form10qseptember302010.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 SEPTEMBER 30, 2010

OR

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


GREENE COUNTY BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

Commission file number  0-25165


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

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


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

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

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

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

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

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

As of November 12, 2010, the registrant had 4,130,495 shares of common stock outstanding at $ .10 par value.

 
 

 


 
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.
[Removed and Reserved]
   
         
Item 5.
Other Information
   
         
Item 6.
Exhibits
   
         
 
Signatures
   
 
   Exhibit 31.1 302 Certification of Chief Executive Officer
   Exhibit 31.2 302 Certification of Chief Financial Officer
   Exhibit 32.1 906 Statement of Chief Executive Officer
   Exhibit 32.2 906 Statement of Chief Financial Officer
   

 
 









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

ASSETS
 
September 30, 2010 
   
June 30, 2010
 
Cash and due from banks
  $ 36,730     $ 9,253  
Federal funds sold
    2,299       390  
    Total cash and cash equivalents
    39,029       9,643  
                 
Long term certificate of deposit
    1,000       1,000  
Securities available for sale, at fair value
    87,881       89,805  
Securities held to maturity, at amortized cost
    80,475       77,520  
Federal Home Loan Bank stock, at cost
    1,457       1,866  
                 
Loans
    303,289       299,200  
  Allowance for loan losses
    (4,338 )     (4,024 )
  Unearned origination fees and costs, net
    443       406  
    Net loans receivable
    299,394       295,582  
                 
Premises and equipment
    14,849       14,804  
Accrued interest receivable
    2,846       2,731  
Foreclosed real estate
    200       ---  
Prepaid expenses and other assets
    2,350       2,372  
               Total assets
  $ 529,481     $ 495,323  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 49,060     $ 44,239  
Interest bearing deposits
    414,384       377,493  
    Total deposits
    463,444       421,732  
                 
Borrowings from FHLB, short-term
    ---       9,100  
Borrowings from FHLB, long-term
    17,000       17,000  
Accrued expenses and other liabilities
    3,104       2,988  
                Total liabilities
    483,548       450,820  
                 
Shareholders’ equity:
               
Preferred stock,
               
  Authorized   -   1,000,000 shares; Issued - None
    ---       ---  
Common stock, par value $.10 per share;
               
   Authorized  - 12,000,000 shares
               
   Issued          -   4,305,670 shares
               
   Outstanding -   4,123,245 shares at September 30, 2010
               
                            4,118,912 shares at June 30, 2010;
    431       431  
Additional paid-in capital
    10,742       10,666  
Retained earnings
    34,698       33,692  
Accumulated other comprehensive income
    1,438       1,123  
Treasury stock, at cost 182,425 shares at September 30, 2010
               
                                     186,758 shares at June 30, 2010
    (1,376 )     (1,409 )
               Total shareholders’ equity
    45,933       44,503  
               Total liabilities and shareholders’ equity
  $ 529,481     $ 495,323  
See notes to consolidated financial statements.

 
 

 

         Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended September 30, 2010 and 2009
(Unaudited)
(In thousands, except share and per share amounts)
   
2010
   
2009
 
Interest income:
           
    Loans
  $ 4,537     $ 4,167  
    Investment securities - taxable
    271       316  
    Mortgage-backed securities
    882       920  
    Investment securities - tax exempt
    284       249  
    Interest bearing deposits and federal funds sold
    2       4  
Total interest income
    5,976       5,656  
                 
Interest expense:
               
    Interest on deposits
    1,030       1,250  
    Interest on borrowings
    149       167  
Total interest expense
    1,179       1,417  
                 
Net interest income
    4,797       4,239  
Provision for loan losses
    353       248  
Net interest income after provision for loan losses
    4,444       3,991  
                 
Non-interest income:
               
    Service charges on deposit accounts
    567       748  
    Debit card fees
    297       248  
    Investment services
    78       59  
    E-commerce fees
    30       30  
    Other operating income
    128       116  
Total non-interest income
    1,100       1,201  
                 
Non-interest expense:
               
    Salaries and employee benefits
    1,917       1,806  
    Occupancy expense
    303       302  
    Equipment and furniture expense
    144       153  
    Service and data processing fees
    343       343  
    Computer software, supplies and support
    71       82  
    Advertising and promotion
    101       78  
    FDIC insurance premiums
    143       135  
    Legal and professional fees
    90       75  
    Other
    416       408  
Total non-interest expense
    3,528       3,382  
                 
Income before provision for income taxes
    2,016       1,810  
Provision for income taxes
    692       626  
Net income
  $ 1,324     $ 1,184  
                 
Basic EPS
  $ 0.32     $ 0.29  
Basic average shares outstanding
    4,121,299       4,105,312  
Diluted EPS
  $ 0.32     $ 0.29  
Diluted average shares outstanding
    4,152,082       4,132,766  
Dividends per share
  $ 0.175     $ 0.170  
See notes to consolidated financial statements.


 Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2010 and 2009
(Unaudited)
(In thousands)


   
2010
   
2009
 
             
Net income
  $ 1,324     $ 1,184  
                 
Other comprehensive income:
               
Securities:
               
Unrealized holding gains on available for sale securities, arising
               
  during the three months ended September 30, 2010 and 2009,
               
  net of income taxes of $188 and $266, respectively.
    299       421  
                 
  Accretion of unrealized loss on securities transferred to held-to-maturity,
               
    net of income taxes of $8 and $9, respectively
    12       15  
                 
                 
Other comprehensive income
    311       436  
Pension, actuarial gain, net of income tax
    4       ---  
                 
Comprehensive income
  $ 1,639     $ 1,620  
See notes to consolidated financial statements.



 
 

 


Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Three Months Ended September 30, 2010 and 2009
(Unaudited)
(In thousands)


       
Accumulated
   
   
Additional
 
Other
 
Total
 
Common
Paid – In
Retained
Comprehensive
Treasury
Shareholders’
 
Stock
Capital
Earnings
Income
Stock
Equity
             
Balance at
           
June 30, 2009
$431    
   $10,508
    $30,045
     $792
            ($1,512)
$40,264
             
Stock options compensation
 
           56
     
        56
             
Dividends declared
   
         (306)
   
      (306)
              
Net income
   
        1,184
   
   1,184
             
Total other comprehensive income, net of taxes
     
       436
 
     436
Balance at
           
September 30, 2009
$431  
    $10,564
      $30,923
   $1,228
            ($1,512)
$41,634
Balance at
June 30, 2010
$431  
    $10,666
       $33,692
    $1,123
            ($1,409)
 $44,503
              
Stock options exercised
 
            21
   
            33
        54
              
Tax effect of stock options exercised
 
              (1)
     
         (1)
             
Stock options compensation
 
            56
     
         56
              
Dividends declared
   
          (318)
   
       (318)
             
Net income
   
         1,324
   
     1,324
             
Total other comprehensive income, net of taxes
     
       315
 
        315
Balance at
           
September 30, 2010
$431  
       $10,742
      $34,698
  $1,438
            ($1,376)
  $45,933
             

See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2010 and 2009
(Unaudited)

(In thousands)
 
2010
   
2009
 
Cash flows from operating activities:
           
Net Income
  $ 1,324     $ 1,184  
Adjustments to reconcile net income to net cash provided by operating activities:
               
     Depreciation
    195       233  
     Net amortization of premiums and discounts
    253       200  
     Net amortization of deferred loan costs and fees
    42       49  
     Provision for loan losses
    353       248  
     Stock option compensation
    56       56  
     Net loss on sale of foreclosed real estate
    ---       8  
     Net increase in accrued income taxes
    26       80  
     Net increase in accrued interest receivable
    (115 )     (121 )
     Net increase in prepaid and other assets
    (7 )     (177 )
     Net decrease in other liabilities
    (74 )     (850 )
          Net cash provided by operating activities
    2,053       910  
                 
Cash flows from investing activities:
               
   Securities available-for-sale:
               
     Proceeds from maturities
    4,042       3,000  
     Purchases of securities
    (3,999 )     ---  
     Principal payments on securities
    2,266       2,412  
   Securities held-to-maturity:
               
     Proceeds from maturities
    4,391       844  
     Purchases of securities
    (8,513 )     (4,277 )
     Principal payments on securities
    1,036       910  
   Net sale of Federal Home Loan Bank Stock
    409       ---  
   Net increase in loans receivable
    (4,407 )     (8,559 )
   Proceeds from sale of foreclosed real estate
    ---       207  
   Purchases of premises and equipment
    (240 )     (84 )
          Net cash used in investing activities
    (5,015 )     (5,547 )
                 
Cash flows from financing activities:
               
     Net decrease in short-term FHLB advances
    (9,100 )     ---  
     Payment of cash dividends
    (318 )     (306 )
     Proceeds from stock options exercised
    54       ---  
     Net increase in deposits
    41,712       10,642  
          Net cash provided by financing activities
    32,348       10,336  
                 
Net increase in cash and cash equivalents
    29,386       5,699  
Cash and cash equivalents at beginning of period
    9,643       9,443  
Cash and cash equivalents at end of period
  $ 39,029     $ 15,142  
                 
Non-cash investing activities:
               
   Foreclosed loans transferred to foreclosed real estate
  $ 200     $ ---  
Cash paid during the period:
               
Interest
  $ 1,183     $ 1,414  
Income taxes
    666       546  

See notes to consolidated financial statements.
     

 
 

 


Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Three Months Ended September 30, 2010 and 2009


(1)  Basis of Presentation

The accompanying consolidated statement of financial condition as of June 30, 2010 was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, The Bank of Greene County (the “Bank”) and the Bank’s wholly owned subsidiary, Greene County Commercial Bank.  The consolidated financial statements at and for the three months ended September 30, 2010 and 2009 are unaudited.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  To the extent that information and footnotes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2010, such information and footnotes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three months ended September 30, 2010 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2011.   These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

CRITICAL ACCOUNTING POLICIES

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

Securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio.  Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors, including the severity and duration of the impairment; the intent and ability of the Company to hold the equity security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, the likelihood to be required to sell the security before it recovers the entire amortized cost, external credit ratings and recent downgrades.  The Company is required to record other-than-temporary impairment charges through earnings, if it has the intent to sell, or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis.  In addition, the Company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell.  Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis.  Non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as the Company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis.
 
(2)      Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its subsidiaries.  The Bank of Greene County has 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, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss of the entire amortized cost is expected, external credit ratings and recent downgrades.  Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value.










(4)      Securities

Securities at September 30, 2010 consisted of the following:
   
 
   
Gross    
   
Gross   
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair     
 
   
Cost     
   
Gains    
   
Losses   
   
Value    
 
(In thousands)
                       
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 22,354     $ 431     $ ---     $ 22,785  
  State and political subdivisions
    7,889       348       ---       8,237  
  Mortgage-backed securities-residential
    22,700       1,039       ---       23,739  
  Mortgage-backed securities-multi-family
    24,449       1,253       ---       25,702  
  Asset-backed securities
    32       ---       1       31  
  Corporate debt securities
    6,900       384       ---       7,284  
Total debt securities
    84,324       3,455       1       87,778  
  Equity securities and other
    67       36       ---       103  
Total securities available-for-sale
    84,391       3,491       1       87,881  
Securities held-to-maturity:
                               
  U.S. government sponsored enterprises
    7,002       88       ---       7,090  
  State and political subdivisions
    33,917       139       5       34,051  
  Mortgage-backed securities-residential
    35,255       1,715       ---       36,970  
  Mortgage-backed securities-multi-family
    3,928       17       2       3,943  
  Other securities
    373       ---       ---       373  
Total securities held-to-maturity
    80,475       1,959       7       82,427  
Total securities
  $ 164,866     $ 5,450     $ 8     $ 170,308  


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

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2010.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
(in thousands)
                                   
Securities available-for-sale:
                                   
  Asset-backed securities
  $ ---     $ ---     $ 31       1       31       1  
Total available-for-sale securities
    ---       ---       31       1       31       1  
Securities held-to-maturity:
                                               
  State and political subdivisions
    957       5       ---       ---       957       5  
  Mortgage-backed securities-multi-family
    1,007       2       ---       ---       1,007       2  
Total held-to-maturity securities
    1,964       7       ---       ---       1,964       7  
Total securities
  $ 1,964     $ 7     $ 31     $ 1     $ 1,995     $ 8  


The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2010.

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

At September 30, 2010, there was one security which has been in a continuous unrealized loss position for more than 12 months and 21 securities with a continuous unrealized loss position of less than 12 months.    When the fair value of a held to maturity or available for sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present.  The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover.  The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

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

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”).  Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis.  Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized.  For securities classified as held to maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.  For equity securities, the entire amount of OTTI is recognized in income.  Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2010.  Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads at the end of the quarter

During the quarters ended September 30, 2010 and 2009, there were no sales of available-for-sale or held-to-maturity securities.   There was no other-than-temporary impairment loss recognized during the quarters ended September 30, 2010 and 2009.

The estimated fair value of debt securities at September 30, 2010, by contractual maturity are shown below.  Expected maturities may differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

         
          After   
   
          After    
             
   
          In        
   
          One Year
   
          Five Years
             
   
          One Year
   
          Through 
   
          Through 
   
          After    
       
   
           Or Less 
   
          Five Years
   
          Ten Years
   
          Ten Years
   
          Total
 
(Dollars in thousands)
                             
Securities available-for-sale:
                             
  U.S. Government sponsored enterprises
  $ 1,328     $ 19,189     $ 2,268     $ ---     $ 22,785  
  State and political subdivisions
    1,521       6,355       361       ---       8,237  
  Mortgage-backed securities-residential
    1,186       2,199       7,599       12,755       23,739  
  Mortgage-backed securities-multi-family
    1,182       21,585       2,935       ---       25,702  
  Asset-backed securities
    ---       ---       ---       31       31  
  Corporate debt securities
    ---       2,962       4,322       ---       7,284  
Total debt securities
    5,217       52,290       17,485       12,786       87,778  
  Equity securities
    ---       ---       ---       103       103  
Total securities available-for-sale
    5,217       52,290       17,485       12,889       87,881  
Securities held-to-maturity:
                                       
  U.S. government sponsored enterprises
    ---       5,054       2,036       ---       7,090  
  State and political subdivisions
    15,326       10,144       4,817       3,764       34,051  
  Mortgage-backed securities-residential
    ---       2,641       17,355       16,974       36,970  
  Mortgage-backed securities-multi-family
    ---       1,529       2,414       ---       3,943  
  Other securities
    20       3       ---       350       373  
Total securities held-to-maturity
    15,346       19,371       26,622       21,088       82,427  
Total securities
  $ 20,563     $ 71,661     $ 44,107     $ 33,977     $ 170,308  

As of September 30, 2010, securities with an aggregate fair value of $122.9 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  Greene County Bancorp, Inc. did not participate in any securities lending programs during the quarters ended September 30, 2010 or 2009.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula.  This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par.  As a result of these restrictions, FHLB stock is carried at cost.  FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value.  Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following:   its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position.  After evaluating these considerations, Greene County Bancorp, Inc. concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no other-than-temporary impairment charge was recorded during the fiscal quarter ended September 30, 2010.
 
(5)      Fair Value Measurements and Fair Value of Financial Instruments

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

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

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

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

 
   
Fair Value Measurements Using
   
    Quoted Prices
    Significant
  Significant
   
 In Active Markets
Other Observable
Unobservable
   
For Identical Assets
Inputs
Inputs
(In thousands)
September 30, 2010
(Level 1)
(Level 2)
(Level 3)
Assets:
       
Securities available-for-sale
$87,881
$51,052
$36,829
$---





   
Fair Value Measurements Using
   
    Quoted Prices
    Significant
  Significant
   
 In Active Markets
Other Observable
Unobservable
   
For Identical Assets
Inputs
Inputs
(In thousands)
June 30, 2010
(Level 1)
(Level 2)
(Level 3)
Assets:
       
Securities available-for-sale
$89,805
$52,105
$37,700
$---

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

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed.  Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses.  Impaired loans are those loans for which the Company has re-measured impairment generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount does not necessarily represent the fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.  At September 30, 2010 and June 30, 2010, loans subject to nonrecurring fair value measurement had a gross carrying amount and fair value of $212,000, and consisted of one mortgage loan which was modified in a troubled debt restructuring.  As a result of this restructuring, the loan was written down to its fair value based on expected cash flows.  As such, there is no allocation of the allowance for loan losses for this impaired loan as of September 30, 2010. This loan is included in total non-performing assets.  There were no changes in fair value for the quarters ended September 30, 2010 or 2009.  During the quarter ended September 30, 2010, one multi-family mortgage loan was transferred to foreclosed real estate (FRE) at its fair value of $200,000.  No other financial assets or liabilities (such as FRE) were re-measured during the quarter on a nonrecurring basis.

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

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

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

(in thousands)
 
September 30, 2010
   
June 30, 2010
 
   
Carrying
   
Fair
   
Carrying
   
Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
Cash and cash equivalents
  $ 39,029     $ 39,029     $ 9,643     $ 9,643  
Long term certificate of deposit
    1,000       1,000       1,000       1,000  
Securities available-for-sale
    87,881       87,881       89,805       89,805  
Securities held-to-maturity
    80,475       82,427       77,520       78,982  
Federal Home Loan Bank stock
    1,457       1,457       1,866       1,866  
Net loans
    299,394       305,840       295,582       300,395  
Accrued interest receivable
    2,846       2,846       2,731       2,731  
Deposits
    463,444       464,483       421,732       422,693  
Federal Home Loan Bank borrowings
    17,000       17,739       26,100       26,791  
Accrued interest payable
    105       105       109       109  
 
(6)      Earnings Per Share (“EPS”)

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period.  There were no anti-dilutive securities or contracts outstanding during the quarters ended September 30, 2010 and 2009.

         
   Weighted    Average Number
       
   
Net Income
   
Of Shares Outstanding
   
Earnings per Share    
 
Three months ended
                 
September 30, 2010
  $ 1,324,000              
   Basic
            4,121,299     $ 0.32  
   Effect of dilutive stock options
                  30,783       (0.00 )
   Diluted
            4,152,082     $ 0.32  
                         
Three months ended
                       
September 30, 2009
  $ 1,184,000                  
   Basic
            4,105,312     $ 0.29  
   Effect of dilutive stock options
                 27,454       (0.00 )
   Diluted
            4,132,766     $ 0.29  
 
(7)      Dividends
 
On July 20, 2010, the Board of Directors declared a quarterly cash dividend of $0.175 per share of Greene County Bancorp, Inc.’s common stock.  The dividend reflected an annual cash dividend rate of $0.70 cents per share, was unchanged from the dividend declared during the previous quarter. The dividend was payable to stockholders of record as of August 13, 2010, and was paid on September 1, 2010.  It should be noted that Greene County Bancorp, Inc.’s mutual holding company continued to waive receipt of dividends for the current period.
 
(8)      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.
 
(9)  Impact of Recent Accounting Pronouncements

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

In June 2009, the FASB issued an amendment to its guidance on “Transfers and Servicing”.  This guidance prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferor’s continuing involvement in transferred financial assets.  Specifically, among other aspects, the guidance removes the concept of a qualifying special-purpose entity. It also modifies the financial-components approach used in this standard.   The new guidance is effective for fiscal years beginning after November 15, 2009.  The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

In June 2009, the FASB issued an amendment to its guidance on “Consolidation of Variable Interest Entities”, to require an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity.  The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.  This amendment also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.  This new guidance is effective for fiscal years beginning after November 15, 2009.  The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

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

In April 2010, the FASB issued an amendment to its guidance on “Receivables: Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset”, which codifies the consensus reached in EITF Issue No. 09-I, “Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset.” The amendments to the Codification provide that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. This amendment does not affect the accounting for loans under the scope of Subtopic 310-30 that are not accounted for within pools. Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40.  This amendment is effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.   Early application is permitted. Upon initial adoption of this amendment, an entity may make a one-time election to terminate accounting for loans as a pool under Subtopic 310-30. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration.   The adoption of these amendments did not have a material impact on our consolidated financial statements.

 
In July 2010, the FASB issued an amendment to its guidance on “Receivables: Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”, which will help investors assess the credit risk of a company’s receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures.  This update requires more information about the credit quality of financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators.  Both new and existing disclosures must be disaggregated by portfolio segment or class.  The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.  The amendments in this update apply to all public and nonpublic entities with financing receivables.  Financing receivables include loans and trade accounts receivable.  However, short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from these disclosure amendments.  The amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010.  The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010.  The Company is currently assessing the impact that this guidance will have on its consolidated financial statements.
 
(10)      Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension costs related to the defined benefit pension plan for the three months ended September 30, 2010 and 2009 were as follows:

   
Three months ended September 30,
 
(in thousands)
 
2010
   
2009
 
Interest cost
  $ 51     $ 52  
Expected return on plan assets
    (55 )     (55 )
Amortization of net loss
    8       2  
  Net periodic pension cost
  $ 4     $ (1 )

The Company does not expect to make any contributions to the defined benefit pension plan during fiscal 2011.

SERP

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

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

The net periodic pension costs related to the SERP for the three months ended September 30, 2010 were $13,000 consisting primarily of service costs.  Interest costs associated with this plan were not material for the three months ended September 30, 2010.
 
(11)      Stock-Based Compensation

At September 30, 2010, Greene County Bancorp, Inc. had two stock-based compensation plans, which are described more fully in Note 9 of the consolidated financial statements and notes thereto for the year ended June 30, 2010.

The Company recognized $56,000 in compensation costs and related income tax benefit of $17,000 related to the 2008 Option Plan for the quarters ended September 30, 2010 and 2009.  At September 30, 2010, there was $185,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted.  That cost is expected to be recognized over a weighted-average period of 10 months.












A summary of the Company’s stock option activity and related information for its option plans for the three months ended September 30, 2010 and 2009 is as follows:

   
2010
   
2009
 
         
Weighted Average
         
Weighted Average
 
         
Exercise
         
Exercise
 
         
Price
         
Price
 
   
Shares
   
Per Share
   
Shares
   
Per Share
 
Outstanding at beginning of year
    171,750     $ 12.36       196,660     $ 11.33  
Exercised
    (4,333 )     12.50       ---       ---  
Outstanding at period end
    167,417     $ 12.36       196,660     $ 11.33  
Exercisable at period end
    112,587     $ 12.29       86,995     $   9.85  

The following table presents stock options outstanding and exercisable at September 30, 2010:

Options Outstanding and Exercisable
 
Range of Exercise Prices
   
Number Outstanding
   
Weighted Average Remaining Contractual Life
   
Weighted Average Exercise Price
 
$ 9.20           7,250       0.50     $ 9.20  
$ 12.50       105,337       8.00     $ 12.50  
$ 9.20-$12.50       112,587             $ 12.29  

The total intrinsic value of the options exercised during the three months ended September 30, 2010, was approximately $15,000.  No options were exercised during the three months ended September 30, 2009. There were no stock options granted during the three months ended September 30, 2010 or 2009.  The Company had 54,830 non-vested options outstanding at September 30, 2010 and 109,665 non-vested options outstanding at September 30, 2009.
 
(12)      Accumulated Other Comprehensive Income

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

(in thousands)
           
Accumulated other comprehensive income
 
     September 30, 2010
   
June 30, 2010
 
  Unrealized gains on available-for-sale securities, net of tax
  $ 2,140     $ 1,841  
  Unrealized loss on securities transferred to held-to-maturity, net of tax
    (103 )     (116 )
  Net losses and past service liability for defined benefit plan, net of tax
    (599 )     (602 )
Accumulated other comprehensive income
  $ 1,438     $ 1,123  
                 
 
(13)      Subsequent events

On October 20, 2010, the Board of Directors declared a quarterly cash dividend of $0.175 per share on Greene County Bancorp, Inc.’s common stock.  The dividend reflects an annual cash dividend rate of $0.70 per share, which was the same as the dividend declared during the previous quarter.  The dividend will be payable to stockholders of record as of November 12, 2010, and will be paid on December 1, 2010.  On October 20, 2010, the Board of Directors also declared a special cash dividend of $0.20 per share which will be payable to stockholders of record as of November 12, 2010, and will be paid on December 15, 2010.   It should be noted that Greene County Bancorp, Inc.’s mutual holding company continues to waive receipt of dividends on the shares it owns.


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

Overview of the Company’s Activities and Risks

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

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

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

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

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


Special Note Regarding Forward Looking Statements

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

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


 
 

 

Comparison of Financial Condition as of September 30, 2010 and June 30, 2010

ASSETS

Total assets of the Company were $529.5 million at September 30, 2010 as compared to $495.3 million at June 30, 2010, an increase of $34.2 million, or 6.9%.  Securities available for sale and held to maturity amounted to $168.4 million, or 31.8% of assets, at September 30, 2010 as compared to $167.3 million, or 33.8% of assets, at June 30, 2010, an increase of $1.1 million or 0.7%.   Net loans grew by $3.8 million or 1.3% to $299.4 million at September 30, 2010 as compared to $295.6 million at June 30, 2010.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased to $39.0 million at September 30, 2010 as compared to $9.6 million at June 30, 2010, an increase of $29.4 million.  The level of cash and cash equivalents is a function of the daily account clearing needs and deposit levels as well as activities associated with securities transactions and loan funding.  All of these items can cause cash levels to fluctuate significantly on a daily basis.  Each year at the end of September the Company can see significant fluctuations in cash due to the collection of local school taxes.

SECURITIES

Securities, including both available-for-sale and held-to-maturity issues, increased $1.1 million or 0.7% to $168.4 million at September 30, 2010 as compared to $167.3 million at June 30, 2010.  Securities purchases totaled $12.5 million during the quarter ended September 30, 2010 and consisted of $8.5 million of state and political subdivision securities and $4.0 million of U.S. government agency securities. Principal pay-downs and maturities amounted to $11.7 million, of which $3.3 million were mortgage-backed securities, $4.9 million were state and political subdivision securities and $3.5 million were U.S. government agency securities. Additionally, during the quarter ended September 30, 2010, unrealized net gains on available for sale securities increased $507,000.  Greene County Bancorp, Inc. holds 25.1% of the securities portfolio at September 30, 2010 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
 
   
September 30, 2010
   
June 30, 2010
 
(Dollars in thousands)
 
Balance
   
Percentage
of Portfolio
   
Balance
   
Percentage
of Portfolio
 
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 22,785       13.5 %   $ 22,176       13.3 %
  State and political subdivisions
    8,237       4.9       8,749       5.2  
  Mortgage-backed securities-residential
    23,739       14.1       25,883       15.5  
  Mortgage-backed securities-multifamily
    25,702       15.3       25,932       15.5  
  Asset-backed securities
    31       0.0       32       0.0  
  Corporate debt securities
    7,284       4.3       6,931       4.1  
Total debt securities
    87,778       52.1       89,703       53.6  
  Equity securities and other
    103       0.1       102       0.1  
Total securities available-for-sale
    87,881       52.2       89,805       53.7  
Securities held-to-maturity:
                               
  U.S. government sponsored enterprises
    7,002       4.2       7,004       4.2  
  State and political subdivisions
    33,917       20.2       29,821       17.8  
  Mortgage-backed securities-residential
    35,255       20.9       36,277       21.7  
  Mortgage-backed securities-multifamily
    3,928       2.3       4,058       2.4  
  Other securities
    373       0.2       360       0.2  
Total securities held-to-maturity
    80,475       47.8       77,520       46.3  
Total securities
  $ 168,356       100.0 %   $ 167,325       100.0 %
LOANS

Net loans receivable increased to $299.4 million at September 30, 2010 from $295.6 million at June 30, 2010, an increase of $3.8 million, or 1.3%.  The loan growth experienced during the quarter primarily consisted of $2.0 million in commercial real estate loans, $814,000 in residential mortgage loans, $556,000 in home equity loans, and $827,000 in non-mortgage loans, and was partially offset by a $314,000 increase in the allowance for loan loss.  The continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth.    If long term rates begin to rise, the Company anticipates some slow down in new loan demand as well as refinancing activities.  The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products.  It should be noted however that the Company is subject to the effects of any downturn, and especially, a significant decline in home values in the Company’s markets could have a negative effect on the consolidated results of operations.  A significant decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios.  As of September 30, 2010, declines in home values have been modest in the Company’s market area. However, updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status.  Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.

       
   
September 30, 2010
   
June 30, 2010
 
(Dollars in  thousands)
 
Balance
   
Percentage
of Portfolio
   
Balance
   
Percentage
of Portfolio
 
                         
Real estate mortgages:
                       
   Residential
  $ 183,339       60.5 %   $ 182,525       61.0 %
   Commercial
    56,607       18.7       54,586       18.3  
   Construction and land
    9,280       3.0       9,357       3.1  
   Multifamily
    5,983       2.0       6,035       2.0  
Total real estate mortgages
    255,209       84.2       252,503       84.4  
Home equity loans
    27,158       8.9       26,602       8.9  
Commercial loans
    16,638       5.5       15,810       5.3  
Installment loans
    3,888       1.3       3,892       1.3  
Passbook loans
    396       0.1       393       0.1  
Total gross loans
    303,289       100.0 %     299,200       100.0 %
Unearned origination fees and costs, net
    443               406          
Allowance for loan losses
    (4,338 )             (4,024 )        
Total net loans
  $ 299,394             $ 295,582          

ALLOWANCE FOR LOAN LOSSES

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

Analysis of allowance for loan losses activity

(Dollars in thousands)
 
Three months ended
 
   
September 30, 2010
   
September 30, 2009
 
             
Balance at the beginning of the period
  $ 4,024     $ 3,420  
Charge-offs:
               
     Commercial loans
    2       8  
     Installment loans
    17       9  
     Overdraft protection accounts
    44       48  
Total loans charged off
    63       65  
                 
Recoveries:
               
     Commercial loans
    5       --  
     Installment loans
    3       3  
     Overdraft protection accounts
    16       26  
Total recoveries
    24       29  
                 
Net charge-offs
    39       36  
                 
Provisions charged to operations
    353       248  
Balance at the end of the period
  $ 4,338     $ 3,632  
                 
Ratio of annualized net charge-offs to average loans outstanding
    0.05 %     0.05 %
Ratio of annualized net charge-offs to nonperforming assets
    3.01 %     3.50 %
Allowance for loan losses to nonperforming loans
    86.99 %     88.24 %
Allowance for loan losses to total loans receivable
    1.43 %     1.30 %

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 less the cost to sell.  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 more than 90 days at September 30, 2010 or June 30, 2010.





Analysis of Nonaccrual Loans and Nonperforming Assets

   
At
 
(Dollars in thousands)
 
September 30, 2010
   
June 30, 2010
 
Nonaccrual loans:
           
     Real estate mortgages:
           
           Residential
  $ 2,488     $ 2,001  
           Commercial
    1,570       1,095  
           Construction and land
    13       13  
           Multifamily
    590       594  
     Home equity loans
    220       197  
     Commercial loans
    82       3  
     Installment loans
    24       18  
Total nonaccrual loans
    4,987       3,921  
Foreclosed real estate:
               
     Multifamily
    200       ---  
Foreclosed real estate
    200       ---  
Total nonperforming assets
  $ 5,186     $ 3,921  
                 
Total nonperforming assets as a percentage of total assets
    0.98 %     0.79 %
Total nonperforming loans to total loans
    1.67 %     1.33 %


The table below details additional information related to nonaccrual loans for the three months ended September 30:
(In thousands)
 
2010
   
2009
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
  $ 271     $ 199  
Interest income that was recorded on nonaccrual loans during the quarter  ended
    54       22  

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

The table below details additional information on impaired loans as of September 30:
(In thousands)
 
2010
   
2009
 
Balance of impaired loans, with a valuation allowance
  $ ---     $ 98  
Allowance relating to impaired loans included in allowance for loan losses
    ---       10  
Balance of impaired loans, without a valuation allowance
    212       ---  
Average balance of impaired loans for the quarter ended
    212       98  
Interest income recorded on impaired loans during the quarter ended
    1       1  

At September 30, 2010, the balance of impaired loans without a valuation allowance consisted of one loan that was modified in a troubled debt restructuring.  As a result of this restructuring, the loan was written down to its fair value based on expected cash flows.  As such, there is no allocation of the allowance for loan losses for this impaired loan as of September 30, 2010.   This loan remains in non-accrual status, but is performing in accordance with the modified terms as of September 30, 2010.





DEPOSITS

Total deposits increased to $463.4 million at September 30, 2010 from $421.7 million at June 30, 2010, an increase of $41.7 million, or 9.9%.  This increase was primarily the result of an increase of $39.9 million in balances at the Company’s Commercial Bank subsidiary due primarily to the annual collection of taxes by several local school districts.  Interest bearing checking accounts (NOW accounts) increased $35.5 million or 29.2% to $156.9 million at September 30, 2010 as compared to $121.4 million at June 30, 2010.     Certificates of deposit balances increased $1.2 million between June 30, 2010 and September 30, 2010.  Noninterest bearing deposits increased $4.9 million to $49.1 million at September 30, 2010.
 
(Dollars in thousands)
                       
   
At         
Sept. 30, 2010
   
Percentage
of Portfolio
   
At         
June 30, 2010
   
Percentage
of Portfolio
 
                         
Noninterest bearing deposits
  $ 49,060       10.6 %   $ 44,239       10.5 %
Certificates of deposit
    98,068       21.2       96,909       23.0  
Savings deposits
    94,868       20.5       95,249       22.6  
Money market deposits
    64,501       13.8       63,899       15.1  
NOW deposits
    156,947       33.9       121,436       28.8  
Total deposits
  $ 463,444