
     
370
   
15
 
Securities held to maturity:
                                                                 
U.S. government sponsored enterprises
   
1,898
     
102
   
1
     
-
     
-
     
-
   
1,898
     
102
   
1
 
State and political subdivisions
   
6,693
     
175
   
34
     
1,815
     
29
     
11
   
8,508
     
204
   
45
 
Mortgage-backed securities-multi-family
   
26,522
     
1,617
   
7
     
15,440
     
764
     
6
   
41,962
     
2,381
   
13
 
Other securities
   
130
     
2
   
2
     
401
     
22
     
2
   
531
     
24
   
4
 
Total securities held to maturity
   
35,243
     
1,896
   
44
     
17,656
     
815
     
19
   
52,899
     
2,711
   
63
 
Total securities
 
$
44,760
   
$
1,930
   
51
   
$
37,073
   
$
1,151
     
27
 
$
81,833
   
$
3,081
   
78
 

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

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

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”).  Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis.  Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized.  For securities classified as held to maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.  For equity securities, the entire amount of OTTI is recognized in income.  Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2014.  Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads at the end of the quarter.

During the six and three months ended December 31, 2014 and 2013, there were no sales of securities and no gains or losses were recognized.  There was no other-than-temporary impairment loss recognized during the six and three months ended December 31, 2014 and 2013.
 
12

The estimated fair values of debt securities at December 31, 2014, by contractual maturity are shown below.  Expected maturities may differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

(In thousands)

Available for sale debt securities
 
Amortized Cost
   
Fair Value
 
Within one year
 
$
23,138
   
$
23,165
 
After one year through five years
   
5,681
     
5,981
 
After five years through ten years
   
4,617
     
4,824
 
After ten years
   
-
     
-
 
Total available for sale debt securities
   
33,436
     
33,970
 
Mortgage-backed and asset-backed securities
   
34,664
     
34,921
 
Equity securities
   
62
     
180
 
Total available for sale securities
   
68,162
     
69,071
 
                 
Held to maturity debt securities
               
Within one year
   
26,623
     
26,658
 
After one year through five years
   
42,642
     
43,013
 
After five years through ten years
   
19,448
     
19,573
 
After ten years
   
8,109
     
8,148
 
Total held to maturity debt securities
   
96,822
     
97,392
 
Mortgage-backed
   
84,243
     
84,589
 
Total held to maturity securities
   
181,065
     
181,981
 
Total securities
 
$
249,227
   
$
251,052
 

As of December 31, 2014 and June 30, 2014, respectively, securities with an aggregate fair value of $217.1 million and $210.0 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  As of December 31, 2014 and June 30, 2014, securities with an aggregate fair value of $4.8 million and $5.2 million, respectively, were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window.  Greene County Bancorp, Inc. did not participate in any securities lending programs during the six and three months ended December 31, 2014 or 2013.

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 six and three months ended December 31, 2014 or 2013.
 
(5)
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 Company to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated “Special Mention.”   Management also maintains a listing of loans designated “Watch.” These loans represent borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk.
 
13

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

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

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

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

Loans collateralized by nonresidential mortgage loans, 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 nonresidential mortgage loans makes them more difficult for management to monitor and evaluate.

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

Commercial lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and nonresidential mortgage lending. Real estate lending is generally considered to be collateral-based, with loan amounts based on fixed loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.
 
14

Loan balances by internal credit quality indicator as of December 31, 2014 are shown below.

(In thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
 
$
223,094
   
$
599
   
$
98
   
$
2,971
   
$
226,762
 
Nonresidential mortgage
   
122,660
     
-
     
1,752
     
2,831
     
127,243
 
Residential construction and land
   
3,651
     
-
     
-
     
-
     
3,651
 
Commercial construction
   
5,686
     
-
     
-
     
-
     
5,686
 
Multi-family
   
4,347
     
-
     
-
     
109
     
4,456
 
Home equity
   
20,818
     
33
     
-
     
221
     
21,072
 
Consumer installment
   
4,105
     
-
     
-
     
-
     
4,105
 
Commercial loans
   
35,410
     
4
     
356
     
883
     
36,653
 
Total gross loans
 
$
419,771
   
$
636
   
$
2,206
   
$
7,015
   
$
429,628
 

Loan balances by internal credit quality indicator as of June 30, 2014 are shown below.
 
(In thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
 
$
223,772
   
$
221
   
$
99
   
$
3,281
   
$
227,373
 
Nonresidential mortgage
   
109,281
     
-
     
1,789
     
2,996
     
114,066
 
Residential construction and land
   
3,005
     
-
     
-
     
-
     
3,005
 
Commercial construction
   
1,558
     
-
     
-
     
-
     
1,558
 
Multi-family
   
3,946
     
-
     
-
     
113
     
4,059
 
Home equity
   
20,239
     
-
     
-
     
339
     
20,578
 
Consumer installment
   
4,208
     
-
     
-
     
-
     
4,208
 
Commercial loans
   
29,686
     
-
     
385
     
923
     
30,994
 
Total gross loans
 
$
395,695
   
$
221
   
$
2,273
   
$
7,652
   
$
405,841
 

The Company had no loans classified Doubtful or Loss at December 31, 2014 or June 30, 2014.

Nonaccrual Loans

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  A nonaccrual loan is defined as a loan in which collectability is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan.  A loan does not have to be 90 days delinquent in order to be classified as nonaccrual.   Nonaccrual loans consisted primarily of loans secured by real estate at December 31, 2014 and June 30, 2014.  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 remained historically high over the past several years.  These high levels have been the result of adverse changes within the economy and increases in local unemployment.   These levels are 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 $5.8 million at December 31, 2014 of which $2.8 million were in the process of foreclosure.  Included in nonaccrual loans were $3.3 million of loans which were less than 90 days past due at December 31, 2014, but have a recent history of delinquency greater than 90 days past due. These loans will be returned to accrual status once they have demonstrated a history of timely payments.  Included in total loans past due were $489,000 of loans which were making payments pursuant to forbearance agreements.  Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment).  During this term of the forbearance agreement, the Bank has agreed not to continue foreclosure proceedings.  Loans on nonaccrual status totaled $5.9 million at June 30, 2014 of which $3.0 million were in the process of foreclosure.  Included in nonaccrual loans were $922,000 of loans which were less than 90 days past due at June 30, 2014, but have a recent history of delinquency greater than 90 days past due.
 
15

The following table sets forth information regarding delinquent and/or nonaccrual loans as of December 31, 2014:
 
(In thousands)
 
30-59
days
past due
   
60-89
days past
due
   
90 days
or more
past due
   
Total
past due
   
Current
   
Total
Loans
   
Loans on
Non-
accrual
 
Residential mortgage
 
$
1,088
   
$
616
   
$
1,646
   
$
3,350
   
$
223,412
   
$
226,762
   
$
2,080
 
Nonresidential mortgage
   
865
     
1,576
     
939
     
3,380
     
123,863
     
127,243
     
3,103
 
Residential construction and land
   
-
     
-
     
-
     
-
     
3,651
     
3,651
     
-
 
Commercial construction
   
-
     
-
     
-
     
-
     
5,686
     
5,686
     
-
 
Multi-family
   
-
     
-
     
-
     
-
     
4,456
     
4,456
     
-
 
Home equity
   
304
     
33
     
221
     
558
     
20,514
     
21,072
     
221
 
Consumer installment
   
70
     
-
     
-
     
70
     
4,035
     
4,105
     
-
 
Commercial loans
   
720
     
102
     
200
     
1,022
     
35,631
     
36,653
     
418
 
Total gross loans
 
$
3,047
   
$
2,327
   
$
3,006
   
$
8,380
   
$
421,248
   
$
429,628
   
$
5,822
 

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2014:
 
(In thousands)
 
30-59
days
past due
   
60-89
days
past due
   
90 days
or more
past due
   
Total
past due
   
Current
   
Total
Loans
   
Loans on
Non-
accrual
 
Residential mortgage
 
$
1,047
   
$
290
   
$
1,938
   
$
3,275
   
$
224,098
   
$
227,373
   
$
2,473
 
Nonresidential mortgage
   
-
     
504
     
2,688
     
3,192
     
110,874
     
114,066
     
2,775
 
Residential construction and land
   
-
     
-
     
-
     
-
     
3,005
     
3,005
     
-
 
Commercial construction
   
-
     
-
     
-
     
-
     
1,558
     
1,558
     
-
 
Multi-family
   
-
     
-
     
-
     
-
     
4,059
     
4,059
     
-
 
Home equity
   
260
     
-
     
339
     
599
     
19,979
     
20,578
     
339
 
Consumer installment
   
51
     
-
     
-
     
51
     
4,157
     
4,208
     
-
 
Commercial loans
   
509
     
123
     
278
     
910
     
30,084
     
30,994
     
312
 
Total gross loans
 
$
1,867
   
$
917
   
$
5,243
   
$
8,027
   
$
397,814
   
$
405,841
   
$
5,899
 

The Bank of Greene County had accruing loans delinquent more than 90 days as of December 31, 2014 totaling $465,000 and had accruing loans delinquent more than 90 days as of June 30, 2014 totaling $266,000.    The loans delinquent more than 90 days and accruing consist of loans that are well collateralized and the borrowers have demonstrated the ability and willingness to pay.  The borrower has made arrangements with the Bank to bring the loan current within a specified time period and has made a series of payments as agreed.

The table below details additional information related to nonaccrual loans for the six and three months ended December 31:

   
For the six months
ended December 31,
   
For the three months
ended December 31
 
(In thousands)
 
2014
   
2013
   
2014
   
2013
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
 
$
199
   
$
208
   
$
71
   
$
83
 
Interest income that was recorded on nonaccrual loans
   
85
     
64
     
39
     
35
 
 
16

Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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, smaller commercial 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 commercial loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually evaluated for impairment, 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.  Loans that have been modified as a troubled debt restructuring are included in impaired loans.  The measurement of impairment is generally based on the discounted cash flows based on the original rate of the loan before the restructuring, unless it is determined that the restructured loan is collateral dependent.  If the restructured loan is deemed to be collateral dependent, impairment is based on the fair value of the underlying collateral.

The tables below detail additional information on impaired loans at the date or periods indicated:
 
   
As of December 31, 2014
   
For the six months ended
December 31, 2014
   
For the three months ended
December 31, 2014
 
(In thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
   
Average Recorded Investment
   
Interest Income Recognized
 
With no related allowance recorded:
                     
Residential mortgage
 
$
671
   
$
671
   
$
-
   
$
672
   
$
13
   
$
672
   
$
10
 
Nonresidential mortgage
   
453
     
453
     
-
     
457
     
13
     
455
     
6
 
Home equity
   
-
     
-
     
-
     
80
     
-
     
64
     
-
 
     
1,124
     
1,124
     
-
     
1,209
     
26
     
1,191
     
16
 
With an allowance recorded:
                                                       
Residential mortgage
   
2,124
     
2,124
     
363
     
2,669
     
47
     
2,450
     
16
 
Nonresidential mortgage
   
2,416
     
2,803
     
333
     
2,476
     
42
     
2,429
     
-
 
Home equity
   
200
     
200
     
90
     
200
     
-
     
200
     
-
 
Commercial loans
   
599
     
599
     
3
     
600
     
20
     
599
     
10
 
     
5,339
     
5,726
     
789
     
5,945
     
109
     
5,678
     
26
 
Total impaired:
                                                       
Residential mortgage
   
2,795
     
2,795
     
363
     
3,341
     
60
     
3,122
     
26
 
Nonresidential mortgage
   
2,869
     
3,256
     
333
     
2,933
     
55
     
2,884
     
6
 
Home equity
   
200
     
200
     
90
     
280
     
-
     
264
     
-
 
Commercial loans
   
599
     
599
     
3
     
600
     
20
     
599
     
10
 
   
$
6,463
   
$
6,850
   
$
789
   
$
7,154
   
$
135
   
$
6,869
   
$
42
 
 
17

   
As of June 30, 2014
   
For the six months ended
December 31, 2013
   
For the three months ended
December 31, 2013
 
(In thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
   
Average Recorded Investment
   
Interest Income Recognized
 
With no related allowance recorded:
                     
Residential mortgage
 
$
206
   
$
206
   
$
-
   
$
399
   
$
1
   
$
207
   
$
1
 
Nonresidential mortgage
   
461
     
461
     
-
     
596
     
17
     
539
     
8
 
Home equity
   
96
     
96
     
-
     
-
     
-
     
-
     
-
 
     
763
     
763
     
-
     
995
     
18
     
746
     
9
 
With an allowance recorded:
                                         
Residential mortgage
   
2,700
     
2,790
     
441
     
3,100
     
30
     
3,065
     
15
 
Nonresidential mortgage
   
2,572
     
2,959
     
338
     
1,992
     
20
     
2,423
     
12
 
Commercial construction
   
-
     
-
     
-
     
701
     
17
     
350
     
-
 
Multi-family
   
-
     
-
     
-
     
386
     
-
     
308
     
-
 
Home equity
   
200
     
200
     
87
     
100
     
-
     
200
     
-
 
Commercial loans
   
603
     
603
     
3
     
607
     
20
     
607
     
10
 
     
6,075
     
6,552
     
869
     
6,886
     
87
     
6,953
     
37
 
Total impaired:
                                                       
Residential mortgage
   
2,906
     
2,996
     
441
     
3,499
     
31
     
3,272
     
16
 
Nonresidential mortgage
   
3,033
     
3,420
     
338
     
2,588
     
37
     
2,962
     
20
 
Commercial construction
   
-
     
-
     
-
     
701
     
17
     
350
     
-
 
Multi-family
   
-
     
-
     
-
     
386
     
-
     
308
     
-
 
Home equity
   
296
     
296
     
87
     
100
     
-
     
200
     
-
 
Commercial loans
   
603
     
603
     
3
     
607
     
20
     
607
     
10
 
   
$
6,838
   
$
7,315
   
$
869
   
$
7,881
   
$
105
   
$
7,699
   
$
46
 
 
18

The table below details loans that have been modified as a troubled debt restructuring during the six and three month periods ended December 31, 2014 and 2013.
 
(Dollars in thousands)
 
Number of Contracts
   
Pre-Modification
Outstanding
Recorded
Investment
   
Post-Modification
Outstanding
Recorded
Investment
   
Current Outstanding Recorded Investment
 
Six months ended December 31, 2014
               
Residential mortgage
   
1
   
$
164
   
$
184
   
$
184
 
                                 
Six months ended December 31, 2013
                               
Residential mortgage
   
2
   
$
367
   
$
367
   
$
362
 
Nonresidential mortgage
   
3
     
1,647
     
1,688
     
1,683
 
                                 
Three months ended December 31, 2014
                               
Residential mortgage
   
1
   
$
164
   
$
184
   
$
184
 
                                 
Three months ended December 31, 2013
                               
Nonresidential mortgage
   
2
   
$
1,205
   
$
1,246
   
$
1,245
 

These loans have been classified as troubled debt restructurings due to concessions granted to the debtors that The Bank of Greene County would not otherwise consider as a result of financial difficulties of the borrowers.  For these loans, concessions consisted of any combination of the following: additional funds were advanced, the interest rate was reduced and/or the term extended. If the borrower performs under the terms of the modification, and the ultimate collectability of all amounts contractually due under the modified terms is not in doubt, these loans will be returned to accrual status.   These loans identified as a troubled debt restructuring have been evaluated for impairment and the impact to the allowance for loan loss was immaterial.

There were no loans that have been modified as a troubled debt restructuring during the previous twelve months which have subsequently defaulted during the six and three months ended December 31, 2014.

The table below details loans that have been modified as troubled debt restructurings during the previous twelve months which have subsequently defaulted during the six and three months ended December 31, 2013:

(Dollars in thousands)
 
Number of Contracts
   
Recorded Investment
   
Allowance for Loan Loss
 
Six months ended December 31, 2013
           
Residential mortgage
   
2
   
$
284
   
$
57
 
Nonresidential mortgage
   
1
     
460
     
109
 
                         
Three months ended December 31, 2013
                       
Residential mortgage
   
1
   
$
211
   
$
57
 
 
19

Allowance for Loan Losses

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

The following tables set forth the activity and allocation of the allowance for loan losses by loan category during and at the periods indicated.  The allowance is allocated to each loan category based on historical loss experience and economic conditions.
 
   
Activity for the three months ended December 31, 2014
 
(In thousands)
 
Balance at
September 30, 2014
   
Charge-offs
   
Recoveries
   
Provision
   
Balance at
December 31, 2014
 
Residential mortgage
 
$
2,647
   
$
168
   
$
-
   
$
110
   
$
2,589
 
Nonresidential mortgage
   
3,164
     
-
     
-
     
303
     
3,467
 
Residential construction and land
   
41
     
-
     
-
     
10
     
51
 
Commercial construction
   
109
     
-
     
-
     
39
     
148
 
Multi-family
   
45
     
-
     
-
     
(1
)
   
44
 
Home equity
   
376
     
-
     
-
     
(4
)
   
372
 
Consumer installment
   
243
     
66
     
5
     
62
     
244
 
Commercial loans
   
831
     
6
     
6
     
50
     
881
 
Unallocated
   
264
     
-
     
-
     
(264
)
   
-
 
Total
 
$
7,720
   
$
240
   
$
11
   
$
305
   
$
7,796
 

   
Activity for the six months ended December 31, 2014
 
(In thousands)
 
Balance at
June 30, 2014
   
Charge-offs
   
Recoveries
   
Provision
   
Balance at
December 31, 2014
 
Residential mortgage
 
$
2,731
   
$
242
   
$
-
   
$
100
   
$
2,589
 
Nonresidential mortgage
   
2,936
     
-
     
-
     
531
     
3,467
 
Residential construction and land
   
42
     
-
     
-
     
9
     
51
 
Commercial construction
   
38
     
-
     
-
     
110
     
148
 
Multi-family
   
59
     
-
     
-
     
(15
)
   
44
 
Home equity
   
361
     
-
     
-
     
11
     
372
 
Consumer installment
   
240
     
121
     
24
     
101
     
244
 
Commercial loans
   
811
     
6
     
6
     
70
     
881
 
Unallocated
   
201
     
-
     
-
     
(201
)
   
-
 
Total
 
$
7,419
   
$
369
   
$
30
   
$
716
   
$
7,796
 
 
20

   
Allowance for Loan Losses
   
Loans Receivable
 
   
Ending Balance
December 31, 2014
Impairment Analysis
   
Ending Balance
December 31, 2014
Impairment Analysis
 
(In thousands)
 
Individually
Evaluated
   
Collectively Evaluated
   
Individually Evaluated
   
Collectively Evaluated
 
Residential mortgage
 
$
363
   
$
2,226
   
$
2,795
   
$
223,967
 
Nonresidential mortgage
   
333
     
3,134
     
2,869
     
124,374
 
Residential construction and land
   
-
     
51
     
-
     
3,651
 
Commercial construction
   
-
     
148
     
-
     
5,686
 
Multi-family
   
-
     
44
     
-
     
4,456
 
Home equity
   
90
     
282
     
200
     
20,872
 
Consumer installment
   
-
     
244
     
-
     
4,105
 
Commercial loans
   
3
     
878
     
599
     
36,054
 
Unallocated
   
-
     
-
     
-
     
-
 
Total
 
$
789
   
$
7,007
   
$
6,463
   
$
423,165
 
 
 
Activity for the three months ended December 31, 2013
 
(In thousands)
 
Balance at
September 30, 2013
   
Charge-offs
   
Recoveries
   
Provision
   
Balance at
December 31, 2013
 
Residential mortgage
 
$
2,558
   
$
205
   
$
-
   
$
419
   
$
2,772
 
Nonresidential mortgage
   
2,622
     
87
     
-
     
205
     
2,740
 
Residential construction and land
   
46
     
-
     
-
     
1
     
47
 
Commercial construction
   
356
     
-
     
-
     
(270
)
   
86
 
Multi-family
   
110
     
24
     
-
     
21
     
107
 
Home equity
   
293
     
8
     
-
     
75
     
360
 
Consumer installment
   
221
     
61
     
17
     
66
     
243
 
Commercial loans
   
822
     
1
     
4
     
(52
)
   
773
 
Unallocated
   
-
     
-
     
-
     
43
     
43
 
Total
 
$
7,028
   
$
386
   
$
21
   
$
508
   
$
7,171
 

   
Activity for the six months ended December 31, 2013
 
(In thousands)
 
Balance at
June 30, 2013
   
Charge-offs
   
Recoveries
   
Provision
   
Balance at
December 31, 2013
 
Residential mortgage
 
$
2,627
   
$
282
   
$
-
   
$
427
   
$
2,772
 
Nonresidential mortgage
   
2,476
     
87
     
-
     
351
     
2,740
 
Residential construction and land
   
37
     
-
     
-
     
10
     
47
 
Commercial construction
   
392
     
-
     
-
     
(306
)
   
86
 
Multi-family
   
139
     
24
     
-
     
(8
)
   
107
 
Home equity
   
275
     
8
     
-
     
93
     
360
 
Consumer installment
   
222
     
120
     
32
     
109
     
243
 
Commercial loans
   
809
     
205
     
4
     
165
     
773
 
Unallocated
   
63
     
-
     
-
     
(20
)
   
43
 
Total
 
$
7,040
   
$
726
   
$
36
   
$
821
   
$
7,171
 
 
21

   
Allowance for Loan Losses
   
Loans Receivable
 
   
Ending Balance
June 30, 2014
Impairment Analysis
   
Ending Balance
June 30, 2014
Impairment Analysis
 
(In thousands)
 
Individually
Evaluated
   
Collectively
Evaluated
   
Individually
Evaluated
   
Collectively
Evaluated
 
Residential mortgage
 
$
441
   
$
2,290
   
$
2,906
   
$
224,467
 
Nonresidential mortgage
   
338
     
2,598
     
3,033
     
111,033
 
Residential construction and land
   
-
     
42
     
-
     
3,005
 
Commercial construction
   
-
     
38
     
-
     
1,558
 
Multi-family
   
-
     
59
     
-
     
4,059
 
Home equity
   
87
     
274
     
296
     
20,282
 
Consumer installment
   
-
     
240
     
-
     
4,208
 
Commercial loans
   
3
     
808
     
603
     
30,391
 
Unallocated
   
-
     
201
     
-
     
-
 
Total
 
$
869
   
$
6,550
   
$
6,838
   
$
399,003
 
 
(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 December 31, 2014 and June 30, 2014 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.
 
22

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:  

   
   
Fair Value Measurements Using
 
       
Quoted Prices In
Active Markets For
Identical Assets
   
Significant Other
Observable Inputs
   
Significant
Unobservable Inputs
 
(In thousands)
 
December 31, 2014
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
               
U.S. Government sponsored enterprises
 
$
8,853
   
$
-
   
$
8,853
   
$
-
 
State and political subdivisions
   
20,273
     
-
     
20,273
     
-
 
Mortgage-backed securities-residential
   
8,724
     
-
     
8,724
     
-
 
Mortgage-backed securities-multi-family
   
26,185
     
-
     
26,185
     
-
 
Asset-backed securities
   
12
     
12
     
-
     
-
 
Corporate debt securities
   
4,844
     
4,844
     
-
     
-
 
Equity securities
   
180
     
180
     
-
     
-
 
Securities available for sale
 
$
69,071
   
$
5,036
   
$
64,035
   
$
-
 

   
   
Fair Value Measurements Using
 
       
Quoted Prices In
Active Markets For
Identical Assets
   
Significant Other
Observable Inputs
   
Significant
Unobservable Inputs
 
(In thousands)
 
June 30, 2014
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Assets:
               
U.S. Government sponsored enterprises
 
$
10,898
   
$
-
   
$
10,898
   
$
-
 
State and political subdivisions
   
1,347
     
-
     
1,347
     
-
 
Mortgage-backed securities-residential
   
9,545
     
-
     
9,545
     
-
 
Mortgage-backed securities-multi-family
   
29,018
     
-
     
29,018
     
-
 
Asset-backed securities
   
13
     
13
     
-
     
-
 
Corporate debt securities
   
5,170
     
5,170
     
-
     
-
 
Equity securities
   
160
     
160
     
-
     
-
 
Securities available for sale
 
$
56,151
   
$
5,343
   
$
50,808
   
$
-
 

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

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed.  Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses.  Impaired loans are those loans for which the Company has 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 may not necessarily represent the actual fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.  The Company has also re-measured impairment based on the discounted cash flows for those loans that have been modified as a troubled-debt restructuring.  The cash flows of the restructured debt have been discounted by the original interest rate prior to the restructuring of the loan to establish the fair value and is therefore classified as Level 3. 
 
23

       
Fair Value Measurements Using
 
(In thousands)
 
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
December 31, 2014
               
Impaired loans
 
$
3,154
   
$
-
   
$
-
   
$
3,154
 
Foreclosed real estate
   
404
     
-
     
-
     
404
 
                                 
June 30, 2014
                               
Impaired loans
 
$
3,527
   
$
-
   
$
-
   
$
3,527
 
Foreclosed real estate
   
382
                     
382
 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were utilized to determine fair value:
 
(Dollars in thousands)
 
Fair Value
 
Valuation Technique
Unobservable Input
 
Range
   
Weighted Average
 
December 31, 2014
               
Impaired Loans
 
$
3,154
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
0.00%-38.85
%
   
12.66
%
             
Liquidation expenses(3)
   
0.00%-9.22
%
   
3.80
%
Foreclosed real estate
   
404
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
7.41%-19.00
%
   
6.08
%
             
Liquidation expenses(3)
   
7.59%-15.63
%
   
11.15
%
June 30, 2014
                           
Impaired loans
 
$
3,527
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
0.00%-38.85
%
   
15.26
%
 
Liquidation expenses(3)
0.00%-9.22
% 3.82 %
Foreclosed real estate
   
382
 
Appraisal of collateral(1)
Appraisal adjustments(2)
   
9.30%-19.00
%
   
12.18
%
 
Liquidation expenses(3)
6.00%-10.86
% 7.95 %

 
(1)
Fair value is generally determined through independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.
 
(2)
Appraisals may be adjusted downwards by management for qualitative factors such as economic conditions.  Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received or age of the appraisal.
 
(3)
Appraisals may be adjusted downwards by management for qualitative factors such as the estimated costs to liquidate the collateral.

At December 31, 2014, loans subject to nonrecurring fair value measurement had a recorded investment of $3.7 million with related allowances of $578,000.  At June 30, 2014, loans subject to nonrecurring fair value measurement had a recorded investment of $4.2 million with related allowances of $721,000. No other financial assets or liabilities were re-measured during the year on a nonrecurring basis.

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

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers.  At December 31, 2014 and June 30, 2014, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.
 
24

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

(In thousands)
 
December 31, 2014
   
Fair Value Measurements Using
 
   
Carrying Amount
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Cash and cash equivalents
 
$
14,869
   
$
14,869
   
$
14,869
   
$
-
   
$
-
 
Long term certificate of deposit
   
250
     
250
     
250
     
-
     
-
 
Securities available for sale
   
69,071
     
69,071
     
5,036
     
64,035
     
-
 
Securities held to maturity
   
181,065
     
181,981
     
-
     
181,981
     
-
 
Federal Home Loan Bank stock
   
3,230
     
3,230
     
-
     
3,230
     
-
 
Net loans
   
422,716
     
432,338
     
-
     
-
     
432,338
 
Accrued interest receivable
   
2,937
     
2,937
     
-
     
2,937
     
-
 
Deposits
   
583,181
     
583,338
     
-
     
583,338
     
-
 
Federal Home Loan Bank borrowings
   
59,000
     
58,861
     
-
     
58,861
     
-
 
Accrued interest payable
   
60
     
60
     
-
     
60
     
-
 

(In thousands)
 
June 30, 2014
   
Fair Value Measurements Using
 
   
Carrying Amount
   
Fair Value
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Cash and cash equivalents
 
$
13,809
   
$
13,809
   
$
13,809
   
$
-
   
$
-
 
Long term certificate of deposit
   
250
     
250
     
250
     
-
     
-
 
Securities available for sale
   
56,151
     
56,151
     
5,343
     
50,808
     
-
 
Securities held to maturity
   
181,946
     
181,932
     
-
     
181,932
     
-
 
Federal Home Loan Bank stock
   
1,561
     
1,561
     
-
     
1,561
     
-
 
Net loans
   
399,309
     
406,718
     
-
     
-
     
406,718
 
Accrued interest receivable
   
2,710
     
2,710
     
-
     
2,710
     
-
 
Deposits
   
589,574
     
589,681
     
-
     
589,681
     
-
 
Federal Home Loan Bank borrowings
   
17,650
     
17,465
     
-
     
17,465
     
-
 
Accrued interest payable
   
66
     
66
     
-
     
66
     
-
 
 
25

(7)
Earnings Per Share
 
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period.  There were no anti-dilutive securities or contracts outstanding during the six and three months ended December 31, 2014 and 2013.

   
Net Income
   
Weighted Average Number Of
Shares Outstanding
   
Earnings per
Share
 
             
Six months ended December 31, 2014
 
$
3,586,000
         
Basic
           
4,215,738
   
$
0.85
 
Effect of dilutive stock options
           
31,055
     
(0.01
)
Diluted
           
4,246,793
   
$
0.84
 
                         
Six months ended December 31, 2013
 
$
3,479,000
                 
Basic
           
4,199,349
   
$
0.83
 
Effect of dilutive stock options
           
38,417
     
(0.01
)
Diluted
           
4,237,766
   
$
0.82
 
                         
Three months ended December 31, 2014
 
$
1,811,000
                 
Basic
           
4,217,118
   
$
$ 0.43
 
Effect of dilutive stock options
           
31,057
     
-
 
Diluted
           
4,248,175
   
$
$ 0.43
 
                         
Three months ended December 31, 2013
 
$
1,725,000
                 
Basic
           
4,203,985
   
$
$0.41
 
Effect of dilutive stock options
           
36,231
     
-
 
Diluted
           
4,240,216
   
$
$0.41
 
 
(8)
Dividends
 
On October 21, 2014, the Board of Directors declared a cash dividend for the quarter ended September 30, 2014 of $0.18 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.72 per share.  The dividend was payable to stockholders of record as of November 14, 2014, and was paid on November 28, 2014.  The MHC waived its right to receive dividends declared on its shares of the Company’s common stock for the quarter ended September 30, 2014.  The MHC received the approval of its members (depositors of The Bank of Greene County) and the non-objection of the Federal Reserve Bank of Philadelphia, to waive the MHC’s receipt of quarterly cash dividends aggregating up to $0.80 per share to be declared by the Company for the four quarters ending December 31, 2014. The waiver of dividends beyond this period are subject to the MHC obtaining approval of its members at a special meeting of members and receive the non-objection of the Federal Reserve Bank of Philadelphia for such dividend waivers for the 12 months subsequent to the approval. Therefore, its ability to waive its right to receive dividends beyond this date cannot be reasonably determined at this time.
 
(9)
Impact of Recent Accounting Pronouncements

In May 2014, the FASB issued an amendment (ASU 2014-09) to its guidance on “Revenue from Contracts with Customers (Topic 606)”.  The objective of the ASU is to align the recognition of revenue with the transfer of promised goods or services provided to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services.  This ASU will replace most existing revenue recognition guidance under GAAP when it becomes effective.  The amendments in this ASU are effective for public business entities for annual periods, beginning after December 15, 2016.  The Company has not yet determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued an amendment (ASU 2014-14) to its guidance on “Receivable – Troubled Debt Restructurings by Creditors (Subtopic 310-40)”.  The objective of the ASU is to reduce the diversity in how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure, to provide more decision-useful information about a creditor’s foreclosed mortgage loans that are expected to be recovered, at least in part, through government guarantees.  The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014.  The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.
 
26

In November 2014, the FASB issued an amendment (ASU 2014-17) to its guidance on “Business Combinations (Topic 805)”.  The objective of this Update is to provide guidance on whether and at what threshold an acquired entity that is a business or nonprofit activity can apply pushdown accounting in its separate financial statements.  The amendments provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity.  The amendments in this Update became effective on November 18, 2014, and did not have a material impact on our consolidated results of operations or financial position.

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

(10)
Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension cost related to the defined benefit pension plan for the six and three months ended December 31, 2014 and 2013 were as follows:

   
Six months ended
December 31,
   
Three months ended
December 31,
 
(In thousands)
 
2014
   
2013
   
2014
   
2013
 
Interest cost
 
$
110
   
$
112
   
$
55
   
$
56
 
Expected return on plan assets
   
(162
)
   
(158
)
   
(81
)
   
(79
)
Amortization of net loss
   
52
     
46
     
26
     
23
 
Net periodic pension cost
 
$
-
   
$
-
   
$
-
   
$
-
 

The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan during fiscal 2015.

SERP

The Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP Plan”), effective as of July 1, 2010. The SERP Plan benefits certain key senior executives of the Bank who have been selected by the Board to participate.

The SERP Plan is intended to provide a benefit from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). Accordingly, the SERP Plan obligates the Bank to make an allocation 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 the 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 Plan for the six and three months ended December 31, 2014 were $99,000 and $51,000, respectively, and for the six and three months ended December 31, 2013 were $58,000 and $32,000, respectively, consisting primarily of service costs and interest costs. The total liability for the SERP Plan was $1.2 million and $899,000 as of December 31, 2014 and June 30, 2014, respectively.
 
27

(11)
Stock-Based Compensation
 
At December 31, 2014, Greene County Bancorp, Inc. had two stock-based compensation plans, which are described more fully in Note 10 of the consolidated financial statements and notes thereto for the year ended June 30, 2014.

Stock Option Plan

At December 31, 2014 and 2013, all granted shares related to the 2008 Option Plan were fully vested, with no remaining compensation cost to be recognized.

A summary of the Company’s stock option activity and related information for its option plan for the six months ended December 31, 2014 and 2013 is as follows:

   
2014
   
2013
 
   
Shares
   
Weighted
Average
Exercise
 Price
Per Share
   
Shares
   
Weighted
Average
 Exercise
Price
Per Share
 
Outstanding at beginning of year
   
59,435
   
$
12.50
     
87,400
   
$
12.50
 
Exercised
   
(5,100
)
 
$
12.50
     
(22,779
)
 
$
12.50
 
Outstanding at period end
   
54,335
   
$
12.50
     
64,621
   
$
12.50
 
                                 
Exercisable at period end
   
54,335
   
$
12.50
     
64,621
   
$
12.50
 

The following table presents stock options outstanding and exercisable at December 31, 2014:

Options Outstanding and Exercisable
 
Range of
Exercise Prices
   
Number
Outstanding
   
Weighted Average
Remaining
Contractual Life
   
Weighted Average
Exercise Price
 
$12.50
     
54,335
     
3.75
   
 
$12.50
 

The total intrinsic value of the options exercised during the six and three months ended December 31, 2014 was approximately $77,000 and $33,000, respectively. The total intrinsic value of the options exercised during the six and three months ended December 31, 2013 was approximately $307,000 and $157,000, respectively.  There were no stock options granted during the six months ended December 31, 2014 or 2013.  All outstanding options were fully vested at December 31, 2014 or 2013.

Phantom Stock Option Plan and Long-term Incentive Plan

The Greene County Bancorp, Inc. 2011 Phantom Stock Option and Long-term Incentive Plan (the “Plan”), was adopted effective July 1, 2011, to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s shareholders. Effective July 1, 2014, the Plan was amended to increase the number of phantom stock options available for awards from 900,000 to 1,800,000.   The Plan is intended to provide benefits to employees and directors of the Company or any subsidiary as designated by the Compensation Committee of the Board of Directors of the Company (“Committee”).   A phantom stock option represents the right to receive a cash payment on the date the award vests. The participant receives an amount equal to the positive difference between the strike price on the grant date and the book value of a share of the Company stock on the determination date, which is the last day of the plan year that is the end of the third plan year after the grant date of the award, unless otherwise specified by the Committee.  The strike price will be the price established by the Committee, which will not be less than 100% of the book value of a share on a specified date, as determined under generally accepted accounting principles (GAAP) as of the last day of the quarter ending on or immediately preceding the valuation date with adjustments made, in the sole discretion of the Committee, to exclude accumulated other comprehensive income (loss).  
 
28

A summary of the Company’s phantom stock option activity and related information for its option plan for the six months ended December 31, 2014 and 2013 is as follows:

   
2014
   
2013
 
Number of options outstanding at beginning of year
   
665,426
     
462,464
 
Options granted
   
241,090
     
227,330
 
Options paid in cash upon vesting
   
(227,484
)
   
(17,528
)
Number of options outstanding at period end
   
679,032
     
672,266
 

The Company paid out $757,700 and $26,900 in cash during the six months ended December 31, 2014 and 2013, respectively on options vested.  There were no option payments made during the three months ended December 31, 2014 and 2013 on options vested. The Company recognized $380,000 and $339,800 in compensation costs related to the Plan during the six months ended December 31, 2014 and 2013, respectively.    The Company recognized $210,000 and $180,000 in compensation costs related to the Plan during the three months ended December 31, 2014 and 2013, respectively. The total liability for the long-term incentive plan was $777,900 and $1.2 million as of December 31, 2014 and June 30, 2014, respectively.
 
(12)
Accumulated Other Comprehensive Loss
 
The components of accumulated other comprehensive loss as of December 31, 2014 and June 30, 2014 are presented in the following table:

(In thousands)
       
Other comprehensive (loss) income:
 
December 31, 2014
   
June 30, 2014
 
Unrealized (loss) gain on available for sale securities, net of tax
 
$
558
   
$
416
 
Unrealized loss on securities transferred to held to maturity, net of tax
   
(72
)
   
(231
)
Net losses and past service liability for defined benefit plan, net of tax
   
(1,235
)
   
(1,235
)
Accumulated other comprehensive loss
 
$
(749
)
 
$
(1,050
)
 
(13)
Subsequent events
 
On January 20, 2015, the Board of Directors declared a cash dividend for the quarter ended December 31, 2014 of $0.18 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.72 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 February 13, 2015, and will be paid on February 27, 2015.  For purposes of liquidity and cash flow, the MHC does not intend to waive its receipt of this dividend.  Therefore, the dividend will be paid on all outstanding shares as of the record date.

Although the MHC will not waive the receipt of dividends to be paid on February 27, 2015, the MHC intends to waive dividends in future periods.  However, the waiver of dividends by the MHC are subject to the MHC obtaining approval of its members at a special meeting of members and receipt of the non-objection of the Federal Reserve Bank of Philadelphia for such dividend waivers for the four quarters subsequent to the approval. A special meeting of members of the MHC is scheduled for February 17, 2015 to vote on a proposal for the MHC to continue to waive its right to receive annual dividends declared by Greene County Bancorp, Inc. in the four quarters subsequent to the approval of this proposal.  Management believes that this proposal will be approved at this special meeting.  Once member approval has been obtained, the MHC will submit its request to the Federal Reserve Board to seek its non-objection to the dividend waiver.
 
29

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.
 
30

Comparison of Financial Condition as of December 31, 2014 and June 30, 2014

ASSETS

Total assets of the Company were $712.4 million at December 31, 2014 as compared to $674.2 million at June 30, 2014, an increase of $38.2 million, or 5.7%.  Securities available for sale and held to maturity amounted to $250.1 million, or 35.1% of assets, at December 31, 2014 as compared to $238.1 million, or 35.3% of assets, at June 30, 2014, an increase of $12.0 million, or 5.0%.   Net loans grew by $23.4 million, or 5.9%, to $422.7 million at December 31, 2014 as compared to $399.3 million at June 30, 2014.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased $1.1 million to $14.9 million at December 31, 2014 from $13.8 million at June 30, 2014.  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 available-for-sale and held-to-maturity issues, increased $12.0 million, or 5.0%, to $250.1 million at December 31, 2014 as compared to $238.1 million at June 30, 2014.  Securities purchases totaled $31.2 million during the six months ended December 31, 2014 and consisted of state and political subdivision securities. Principal pay-downs and maturities during the six months amounted to $19.0 million, of which $7.0 million were mortgage-backed securities, $9.8 million were state and political subdivision securities, $250,000 were corporate debt securities and $2.0 million were U.S. government sponsored enterprises securities. At December 31, 2014, 45.7% of our securities were 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.

   
December 31, 2014
   
June 30, 2014
 
(Dollars in thousands)
 
Balance
   
Percentage
of portfolio
   
Balance
   
Percentage
of portfolio
 
Securities available for sale:
               
U.S. government sponsored enterprises
 
$
8,853
     
3.5
%
 
$
10,898
     
4.5
%
State and political subdivisions
   
20,273
     
8.1
     
1,347
     
0.6
 
Mortgage-backed securities-residential
   
8,724
     
3.5
     
9,545
     
4.0
 
Mortgage-backed securities-multifamily
   
26,185
     
10.5
     
29,018
     
12.2
 
Asset-backed securities
   
12
     
0.0
     
13
     
0.0
 
Corporate debt securities
   
4,844
     
1.9
     
5,170
     
2.2
 
Total debt securities
   
68,891
     
27.5
     
55,991
     
23.5
 
Equity securities
   
180
     
0.1
     
160
     
0.1
 
Total securities available for sale
   
69,071
     
27.6
     
56,151
     
23.6
 
Securities held to maturity:
                               
U.S. government sponsored enterprises
   
2,000
     
0.8
     
2,000
     
0.8
 
State and political subdivisions
   
93,968
     
37.6
     
91,634
     
38.5
 
Mortgage-backed securities-residential
   
20,185
     
8.1
     
22,785
     
9.6
 
Mortgage-backed securities-multifamily
   
64,058
     
25.6
     
64,605
     
27.1
 
Other securities
   
854
     
0.3
     
922
     
0.4
 
Total securities held to maturity
   
181,065
     
72.4
     
181,946
     
76.4
 
Total securities
 
$
250,136
     
100.0
%
 
$
238,097
     
100.0
%

LOANS

Net loans receivable increased $23.4 million, or 5.9%, to $422.7 million at December 31, 2014 from $399.3 million at June 30, 2014.  The loan growth experienced during the period consisted primarily of $13.2 million in nonresidential real estate loans, $4.8 million in construction loans, $397,000 in multi-family mortgage loans, $494,000 in home equity loans, and $5.6 million in non-mortgage loans, and was partially offset by a $611,000 decrease in residential mortgage loans, and a $377,000 increase in the allowance for loan losses.  The continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth. If long term rates begin to rise, the Company anticipates some slowdown in new loan demand as well as refinancing activities.  The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products.  A significant decline in home values, however, in the Company’s markets could have a negative effect on the consolidated results of operations, as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios.  Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status.  Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.
 
31

(Dollars in thousands)
 
December 31, 2014
   
June 30, 2014
 
Real estate mortgages:
 
Balance
   
Percentage of Portfolio
   
Balance
   
Percentage of Portfolio
 
Residential mortgage
 
$
226,762
     
52.8
%
 
$
227,373
     
56.0
%
Nonresidential mortgage
   
127,243
     
29.6
     
114,066
     
28.1
 
Construction and land
   
9,337
     
2.2
     
4,563
     
1.1
 
Multi-family
   
4,456
     
1.0
     
4,059
     
1.0
 
Total real estate mortgages
   
367,798
     
85.6
     
350,061
     
86.2
 
Home equity
   
21,072
     
4.9
     
20,578
     
5.1
 
Consumer installment
   
4,105
     
1.0
     
4,208
     
1.0
 
Commercial loans
   
36,653
     
8.5
     
30,994
     
7.7
 
Total gross loans
   
429,628
     
100.0
%
   
405,841
     
100.0
%
Deferred fees and costs
   
884
             
887
         
Allowance for loan losses
   
(7,796
)
           
(7,419
)
       
Total net loans
 
$
422,716
           
$
399,309
         

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.  The Bank of Greene County considers smaller balance residential mortgages, home equity loans, commercial loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience.  Larger balance residential and commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements.  The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Bank of Greene County charges loans off against the allowance for 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 allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by charge-offs.
 
32

Analysis of allowance for loan losses activity

   
At or for the six months ended December 31,
 
(Dollars in thousands)
 
2014
   
2013
 
Balance at the beginning of the period
 
$
7,419
   
$
7,040
 
Charge-offs:
               
Residential real estate mortgages
   
242
     
282
 
Nonresidential mortgage
   
-
     
87
 
Multi-family
   
-
     
24
 
Home equity
   
-
     
8
 
Consumer installment
   
121
     
120
 
Commercial loans
   
6
     
205
 
Total loans charged off
   
369
     
726
 
                 
Recoveries:
               
Consumer installment
   
24
     
32
 
Commercial loans
   
6
     
4
 
Total recoveries
   
30
     
36
 
                 
Net charge-offs
   
339
     
690
 
                 
Provisions charged to operations
   
716
     
821
 
Balance at the end of the period
   
7,796
     
7,171
 
                 
Net charge-offs to average loans outstanding
   
0.17
%
   
0.37
%
Net charge-offs to nonperforming assets
   
9.87
%
   
20.14
%
Allowance for loan losses to nonperforming loans
   
123.98
%
   
114.70
%
Allowance for loan losses to total loans receivable
   
1.81
%
   
1.82
%

Nonaccrual Loans and Nonperforming Assets

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

Generally, management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis.  The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  Generally, The Bank of Greene County considers smaller balance residential mortgages, home equity loans, commercial and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  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.  A loan does not have to be 90 days delinquent in order to be classified as nonperforming.  Foreclosed real estate is considered to be a nonperforming asset.
 
33

Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)
 
At December 31, 2014
   
At June 30, 2014
 
Nonaccruing loans:
       
Residential
 
$
2,080
   
$
2,473
 
Nonresidential
   
3,103
     
2,775
 
Home equity loans
   
221
     
339
 
Commercial loans
   
418
     
312
 
Total nonaccruing loans
   
5,822
     
5,899
 
90 days & accruing
               
Residential
   
465
     
266
 
Total 90 days & accruing
   
465
     
266
 
Total nonperforming loans
   
6,287
     
6,165
 
Foreclosed real estate:
               
Residential
   
581
     
473
 
Total foreclosed real estate
   
581
     
473
 
Total nonperforming assets
 
$
6,868
   
$
6,638
 
                 
Troubled debt restructuring:
               
Nonperforming (included above)
 
$
2,995
   
$
3,093
 
Performing (accruing and excluded above)
   
1,493
     
1,504
 
                 
Total nonperforming assets as a percentage of total assets
   
0.96
%
   
0.98
%
Total nonperforming loans to net loans
   
1.49
%
   
1.54
%

The table below details additional information related to nonaccrual loans for the six and three months ended December 31:

   
For the six months
ended December 31,
   
For the three months
ended December 31
 
(In thousands)
 
2014
   
2013
   
2014
   
2013
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
 
$
199
   
$
208
   
$
71
   
$
83
 
Interest income that was recorded on nonaccrual loans
   
85
     
64
     
39
     
35
 

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

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

(In thousands)
 
December
31, 2014
   
June 30,
2014
 
Balance of impaired loans, with a valuation allowance
 
$
5,339
   
$
6,075
 
Allowances relating to impaired loans included in allowance for loan losses
   
789
     
869
 
Balance of impaired loans, without a valuation allowance
   
1,124
     
763
 

   
For the six months
ended December 31,
   
For the three months
ended December 31
 
(In thousands)
 
2014
   
2013
   
2014
   
2013
 
Average balance of impaired loans for the periods ended
 
$
7,154
   
$
7,881
   
$
6,869
   
$
7,699
 
Interest income recorded on impaired loans during the periods ended
   
135
     
105
     
42
     
46
 

 
34

Nonperforming assets amounted to $6.9 million at December 31, 2014 and $6.6 million as of June 30, 2014, an increase of $230,000 or 3.5%, and total impaired loans amounted to $6.5 million at December 31, 2014 compared to $6.8 million at June 30, 2014, a decrease of $375,000 or 5.5%.  Loans on nonaccrual status totaled $5.8 million at December 31, 2014 of which $2.8 million were in the process of foreclosure.  Included in nonaccrual loans were $3.3 million of loans which were less than 90 days past due at December 31, 2014, but have a recent history of delinquency greater than 90 days past due. These loans will be returned to accrual status once they have demonstrated a history of timely payments.  Included in total loans past due were $489,000 of loans which were making payments pursuant to forbearance agreements.  Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment).  During this term of the forbearance agreement, the Bank has agreed not to continue foreclosure proceedings.  While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years.  The growth in nonperforming assets is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.

DEPOSITS

Total deposits decreased $6.4 million, or 1.1%, to $583.2 million at December 31, 2014 from $589.6 million at June 30, 2014.  Interest bearing checking accounts (NOW accounts) decreased $9.7 million, or 4.4%, to $210.9 million at December 31, 2014 as compared to $220.6 million at June 30, 2014. Savings deposits decreased $4.0 million from $165.2 million at June 30, 2014 to $161.2 million at December 31, 2014, and certificates of deposit decreased $2.4 million from $48.9 million at June 30, 2014 to $46.5 million at December 31, 2014.  Partially offsetting these decreases was an increase of $10.9 million, or 12.5%, in money market deposits between June 30, 2014 and December 31, 2014.

(In thousands)
 
At
December 31, 2014
   
Percentage of Portfolio
   
At
June 30, 2014
   
Percentage of Portfolio
 
Noninterest bearing deposits
 
$
66,348
     
11.4
%
 
$
67,446
     
11.5
%
Certificates of deposit
   
46,493
     
8.0
     
48,900
     
8.3
 
Savings deposits
   
161,202
     
27.6
     
165,227
     
28.0
 
Money market deposits
   
98,247
     
16.8
     
87,363
     
14.8
 
NOW deposits
   
210,891
     
36.2
     
220,638
     
37.4
 
Total deposits
 
$
583,181
     
100.0
%
 
$
589,574
     
100.0
%

BORROWINGS

During the year ended June 30, 2014, the Company entered into an Irrevocable Letter of Credit Reimbursement Agreement with the Federal Home Loan Bank of New York (“FHLB”), whereby upon The Bank of Greene County’s request, on behalf of Greene County Commercial Bank, an irrevocable letter of credit is issued to secure municipal transactional deposit accounts.  At December 31, 2014, The Bank of Greene County had pledged approximately $206.2 million of its residential mortgage portfolio as collateral for borrowing and stand-by letters of credit with the FHLB.  The maximum amount of funding available from the FHLB was $166.5 million at December 31, 2014, of which $59.0 million in borrowings and $200,000 in stand-by letters of credit were outstanding at December 31, 2014.  There were $43.5 million in short term borrowings outstanding at December 31, 2014.  Interest rates on short term borrowings are determined at the time of borrowing.  The remaining $15.5 million consisted of long-term fixed rate, fixed term advances with a weighted average rate of 1.46% and a weighted average maturity of 43 months.  The Bank has recently increased its level of long-term borrowing to strengthen its overall interest rate risk position, to help mitigate the potential negative impact of rising interest rates.

The Bank of Greene County also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings.  At December 31, 2014, approximately $4.8 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 December 31, 2014 or 2013.

The Bank of Greene County has established unsecured lines of credit with Atlantic Central Bankers Bank and another financial institution for $6.0 million and $5.0 million, respectively.  The lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing.  At December 31, 2014 and 2013 there were no balances outstanding on either of these lines of credit, and there was no activity during the six months ended December 31, 2014 and 2013.
 
35

Scheduled maturities of long-term borrowings at December 31, 2014 were as follows:

(In thousands)
   
Within the year ended June 30,
   
2015
 
$
-
 
2016
   
-
 
2017
   
2,500
 
2018
   
4,500
 
2019
   
5,500
 
Due after 2019
   
3,000
 
   
$
15,500
 

EQUITY

Shareholders’ equity increased to $64.5 million at December 31, 2014 from $61.2 million at June 30, 2014, as net income of $3.6 million and a $301,000 decrease in other accumulated comprehensive loss was partially offset by dividends declared and paid of $693,000.  Other changes in equity, totaling a $70,000 increase, were the result of options exercised pursuant to the Company’s 2008 Stock Option Plan.

Selected Equity Data:
 
At December 31,
 
   
2014
   
2013
 
Shareholders’ equity to total assets, at end of period
   
9.05
%
   
8.95
%
Average shareholders’ equity to average assets
   
9.15
%
   
8.87
%
Book value per share
 
$
15.28
   
$
13.88
 
Closing market price of common stock
 
$
30.10
   
$
26.00
 
 
36

Comparison of Operating Results for the Six and Three Months Ended December 31, 2014 and 2013

Average Balance Sheet

The following tables set forth certain information relating to Greene County Bancorp, Inc. for the six and three ended December 31, 2014 and 2013.  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.

Six Months Ended December 31, 2014 and 2013
 
   
2014
   
2013
 
(Dollars in thousands)
 
Average
 Outstanding
 Balance
   
Interest
 Earned /
 Paid
   
Average
 Yield /
 Rate
   
Average
 Outstanding
Balance
   
Interest
 Earned /
 Paid
   
Average
 Yield /
Rate
 
Interest Earning Assets:
                       
Loans receivable, net1
 
$
415,279
   
$
9,783
     
4.71
%
 
$
380,121
   
$
9,124
     
4.80
%
Securities2
   
247,465
     
2,824
     
2.28
     
240,851
     
2,621
     
2.18
 
Interest bearing bank balances and federal funds
   
5,031
     
10
     
0.40
     
4,163
     
8
     
0.38
 
FHLB stock
   
1,606
     
31
     
3.86
     
1,347
     
24
     
3.56
 
Total interest earning assets
   
669,381
     
12,648
     
3.78
%
   
626,482
     
11,777
     
3.76
%
Cash and due from banks
   
7,133
                     
6,356
                 
Allowance for loan losses
   
(7,607
)
                   
(6,972
)
               
Other non-interest earning assets
   
17,297
                     
16,902
                 
Total assets
 
$
686,204
                   
$
642,768
                 
                                                 
Interest-Bearing Liabilities:
                                               
Savings and money market deposits
 
$
258,196
   
$
410
     
0.32
%
 
$
250,341
   
$
471
     
0.38
%
NOW deposits
   
225,668
     
430
     
0.38
     
208,296
     
454
     
0.44
 
Certificates of deposit
   
47,349
     
161
     
0.68
     
52,918
     
174
     
0.66
 
Borrowings
   
22,195
     
124
     
1.12
     
13,701
     
61
     
0.89
 
Total interest bearing liabilities
   
553,408
     
1,125
     
0.41
%
   
525,256
     
1,160
     
0.44
%
Non-interest bearing deposits
   
67,302
                     
58,281
                 
Other non-interest bearing liabilities
   
2,737
                     
2,189
                 
Shareholders' equity
   
62,757
                     
57,042
                 
Total liabilities and equity
 
$
686,204
                   
$
642,768
                 
                                                 
Net interest income
         
$
11,523
                   
$
10,617
         
Net interest rate spread
                   
3.37
%
                   
3.32
%
Net earnings assets
 
$
115,973
                   
$
101,226
                 
Net interest margin
                   
3.44
%
                   
3.39
%
Average interest earning assets to average interest bearing liabilities
   
120.96
%                    
119.27
%                
 
1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2Includes tax-free securities, mortgage-backed securities, and asset-backed securities.
 
37

Three Months Ended December 31, 2014 and 2013

   
2014
   
2013
 
(Dollars in thousands)
 
Average
 Outstanding
 Balance
   
Interest
 Earned /
 Paid
   
Average
 Yield /
 Rate
   
Average
 Outstanding
 Balance
   
Interest
 Earned /
 Paid
   
Average
 Yield /
Rate
 
Interest Earning Assets:
                       
Loans receivable, net1
 
$
421,550
   
$
4,944
     
4.69
%
 
$
388,126
   
$
4,626
     
4.77
%
Securities2
   
249,687
     
1,438
     
2.30
     
236,807
     
1,305
     
2.20
 
Interest bearing bank balances and federal funds
   
8,902
     
8
     
0.36
     
7,668
     
6
     
0.31
 
FHLB stock
   
1,557
     
17
     
4.37
     
1,322
     
14
     
4.24
 
Total interest earning assets
   
681,696
     
6,407
     
3.76
%
   
633,923
     
5,951
     
3.76
%
Cash and due from banks
   
6,977
                     
6,507
                 
Allowance for loan losses
   
(7,747
)
                   
(6,964
)
               
Other non-interest earning assets
   
17,241
                     
16,860
                 
Total assets
 
$
698,167
                   
$
650,326
                 
                                                 
Interest-Bearing Liabilities:
                                               
Savings and money market deposits
 
$
263,478
   
$
206
     
0.31
%
 
$
250,270
   
$
233
     
0.37
%
NOW deposits
   
233,257
     
218
     
0.37
     
217,749
     
232
     
0.43
 
Certificates of deposit
   
46,697
     
76
     
0.65
     
51,540
     
84
     
0.65
 
Borrowings
   
21,820
     
63
     
1.15
     
13,140
     
33
     
1.00
 
Total interest bearing liabilities
   
565,252
     
563
     
0.40
%
   
532,699
     
582
     
0.44
%
Non-interest bearing deposits
   
66,893
                     
57,890
                 
Other non-interest bearing liabilities
   
2,443
                     
2,114
                 
Shareholders' equity
   
63,579
                     
57,623
                 
Total liabilities and equity
 
$
698,167
                   
$
650,326
                 
                                                 
Net interest income
         
$
5,844
                   
$
5,369
         
Net interest rate spread
                   
3.36
%
                   
3.32
%
Net earnings assets
 
$
116,444
                   
$
101,224
                 
Net interest margin
                   
3.43
%
                   
3.39
%
Average interest earning assets to average interest bearing liabilities
   
120.60
%
                   
119.00
%
               
 

1Calculated net of deferred loan fees and costs, loan discounts, and loans in process.
2Includes tax-free securities, mortgage-backed securities, and asset-backed securities.
 
38

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.

   
Six Months Ended December 31,
   
Three Months Ended December 31,
 
(Dollars in thousands)
 
2014 versus 2013
   
2014 versus 2013
 
   
Increase/(Decrease)
   
Total
   
Increase/(Decrease)
   
Total
 
   
Due To
   
Increase/
   
Due To
   
Increase/
 
   
Volume
   
Rate
   
(Decrease)
   
Volume
   
Rate
   
(Decrease)
 
                         
Interest Earning Assets:
                       
Loans receivable, net1
 
$
832
   
$
(173
)
 
$
659
   
$
396
   
$
(78
)
 
$
318
 
Securities2
   
76
     
127
     
203
     
72
     
61
     
133
 
Interest bearing bank balances and federal funds
   
2
     
0
     
2
     
1
     
1
     
2
 
FHLB stock
   
5
     
2
     
7
     
3
     
0
     
3
 
Total interest earning assets
   
915
     
(44
)
   
871
     
472
     
(16
)
   
456
 
                                                 
Interest-Bearing Liabilities:
                                               
Savings and money market deposits
   
15
     
(76
)
   
(61
)
   
12
     
(39
)
   
(27
)
NOW deposits
   
38
     
(62
)
   
(24
)
   
17
     
(31
)
   
(14
)
Certificates of deposit
   
(18
)
   
5
     
(13
)
   
(8
)
   
(0
)
   
(8
)
Borrowings
   
44
     
19
     
63
     
24
     
6
     
30
 
Total interest bearing liabilities
   
79
     
(114
)
   
(35
)
   
45
     
(64
)
   
(19
)
Net change in net interest income
 
$
836
   
$
70
   
$
906
   
$
427
   
$
48
   
$
475
 


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

GENERAL

Return on average assets and return on average equity are common methods of measuring operating results.  Annualized return on average assets decreased to 1.05% for the six months ended December 31, 2014 as compared to 1.08% for the six months ended December 31, 2013, and was 1.04% and 1.06% for the three months ended December 31, 2014 and 2013, respectively.  Annualized return on average equity increased to 11.43% for the six months and 11.39% for the three months ended December 31, 2014 as compared to 12.20% for the six months and 11.97% for the three months ended December 31, 2013.  The decrease in return on average assets and return on average equity was primarily the result of growth in both average assets and average equity with minimal growth in net income.  Net income amounted to $3.6 million and $3.5 million for the six months ended December 31, 2014 and 2013, respectively, an increase of $107,000 or 3.1% and amounted to $1.8 million and $1.7 million for the three months ended December 31, 2014 and 2013, respectively, an increase of $86,000 or 5.0%.   Average assets increased $43.4 million, or 6.8% to $686.2 million for the six months ended December 31, 2014 as compared to $642.8 million for the six months ended December 31, 2013.  Average equity increased $5.7 million, or 10.0%, to $62.7 million for the six months ended December 31, 2014 as compared to $57.0 million for the six months ended December 31, 2013.  Average assets increased $47.9 million, or 7.4% to $698.2 million for the three months ended December 31, 2014 as compared to $650.3 million for the three months ended December 31, 2013.  Average equity increased $6.0 million, or 10.4% to $63.6 million for the quarter ended December 31, 2014 as compared to $57.6 million for the three months ended December 31, 2013.
 
39

INTEREST INCOME

Interest income amounted to $12.6 million for the six months ended December 31, 2014 as compared to $11.8 million for the six months ended December 31, 2013, an increase of $871,000, or 7.4%.  Interest income amounted to $6.4 million for the three months ended December 31, 2014 as compared to $6.0 million for the three months ended December 31, 2013, an increase of $456,000, or 7.7%. The increase in average loan balances and the increase in securities yields had the greatest impact on interest income when comparing the six and three months ended December 31, 2014 and 2013, which was offset by a decrease in the yield on loans. Average loan balances increased $35.2 million and $33.4 million while the yield on loans decreased 9 basis points and 8 basis points when comparing the six and three months ended December 31, 2014 and 2013, respectively.   Average securities increased $6.6 million and $12.9 million and the yield on such securities increased 10 basis points when comparing the six and three months ended December 31, 2014 and 2013, respectively.

INTEREST EXPENSE

Interest expense amounted to $1.1 million for the six months ended December 31, 2014 as compared to $1.2 million for the six months ended December 31, 2013, a decrease of $35,000, or 3.0%.  Interest expense amounted to $563,000 for the three months ended December 31, 2014 as compared to $582,000 for the three months ended December 31, 2013, a decrease of $19,000, or 3.3%. Decreases in rates on interest-bearing liabilities contributed to the decrease in overall interest expense.  As illustrated in the rate/volume table, interest expense was reduced $114,000 and $64,000 when comparing the six and three months ended December 31, 2014 and 2013, respectively, due to a 3 and 4 basis point decrease in the average rate on interest-bearing liabilities when comparing these same periods.

The average rate paid on NOW deposits decreased 6 basis points when comparing the six and three months ended December 31, 2014 and 2013, and the average balance of such accounts grew by $17.4 million and $15.5 million when comparing these same periods, respectively. The average balance of savings and money market deposits increased by $7.9 million and $13.2 million and the rate paid decreased by 6 basis points when comparing the six and three months ended December 31, 2014 and 2013, respectively. The average balance of certificates of deposit decreased $5.6 million and $4.8 million when comparing the six and three months ended December 31, 2014 and 2013, respectively. The average rate paid on certificate of deposits increased 2 basis points when comparing the six months ended December 31, 2014 and 2013, and remained unchanged when comparing the three months ended December 31, 2014 and 2013. This increase in rate paid on certificates of deposit for the six months is the result of the promotion of a five year certificate product.

The average balance on borrowings increased $8.5 million and the rate increased 23 basis points when comparing the six months ended December 31, 2014 and 2013.  The average balance on borrowings increased $8.7 million and the rate increased 15 basis points when comparing the three months ended December 31, 2014 and 2013.  This was the result of locking in long-term borrowings during the fiscal year ended June 30, 2014 as well as funding loan growth during the six and three months ended December 31, 2014.

NET INTEREST INCOME

Net interest income increased $906,000 to $11.5 million for the six months ended December 31, 2014 from $10.6 million for the six months ended December 31, 2013.  Net interest spread increased 5 basis points to 3.37% as compared to 3.32% when comparing the six months ended December 31, 2014 and 2013, respectively.  Net interest margin increased 5 basis points to 3.44% for the six months ended December 31, 2014 as compared to 3.39% for the six months ended December 31, 2013. Net interest income increased $475,000 to $5.8 million for the three months ended December 31, 2014 from $5.4 million for the three months ended December 31, 2013.  Net interest spread increased 4 basis points to 3.36% as compared to 3.32% when comparing the three months ended December 31, 2014 and 2013, respectively.  Net interest margin increased 4 basis points to 3.43% for the three months ended December 31, 2014 as compared to 3.39% for the three months ended December 31, 2013.  The expansion of the net interest spread and margin, along with an increase in average loan balances, led to an increase in net interest income when comparing the six and three months ended December 31, 2014 and 2013.

Due to the large portion of fixed-rate residential mortgages in the Company’s portfolio, interest rate risk is a concern and the Company will continue to monitor and adjust the asset and liability mix as much as possible to take advantage of the benefits and reduce the risks or potential negative effects of a rising rate environment.  Management attempts to mitigate the interest rate risk through balance sheet composition.  Several strategies are used to help manage interest rate risk such as maintaining a high level of liquid assets such as short-term federal funds sold and various investment securities and maintaining a high concentration of less interest-rate sensitive and lower-costing core deposits.
 
40

PROVISION FOR LOAN LOSSES

Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary.  The amount recognized for the provision for loan losses is determined by management based on its ongoing analysis of the adequacy of the allowance for loan losses.  The provision for loan losses amounted to $716,000 and $821,000 for the six months ended December 31, 2014 and 2013, respectively. The provision for loan losses amounted to $305,000 and $508,000 for the three months ended December 31, 2014 and 2013, respectively.  The higher level of provision in the six and three months ended December 31, 2013 was the result of higher levels of net charge-offs recorded in those periods.  Allowance for loan losses to total loans receivable decreased to 1.81% as of December 31, 2014 as compared to 1.83% as of June 30, 2014.  Nonperforming loans amounted to $6.3 million and $6.2 million at December 31, 2014 and June 30, 2014, respectively.  Net charge-offs amounted to $339,000 and $690,000 for the six months ended December 31, 2014 and 2013, respectively, and amounted to $229,000 and $365,000 for the three months ended December 31, 2014 and 2013, respectively.   At December 31, 2014, nonperforming assets were 0.96% of total assets and nonperforming loans were 1.49% of net loans.   The Company has not been an originator of “no documentation” mortgage loans, and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime.

NONINTEREST INCOME

   
For the six months
ended December 31,
   
Change from Prior Year
 
Noninterest income:
 
2014
   
2013
   
Amount
   
Percent
 
Service charges on deposit accounts
 
$
1,446
   
$
1,331
   
$
115
     
8.6
%
Debit card fees
   
844
     
775
     
69
     
8.9
 
Investment services
   
189
     
192
     
(3
)
   
(1.6
)
E-commerce fees
   
53
     
51
     
2
     
3.9
 
Other operating income
   
377
     
317
     
60
     
18.9
 
Total noninterest income
 
$
2,909
   
$
2,666
   
$
243
     
9.1
%

Noninterest income increased $243,000, or 9.1%, to $2.9 million for the six months ended December 31, 2014 as compared to $2.7 million for the six months ended December 31, 2013, primarily due to an increase in service charges on deposits and debit card fees resulting from continued growth in the number of checking accounts with debit cards, as well as an increase in fees collected on loans which are included in other operating income.

   
For the three months
ended December 31,
   
Change from Prior Year
 
Noninterest income:
 
2014
   
2013
   
Amount
   
Percent
 
Service charges on deposit accounts
 
$
730
   
$
655
   
$
75
     
11.5
%
Debit card fees
   
429
     
386
     
43
     
11.1
 
Investment services
   
87
     
87
     
-
     
-
 
E-commerce fees
   
25
     
25
     
-
     
-
 
Other operating income
   
169
     
163
     
6
     
3.7
 
Total noninterest income
 
$
1,440
   
$
1,316
   
$
124
     
9.4
%

Noninterest income increased $124,000, or 9.4%, to $1.4 million for the three months ended December 31, 2014 as compared to $1.3 million for the three months ended December 31, 2013, primarily due to an increase in service charges on deposits and debit card fees resulting from continued growth in the number of checking accounts with debit cards.

NONINTEREST EXPENSE

   
For the six months
ended December 31,
   
Change from Prior Year
 
Noninterest expense:
 
2014
   
2013
   
Amount
   
Percent
 
Salaries and employee benefits
 
$
4,757
   
$
4,257
   
$
500
     
11.8
%
Occupancy expense
   
668
     
619
     
49
     
7.9
 
Equipment and furniture expense
   
253
     
262
     
(9
)
   
(3.4
)
Service and data processing fees
   
842
     
654
     
188
     
28.8
 
Computer software, supplies and support
   
339
     
207
     
132
     
63.8
 
Advertising and promotion
   
132
     
136
     
(4
)
   
(2.9
)
FDIC insurance premiums
   
192
     
192
     
-
     
-
 
Legal and professional fees
   
592
     
455
     
137
     
30.1
 
Other
   
998
     
781
     
217
     
27.8
 
Total noninterest expense
 
$
8,773
   
$
7,563
   
$
1,210
     
16.0
%
 
41

Noninterest expense increased $1.2 million, or 16.0%, to $8.8 million for the six months ended December 31, 2014 as compared to $7.6 million for the six months ended December 31, 2013.  The increase was primarily due to an increase in salaries and employee benefits of $500,000, an increase in service and data processing fees of $188,000, an increase in computer software, supplies and support of $132,000 and an increase in legal and professional fees of $137,000. The increase in salaries and employees benefits was in part due to normal increases in salaries as well as an increase in the number of employees when comparing the six months ended December 31, 2014 and 2013 as well as to an increase in medical insurance expenses.  The increase in service and data processing fees were the result of higher debit card processing fees.  During the six months ended December 31, 2013, the Company had paid reduced fees as a result of renegotiation of the contract between the Company and its vendor.  These incentives have since expired, resulting in the higher fees paid during the six months ended December 31, 2014.  The increase in computer software, supplies and support was the result of a fee paid to one of the Company’s vendors related to the renegotiation of the contract for support services. The increase in legal and professional fees was the result of implementation costs associated with the formation of the Company’s pooled captive insurance subsidiary, which was established in December 2014. This newly formed company, Greene Risk Management, Inc. was formed as a subsidiary of Greene County Bancorp, Inc. to provide additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.   Included in other expenses were write-downs on foreclosed real estate in the amount of $99,000 for the three months ended December 31, 2014.  These write-downs were the result of either obtaining updated appraisals on the properties or the acceptance of an offer to purchase the property at a value lower than the recorded fair value.

   
For the three months
ended December 31,
   
Change from Prior Year
 
Noninterest expense:
 
2014
   
2013
   
Amount
   
Percent
 
Salaries and employee benefits
 
$
2,390
   
$
2,063
   
$
327
     
15.9
%
Occupancy expense
   
344
     
296
     
48
     
16.2
 
Equipment and furniture expense
   
177
     
149
     
28
     
18.8
 
Service and data processing fees
   
388
     
318
     
70
     
22.0
 
Computer software, supplies and support
   
106
     
93
     
13
     
14.0
 
Advertising and promotion
   
51
     
69
     
(18
)
   
(26.1
)
FDIC insurance premiums
   
101
     
103
     
(2
)
   
(1.9
)
Legal and professional fees
   
379
     
250
     
129
     
51.6
 
Other
   
560
     
410
     
150
     
36.6
 
Total noninterest expense
 
$
4,496
   
$
3,751
   
$
745
     
19.9
%

Noninterest expense increased $745,000, or 19.9%, to $4.5 million for the three months ended December 31, 2014 as compared to $3.8 million for the three months ended December 31, 2013.  The increase was primarily due to an increase in salaries and employee benefits of $327,000, an increase in service and data processing fees of $70,000 and an increase in legal and professional fees of $129,000. The increase in salaries and employees benefits was in part due to normal increases in salary as well as an increase in the number of employees when comparing the three months ended December 31, 2014 and 2013 as well as to an increase in medical insurance expenses.  The increase in service and data processing fees were the result of higher debit card processing fees.  During the three months ended December 31, 2013, the Company had paid reduced fees as a result of renegotiation of the contract between the Company and its vendor.  These incentives have since expired, resulting in the higher fees paid during the three months ended December 31, 2014.  The increase in legal and professional fees was the result of implementation costs associated with the formation of the Company’s pooled captive insurance subsidiary, which was established in December 2014.  Included in other expenses were write-downs on foreclosed real estate in the amount of $99,000 for the six months ended December 31, 2014.  These write-downs were the result of either obtaining updated appraisals on the properties or the acceptance of an offer to purchase the property at a value lower than the recorded fair value.

INCOME TAXES

The provision for income taxes directly reflects the expected tax associated with the pre-tax income generated for the given period and certain regulatory requirements.  The effective tax rate was 27.5% and 27.1% for the six and three months ended December 31, 2014, compared to 29.0% and 28.9% for the six and three months ended December 31, 2013.   The effective tax rate has continued to decline as a result of income derived from tax exempt bonds and loans as well as continued loan growth within the Company’s real estate investment trust subsidiary.  We anticipate that the establishment of the Company’s pooled captive insurance company will also contribute to a lower effective federal income tax rate in future periods, as premium income, up to $1.2 million, received by the pooled captive insurance company is exempt from income taxes.  The premiums paid to the pooled captive insurance company by the Company and its banking subsidiaries are tax deductible.
 
42

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.

The Bank of Greene County’s unfunded loan commitments are as follows at December 31, 2014:

(In thousands)
   
Nonresidential mortgage loan commitments
 
$
4,963
 
Residential mortgage loan commitments
   
3,959
 
Construction and land loan commitments
   
3,316
 
Unused portion of overdraft lines of credit
   
692
 
Unused portion of home equity lines of credit
   
7,782
 
Unused portion of commercial lines of credit
   
14,884
 
Commercial loan commitments
   
226
 
Total commitments
 
$
35,822
 

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 December 31, 2014 and June 30, 2014.  In July 2013, the Office of the Comptroller of the Currency and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised.  Additional constraints will also be imposed on the inclusion in regulatory capital of mortgage-servicing assets, defined tax assets and minority interests.  The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.  The final rule becomes effective for The Bank of Greene County and Greene County Commercial Bank on January 1, 2015.  The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.  The Company has reviewed the new regulatory capital requirements and believes that it will continue to meet all applicable capital adequacy requirements under the new rules.  Also, beginning on January 1, 2015, the top-tier savings and loan holding company, Greene County Bancorp, MHC will be subject to the new regulatory capital requirements.  The Company believes that Greene County Bancorp, MHC will also meet all applicable capital adequacy requirements under the new rules.  Consolidated shareholders’ equity represented 9.1% of total assets at December 31, 2014 and June 30, 2014.
 
43

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.
 
44

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

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

 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
a)
Not applicable
b)
Not applicable
c)
Not applicable

 
Item 3.
Defaults Upon Senior Securities
Not applicable

 
Item 4.
Mine Safety Disclosures
Not applicable

 
Item 5.
Other Information
 
a)
Not applicable
 
b)
There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.
 
 
Item 6.
Exhibits

Exhibits
 
Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350
101
The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended December 31, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) Consolidated Statements of Cash Flows and (iv) related notes, tagged as blocks of text.
 
45

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:  February 13, 2015

By: /s/ Donald E. Gibson

Donald E. Gibson
President and Chief Executive Officer

Date:  February 13, 2015

By: /s/ Michelle M. Plummer

Michelle M. Plummer, CPA
Executive Vice President, Chief Financial Officer, and Chief Operating Officer
 
 
46