form10qmarch312009.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009

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 has submitted electronically and posted onits 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:       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 May 12, 2009, the registrant had 4,305,670 shares of common stock issued at $ 0.10 par value, and 4,105,312 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 March 31, 2009 and June 30, 2008
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
March 31, 2009
   
June 30, 2008
 
Cash and due from banks
  $ 11,281     $ 7,297  
Federal funds sold
    10,159       1,365  
    Total cash and cash equivalents
    21,440       8,662  
                 
Long term certificate of deposit
    1,000       1,000  
Securities available for sale, at fair value
    101,822       96,692  
Securities held to maturity, at amortized cost
    49,605       15,457  
Federal Home Loan Bank stock, at cost
    1,341       1,386  
                 
Loans
    267,388       240,146  
  Allowance for loan losses
    (3,280 )     (1,888 )
  Unearned origination fees and costs, net
    330       182  
    Net loans receivable
    264,438       238,440  
                 
Premises and equipment
    15,604       15,108  
Accrued interest receivable
    2,610       2,139  
Prepaid expenses and other assets
    627       724  
Foreclosed real estate
    100       ---  
               Total assets
  $ 458,587     $ 379,608  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 36,704     $ 41,798  
Interest bearing deposits
    361,426       279,633  
    Total deposits
    398,130       321,431  
                 
Borrowings from FHLB, short term
    ---       1,000  
Borrowings from FHLB, long term
    19,000       19,000  
Accrued expenses and other liabilities
    2,363       1,910  
                Total liabilities
    419,493       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:  4,105,312 shares at March 31, 2009
               
          and 4,095,528 shares at June 30, 2008;
    431       431  
Additional paid-in capital
    10,453       10,267  
Retained earnings
    29,263       27,183  
Accumulated other comprehensive income (loss)
    459       (9 )
Treasury stock, at cost 200,358 shares at March 31,
               
        2009, and 210,142 shares at June 30, 2008
    (1,512 )     (1,586 )
 Unearned ESOP shares, at cost
    ---       (19 )
               Total shareholders’ equity
    39,094       36,267  
               Total liabilities and shareholders’ equity
  $ 458,587     $ 379,608  
See notes to consolidated financial statements.
               


 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Nine Months Ended March 31, 2009 and 2008
(Unaudited)
(In thousands, except share and per share amounts)
       
2009
   
2008
 
Interest income:
             
Loans
    $ 12,101     $ 10,922  
Investment securities – taxable
      1,170       916  
Mortgage-backed securities
      2,843       1,416  
Tax exempt securities
      669       804  
Interest bearing deposits and federal funds sold
      41       341  
Total interest income
      16,824       14,399  
                     
Interest expense:
                 
Interest on deposits
      4,681       5,420  
Interest on borrowings
      503       237  
Total interest expense
      5,184       5,657  
                     
Net interest income
      11,640       8,742  
Provision for loan losses
      1,764       449  
Net interest income after provision for loan losses
      9,876       8,293  
                     
Noninterest income:
                 
Service charges on deposit accounts
      2,194       2,006  
Debit card fees
      660       581  
Investment services
      180       255  
E-commerce fees
      181       207  
Net loss on sale of available-for-sale securities
      (15 )     ---  
Write down for impairment of available-for-sale security
      (221 )     ---  
Sale of merchant bank card processing
      1,650       ---  
Other operating income
      306       354  
Total noninterest income
      4,935       3,403  
                     
Noninterest expense:
                 
Salaries and employee benefits
      5,527       4,776  
Occupancy expense
      858       725  
Equipment and furniture expense
      499       631  
Service and data processing fees
      1,000       821  
Computer supplies and support
      222       237  
Advertising and promotion
      271       241  
Other
      1,623       1,605  
Total noninterest expense
      10,000       9,036  
                     
Income before provision for income taxes
      4,811       2,660  
Provision for income taxes
      1,814       781  
Net income
    $ 2,997     $ 1,879  
                     
Basic EPS
    $ 0.73     $ 0.45  
Basic shares outstanding
      4,100,072       4,131,089  
Diluted EPS
    $ 0.73     $ 0.45  
Diluted average shares outstanding
      4,119,973       4,171,626  
Dividends per share
    $ 0.51     $ 0.54  
See notes to consolidated financial statements.
                 

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
(Dollars in thousands, except share and per share amounts)
       
2009
   
2008
 
Interest income:
             
Loans
    $ 4,112     $ 3,708  
Investment securities – taxable
      371       412  
Mortgage-backed securities
      978       548  
Tax exempt securities
      214       265  
Interest bearing deposits and federal funds sold
      11       85  
Total interest income
      5,686       5,018  
                     
Interest expense:
                 
Interest on deposits
      1,581       1,694  
Interest on borrowings
      161       144  
Total interest expense
      1,742       1,838  
                     
Net interest income
      3,944       3,180  
Provision for loan losses
      1,151       171  
Net interest income after provision for loan losses
      2,793       3,009  
                     
Noninterest income:
                 
Service charges on deposit accounts
      632       679  
Debit card fees
      208       194  
Investment services
      46       68  
E-commerce fees
      51       78  
Net loss on sale of available-for-sale securities
      (3 )     ---  
Sale of merchant bank card processing
      1,650       ---  
Other operating income
      122       128  
Total noninterest income
      2,706       1,147  
                     
Noninterest expense:
                 
Salaries and employee benefits
      1,792       1,668  
Occupancy expense
      307       267  
Equipment and furniture expense
      157       207  
Service and data processing fees
      368       296  
Computer supplies and support
      67       79  
Advertising and promotion
      127       103  
Other
      669       562  
Total noninterest expense
      3,487       3,182  
                     
Income before provision for income taxes
      2,012       974  
Provision for income taxes
      856       290  
Net income
    $ 1,156     $ 684  
                     
Basic EPS
    $ 0.28     $ 0.17  
Basic shares outstanding
      4,104,119       4,118,958  
Diluted EPS
    $ 0.28     $ 0.16  
Diluted average shares outstanding
      4,121,186       4,149,745  
Dividends per share
    $ 0.17     $ 0.15  
See notes to consolidated financial statements.
                 

 
 

 

 Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Nine Months Ended March 31, 2009 and 2008
(Unaudited)
(In thousands)
       
2009
   
2008
 
                 
Net income
    $ 2,997     $ 1,879  
                     
Other comprehensive income:
                 
                     
Unrealized holding gain arising during the nine months
                 
ended March 31, 2009 and 2008, net of income
                 
tax expense of $195 and $841, respectively.
      310       1,328  
                     
Accretion of unrealized loss on securities transferred to held-to-maturity
                 
net of income tax of $9, and $0
      14       ---  
                     
Reclassification adjustment for loss on sale of available-for-sale securities
                 
realized in net income net of income taxes of $6, and $0, respectively
      9       ---  
                     
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
      468       1,328  
                     
Comprehensive income
    $ 3,465     $ 3,207  
                     
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
(In thousands)
       
2009
   
2008
 
                 
Net income
    $ 1,156     $ 684  
                     
Other comprehensive income:
                 
                     
Unrealized holding gain arising during the three months ended March 31,
                 
2009 and 2008, net of income tax expense of $53 and $281, respectively
      84       451  
                     
Accretion of unrealized loss on securities transferred to held-to-maturity
                 
net of income tax of $7, and $0
      11       ---  
                     
Reclassification adjustment for loss on sale of available-for-sale securities
                 
realized in net income net of income taxes of $1, and $0, respectively
      2       ---  
                     
                     
Total other comprehensive income
      97       451  
                     
Comprehensive income
    $ 1,253     $ 1,135  
                     
See notes to consolidated financial statements.

 
 

 


Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Nine Months Ended March 31, 2009 and 2008
(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
 
72
     
40
112
               
Options exercised
 
(9)
   
31
 
22
               
Options surrendered
 
(215)
       
(215)
               
Tax effect, Options
 
86
       
86
               
Shares repurchased
       
(583)
 
(583)
               
Dividends declared
   
(995)
     
(995)
               
Net income
   
1,879
     
1,879
               
Adoption of FIN 48
   
(218)
     
(218)
               
Unrealized gain on securities,  net
     
1,328
   
1,328
               
Balance at
             
March 31, 2008
$431
$10,253
$26,628
$928
($1,380)
($29)
$36,831
               
Balance at
 
 
       
 
June 30, 2008
$431
$10,267
$27,183
($9)
($1,586)
($19)
$36,267
               
ESOP shares earned
 
44
     
19
63
               
Options exercised
 
(35)
   
74
 
39
               
Tax effect, Options
 
28
       
28
               
Stock based compensation
 
 
149
       
 
149
               
Dividends declared
   
(917)
     
(917)
               
Net income
   
2,997
     
2,997
               
Unrealized gain on securities,  net
     
468
   
468
               
Balance at
             
March 31, 2009
$431
$10,453
$29,263
$459
($1,512)
--
$39,094

See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2009 and 2008
(Unaudited)
                                                                              (In thousands)
 
2009
   
2008
 
Cash flows from operating activities:
           
Net Income
  $ 2,997     $ 1,879  
Adjustments to reconcile net income to cash provided by operating activities:
               
     Depreciation
    652       766  
     Net amortization of premiums and discounts
    187       41  
     Net amortization of deferred loan costs and fees
    116       56  
     Provision for loan losses
    1,764       449  
     ESOP compensation earned
    63       112  
     Stock option compensation
    149       ---  
     Write-down of impairment of available-for-sale securities
    221       ---  
     Net loss on sale of available-for-sale securities
    15       ---  
     Gain on sale of merchant bank card processing
    (1,650 )     ---  
     Excess tax benefit from share-based payment arrangements
    (28 )     (86 )
     Net decrease in accrued income taxes
    (41 )     (118 )
     Net increase in accrued interest receivable
    (471 )     (190 )
     Net increase in prepaid and other assets
    (97 )     (15 )
     Net increase (decrease) in other liabilities
    421       (2 )
          Net cash provided by operating activities
    4,298       2,892  
                 
Cash flows from investing activities:
               
   Available for sale securities:
               
       Proceeds from maturities and calls of securities
    14,440       13,282  
       Proceeds from sale of securities
    5,522       ---  
       Purchases of securities
    (54,978 )     (37,869 )
       Principal payments on securities
    6,812       7,015  
  Held to maturity securities:
               
       Proceeds from maturities and calls of securities
    2,118       211  
       Purchases of securities and other investments
    (15,435 )     (710 )
       Principal payments on securities
    2,583       281  
     Net redemption (purchase) of Federal Home Loan Bank Stock
    45       (630 )
     Net increase in loans receivable
    (27,978 )     (22,060 )
     Proceeds from sale of merchant bank card processing
    1,650       ---  
     Purchases of premises and equipment
    (1,148 )     (2,258 )
          Net cash used in investing activities
    (66,369 )     (42,738 )
                 
Cash flows from financing activities:
               
     Net decrease in short-term FHLB advances
    (1,000 )     ---  
     Proceeds of long-term FHLB borrowings
    ---       14,000  
     Dividends paid
    (917 )     (995 )
     Proceeds from exercise of stock options
    39       22  
     Payment for stock options surrendered
    ---       (215 )
     Excess tax benefit from stock based compensation
    28       86  
     Purchase of treasury stock
    ---       (583 )
     Net increase in deposits
    76,699       37,891  
          Net cash provided by financing activities
    74,849       50,206  
Net increase in cash and cash equivalents
    12,778       10,360  
Cash and cash equivalents at beginning of period
    8,662       14,026  
Cash and cash equivalents at end of period
  $ 21,440     $ 24,386  
                 
                 
Non-cash investing activities:
               
Loans transferred to foreclosed real estate
  $ 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 Nine Months and Three Months Ended March 31, 2009 and 2008


(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 nine months ended March 31, 2009 and 2008 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 nine month periods ended March 31, 2009 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 policies relate to the allowance for loan losses and review of the investment portfolio for other-than-temporary impairment.  The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing portfolio.  The allowance for loan losses is established through a provision for losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans for which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses.  However, this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters.  This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

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)
March 31, 2009
         (Level 1)
       (Level 2)
     (Level 3)
Assets:
       
Securities available-for-sale
$101,822
$57,079
$44,743
$---

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 March 31, 2009, loans subject to nonrecurring fair value measurement had a gross carrying amount of $125,000 and a fair value of $75,000 with an associated valuation allowance of $50,000.  These loans were classified as a Level 3 valuation.  Changes in fair value for the quarter and nine months ended March 31, 2009 was a decrease of $1,000 and $2,000, respectively, primarily the result of principal repayments.
 
(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
Nine months Ended
     
       
March 31, 2009:
$2,997,000
   
   Basic
 
4,100,072
$0.73
   Effect of dilutive stock options
 
19,901
(0.00)
   Diluted
 
4,119,973
$0.73
       
March 31, 2008:
$1,879,000
   
   Basic
 
4,131,089
$0.45
   Effect of dilutive stock options
 
40,537
(0.00)
   Diluted
 
4,171,626
$0.45
       
       
 
 
 
 
Net Income
Weighted Average Number of Shares
Outstanding
 
 
Earnings Per Share
Three Months Ended
     
       
March 31, 2009:
$1,156,000
   
   Basic
 
4,104,119
$0.28
   Effect of dilutive stock options
 
17,067
(0.00)
   Diluted
 
4,121,186
$0.28
       
March 31, 2008:
$684,000
   
   Basic
 
4,118,958
$0.17
   Effect of dilutive stock options
 
30,787
(0.01)
   Diluted
 
4,149,745
$0.16
 
(6)      Dividends

On January 20, 2009, 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, and was the same as the dividend declared during the previous quarter.  The dividend was payable to stockholders of record as of February 13, 2009, and was paid on March 2, 2009.  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 April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1).  FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  An entity early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.  The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2).   FSP FAS 115-2 and FAS 124-2 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  An entity early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.  The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

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

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 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.  The application of the provisions of FSP 157-3 did not have an impact on our results of operations or financial condition.

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4).  FASB Statement 157, Fair Value Measurements, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 provides additional guidance on determining when the volume and level of activity for the asset or liability has significantly decreased. The FSP also includes guidance on identifying circumstances when a transaction may not be considered orderly.

FSP FAS 157-4 provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with Statement 157.

This FSP clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The FSP provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  An entity early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments.  The Company is currently reviewing the effect this new pronouncement will have on its consolidated financial statements.

In December 2007, the FASB issued statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51”. This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The Company believes that this new pronouncement 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 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. This new pronouncement did not impact 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 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 March 31, 2009, 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 yield
     6.72%

The Company recognized $56,000 and $149,000 in compensation costs and related income tax benefit of $12,000 and $22,000 related to the Option Plan for the quarter and nine months ended March 31, 2009, respectively.  There was no stock-based compensation expense recorded during the quarter or nine months ended March 31, 2008.   At March 31, 2009, there was $519,800 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 2.25 years.

A summary of the Company’s stock option activity and related information for its option plans for the nine months ended March 31, 2009 and 2008 is as follows:

 
2009
 
2008
     
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
(9,784)
 
$3.94
 
(5,580)
 
$3.94
Surrendered
---
 
---
 
(23,780)
 
$3.94
Forfeited
---
 
---
 
---
 
---
Outstanding at period end
196,660
 
$11.33
 
43,304
 
$4.97
Exercisable at period end
32,160
 
$5.33
 
43,304
 
$4.97


The following table presents stock options outstanding and exercisable at March 31, 2009:

Options Outstanding and Exercisable
 
Range of Exercise Prices
 
Number Outstanding
Weighted Average Remaining Contractual Life
Weighted Average Exercise Price
$3.94
23,660
1.00
$3.94
$9.20
8,500
3.00
$9.20
$3.94-$9.20
32,160
1.50
$5.33

The total intrinsic value of the options exercised during the three and nine months ended March 31, 2009 was approximately $15,000 and $75,000, respectively.  There were no stock options granted during the nine months ended March 31, 2008.  The Company had 164,500 non-vested options outstanding at March 31, 2009 and no non-vested options outstanding at or during the quarter ended March 31, 2008.

(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 March 31, 2009, the Company had repurchased 62,478 shares pursuant to this program at an average cost of $12.79 per share.

(11)     Subsequent Event

On April 21, 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, was unchanged from the dividend declared during the previous quarter.  The dividend will be payable to stockholders of record as of May 15, 2009, and will be paid on June 1, 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 March 31, 2009 and June 30, 2008

ASSETS

Total assets of the Company were $458.6 million at March 31, 2009 as compared to $379.6 million at June 30, 2008, an increase of $79.0 million, or 20.8%.  Securities classified as both available-for-sale and held-to-maturity amounted to $151.4 million, or 33.0% of assets, at March 31, 2009 as compared to $112.1 million, or 29.5% of assets, at June 30, 2008, an increase of $39.3 million or 35.1%.   Securities purchases, including both available-for-sale and held-to-maturity, totaled $70.4 million between June 30, 2008 and March 31, 2009.  These activities were partially offset by principal pay-downs and maturities of $25.9 million and sales of $5.5 million over the same time frame.  Gross loans grew by $27.3 million or 11.4% to $267.4 million at March 31, 2009 as compared to $240.1 million at June 30, 2008.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents increased $12.8 million or 146.0% to $21.4 million at March 31, 2009 as compared to $8.7 million at June 30, 2009.  Federal funds sold comprised $10.1 million of the balance at March 31, 2009 and $6.5 million was held in interest-bearing deposits at that date.  The balances grew during the period due to an increase in deposits.  The company utilizes cash and cash equivalents for short-term liquidity and for asset/liability management purposes.

SECURITIES

Securities, including both available-for-sale and held-to-maturity issues, increased $39.3 million or 35.1% to $151.4 million at March 31, 2009 as compared to $112.1 million at June 30, 2008.  Securities purchases totaled $70.4 million during the nine months ended March 31, 2009.  Purchases consisted of $23.6 million of U.S. government sponsored enterprises bonds, $39.5 million of mortgage-backed securities, and $7.3 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 $25.9 million, of which $6.7 million were mortgage-backed securities, $5.3 million were state and political subdivision securities and $13.9 million were U.S. government sponsored enterprises securities, and sales of mortgage-backed securities of $4.6 million, and sales of state and political subdivision securities of $900,000.

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 at the time of transfer.  This unrealized loss is being accreted to other comprehensive income over the remaining average lives of these securities.  Additionally, during the nine months ended March 31, 2009, unrealized net gains on securities increased $764,000.  Greene County Bancorp, Inc. holds 18.2% of the securities portfolio at March 31, 2009 in state and political subdivision securities to take advantage of tax savings and to promote Greene County Bancorp, Inc.’s participation in the communities in which it operates.     Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.
 
Carrying Value at
 
March 31, 2009
June 30, 2008
(Dollars in thousands)
 
Balance
Percentage
of portfolio
 
Balance
Percentage
of portfolio
 
Securities available-for-sale:
       
  U.S. government sponsored enterprises
$22,001
14.5%
$16,146
14.4%
  State and political subdivisions
10,303
6.8
10,850
9.7
  Mortgage-backed securities
61,540
40.7
60,782
54.2
  Asset-backed securities
48
0.0
49
0.1
  Corporate debt securities
7,901
5.2
8,486
7.5
Total debt securities
101,793
67.2
96,313
85.9
  Equity securities and other
29
0.0
379
0.3
Total available-for-sale securities
101,822
67.2
96,692
86.2
Securities held-to-maturity:
       
  U.S. government sponsored enterprises
4,021
2.7
---
---
  State and political subdivisions
17,290
11.4
15,457
13.8
  Mortgage-backed securities
27,934
18.5
---
---
  Other
360
0.2
---
---
Total held-to-maturity securities
49,605
32.8
15,457
13.8
Total securities
$151,427
100.0%
$112,149
100.0%

LOANS

Net loans receivable increased to $264.4 million at March 31, 2009 from $238.4 million at June 30, 2008, an increase of $26.0 million, or 10.9%.  The loan growth experienced during the nine months primarily consisted of $12.7 million in residential mortgages, $10.2 million in commercial real estate loans, $2.0 million in home equity loans, and $2.2 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 March 31, 2009, declines in home values have been modest in the Company’s market area.

(Dollars in thousands)
At          
March 31, 2009
Percentage
of portfolio
At          
 June 30, 2008
Percentage
of portfolio
 
Real estate mortgages
       
   Residential
$170,848
63.9%
$158,193
65.9%
   Construction and land
12,702
4.8
12,295
5.1
   Commercial
40,614
15.2
30,365
12.6
   Multifamily
1,178
0.4
1,094
0.5
Home equity loans
25,988
9.7
23,957
10.0
Commercial loans
11,857
4.4
9,669
4.0
Installment loans
3,803
1.4
4,172
1.7
Passbook loans
398
0.2
401
0.2
Total loans
267,388
100.0%
$240,146
100.0%
Deferred fees and costs
330
 
182
 
Less: Allowance for loan losses
(3,280)
 
(1,888)
 
Net loans receivable
$264,438
 
$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 nine months ended March 31, 2009, was driven by the continued growth of the loan portfolio and recent increases in loan delinquencies and charge-offs.  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)
 
Nine months ended
 
   
March 31, 2009
   
March 31, 2008
 
             
Balance at the beginning of the period
  $ 1,888     $ 1,486  
Charge-offs:
               
     Residential mortgage
    65       ---  
     Commercial loan
    110       46  
     Installment loans to individuals
    57       28  
     Overdraft protection
    209       182  
Total loans charged off
    441       256  
                 
Recoveries:
               
     Residential mortgage
    1       ---  
     Home equity loans
    1       27  
     Installment loans to individuals
    22       44  
     Overdraft protection
    45       53  
Total recoveries
    69       124  
                 
Net charge-offs
    372       132  
                 
Provisions charged to operations
    1,764       449  
Balance at the end of the period
  $ 3,280     $ 1,803  
                 
Ratio of net charge-offs to average loans outstanding, annualized
    0.19 %     0.08 %
Ratio of net charge-offs to nonperforming assets, annualized
    27.07 %     11.50 %
Allowance for loan loss to nonperforming loans
    189.38 %     117.84 %
Allowance for loan loss to total loans receivable
    1.23 %     0.78 %

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 March 31, 2009 or June 30, 2008.

Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)
 
At March 31, 2009
   
At June 30, 2008
 
Nonaccruing loans:
           
  Real estate mortgage loans:
           
      Residential mortgages loans (one- to-four family)
  $ 1,002     $ 1,123  
      Construction and land loans
    13       38  
      Commercial mortgage loans
    192       91  
      Multifamily mortgage loans
    26       26  
   Home equity
    327       493  
   Commercial loans
    146       142  
   Installment loans to individuals
    26       26  
Total nonaccruing loans
    1,732       1,939  
                 
Foreclosed real estate
    100       ---  
Total nonperforming assets
  $ 1,832     $ 1,939  
                 
Total nonperforming assets as a percentage of total assets
    0.40 %     0.51 %
Total nonperforming loans to total loans
    0.65 %     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 $247,000 as of March 31, 2009 of which $122,000 were nonaccrual.  The Company has allocated approximately $80,000 of the allowance for loan losses for impaired loans as of March 31, 2009.  Interest income of $47,000 and $51,000 was recorded on nonaccrual loans based on cash payments received during the nine months ended March 31, 2009 and 2008, respectively.


DEPOSITS

Total deposits increased to $398.1 million at March 31, 2009 from $321.4 million at June 30, 2008, an increase of $76.7 million, or 23.9%.  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.  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 $54.6 million to $101.4 million at March 31, 2009 compared to $46.8 million at June 30, 2008. This increase was primarily in NOW deposits.  Interest bearing checking accounts (NOW accounts) increased $40.5 million or 50.9% to $120.0 million at March 31, 2009 as compared to $79.5 million at June 30, 2008.      Money market deposits increased $27.8 million or 73.2% to $65.8 million at March 31, 2009.   Certificate of deposit balances increased $12.2 million or 13.6% between June 30, 2008 and March 31, 2009.  Savings deposits increased $1.3 million or 1.8% to $74.0 million at March 31, 2009 as compared to $72.7 million at June 30, 2008.  Noninterest bearing deposits decreased $5.1 million to $36.7 million at March 31, 2009.

(Dollars in  thousands)
                       
   
At
March 31, 2009
   
Percentage
of portfolio
   
At
June 30, 2008
   
Percentage
of portfolio
 
                         
Noninterest bearing deposits
  $ 36,704       9.2 %   $ 41,798       13.0 %
Certificates of deposit
    101,666       25.5       89,470       27.9  
Savings deposits
    73,998       18.6       72,706       22.6  
Money market deposits
    65,776       16.5       37,970       11.8  
NOW deposits
    119,986       30.2       79,487       24.7  
Total deposits
  $ 398,130       100.0 %   $ 321,431       100.0 %


BORROWINGS

At March 31, 2009, 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 (“FHLB”).  At March 31, 2009, there were no balances outstanding under these facilities.  Interest rates on these lines are determined at the time of borrowing.

At March 31, 2009, 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 March 31, 2009, 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.

At March 31, 2009, Greene County Bancorp, Inc. had available a revolving line of credit of $5.0 million with Atlantic Central Bankers Bank (“ACBB”).  At March 31, 2009, there were no balances outstanding under this line of credit.  This line of credit will mature on April 28, 2012 and carries a floating interest rate equal to the prime rate as reported in the Wall Street Journal.

Scheduled maturities of borrowings at March 31, 2009 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 $39.1 million at March 31, 2009 from $36.3 million at June 30, 2008, as net income of $3.0 million was partially offset by dividends declared and paid of $917,000. Additionally, shareholders’ equity increased $468,000 as a result of unrealized securities gains, net of tax.  Other changes in equity, totaling an $279,000 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 Nine Months and Quarter Ended March 31, 2009 and 2008

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the nine months and quarters ended March 31, 2009 and 2008.  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 nine months ended March 31, 2009 and 2008.  Average loan balances include non-performing loans.  The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

Nine months Ended March 31, 2009 and 2008
(Dollars in thousands)
2009
2009
2009
2008
2008
2008
 
Average
Interest
Average
Average
Interest
Average
 
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
 
Balance
Paid
Rate
Balance
Paid
Rate
Interest earning assets:
           
   Loans receivable, net1
$257,609
$12,101
6.26%
$220,744
$10,922
6.60%
   Securities2
139,180
4,636
4.44
92,502
3,096
4.46
   Federal funds
3,446
16
0.62
7,803
237
4.05
   Interest bearing bank balances
2,963
25
1.13
3,650
104
3.80
   FHLB stock
1,413
46
4.34
830
40
6.42
       Total interest earning assets
404,611
16,824
  5.54%
325,529
14,399
  5.90%
Cash and due from banks
6,079
   
5,602
   
Allowance for loan losses
(2,083)
   
(1,616)
   
Other non-interest earning assets
18,096
   
17,324
   
     Total assets
$426,703
   
$346,839
   
             
             
Interest bearing liabilities:
           
   Savings and money market deposits
$118,634
$1,043
  1.17%
$106,607
$1,447
  1.81%
   NOW deposits
115,403
1,579
1.82
70,828
1,360
2.56
   Certificates of deposit
93,638
2,059
2.93
81,545
2,613
4.27
   Borrowings
20,629
503
3.25
8,838
237
3.57
      Total interest bearing liabilities
348,304
5,184
  1.98%
267,818
5,657
  2.82%
Non-interest bearing deposits
38,433
   
40,366
   
Other non-interest bearing liabilities
2,586
   
2,525
   
Shareholders’ equity
37,380
   
36,130
   
     Total liabilities and equity
$426,703
   
$346,839
   
             
Net interest income
 
$11,640
   
$8,742
 
             
Net interest rate spread
   
3.56%
   
3.08%
             
Net interest margin
   
3.84%
   
3.58%
             
Average interest earning assets to
           
average interest bearing liabilities
   
116.17%
   
121.55%
             
                                                                                                                                 
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 March 31, 2009 and 2008

(Dollars in thousands)
2009
2009
2009
2008
2008
2008
 
Average
Interest
Average
Average
Interest
Average
 
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
 
Balance
Paid
Rate
Balance
Paid
Rate
Interest earning assets:
       
 
 
   Loans receivable, net1
$266,361
$4,112
6.17%
$227,315
$3,708
6.52%
   Securities2
143,486
1,552
4.33
98,915
1,211
4.90
   Federal funds
7,270
4
0.22
9,131
65
2.85
   Interest bearing bank balances
5,057
7
0.55
3,167
20
2.53
   FHLB stock
1,341
11
3.28
1,167
14
4.80
       Total interest earning assets
423,515
5,686
  5.37%
339,695
5,018
  5.91%
Cash and due from banks
6,123
   
5,793
   
Allowance for loan losses
(2,385)
   
(1,721)
   
Other non-interest earning assets
18,365
   
18,640
   
     Total assets
$445,618
   
$362,407
   
             
             
Interest bearing liabilities:
           
   Savings and money market deposits
$129,713
$360
  1.11%
$103,402
$393
  1.52%
   NOW deposits
120,562
517
1.72
77,425
437
2.26
   Certificates of deposit
98,296
704
2.87
85,286
864
4.05
   Borrowings
19,000
161
3.39
16,335
144
3.53
      Total interest bearing liabilities
367,571
1,742
  1.90%
282,448
1,838
  2.60%
Non-interest bearing deposits
36,178
   
39,570
   
Other non-interest bearing liabilities
3,272
   
3,730
   
Shareholders’ equity
38,597
   
36,659
   
     Total liabilities and equity
$445,618
   
$362,407
   
             
Net interest income
 
$3,944
   
$3,180
 
             
Net interest rate spread
   
3.47%
   
3.31%
             
Net interest margin
   
3.73%
   
3.74%
             
Average interest earning assets to
           
average interest bearing liabilities
   
115.22%
   
120.27%
             
                                                                              
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.

 
Nine months
Ended March 31,
Three Months
Ended March 31,
(Dollars in thousands)
2009 versus 2008
2009 versus 2008
 
Increase/(Decrease)
Total
Increase/(Decrease)
Total
 
Due to
Increase/
Due to
Increase/
Interest-earning assets:
Volume
Rate
(Decrease)
Volume
Rate
(Decrease)
 Loans receivable, net1
$1,761
($582)
$1,179
$611
($207)
$404
 Securities2
1,554
(14)
1,540
495
(154)
341
 Federal funds
(88)
(133)
(221)
(11)
(50)
(61)
 Interest-bearing bank balances
(17)
(62)
(79)
8
(21)
(13)
 FHLB stock
22
(16)
6
2
(5)
(3)
Total interest-earning assets
3,232
(807)
2,425
1,105
(437)
668
             
Interest-bearing liabilities:
           
  Savings deposits
150
(554)
(404)
87
(120)
(33)
  NOW deposits
689
(470)
219
202
(122)
80
  Certificates of deposit
348
(902)
(554)
118
(278)
(160)
  Borrowings
289
(23)
266
23
(6)
17
Total interest-bearing liabilities
1,476
(1,949)
(473)
430
(526)
(96)
Net interest income
$1,756
$1,142
$2,898
$675
$89
$764
             

                                                                         
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 0.94% for the nine months and 1.04% for the quarter ended March 31, 2009, as compared to 0.72% for the nine months and 0.75% for the quarter ended March 31, 2008.  Annualized return on average equity increased to 10.69% for the nine months and 11.98% for the quarter ended March 31, 2009 as compared to 6.93% for the nine months and 7.46% for the quarter ended March 31, 2008.  The increase in return on average assets and return on average equity was primarily the result of higher net interest income and higher noninterest income, partially offset by higher noninterest expense and provision for loan losses.   Net income amounted to $3.0 million and $1.9 million for the nine months ended March 31, 2009 and 2008, respectively, an increase of $1.1 million or 57.9% and amounted to $1.2 million and $684,000 for the quarters ended March 31, 2009 and 2008, respectively, an increase of $472,000 or 69.0%.  Average assets amounted to $426.7 million for the nine month period ended March 31, 2009 as compared to $346.8 million for the same period ended March 31, 2008, an increase of $79.9 million or 23.0%.  Average assets amounted to $445.6 million for the quarter ended March 31, 2009 as compared to $362.4 million for the quarter ended March 31, 2008, an increase of $83.2 million or 22.9%.  Average equity amounted to $37.4 million for the nine month period ended March 31, 2009 as compared to $36.1 million for the same period ended March 31, 2008, an increase of $1.3 million or 3.6%.  Average equity amounted to $38.6 million for the quarter ended March 31, 2009 as compared to $36.7 million for the quarter ended March 31, 2008, an increase of $1.9 million or 5.2%.


INTEREST INCOME

Interest income amounted to $16.8 million for the nine months ended March 31, 2009 as compared to $14.4 million for the nine months ended March 31, 2008, an increase of $2.4 million or 16.7%.  Interest income amounted to $5.7 million for the quarter ended March 31, 2009 as compared to $5.0 million for the quarter ended March 31, 2008, an increase of $668,000 or 13.4%.  The increase in securities and loan volume had the greatest impact on interest income when comparing the nine months and quarters ended March 31, 2009 and 2008.  Average loan balances increased $36.9 million for the nine months ended March 31, 2009 as compared to March 31, 2008 while the yield decreased by 34 basis points when comparing the same periods.  Average loan balances increased $39.0 million for the quarter ended March 31, 2009 as compared to the quarter ended March 31, 2008 and the yield decreased by 35 basis points when comparing the same periods.  The interest income from securities increased with an increase in average balances of $46.7 million partially offset by a two basis point decrease in yield when comparing the nine months ended March 31, 2009 and 2008 and a $44.6 million increase in average balances and a 57 basis point decrease in yield when comparing the quarters ended March 31, 2009 and 2008.   Average balances on short term investments such as interest bearing bank balances and federal funds sold decreased $5.0 million when comparing the nine months ended March 31, 2009 and 2008 and increased $29,000 when comparing the quarters ended March 31, 2009 and 2008.  The decrease in yield on interest-earning assets of 36 and 54 basis points for the nine months and quarter ended March 31, 2009, respectively was due to the recent reduction in short-term rates implemented by the Federal Open Market Committee during the nine months ended March 31, 2009.


INTEREST EXPENSE

Interest expense amounted to $5.2 million for the nine months ended March 31, 2009, as compared to $5.7 million for the nine months ended March 31, 2008, a decrease of $473,000.  Interest expense amounted to $1.7 million for the quarter ended March 31, 2009, as compared to $1.8 million for the quarter ended March 31, 2008, a decrease of $96,000.  Decreases in rates on interest-bearing liabilities had the greatest impact on overall interest expense.  Interest expense was reduced $1.9 million and $526,000 when comparing the nine months and quarters ended March 31, 2009 and 2008, respectively, due to decreases of 84 basis points and 70 basis points, respectively, in the average rate on interest-bearing liabilities in those  periods.  This decrease was partially offset by a $1.5 million and $430,000 increase in interest expense due to a $80.5 million and $85.1 million increase in average balances when comparing the nine months and quarters ended March 31, 2009 and 2008, respectively.    The average rate paid on NOW deposits decreased 74 basis points and 54 basis points, respectively, when comparing the nine months and quarters ended March 31, 2009 and 2008, and the average balance of such accounts grew by $44.6 million and $43.1 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 $12.1 million and the average rate paid decreased by 134 basis points when comparing the nine months ended March 31, 2009 and 2008.  The average balance of certificates of deposit grew by $13.0 million and the average rate paid decreased by 118 basis points when comparing the quarters ended March 31, 2009 and 2008.  The average balance of savings and money market deposits increased by $12.0 million when comparing the nine months ended March 31, 2009 and 2008 and increased by $26.3 million when comparing the quarters ended March 31, 2009 and 2008. The average rate paid on savings and money markets decreased 64 basis points and 41 basis points when comparing the nine months and quarters ended March 31, 2009 and 2008, respectively.   The average balance of borrowings increased $11.8 million and $2.7 million when comparing the nine months and quarters ended March 31, 2009 and 2008.  The rate paid on these borrowings decreased 32 basis points and 14 basis points when comparing the same periods.



NET INTEREST INCOME

Net interest income increased $2.9 million to $11.6 million for the nine months ended March 31, 2009 compared to March 31, 2008 and increased $764,000 to $3.9 million for the quarter ended March 31, 2009 compared to March 31, 2008.     Net interest spread increased 48 basis points to 3.56% for the nine months ended March 31, 2009 from 3.08% for the nine months ended March 31, 2008, and 16 basis points to 3.47% for the quarter ended March 31, 2009 as compared to 3.31% for the quarter ended March 31, 2008.  Net interest margin increased 26 basis points to 3.84% for the nine months ended March 31, 2009 from 3.58% for the nine months ended March 31, 2008, and decreased one basis point to 3.73% for the quarter ended March 31, 2009 as compared to 3.74% for the quarter ended March 31, 2008.  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 nine months and quarters ended March 31, 2009 and 2008.

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

Due to the worsening economic climate, management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary.  The provision for loan losses amounted to $1.8 million and $449,000 for the nine months ended March 31, 2009 and 2008, respectively, an increase of $1.3 million or 289.5%.  The provision for loan losses amounted to $1.2 million and $171,000 for the quarters ended March 31, 2009 and 2008, respectively, an increase of $1.0 million.  Contributing to the increased provision was continued growth in the loan portfolio, and an increase in the amount of loan charge-offs.  Net charge-offs amounted to $372,000 and $132,000 for the nine months ended March 31, 2009 and 2008, respectively, an increase of $240,000.  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 1.23% as of March 31, 2009 as compared to 0.78% as of March 31, 2008.  At March 31, 2009, nonperforming assets were 0.40% of total assets and nonperforming loans were 0.65% of total loans.   The Company has not been an originator of “no documentation” mortgage loans and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime.


NONINTEREST INCOME

Noninterest income increased to $4.9 million for the nine months ended March 31, 2009 compared to $3.4 million for the nine months ended March 31, 2008, an increase of $1.5 million.   Noninterest income increased to $2.7 million for the quarter ended March 31, 2009 compared to $1.1 million for the quarter ended March 31, 2008, and increase of $1.6 million.   Noninterest income for the nine months and quarter ended March 31, 2009 reflected a one time cash payment of $1.7 million received from TransFirst LLC.  This payment was the result of The Bank of Greene County transferring its merchant bank card processing business to TransFirst LLC.   Also reflected in noninterest income for the nine months ended March 31, 2009 was an impairment charge of $221,000 ($135,000 net of tax) related to the other-than-temporary impairment of a Lehman Brothers Holdings, Inc. debt security held by the Company.    The Company also recorded a net loss on sale of investments during the nine months ended March 31, 2009 totaling $15,000.   Excluding these items, noninterest income increased $118,000 when comparing the nine months ended March 31, 2009 and 2008, respectively and decreased $88,000 when comparing the quarters ended March 31, 2009 and 2008, respectively. The majority of the increase in the other elements of noninterest income was from services fees on various accounts, including debit card fees.  The decrease when comparing the quarter end periods was from lower E-Commerce fees resulting from the sale of the merchant card business during the quarter as well as lower income generated through investment services.


NONINTEREST EXPENSE

Noninterest expense increased $1.0 million or 11.1% to $10.0 million for the nine months ended March 31, 2009 as compared to $9.0 million for the nine months ended March 31, 2008.  Noninterest expense increased $305,000 or 9.5% to $3.5 million for the quarter ended March 31, 2009 as compared to $3.2 million for the quarter ended March 31, 2008.  The most significant increase in noninterest expenses was in salaries and employee benefits which increased $751,000 and $124,000 when comparing nine months and quarters ended March 31, 2009 and 2008, respectively.  This was in part due to the opening of the new Chatham branch in January 2008, and the new Ravena branch in January 2009.  Also, the Company accrued $351,000 toward the expected future termination of its currently frozen defined benefit plan during the nine months ended March 31, 2009.  Most recently, the Company has decided not to terminate the current defined benefit plan, but instead will modify the plan, moving it out of the existing multi-employer plan.  The Company has recognized approximately $58,000 in professional expenses during the quarter and year to date ended March 31, 2009 related to this modification.  It is expected that this modification will be completed within the fourth quarter of fiscal 2009.   The Company also recognized $90,000 in expense for the quarter and year to date ended March 31, 2009 related to consulting services to review current operations for opportunities to improve efficiencies and institute “best practices”.  Increases in occupancy expenses due to branch openings, as well as ATM and debit card expenses and higher FDIC insurance premiums resulting from the significant growth in deposits during these periods, also contributed to the higher noninterest expense.


INCOME TAXES

The provision for income taxes reflected the expected tax associated with the revenue generated for the given period and certain regulatory requirements.  The effective tax rate was 37.7% for the nine months ended March 31, 2009, compared to 29.4% for the nine months ended March 31, 2008.  The effective tax rate was 42.5% for the quarter ended March 31, 2009, compared to 29.8% for the quarter ended March 31, 2008.  The increased effective tax rate was due to a lesser portion of pre-tax income from tax-exempt income.


LIQUIDITY AND CAPITAL RESOURCES

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

Mortgage loan commitments totaled $4.9 million at March 31, 2009.  The unused portion of overdraft lines of credit amounted to $9.9 million, the unused portion of home equity lines of credit amounted to $8.0 million, and the unused portion of commercial lines of credit amounted to $3.8 million at March 31, 2009.  Greene County Bancorp, Inc. anticipates that it will have sufficient funds available to meet current loan commitments based on the level of cash and cash equivalents as well as the available for sale investment portfolio and borrowing capacity from Federal Home Loan Bank of New York.

The Bank of Greene County and Greene County Commercial Bank met all regulatory capital requirements at March 31, 2009 and June 30, 2008.  The Company’s consolidated shareholders’ equity represented 8.52% of total assets at March 31, 2009 and 9.55% of total assets of June 30, 2008.

On October 14, 2008, the FDIC announced the establishment of the Temporary Liquidity Guarantee Program, which was designed to strengthen confidence and encourage liquidity in the banking system by guaranteeing the (1) newly issued senior unsecured debt and (2) non-interest-bearing transaction accounts of participating institutions.  All eligible entities will be covered under the program unless they opt out of one or both of these components by December 5, 2008 (an extension from the original opt-out date of November 13, 2008).  Following that deadline, institutions that have opted out of either or both components cannot then opt in.  Similarly, institutions that have opted in by the December 5th deadline may not then opt out.  The Temporary Liquidity Guarantee Program will be in effect through December 31, 2009.  The Company has opted in to both components of the Temporary Liquidity Guarantee Program.

On February 27, 2009, the FDIC adopted a final rule modifying the risk-based assessment system and setting initial base assessment rates beginning April 1, 2009 at 12 to 45 basis points.   These new rates will apply to payments made on September 30, 2009, based on June 30, 2009 deposit data.  As a result of this increase, the Company anticipates that premiums will increase by approximately $50,000 per quarter (based on March 31, 2009 deposit data).   The FDIC also adopted an interim rule, with request for comments, imposing an emergency 20 basis point special assessment on June 30, 2009 to be collected on September 30, 2009 which would result in an expense of approximately $800,000 (based on March 31, 2009 deposit data).

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.


Item 4T.    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.