form10qdecember312008.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2008

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes:       X                                No:                        

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

Large accelerated filer   _____                                                                           Accelerated filer _____
Non-accelerated filer     _____                                                                           Smaller reporting company       X     

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

Yes:                                       No:     X                           
 
As of February 12, 2009, the registrant had 4,305,670 shares of common stock issued at $ 0.10 par value, and 4,103,120 shares were outstanding.

 
GREENE COUNTY BANCORP, INC.
 
     
     
     
 
INDEX
 
     
     
     
PART I.
FINANCIAL INFORMATION
 
   
Page
Item 1.
Financial Statements (unaudited)
 
 
*   Consolidated Statements of Financial Condition
 
*   Consolidated Statements of Income
 
*   Consolidated Statements of Comprehensive Income
 
*   Consolidated Statements of Changes in Shareholders’ Equity
 
*   Consolidated Statements of Cash Flows
 
*   Notes to Consolidated Financial Statements
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
     
Item 4T.
Controls and Procedures
     
PART II.
OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
     
Item 1A.
Risk Factors
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
     
Item 3.
Defaults Upon Senior Securities
     
Item 4.
Submission of Matters to a Vote of Security Holders
     
Item 5.
Other Information
     
Item 6.
Exhibits
     
 
Signatures
 
   Exhibit 31.1 302 Certification of Chief Executive Officer
 
   Exhibit 31.2 302 Certification of Chief Financial Officer
 
   Exhibit 32.1 906 Statement of Chief Executive Officer
 
   Exhibit 32.2 906 Statement of Chief Financial Officer


 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of December 31, 2008 and June 30, 2008
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
December 31, 2008
   
June 30, 2008
 
Cash and due from banks
  $ 9,785     $ 7,297  
Federal funds sold
    591       1,365  
    Total cash and cash equivalents
    10,376       8,662  
                 
Long term certificate of deposit
    1,000       1,000  
Securities available for sale, at fair value
    108,251       96,692  
Securities held to maturity, at amortized cost
    38,824       15,457  
Federal Home Loan Bank stock, at cost
    1,341       1,386  
                 
Loans
    264,063       240,146  
  Allowance for loan losses
    (2,208 )     (1,888 )
  Unearned origination fees and costs, net
    316       182  
    Net loans receivable
    262,171       238,440  
                 
Premises and equipment
    15,778       15,108  
Accrued interest receivable
    2,507       2,139  
Prepaid expenses and other assets
    614       724  
Other real estate owned
    100       ---  
               Total assets
  $ 440,962     $ 379,608  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 36,494     $ 41,798  
Interest bearing deposits
    344,907       279,633  
    Total deposits
    381,401       321,431  
                 
Borrowings from FHLB, short term
    ---       1,000  
Borrowings from FHLB, long term
    19,000       19,000  
Accrued expenses and other liabilities
    2,508       1,910  
                Total liabilities
    402,909       343,341  
                 
SHAREHOLDERS’ EQUITY
               
Preferred stock,
               
  Authorized 1,000,000 shares; none issued
    ---       ---  
Common stock, par value $.10 per share;
               
   Authorized:12,000,000 shares
               
   Issued: 4,305,670 shares
               
   Outstanding:  4,103,120 shares at December 31, 2008
               
          and 4,095,528 shares at June 30, 2008;
    431       431  
Additional paid-in capital
    10,376       10,267  
Retained earnings
    28,413       27,183  
Accumulated other comprehensive income (loss)
    362       (9 )
Treasury stock, at cost 202,550 shares at December 31,
               
        2008, and 210,142 shares at June 30, 2008
    (1,529 )     (1,586 )
 Unearned ESOP shares, at cost
    ---       (19 )
               Total shareholders’ equity
    38,053       36,267  
               Total liabilities and shareholders’ equity
  $ 440,962     $ 379,608  
See notes to consolidated financial statements.
               


 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Six Months Ended December 31, 2008 and 2007
(Unaudited)
(In thousands, except share and per share amounts)
                 
       
2008
   
2007
 
Interest income:
             
Loans
    $ 7,989     $ 7,214  
Investment securities – taxable
      799       504  
Mortgage-backed securities
      1,865       868  
Tax exempt securities
      455       539  
Interest bearing deposits and federal funds sold
      30       256  
Total interest income
      11,138       9,381  
                     
Interest expense:
                 
Interest on deposits
      3,100       3,726  
Interest on borrowings
      342       93  
Total interest expense
      3,442       3,819  
                     
Net interest income
      7,696       5,562  
                     
Provision for loan losses
      613       278  
Net interest income after provision for loan losses
      7,083       5,284  
                     
Noninterest income:
                 
Service charges on deposit accounts
      1,562       1,327  
Debit card fees
      452       387  
Investment services
      134       187  
E-commerce fees
      130       129  
Net loss on sale of available-for-sale securities
      (12 )     ---  
Write down for impairment of available-for-sale security
      (221 )     ---  
Other operating income
      184       226  
Total noninterest income
      2,229       2,256  
                     
Noninterest expense:
                 
Salaries and employee benefits
      3,735       3,108  
Occupancy expense
      551       458  
Equipment and furniture expense
      342       424  
Service and data processing fees
      632       525  
Computer supplies and support
      155       158  
Advertising and promotion
      144       84  
Other
      954       1,097  
Total noninterest expense
      6,513       5,854  
                     
Income before provision for income taxes
      2,799       1,686  
Provision for income taxes
      958       491  
Net income
    $ 1,841     $ 1,195  
                     
Basic EPS
    $ 0.45     $ 0.29  
Basic shares outstanding
      4,099,154       4,137,088  
Diluted EPS
    $ 0.45     $ 0.29  
Diluted average shares outstanding
      4,120,398       4,182,920  
Dividends per share
    $ 0.34     $ 0.39  
See notes to consolidated financial statements.
                 

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended December 31, 2008 and 2007
(Unaudited)
(Dollars in thousands, except share and per share amounts)
                 
       
2008
   
2007
 
Interest income:
             
Loans
    $ 4,079     $ 3,656  
Investment securities – taxable
      437       248  
Mortgage-backed securities
      1,058       475  
Tax exempt securities
      224       264  
Interest bearing deposits and federal funds sold
      4       129  
Total interest income
      5,802       4,772  
                     
Interest expense:
                 
Interest on deposits
      1,653       1,924  
Interest on borrowings
      172       47  
Total interest expense
      1,825       1,971  
                     
Net interest income
      3,977       2,801  
Provision for loan losses
      418       135  
                     
Net interest income after provision for loan losses
      3,559       2,666  
                     
Noninterest income:
                 
Service charges on deposit accounts
      776       696  
Debit card fees
      222       204  
Investment services
      52       95  
E-commerce fees
      60       59  
Net loss on sale of available-for-sale securities
      (12 )     ---  
Other operating income
      85       106  
Total noninterest income
      1,183       1,160  
                     
Noninterest expense:
                 
Salaries and employee benefits
      1,731       1,588  
Occupancy expense
      284       238  
Equipment and furniture expense
      178       210  
Service and data processing fees
      329       268  
Computer supplies and support
      75       78  
Advertising and promotion
      61       42  
Other
      495       525  
Total noninterest expense
      3,153       2,949  
                     
Income before provision for income taxes
      1,589       877  
Provision for income taxes
      557       251  
Net income
    $ 1,032     $ 626  
                     
Basic EPS
    $ 0.25     $ 0.15  
Basic shares outstanding
      4,102,160       4,136,620  
Diluted EPS
    $ 0.25     $ 0.15  
Diluted average shares outstanding
      4,121,436       4,180,155  
Dividends per share
    $ 0.17     $ 0.14  
See notes to consolidated financial statements.
                 

 
 

 

 Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Six Months Ended December 31, 2008 and 2007
(Unaudited)
(In thousands)
       
2008
   
2007
 
                 
Net income
    $ 1,841     $ 1,195  
                     
Other comprehensive income:
                 
                     
Unrealized holding gain arising during the six months
                 
ended December 31, 2008 and 2007, net of income
                 
tax expense of $141 and $560, respectively.
      226       877  
                     
Accretion of unrealized loss on securities transferred to held-to-maturity
                 
net of income tax of $2, and $0
      3       ---  
                     
Reclassification adjustment for loss on sale of available-for-sale securities
                 
realized in net income net of income taxes of $5, and $0, respectively
      7       ---  
                     
Reclassification adjustment for impairment write-down on available-for-sale
                 
securities realized in net income net of income taxes of $86, and $0,
                 
respectively.
      135       ---  
                     
Total other comprehensive income
      371       877  
                     
Comprehensive income
    $ 2,212     $ 2,072  
                     
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended December 31, 2008 and 2007
(Unaudited)
(In thousands)
       
2008
   
2007
 
                 
Net income
    $ 1,032     $ 626  
                     
Other comprehensive income:
                 
                     
Unrealized holding gain arising during the three months ended December 31,
                 
2008 and 2007, net of income tax expense of $323 and $269, respectively
      512       422  
                     
Accretion of unrealized loss on securities transferred to held-to-maturity
                 
net of income tax of $2, and $0
      3       ---  
                     
Reclassification adjustment for loss on sale of available-for-sale securities
                 
realized in net income net of income taxes of $5, and $0, respectively
      7       ---  
                     
                     
Total other comprehensive income
      522       422  
                     
Comprehensive income
    $ 1,554     $ 1,048  
                     
See notes to consolidated financial statements.

 
 

 


Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended December 31, 2008 and 2007
(Unaudited)
(Dollars in thousands)


       
Accumulated
     
   
Additional
 
Other
 
Unearned
Total
 
Capital
Paid – In
Retained
Comprehensive
Treasury
ESOP
Shareholders’
 
Stock
Capital
Earnings
Income
Stock
Shares
Equity
       
(loss)
     
Balance at
             
June 30, 2007
$431
$10,319
$25,962
($400)
($828)
($69)
$35,415
               
ESOP shares earned
 
55
     
30
85
               
Options exercised
 
(9)
   
31
 
22
               
Tax effect, Options
 
3
       
3
               
Shares repurchased
       
(153)
 
(153)
               
Dividends declared
   
(720)
     
(720)
               
Net income
   
1,195
     
1,195
               
Adoption of FIN 48
   
(218)
     
(218)
               
Unrealized gain on securities,  net
     
 
877
   
 
877
               
Balance at
             
December 31, 2007
$431
$10,368
$26,219
$477
($950)
($39)
$36,506
               
Balance at
 
 
 
 
 
 
 
June 30, 2008
$431
$10,267
$27,183
($9)
($1,586)
($19)
$36,267
         
 
   
ESOP shares earned
 
43
     
19
62
               
Options exercised
 
(27)
   
57
 
30
               
Stock options earned
 
93
       
93
               
Dividends declared
   
(611)
     
(611)
               
Net income
   
1,841
     
1,841
               
Unrealized gain on securities,  net
     
371
   
371
               
Balance at
             
December 31, 2008
$431
$10,376
$28,413
$362
($1,529)
--
$38,053

See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2008 and 2007
(Unaudited)
(In thousands)
       
2008
   
2007
 
Cash flows from operating activities:
             
Net Income
    $ 1,841     $ 1,195  
Adjustments to reconcile net income to cash provided by operating activities:
                 
Depreciation
      437       509  
Net amortization of premiums and discounts
      112       139  
Net amortization of deferred loan costs and fees
      65       31  
Provision for loan losses
      613       278  
ESOP compensation earned
      62       85  
Stock option compensation
      93       ---  
Write-down of impairment of available-for-sale securities
      221       ---  
Net loss on sale of available-for-sale securities
      12       ---  
Net increase (decrease) in accrued income taxes
      223       (122 )
Net increase in accrued interest receivable
      (368 )     (34 )
Net decrease in prepaid and other assets
      68       104  
Net increase (decrease) in other liabilities
      183       (126 )
Net cash provided by operating activities
      3,562       2,059  
                     
Cash flows from investing activities:
                 
Available for sale securities:
                 
Proceeds from maturities and calls of securities
      5,844       5,652  
Proceeds from sale of securities
      4,587       ---  
Purchases of securities
      (50,436 )     (18,055 )
Principal payments on securities
      5,291       5,731  
Held to maturity securities:
                 
Proceeds from maturities and calls of securities
      1,558       130  
Purchases of securities and other investments
      (3,846 )     ---  
Principal payments on securities
      2,336       20  
Net redemption (purchase) of Federal Home Loan Bank Stock
      45       (180 )
Net increase in loans receivable
      (24,509 )     (15,491 )
Purchases of premises and equipment
      (1,107 )     (1,025 )
Net cash used in investing activities
      (60,237 )     (23,218 )
                     
Cash flows from financing activities:
                 
Net decrease in short-term FHLB advances
      (1,000 )     ---  
Proceeds of long-term FHLB borrowings
      ---       4,000  
Dividends paid
      (611 )     (720 )
Proceeds from exercise of stock options
      30       22  
Purchase of treasury stock
      ---       (153 )
Net increase in deposits
      59,970       13,015  
Net cash provided by financing activities
      58,389       16,164  
Net increase (decrease) in cash and cash equivalents
      1,714       (4,995 )
Cash and cash equivalents at beginning of period
      8,662       14,026  
Cash and cash equivalents at end of period
    $ 10,376     $ 9,031  

Non-cash investing activities:
     
Foreclosed loans transferred to other real estate owned
$100
 
$---
Reclassification of available-for-sale securities to held-to-maturity securities
23,754
 
16,535
See notes to consolidated financial statements.
     

 
 

 

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Six Months and Three Months Ended December 31, 2008 and 2007


(1)  Basis of Presentation

The accompanying consolidated balance sheet information as of June 30, 2008 was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, The Bank of Greene County (the “Bank”) and the Bank’s wholly owned subsidiary, Greene County Commercial Bank.  The consolidated financial statements at and for the three and six months ended December 31, 2008 and 2007 are unaudited.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  To the extent that information and footnotes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-KSB for the year ended June 30, 2008, such information and footnotes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three and six month periods ended December 31, 2008 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2009.


CRITICAL ACCOUNTING POLICIES

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

Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and Staff Accounting Bulletin 59, “Noncurrent Marketable Equity Securities,” require companies to perform periodic reviews of individual securities in their investment portfolios to determine whether decline in the value of a security is other than temporary.  Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades.  Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss.
 
(2)  Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its subsidiaries.  The Bank of Greene County has eleven full-service offices and an operations center located in its market area consisting of Greene County, Columbia County and southern Albany County, New York.    The Bank of Greene County is primarily engaged in the business of attracting deposits from the general public in The Bank of Greene County’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities.  Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities.
 
(3)      Use of Estimates

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

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

Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades.  Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss.
 
(4)  Fair Value Measurements and Fair Value of Financial Instruments

 
SFAS 157, “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 under SFAS 157 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 or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
 


 
For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:
 
   
Fair Value Measurements Using
   
    Quoted Prices
    Significant
  Significant
   
 In Active Markets
Other Observable
Unobservable
   
For Identical Assets
         Inputs
       Inputs
(In thousands)
December 31, 2008
         (Level 1)
       (Level 2)
     (Level 3)
Assets:
        
Securities available-for-sale
$108,251
     $56,725
 $51,526
 $---

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, SFAS 157 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 in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” when establishing the allowance for credit losses. Such amounts are generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 2. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.  At December 31, 2008, loans subject to nonrecurring fair value measurement had a gross carrying amount of $248,000 and a fair value of $168,000 with an associated valuation allowance of $80,000.  These loans were classified as a Level 3 valuation.  Changes in fair value for the quarter and six months ended December 31, 2008 was a decrease of $22,000 and $1,000, respectively, primarily the result of a charge-off.
 
(5)      Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options and unvested restricted stock) issued became vested during the period.  Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for either the basic or diluted earnings per share calculations.

 
 

 


 
 
 
 
 
Net Income
        
 
 
Weighted Average Number of Shares
Outstanding
     
 
 
 
 
Earnings Per Share
Six Months Ended
     
       
December 31, 2008:
$1,841,000
   
   Basic
 
4,099,154
$0.45
   Effect of dilutive stock options
 
21,244
(0.00)
   Diluted
 
4,120,398
$0.45
       
December 31, 2007:
$1,195,000
 
 
   Basic
 
4,137,088
$0.29
   Effect of dilutive stock options
 
45,832
(0.00)
   Diluted
 
4,182,920
$0.29
       
       
 
 
 
 
Net Income
 
 
 
Weighted Average Number of Shares
Outstanding
 
 
 
Earnings Per Share
Three Months Ended
     
       
December 31, 2008:
$1,032,000
   
   Basic
 
4,102,160
$0.25
   Effect of dilutive stock options
 
19,276
(0.00)
   Diluted
 
4,121,436
$0.25
       
December 31, 2007:
$626,000
   
   Basic
 
4,136,620
$0.15
   Effect of dilutive stock options
 
43,535
(0.00)
   Diluted
 
4,180,155
$0.15
 
 
(6)  Dividends

On October 22, 2008, the Board of Directors declared a quarterly dividend of $0.17 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.68 per share, which was the same as the dividend declared during the previous quarter.  The dividend was payable to stockholders of record as of November 15, 2008, and was paid on December 1, 2008.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continues to waive receipt of dividends on the 2,304,632 shares of Company stock it owns.

(7)      Impact of Inflation and Changing Prices

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

(8)      Impact of Recent Accounting Pronouncements

In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, “Effective Date of FASB Statement No. 157,” that permits a one-year deferral in applying the measurement provisions of Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The Company is currently evaluating the impact, if any, that the adoption of FSP 157-2 will have on the Company’s consolidated financial statements.

In December 2007, the FASB issued statement No. 141 (R) “Business Combinations”. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The new guidance will impact the Company’s accounting for business combinations completed beginning July 1, 2009.

In December 2007, the FASB issued statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51”. This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company believes that this new pronouncement will not have a material impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements.  This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”  The Company believes that this new pronouncement will not have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.”  This FSP clarifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders.  Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied.  This FSP is effective for fiscal years beginning after December 15, 2008.  The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

In October 2008, the FASB issued FSP SFAS No. 157-3,Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active”  (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market.  FSP 157-3 is effective immediately and applies to our December 31, 2008 financial statements.  The application of the provisions of FSP 157-3 did not have an impact on our results of operations or financial condition as of and for the periods ended December 31, 2008.
 
In January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment of Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and other related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.
 
 
In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). Under the proposed roadmap, the Company may be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.


 (9)      Stock-Based Compensation

At December 31, 2008, Greene County Bancorp, Inc. had three stock-based compensation plans, two of which are described more fully in Note 9 of the consolidated financial statements and notes thereto for the year ended June 30, 2008.  A new stock-based compensation plan (the “Option Plan”) was approved by shareholders on July 29, 2008 which allows the Company to issue up to 180,000 options and stock appreciation rights.  On August 19, 2008, the Board of Directors granted 164,500 options and stock appreciation rights (in tandem) to buy stock under the Option Plan at an exercise price of $12.50, the fair value of the stock on that date.  These options have a 10-year term and vest over a minimum of a three year period which is contingent upon meeting specific earnings performance goals. The fair value of each share option grant under the Option Plan was estimated on the date of grant to be $4.06 using the Black-Scholes option pricing model and assumes that performance goals will be achieved.   If such goals are not met, no compensation cost will be recognized and any recognized compensation cost will be reversed.   The assumptions used in the Black-Scholes option pricing model as of the grant date were as follows:

       
Weighted average risk-free interest rate
    3.23 %
Weighted average expected term
 
6.5 years
 
Weighted average expected volatility
    59.57 %
Weighted average expected dividend
    6.72 %

The Company recognized $56,000 and $93,000 in compensation costs and related income tax benefit of $6,000 and $10,000 related to the Option Plan for the quarter and six months ended December 31, 2008, respectively.  There was no stock-based compensation expense recorded during the quarter or six months ended December 31, 2007.   At December 31, 2008, there was $575,600 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted.  That cost is expected to be recognized over a weighted-average period of 2.50 years.


A summary of the Company’s stock option activity and related information for its option plans for the six months ended December 31, 2008 and 2007 is as follows:

 
2008
 
2007
     
Weighted Average
     
Weighted Average
     
Exercise
     
Exercise
     
Price
     
Price
 
Shares
 
Per Share
 
Shares
 
Per Share
Outstanding at beginning of year
41,944
 
$5.00
 
72,664
 
$4.55
Options granted
164,500
 
$12.50
 
---
 
---
Exercised
(7,592)
 
$3.94
 
(5,580)
 
$3.94
Forfeited
---
 
---
 
---
 
---
Outstanding at period end
198,852
 
$11.25
 
67,084
 
$4.60
Exercisable at period end
34,352
 
$5.24
 
67,084
 
$4.60


The following table presents stock options outstanding and exercisable at December 31, 2008:

Options Outstanding and Exercisable
 
Range of Exercise Prices
 
Number Outstanding
Weighted Average Remaining Contractual Life
Weighted Average Exercise Price
$3.94
25,852
1.25
$3.94
$9.20
8,500
3.25
$9.20
$3.94-$9.20
34,352
1.75
$5.24

The total intrinsic value of the options exercised during the three and six months ended December 31, 2008 was approximately $17,000 and $61,000, respectively.  There were no stock options granted during the six months ended December 31, 2007.  The Company had 164,500 non-vested options outstanding at December 31, 2008 and no non-vested options outstanding at or during the quarter ended December 31, 2007.

(10)       Stock Repurchase Program

On August 22, 2007, the Board of Directors authorized a stock repurchase program pursuant to which the Company intends to repurchase up to 5% of its outstanding shares (excluding shares held by Greene County Bancorp, MHC, the Company’s mutual holding company), or up to 92,346 shares.  As of December 31, 2008, the Company had repurchased 62,478 shares pursuant to this program at an average cost of $12.79 per share.

(11)      Subsequent Event

On January 20, 2009, the Board of Directors declared a quarterly cash dividend of $0.17 per share of Greene County Bancorp, Inc. common stock.  The dividend reflected an annual cash dividend rate of $0.68 cents per share, which was the unchanged from the dividend declared during the previous quarter.  The dividend will be payable to stockholders of record as of February 13, 2009, and will be paid on March 2, 2009.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continued to waive receipt of dividends on the 2,304,632 shares of Company common stock it owns for the current period.

 
 

 

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

Overview of the Company’s Activities and Risks

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

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

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

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

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

Special Note Regarding Forward Looking Statements

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

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

 
 

 

Comparison of Financial Condition as of December 31, 2008 and June 30, 2008

ASSETS

Total assets of the Company were $441.0 million at December 31, 2008 as compared to $379.6 million at June 30, 2008, an increase of $61.4 million, or 16.2%.  Securities classified as both available-for-sale  and held-to-maturity amounted to $147.1 million, or 33.4% of assets, at December 31, 2008 as compared to $112.1 million, or 29.5% of assets, at June 30, 2008, an increase of $35.0 million or 31.2%.   Securities purchases, including both available-for-sale and held-to-maturity, totaled $54.3 million between June 30, 2008 and December 31, 2008.  These activities were partially offset by principal pay-downs and maturities of $15.0 million and sales of $4.6 million over the same time frame.  Loans grew by $24.0 million or 10.0% to $264.1 million at December 31, 2008 as compared to $240.1 million at June 30, 2008.

SECURITIES

Securities, including both available-for-sale and held-to-maturity issues, increased $35.0 million or 31.2% to $147.1 million at December 31, 2008 as compared to $112.1 million at June 30, 2008.  Securities purchases totaled $54.3 million during the six months ended December 31, 2008.  Purchases consisted of $15.6 million of U.S. government sponsored enterprises bonds, $34.6 million of mortgage-backed securities, and $4.1 million of state and political subdivision securities. These purchases were funded through deposit growth, primarily from local municipalities. The deposits with municipalities require the Company to pledge securities as collateral for any uninsured balances.  This increase was partially offset by principal pay-downs and maturities that amounted to $15.0 million, of which $5.2 million were mortgage-backed securities, $4.2 million were state and political subdivision securities and $5.5 million were U.S. government sponsored enterprises securities, and sales of mortgage-backed securities of $4.6 million.

During the quarter ended December 31, 2008, $23.8 million of securities available-for-sale were transferred to held-to-maturity and included primarily mortgage-backed securities.  These securities were transferred at fair value which reflected a net unrealized loss of $338,000.  This unrealized loss is being accreted to other comprehensive income over the remaining average lives of these securities.  Additionally, during the six months ended December 31, 2008, unrealized net gains on securities increased $605,000.  Greene County Bancorp, Inc. holds 17.9% of the securities portfolio at December 31, 2008 in state and political subdivision securities to take advantage of tax savings and to promote Greene County Bancorp, Inc.’s participation in the communities in which it operates.     Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.
   
Carrying Value at
 
   
December 31, 2008
   
June 30, 2008
 
(Dollars in thousands)
 
Balance
   
Percentage
of portfolio
   
Balance
   
Percentage
of portfolio
 
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 26,494       18.0 %   $ 16,146       14.4 %
  State and political subdivisions
    10,907       7.4       10,850       9.7  
  Mortgage-backed securities
    62,667       42.6       60,782       54.2  
  Asset-backed securities
    48       0.1       49       0.1  
  Corporate debt securities
    8,107       5.5       8,486       7.5  
Total debt securities
    108,223       73.6       96,313       85.9  
  Equity securities and other
    28       0.0       379       0.3  
Total available-for-sale securities
    108,251       73.60       96,692       86.2  
Securities held-to-maturity:
                               
  State and political subdivisions
    15,410       10.5       15,457       13.8  
  Mortgage-backed securities
    23,077       15.7       ---       ---  
  Other
    337       0.2       ---       ---  
Total held-to-maturity securities
    38,824       26.4       15,457       13.8  
Total securities
  $ 147,075       100.0 %   $ 112,149       100.0 %
 
LOANS

Net loans receivable increased to $262.2 million at December 31, 2008 from $238.4 million at June 30, 2008, an increase of $23.8 million, or 10.0%.  The loan growth experienced during the six months primarily consisted of $13.0 million in residential mortgages, $6.6 million in commercial real estate loans, $1.0 million in construction and land loans, $2.2 million in home equity loans and $1.4 million in commercial loans.  The continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth.    If long term rates begin to rise, the Company anticipates some slow down in new loan demand as well as refinancing activities.  It appears consumers continue to use the equity in their homes to fund financing needs for some activities, where in the past an installment loan may have been the choice.  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.  It should be noted however that the Company is subject to the effects of any downturn, and especially, a significant decline in home values in the Company’s markets could have a negative effect on the results of operations.  A significant decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios.  As of December 31, 2008, declines in home values have been modest in the Company’s market area.

(Dollars in  thousands)
                       
   
At
December 31, 2008
   
Percentage
of portfolio
   
At
June 30, 2008
   
Percentage
of portfolio
 
Real estate mortgages
                       
   Residential
  $ 171,156       64.8 %   $ 158,193       65.9 %
   Construction and land
    13,256       5.0       12,295       5.1  
   Commercial
    36,993       14.0       30,365       12.6  
   Multifamily
    1,019       0.4       1,094       0.5  
Home equity loans
    26,199       9.9       23,957       10.0  
Commercial loans
    11,112       4.2       9,669       4.0  
Installment loans
    3,889       1.5       4,172       1.7  
Passbook loans
    439       0.2       401       0.2  
Total loans
  $ 264,063       100.0 %   $ 240,146       100.0 %
Deferred fees and costs
    316               182          
Less: Allowance for loan losses
    (2,208 )             (1,888 )        
Net loans receivable
  $ 262,171             $ 238,440          

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans on which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses.  Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.  The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by net charge-offs.  The level of the provision for the six months ended December 31, 2008, was driven by the continued growth of the loan portfolio and recent increases in loan delinquencies.  Any future increase in the allowance for loan losses or loan charge-offs could have a material adverse effect on Greene County Bancorp, Inc.’s results of operations and financial condition.



Analysis of allowance for loan losses activity

(Dollars in thousands)
 
Six months ended
 
   
December 31, 2008
   
December 31, 2007
 
             
Balance at the beginning of the period
  $ 1,888     $ 1,486  
Charge-offs:
               
     Residential mortgage
    65       ---  
     Commercial loan
    85       15  
     Installment loans to individuals
    49       16  
     Overdraft protection
    139       115  
Total loans charged off
    338       146  
                 
Recoveries:
               
     Residential mortgage
    1       ---  
     Home equity loans
    ---       27  
     Installment loans to individuals
    18       19  
     Overdraft protection
    26       30  
Total recoveries
    45       76  
                 
Net charge-offs
    293       70  
                 
Provisions charged to operations
    613       278  
Balance at the end of the period
  $ 2,208     $ 1,694  
                 
Ratio of net charge-offs to average loans outstanding, annualized
    0.23 %     0.06 %
Ratio of net charge-offs to nonperforming assets, annualized
    31.97 %     7.93 %
Allowance for loan loss to nonperforming loans
    127.41 %     95.92 %
Allowance for loan loss to total loans receivable
    0.84 %     0.76 %


Nonaccrual Loans and Nonperforming Assets

Loans are reviewed on a regular basis.  Management determines that a loan is impaired or nonperforming when it is probable at least a portion of the loan will not be collected in accordance with its contractual terms due to an irreversible deterioration in the financial condition of the borrower or the value of the underlying collateral.  When a loan is determined to be impaired, the measurement of the loan impairment is based on the present value of estimated future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.  Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  Nonaccrual is defined as a loan in which collectibility is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan does not have to be 90 days delinquent in order to be classified as nonperforming.  Foreclosed real estate is considered nonperforming.  The Bank of Greene County had no accruing loans delinquent 90 days or more at December 31, 2008 or June 30, 2008.



 
Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)
 
At December 31, 2008
   
At June 30, 2008
 
Nonaccruing loans:
           
  Real estate mortgage loans:
           
      Residential mortgages loans (one- to-four family)
  $ 1,082     $ 1,123  
      Construction and land loans
    13       38  
      Commercial mortgage loans
    89       91  
      Multifamily mortgage loans
    26       26  
   Home equity
    344       493  
   Commercial loans
    142       142  
   Installment loans to individuals
    37       26  
Total nonaccruing loans
    1,733       1,939  
                 
Foreclosed real estate
    100       ---  
Total nonperforming assets
  $ 1,833     $ 1,939  
                 
Total nonperforming assets as a percentage of total assets
    0.42 %     0.51 %
Total nonperforming loans to total loans
    0.66 %     0.81 %
                 

The Company identifies impaired loans and measures the impairment in accordance with Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” (Statement 114), as amended.  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.  Impaired loans totaled $248,000 as of December 31, 2008 of which $122,000 were nonaccrual.  The Company has allocated approximately $80,000 of the allowance for loan losses for impaired loans as of December 31, 2008.  Interest income of $32,000 and $46,000 was recorded on nonaccrual loans based on cash payments received during the six months ended December 31, 2008 and 2007, respectively.


DEPOSITS

Total deposits increased to $381.4 million at December 31, 2008 from $321.4 million at June 30, 2008, an increase of $60.0 million, or 18.7%.  The Company has recently attracted new local municipalities including school districts to use the services of Greene County Commercial Bank, which is a limited purpose entity for such activities.  Greene County Commercial Bank has sought core deposits from such entities rather than more expensive time accounts.  The level of deposits held by such public entities can be cyclical and fluctuate significantly from quarter to quarter and are significantly dependent and affected by tax collection periods or special projects such as new buildings or renovations.  These types of local municipal entities are also required to have certain forms of collateral pledged for amounts deposited over the FDIC insurance limits.  Deposits at Greene County Commercial Bank increased $56.1 million to $102.9 million at December 31, 2008 compared to $46.8 million at June 30, 2008. This increase was primarily in NOW deposits.  Interest bearing checking accounts (NOW accounts) increased $56.4 million or 70.9% to $135.9 million at December 31, 2008 as compared to $79.5 million at June 30, 2008.  Savings deposits decreased $3.0 million or 4.1% to $69.7 million at December 31, 2008 as compared to $72.7 million at June 30, 2008.    Money market deposits increased $6.8 million to $44.8 million at December 31, 2008.   Certificates of deposit balances increased $5.0 million between June 30, 2008 and December 31, 2008.  Noninterest bearing deposits decreased $5.3 million to $36.5 million at December 31, 2008.






(Dollars in  thousands)
At
December 31, 2008
Percentage
of portfolio
At
June 30, 2008
Percentage
of portfolio
 
         
Noninterest bearing deposits
$36,494
9.6%
$41,798
13.0%
Certificates of deposit
94,454
    24.8
89,470
     27.9
Savings deposits
69,722
    18.3
72,706
     22.6
Money market deposits
44,816
    11.7
37,970
     11.8
NOW deposits
135,915
    35.6
79,487
     24.7
Total deposits
$381,401
100.0%
$321,431
100.0%



BORROWINGS

At December 31, 2008, The Bank of Greene County had available an Overnight Line of Credit and a One-Month Overnight Repricing Line of Credit, each in the amount of $37.7 million with the Federal Home Loan Bank.  At December 31, 2008, there were no balances outstanding under these facilities.  Interest rates on these lines are determined at the time of borrowing.

At December 31, 2008, The Bank of Greene County had term borrowings totaling $19.0 million from the FHLB, of which $14.0 million consisted of several fixed rate, fixed term advances with a weighted average rate of 3.34% and a weighted average maturity of 28 months.  The remaining $5.0 million borrowing, which carried a 3.64% interest rate at December 31, 2008, is unilaterally convertible by the FHLB under certain market interest rate scenarios, including three-month LIBOR at or above 7.50%, into replacement advances for the same or lesser principal amount based on the then current market rates.  If the Bank chooses not to accept the replacement funding, the Bank must repay this convertible advance, including any accrued interest, on the interest payment date.


Scheduled maturities of borrowings at December 31, 2008 were as follows:
(In thousands)
     
Fiscal year end
     
2010
  $ 4,000  
2011
    5,000  
2012
    3,000  
2013
    1,000  
2014
    6,000  
    $ 19,000  

EQUITY

Shareholders’ equity increased to $38.1 million at December 31, 2008 from $36.3 million at June 30, 2008, as net income of $1.8 million was partially offset by dividends declared and paid of $611,000. Additionally, shareholders’ equity increased  $371,000 as a result of unrealized securities gains, net of tax.  Other changes in equity, totaling an $185,000 increase, were the result of activities associated with the various stock-based compensation plans of the Company including the 2000 and 2008 Stock Option Plans and ESOP Plan.




Comparison of Operating Results for the Six Months and Quarter Ended December 31, 2008 and 2007

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the six months and quarters ended December 31, 2008 and 2007.  For the periods indicated, the total dollar amount of interest income from average interest earning assets and the resultant yields, as well as the interest expense on average interest bearing liabilities, are expressed both in dollars and rates.  No tax equivalent adjustments were made.  Average balances were based on daily averages for the quarters and six months ended December 31, 2008 and 2007.  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, 2008 and 2007
(Dollars in thousands)
2008
2008
2008
2007
2007
2007
 
Average
Interest
Average
Average
Interest
Average
 
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
 
Balance
Paid
Rate
Balance
Paid
Rate
Interest earning assets:
           
   Loans receivable, net1
$253,327
$7,989
6.31%
$217,494
$7,214
6.63%
   Securities2
137,074
3,084
  4.50
89,330
1,885
  4.22
   Federal funds
1,575
12
  1.52
7,147
172
  4.81
   Interest bearing bank balances
1,939
18
  1.86
3,888
84
  4.32
   FHLB stock
1,449
35
  4.83
663
26
  7.84
       Total interest earning assets
395,364
11,138
  5.63%
318,522
9,381
  5.89%
Cash and due from banks
6,058
 
 
5,508
   
Allowance for loan losses
(1,936)
   
(1,564)
   
Other non-interest earning assets
17,965
   
15,071
   
     Total assets
$417,451
   
$337,537
   
 
 
   
 
   
             
Interest bearing liabilities:
 
 
       
   Savings and money market deposits
$113,149
$684
  1.21%
$108,192
$1,054
  1.95%
   NOW deposits
112,879
1,062
  1.88
67,566
922
  2.73
   Certificates of deposit
91,360
1,354
  2.96
79,694
1,750
  4.39
   Borrowings
21,426
342
  3.19
5,130
93
  3.63
      Total interest bearing liabilities
338,814
3,442
  2.03%
260,582
3,819
  2.93%
Non-interest bearing deposits
39,601
 
 
40,760
 
 
Other non-interest bearing liabilities
2,255
   
314
   
Shareholders’ equity
36,781
   
35,881
   
     Total liabilities and equity
$417,451
   
$337,537
   
 
 
   
 
   
Net interest income
 
$7,696
   
$5,562
 
             
Net interest rate spread
   
3.60%
   
2.96%
             
Net interest margin
   
3.89%
   
3.49%
             
Average interest earning assets to
           
average interest bearing liabilities
   
116.69%
   
122.23%
             
 
_______________________________________________

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

 
 

 

Quarter Ended December 31, 2008 and 2007

(Dollars in thousands)
2008
2008
2008
2007
2007
2007
 
Average
Interest
Average
Average
Interest
Average
 
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
 
Balance
Paid
Rate
Balance
Paid
Rate
Interest earning assets:
           
   Loans receivable, net1
$259,785
$4,079
6.28%
$221,451
$3,656
6.60%
   Securities2
154,228
1,707
  4.43
91,408
973
  4.26
   Federal funds
842
1
  0.48
8,335
97
  4.66
   Interest bearing bank balances
873
3
  1.37
3,212
32
  3.99
   FHLB stock
1,501
12
  3.20
669
14
  8.37
       Total interest earning assets
417,229
5,802
  5.56%
325,075
4,772
  5.87%
Cash and due from banks
5,775
   
5,298
 
 
Allowance for loan losses
(1,959)
   
(1,619)
   
Other non-interest earning assets
18,390
   
14,777
   
     Total assets
$439,435
   
$343,531
   
             
             
Interest bearing liabilities:
           
   Savings and money market deposits
$111,145
$323
  1.16%
$104,455
$496
  1.90%
   NOW deposits
136,205
645
  1.89
75,863
540
  2.85
   Certificates of deposit
92,821
685
  2.95
81,651
888
  4.35
   Borrowings
22,574
172
  3.05
5,261
47
  3.57
      Total interest bearing liabilities
362,745
1,825
  2.01%
267,230
1,971
  2.95%
Non-interest bearing deposits
37,374
 
 
39,997
 
 
Other non-interest bearing liabilities
2,241
   
120
   
Shareholders’ equity
37,075
   
36,184
   
     Total liabilities and equity
$439,435
   
$343,531
   
             
Net interest income
 
$3,977
   
$2,801
 
             
Net interest rate spread
   
3.55%
   
2.92%
             
Net interest margin
   
3.81%
   
3.45%
             
Average interest earning assets to
           
average interest bearing liabilities
   
115.02%
   
121.65%
             

 
__________________________________________

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

 
 

 

Rate / Volume Analysis

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

 
Six Months
Ended December 31,
Three Months
Ended December 31,
(Dollars in thousands)
2008 versus 2007
2008 versus 2007
 
Increase/(Decrease)
Total
Increase/(Decrease)
Total
 
Due to
Increase/
Due to
Increase/
Interest-earning assets:
Volume
Rate
(Decrease)
Volume
Rate
(Decrease)
 Loans receivable, net1
$1,138
($363)
$775
$607
($184)
$423
 Securities2
1,067
132
1,199
694
40
734
 Federal funds
(85)
(75)
(160)
(48)
(48)
(96)
 Interest-bearing bank balances
(31)
(35)
(66)
(15)
(14)
(29)
 FHLB stock
22
(13)
9
10
(12)
(2)
Total interest-earning assets
2,111
(354)
1,757
1,248
(218)
1,030
             
Interest-bearing liabilities:
           
  Savings deposits
46
(416)
(370)
30
(203)
(173)
  NOW deposits
488
(348)
140
330
(225)
105
  Certificates of deposit
231
(627)
(396)
110
(313)
(203)
  Borrowings
262
(13)
249
133
(8)
125
Total interest-bearing liabilities
1,027
(1,404)
(377)
603
(749)
(146)
Net interest income
$1,084
$1,050
$2,134
$645
$531
$1,176
             

___________________________________________

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


OVERVIEW

Annualized return on average assets and return on average equity are common methods of measuring operating results.  Annualized return on average assets increased to 0.88% for the six months and 0.94% for the quarter ended December 31, 2008, as compared to 0.71% for the six months and 0.73% for the quarter ended December 31, 2007.  Annualized return on average equity increased to 10.01% for the six months and 11.13% for the quarter ended December 31, 2008 as compared to 6.66% for the six months and 6.91% for the quarter ended December 31, 2007.  The increase in return on average assets and return on average equity was primarily the result of higher net interest income, partially offset by higher noninterest expense and provision for loan losses.   Net income amounted to $1.8 million and $1.2 million for the six months ended December 31, 2008 and 2007, respectively, an increase of $646,000 or 54.1% and amounted to $1.0 million and $626,000 for the quarters ended December 31, 2008 and 2007, respectively, an increase of $406,000 or 64.9%.  Average assets amounted to $417.5 million for the six month period ended December 31, 2008 as compared to $337.5 million for the same period ended December 31, 2007, an increase of $80.0 million or 23.7%.  Average assets amounted to $439.4 million for the quarter ended December 31, 2008 as compared to $343.5 million for the quarter ended December 31, 2007, an increase of $95.9 million or 27.9%.  Average equity amounted to $36.8 million for the six month period ended December 31, 2008 as compared to $35.9 million for the same period ended December 31, 2007, an increase of $900,000 or 2.5%.  Average equity amounted to $37.1 million for the quarter ended December 31, 2008 as compared to $36.2 million for the quarter ended December 31, 2007, an increase of $890,000 or 2.5%.


INTEREST INCOME

Interest income amounted to $11.1 million for the six months ended December 31, 2008 as compared to $9.4 million for the six months ended December 31, 2007, an increase of $1.7 million or 18.1%.  Interest income amounted to $5.8 million for the quarter ended December 31, 2008 as compared to $4.8 million for the quarter ended December 31, 2007, an increase of $1.0 million or 20.8%.  The increase in securities and loan volume had the greatest impact on interest income when comparing the six months and quarters ended December 31, 2008 and 2007.  Average loan balances increased $35.8 million for the six months ended December 31, 2008 as compared to December 31, 2007 while the yield decreased by 32 basis points when comparing the same periods.  Average loan balances increased $38.3 million for the quarter ended December 31, 2008 as compared to the quarter ended December 31, 2007 and the yield decreased by 32 basis point when comparing the same periods.  The overall impact on interest income from securities was positive with an increase in average balances of $47.7 million which was complemented by a 28 basis point increase in yield when comparing the six months ended December 31, 2008 and 2007 and a $62.8 million increase in average balances and a 17 basis point increase in yield when comparing the quarters ended December 31, 2008 and 2007.   The increase in yield on securities for the quarter ended December 31, 2008 was primarily the result of the recognition of discount accretion on securities called prior to maturity. Average balances on short term investments such as interest bearing bank balances and federal funds sold decreased $7.5 million and $9.8 million when comparing the six months and quarters ended December 31, 2008 and 2007.  The sharp decrease in yield on these assets was due to the recent reduction in short-term rates implemented by the Federal Open Market Committee during the six month ended December 31, 2008.


INTEREST EXPENSE

Interest expense amounted to $3.4 million for the six months ended December 31, 2008, as compared to $3.8 million for the six months ended December 31, 2007, a decrease of $377,000.  Interest expense amounted to $1.8 million for the quarter ended December 31, 2008, as compared to $2.0 million for the quarter ended December 31, 2007, a decrease of $146,000.  Decreases in rates on interest-bearing liabilities had the greatest impact on overall interest expense.  Interest expense was reduced $1.4 million and $749,000 when comparing the six months and quarters ended December 31, 2008 and 2007, respectively, due to decreases of 90 basis points and 94 basis points, respectively, in the average rate on interest-bearing liabilities in those same periods.  This decrease was partially offset by a $1.0 million and $603,000 increase in interest expense due to a $78.2 million and $95.5 million increase in average balances when comparing the six months and quarters ended December 31, 2008 and 2007, respectively.    The average rate paid on NOW deposits decreased 85 basis points and 96 basis points, respectively, when comparing the six months and quarters ended December 31, 2008 and 2007, and the average balance of such accounts grew by $45.3 million and $60.3 million, respectively, when comparing the same periods, contributing to the overall increase in interest expense on NOW deposit accounts.  The average balance of certificates of deposit grew by $11.7 million and the average rate paid decreased by 143 basis points when comparing the six months ended December 31, 2008 and 2007.  The average balance of certificates of deposit grew by $11.2 million and the average rate paid decreased by 140 basis points when comparing the quarters ended December 31, 2008 and 2007.  The average balance of savings and money market deposits increased by $5.0 million when comparing the six months ended December 31, 2008 and 2007 and increased by $6.7 million when comparing the quarters ended December 31, 2008 and 2007. The average rate paid on savings and money markets decreased 74 basis points when comparing both the six months and quarters ended December 31, 2008 and 2007.   The average balance of borrowings increased $16.3 million and $17.3 million when comparing the six months and quarters ended December 31, 2008 and 2007.  The rate paid on these borrowings decreased 44 basis points and 52 basis points when comparing the same periods.


NET INTEREST INCOME

Net interest income increased $2.1 million to $7.7 million for the six months ended December 31, 2008 compared to December 31, 2007 and increased $1.2 million to $4.0 million for the quarter ended December 31, 2008 compared to December 31, 2007.     Net interest spread increased 64 basis points to 3.60% for the six months ended December 31, 2008 from 2.96% for the six months ended December 31, 2007, and 63 basis points to 3.55% for the quarter ended December 31, 2008 as compared to 2.92% for the quarter ended December 31, 2007.  Net interest margin increased 40 basis points to 3.89% for the six months ended December 31, 2008 from 3.49% for the six months ended December 31, 2007, and 36 basis points to 3.81% for the quarter ended December 31, 2008 as compared to 3.45% for the quarter ended December 31, 2007.  The increase in average balances, along with the widening of the net interest spread and margin led to an increase in net interest income when comparing the six months and quarters ended December 31, 2008 and 2007.

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


PROVISION FOR LOAN LOSSES

The provision for loan losses amounted to $613,000 and $278,000 for the six months ended December 31, 2008 and 2007, respectively, an increase of $335,000.  The provision for loan losses amounted to $418,000 and $135,000 for the quarters ended December 31, 2008 and 2007, respectively, an increase of $283,000.  The increase in the level of provision was primarily a result of growth in the loan portfolio, an increase in delinquent loans and an increase in the amount of loan charge-offs. Net charge-offs amounted to $293,000 and $70,000 for the six months ended December 31, 2008 and 2007, respectively, an increase of $223,000.  The increase in the level of charge-offs reflected the decline in the overall economy.  As a result the level of allowance for loan losses to total loans receivable has been increased to 0.84% as of December 31, 2008 as compared to 0.78% at September 30, 2008, and 0.76% as of December 31, 2007.  Management will continue to closely monitor asset quality and adjust the level of the allowance for loan losses as judged necessary.  At December 31, 2008, nonperforming assets were 0.42% of total assets and nonperforming loans were 0.66% of total loans.   The Company has not been an originator of “no documentation” mortgage loans an