form10qseptember302011.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, 2011

OR

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


GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number  0-25165


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

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


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

Check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes:       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:       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 November 14, 2011, the registrant had 4,148,628 shares of common stock outstanding at $ .10 par value per share.

 
 

 


 
GREENE COUNTY BANCORP, INC.
     
         
         
         
 
INDEX
     
         
         
         
PART I.
FINANCIAL INFORMATION
     
     
Page
 
Item 1.
Financial Statements (unaudited)
     
 
*   Consolidated Statements of Financial Condition
   
 
*   Consolidated Statements of Income
   
 
*   Consolidated Statements of Comprehensive Income
   
 
*   Consolidated Statements of Changes in Shareholders’ Equity
   
 
*   Consolidated Statements of Cash Flows
   
 
*   Notes to Consolidated Financial Statements
   
         
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
         
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
   
         
Item 4.
Controls and Procedures
   
         
PART II.
OTHER INFORMATION
     
         
Item 1.
Legal Proceedings
   
         
Item 1A.
Risk Factors
   
         
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
   
         
Item 3.
Defaults Upon Senior Securities
   
         
Item 4.
[Removed and Reserved]
   
         
Item 5.
Other Information
   
         
Item 6.
Exhibits
   
         
 
Signatures
   
 
   Exhibit 31.1 302 Certification of Chief Executive Officer
   Exhibit 31.2 302 Certification of Chief Financial Officer
   Exhibit 32.1 906 Statement of Chief Executive Officer
   Exhibit 32.2 906 Statement of Chief Financial Officer
   Exhibit 101 Extensible Business Reporting Language (XBRL)
   

 
 









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

ASSETS
 
September 30, 2011 
   
June 30, 2011
 
Cash and due from banks
  $ 24,287     $ 9,245  
Federal funds sold
    890       721  
    Total cash and cash equivalents
    25,177       9,966  
                 
Securities available for sale, at fair value
    80,673       90,117  
Securities held to maturity, at amortized cost
    122,085       124,177  
Federal Home Loan Bank stock, at cost
    1,273       1,916  
                 
Loans
    312,024       305,620  
  Allowance for loan losses
    (5,453 )     (5,069 )
  Unearned origination fees and costs, net
    399       495  
    Net loans receivable
    306,970       301,046  
                 
Premises and equipment
    15,244       15,407  
Accrued interest receivable
    2,740       2,716  
Foreclosed real estate
    243       443  
Prepaid expenses and other assets
    1,980       1,737  
               Total assets
  $ 556,385     $ 547,525  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 50,740     $ 49,313  
Interest bearing deposits
    441,254       420,584  
    Total deposits
    491,994       469,897  
                 
Borrowings from FHLB, short-term
    ---       14,300  
Borrowings from FHLB, long-term
    12,000       12,000  
Accrued expenses and other liabilities
    2,882       3,247  
                Total liabilities
    506,876       499,444  
                 
Shareholders’ equity:
               
Preferred stock,
               
  Authorized   -   1,000,000 shares; Issued - None
    ---       ---  
Common stock, par value $.10 per share;
               
   Authorized  - 12,000,000 shares
               
   Issued          -   4,305,670 shares
               
   Outstanding -   4,145,828 shares at September 30, 2011
               
                            and June 30, 2011;
    431       431  
Additional paid-in capital
    11,020       11,001  
Retained earnings
    38,523       37,336  
Accumulated other comprehensive income
    741       519  
Treasury stock, at cost 159,842 shares at September 30, 2011
               
                                     and June 30, 2011
    (1,206 )     (1,206 )
               Total shareholders’ equity
    49,509       48,081  
               Total liabilities and shareholders’ equity
  $ 556,385     $ 547,525  
See notes to consolidated financial statements.

 
 

 

         Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands, except share and per share amounts)
   
2011
   
2010
 
Interest income:
           
    Loans
  $ 4,468     $ 4,537  
    Investment securities - taxable
    245       271  
    Mortgage-backed securities
    1,186       882  
    Investment securities - tax exempt
    305       284  
    Interest bearing deposits and federal funds sold
    1       2  
Total interest income
    6,205       5,976  
                 
Interest expense:
               
    Interest on deposits
    887       1,030  
    Interest on borrowings
    119       149  
Total interest expense
    1,006       1,179  
                 
Net interest income
    5,199       4,797  
Provision for loan losses
    474       353  
Net interest income after provision for loan losses
    4,725       4,444  
                 
Noninterest income:
               
    Service charges on deposit accounts
    616       567  
    Debit card fees
    338       297  
    Investment services
    75       78  
    E-commerce fees
    30       30  
    Net gain on sale of available-for-sale securities
    11       ---  
    Other operating income
    144       128  
Total noninterest income
    1,214       1,100  
                 
Noninterest expense:
               
    Salaries and employee benefits
    2,007       1,917  
    Occupancy expense
    318       303  
    Equipment and furniture expense
    145       144  
    Service and data processing fees
    371       343  
    Computer software, supplies and support
    81       71  
    Advertising and promotion
    36       101  
    FDIC insurance premiums
    90       143  
    Legal and professional fees
    182       159  
    Other
    428       347  
Total noninterest expense
    3,658       3,528  
                 
Income before provision for income taxes
    2,281       2,016  
Provision for income taxes
    772       692  
Net income
  $ 1,509     $ 1,324  
                 
Basic EPS
  $ 0.36     $ 0.32  
Basic average shares outstanding
    4,145,828       4,121,299  
Diluted EPS
  $ 0.36     $ 0.32  
Diluted average shares outstanding
    4,190,151       4,152,082  
Dividends per share
  $ 0.175     $ 0.175  
See notes to consolidated financial statements.


 Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands)


   
2011
   
2010
 
             
Net income
  $ 1,509     $ 1,324  
                 
Other comprehensive income:
               
Securities:
               
Unrealized holding gains on available for sale securities, arising
               
  during the three months ended September 30, 2011 and 2010,
               
  net of income taxes of $135 and $188, respectively.
    215       299  
                 
  Reclassification adjustment for gain on sale of available-for-sale securities
               
    realized in net income, net of income taxes of ($4) and $--, respectively
    (7 )     ---  
                 
  Accretion of unrealized loss on securities transferred to held-to-maturity,
               
    net of income taxes of $6 and $8, respectively
    10       12  
                 
Pension, actuarial gain, net of income tax of $2 and $2
    4       4  
                 
Other comprehensive income
    222       315  
                 
Comprehensive income
  $ 1,731     $ 1,639  
See notes to consolidated financial statements.



 
 

 


Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands)


                     
Accumulated
             
         
             Additional
         
Other
         
      Total
 
   
                Common
   
             Paid – In
   
               Retained
   
    Comprehensive
   
               Treasury
   
       Shareholders’
 
   
                Stock
   
             Capital
   
               Earnings
   
    Income
   
             Stock
   
       Equity
 
                                     
Balance at
                                   
June 30, 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  
Balance at
June 30, 2011
  $ 431     $ 11,001     $ 37,336     $ 519     $ (1,206 )   $ 48,081  
                                                 
Stock options compensation
            19                               19  
                                                 
Dividends declared
                    (322 )                     (322 )
                                                 
Net income
                    1,509                       1,509  
                                                 
Total other comprehensive income, net of taxes
                            222               222  
Balance at
                                               
September 30, 2011
  $ 431     $ 11,020     $ 38,523     $ 741     $ (1,206 )   $ 49,509  
                                                 

See notes to consolidated financial statements.

 
 

 

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2011 and 2010
(Unaudited)
(In thousands)
2011
 
2010
Cash flows from operating activities:
     
Net Income
$1,509
 
$1,324
Adjustments to reconcile net income to net cash provided by operating activities:
     
     Depreciation
206
 
195
     Net amortization of premiums and discounts
259
 
253
     Net amortization of deferred loan costs and fees
63
 
42
     Provision for loan losses
474
 
353
     Stock option compensation
19
 
56
     Net gain on sale of available-for-sale securities
(11)
 
---
     Loss on sale of foreclosed real estate
50
 
---
     Net (decrease) increase in accrued income taxes
(313)
 
26
     Net increase in accrued interest receivable
(24)
 
(115)
     Net decrease (increase) in prepaid and other assets
56
 
(7)
     Net decrease in other liabilities
(485)
 
(74)
          Net cash provided by operating activities
1,803
 
2,053
       
Cash flows from investing activities:
     
   Securities available-for-sale:
     
     Proceeds from maturities
5,440
 
4,042
     Proceeds from sale of securities
770
 
---
     Purchases of securities
---
 
(3,999)
     Principal payments on securities
3,482
 
2,266
   Securities held-to-maturity:
     
     Proceeds from maturities
5,831
 
4,391
     Purchases of securities
(5,972)
 
(8,513)
     Principal payments on securities
2,093
 
1,036
   Net redemption of Federal Home Loan Bank Stock
643
 
409
   Net increase in loans receivable
(6,704)
 
(4,407)
   Proceeds from sale of foreclosed real estate
393
 
---
   Purchases of premises and equipment
(43)
 
(240)
          Net cash provided by (used in) investing activities
5,933
 
(5,015)
       
Cash flows from financing activities:
     
     Net decrease in short-term FHLB advances
(14,300)
 
(9,100)
     Payment of cash dividends
(322)
 
(318)
     Proceeds from stock options exercised
---
 
54
     Net increase in deposits
22,097
 
41,712
          Net cash provided by financing activities
7,475
 
32,348
       
Net increase in cash and cash equivalents
15,211
 
29,386
Cash and cash equivalents at beginning of period
9,966
 
9,643
Cash and cash equivalents at end of period
$25,177
 
$39,029
       
Non-cash investing activities:
     
   Foreclosed loans transferred to foreclosed real estate
$243
 
$200
Cash paid during the period:
     
   Interest
$1,004
 
$1,183
   Income taxes
1,084
 
666
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, 2011 and 2010


(1)  Basis of Presentation

The accompanying consolidated statement of financial condition as of June 30, 2011 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, 2011 and 2010 are unaudited.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  To the extent that information and notes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2011, such information and notes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications, if any, had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three months ended September 30, 2011 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2012.   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 impairment must be recorded as decreases to accumulated other comprehensive income as long as the Company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis.
 
(2)      Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its two banking 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 the Company to recognize additions to the Allowance based on their judgments of information available to them at the time of their examination.

Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss of the entire amortized cost is expected, external credit ratings and recent downgrades.  Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value.


(4)  Securities

Securities at September 30, 2011 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(In thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 20,883     $ 397     $ 7     $ 21,273  
  State and political subdivisions
    6,378       220       ---       6,598  
  Mortgage-backed securities-residential
    26,951       726       1       27,676  
  Mortgage-backed securities-multi-family
    17,896       801       ---       18,697  
  Asset-backed securities
    23       ---       1       22  
  Corporate debt securities
    6,117       225       47       6,295  
Total debt securities
    78,248       2,369       56       80,561  
  Equity and other securities
    67       45       ---       112  
Total securities available-for-sale
    78,315       2,414       56       80,673  
Securities held-to-maturity:
                               
  U.S. treasury securities
    11,054       102       ---       11,156  
  U.S. government sponsored enterprises
    997       37       ---       1,034  
  State and political subdivisions
    35,022       310       14       35,318  
  Mortgage-backed securities-residential
    55,237       2,114       18       57,333  
  Mortgage-backed securities-multi-family
    19,346       98       28       19,416  
  Other securities
    429       ---       ---       429  
Total securities held-to-maturity
    122,085       2,661       60       124,686  
Total securities
  $ 200,400     $ 5,075     $ 116     $ 205,359  


Securities at June 30, 2011 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
(In thousands)
 
Cost
   
Gains
   
Losses
   
Value
 
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 25,909     $ 171     $ 377     $ 25,703  
  State and political subdivisions
    6,819       243       ---       7,062  
  Mortgage-backed securities-residential
    28,214       773       73       28,914  
  Mortgage-backed securities-multi-family
    20,184       912       ---       21,096  
  Asset-backed securities
    24       ---       1       23  
  Corporate debt securities
    6,881       325       ---       7,206  
Total debt securities
    88,031       2,424       451       90,004  
  Equity and other securities
    67       46       ---       113  
Total securities available-for-sale
    88,098       2,470       451       90,117  
Securities held-to-maturity:
                               
  U.S. treasury securities
    11,062       70       ---       11,132  
  U.S. government sponsored enterprises
    997       30       ---       1,027  
  State and political subdivisions
    34,933       200       9       35,124  
  Mortgage-backed securities-residential
    57,347       1,737       35       59,049  
  Mortgage-backed securities-multi-family
    19,434       47       14       19,467  
  Other securities
    404       2       ---       406  
Total securities held-to-maturity
    124,177       2,086       58       126,205  
Total securities
  $ 212,275     $ 4,556     $ 509     $ 216,322  

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, 2011.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
(In thousands)
 
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
Securities available-for-sale:
                                   
  U.S. government sponsored enterprises
  $ 1,043     $ 7     $ ---     $ ---     $ 1,043     $ 7  
  Mortgage-backed security-residential
    983       1       ---       ---       983       1  
  Asset-backed securities
    ---       ---       22       1       22       1  
  Corporate debt securities
    972       47       ---       ---       972       47  
Total securities available-for-sale
    2,998       55       22       1       3,020       56  
Securities held-to-maturity:
                                               
  State and political subdivisions
    1,008       14       ---       ---       1,008       14  
  Mortgage-backed securities-residential
    3,781       18       ---       ---       3,781       18  
  Mortgage-backed securities-multifamily
    7,969       28       ---       ---       7,969       28  
Total securities held-to-maturity
    12,758       60       ---       ---       12,758       60  
Total securities
  $ 15,756     $ 115     $ 22     $ 1     $ 15,778     $ 116  

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, 2011.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
(In thousands)
 
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
Securities available-for-sale:
                                   
  U.S. government sponsored enterprises
  $ 13,446     $ 377     $ ---     $ ---     $ 13,446     $ 377  
  Mortgage-backed security-residential
    6,571       73       ---       ---       6,571       73  
  Asset-backed securities
    ---       ---       22       1       22       1  
Total securities available-for-sale
    20,017       450       22       1       20,039       451  
Securities held-to-maturity:
                                               
  State and political subdivisions
    1,610       9       ---       ---       1,610       9  
  Mortgage-backed securities-residential
    7,680       35       ---       ---       7,680       35  
  Mortgage-backed securities-multifamily
    10,670       14       ---       ---       10,670       14  
Total securities held-to-maturity
    19,960       58       ---       ---       19,960       58  
Total securities
  $ 39,977     $ 508     $ 22     $ 1     $ 39,999     $ 509  

At September 30, 2011, there was one security which has been in a continuous unrealized loss position for more than 12 months and 23 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, 2011.  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 quarter ended September 30, 2011 the Company sold $759,000 of corporate debt securities within its available-for-sale portfolio at a gain of $11,000.   No losses were recognized during the quarter ended September 30, 2011.  During the quarter ended September 30, 2010, 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, 2011 and 2010.

The estimated fair values of debt securities at September 30, 2011, by contractual maturity are shown below.  Expected maturities may differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

         
            After
   
              After
             
   
                 In
   
             One Year
   
Five Years
             
   
One Year
   
             Through
   
              Through
   
               After
       
   
               Or Less
   
Five Years
   
Ten Years
   
Ten Years
   
Total
 
(In thousands)
                             
Securities available-for-sale:
                             
  U.S. Government sponsored enterprises
  $ ---     $ 13,451     $ 5,821       2,001     $ 21,273  
  State and political subdivisions
    1,161       5,437       ---       ---       6,598  
  Mortgage-backed securities-residential
    36       2,926       4,062       20,652       27,676  
  Mortgage-backed securities-multi-family
    2,704       15,993       ---       ---       18,697  
  Asset-backed securities
    ---       ---       ---       22       22  
  Corporate debt securities
    1,058       1,837       3,400       ---       6,295  
Total debt securities
    4,959       39,644       13,283       22,675       80,561  
  Equity securities
    ---       ---       ---       112       112  
Total securities available-for-sale
    4,959       39,644       13,283       22,787       80,673  
Securities held-to-maturity:
                                       
  U.S. treasury securities
    2,007       9,149       ---       ---       11,156  
  U.S. government sponsored enterprises
    ---       1,034       ---       ---       1,034  
  State and political subdivisions
    7,484       15,700       5,775       6,359       35,318  
  Mortgage-backed securities-residential
    ---       6,503       20,561       30,269       57,333  
  Mortgage-backed securities-multi-family
    401       2,302       16,713       ---       19,416  
  Other securities
    50       1       ---       378       429  
Total securities held-to-maturity
    9,942       34,689       43,049       37,006       124,686  
Total securities
  $ 14,901     $ 74,333     $ 56,332     $ 59,793     $ 205,359  

As of September 30, 2011, securities with an aggregate fair value of $152.7 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, 2011 or 2010.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula.  This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par.  As a result of these restrictions, FHLB stock is carried at cost.  FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value.  Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following:   its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position.  After evaluating these considerations, Greene County Bancorp, Inc. concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no other-than-temporary impairment charge was recorded during the fiscal quarters ended September 30, 2011 or 2010.
 
(5)  Credit Quality of Loans and Allowance for Loan Losses

Management closely monitors the quality of the loan portfolio and has established a loan review process designed to help grade the quality and profitability of the Company’s loan portfolio.  The credit quality grade helps management make a consistent assessment of each loan relationship’s credit risk.     Consistent with regulatory guidelines, The Bank of Greene County provides for the classification of loans considered being of lesser quality.  Such ratings coincide with the "Substandard," "Doubtful" and "Loss" classifications used by federal regulators in their examination of financial institutions. Generally, an asset is considered Substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. Substandard assets include those characterized by the distinct possibility that the insured financial institution will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in assets classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and of such little value that their continuance as assets without the establishment of a full loss reserve and/or charge-off is not warranted. Assets that do not currently expose the insured financial institutions to sufficient risk to warrant classification in one of the aforementioned categories but otherwise possess weaknesses are designated "Special Mention."   Management also maintains a listing of loans designated “Watch.” These loans represent borrowers with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk.

When The Bank of Greene County classifies problem assets as either Substandard or Doubtful, it generally establishes a specific valuation allowance or "loss reserve" in an amount deemed prudent by management.  General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.  When The Bank of Greene County identifies problem assets as being impaired, it is required to evaluate whether the Bank will be able to collect all amounts due either through repayments or the liquidation of the underlying collateral.  If it is determined that impairment exists, the Bank is required either to establish a specific allowance for losses equal to the amount of impairment of the assets, or to charge-off such amount.  The Bank of Greene County's determination as to the classification of its assets and the amount of its valuation allowance is subject to review by its regulatory agencies, which can order the establishment of additional general or specific loss allowances.  The Bank of Greene County reviews its portfolio monthly to determine whether any assets require classification in accordance with applicable regulations.
 
The Bank primarily has three segments within its loan portfolio that it considers when measuring credit quality: real estate loans, consumer installment and commercial loans.  The real estate portfolio consists of residential, nonresidential, and construction loans.    The inherent risk within the loan portfolio varies depending upon each of these loan types.

The Bank of Greene County’s primary lending activity is the origination of residential mortgage loans, including home equity loans, which are collateralized by residences.   Generally, residential mortgage loans are made in amounts up to 80.0% of the appraised value of the property.  However, The Bank of Greene County will originate residential mortgage loans with loan-to-value ratios of up to 95.0%, with private mortgage insurance.  In the event of default by the borrower, The Bank of Greene County will acquire and liquidate the underlying collateral.    By originating the loan at a loan-to-value ratio of 80% or less or obtaining private mortgage insurance, The Bank of Greene County limits its risk of loss in the even of default.  However, the market values of the collateral may be adversely impacted by declines in the economy.  Home equity loans may have an additional inherent risk if The Bank of Greene County does not hold the first mortgage.  The Bank of Greene County may stand in a secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.

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

Loans collateralized by nonresidential mortgage loans, and multi-family loans, such as apartment buildings generally are larger than residential loans and involve a greater degree of risk. Commercial mortgage loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of nonresidential mortgage loans makes them more difficult for management to monitor and evaluate.

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

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

 
 

 

Loan balances by internal credit quality indicator as of September 30, 2011 are shown below.
(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 177,166     $ 1,216     $ ---     $ 3,854     $ 182,236  
Nonresidential mortgage
    66,163       322       598       2,331       69,414  
Residential construction & land
    3,391       ---       ---       ---       3,391  
Commercial construction
    1,496       ---       250       ---       1,746  
Multi-family
    4,983       ---       433       573       5,989  
Home equity
    25,007       54       ---       102       25,163  
Consumer installment
    3,810       ---       ---       23       3,833  
Commercial loans
    18,956       261       328       707       20,252  
Total gross loans
  $ 300,972     $ 1,853     $ 1,609     $ 7,590     $ 312,024  

Loan balances by internal credit quality indicator as of June 30, 2011 are shown below.
(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 176,615     $ 1,782     $ 95     $ 3,120     $ 181,612  
Nonresidential mortgage
    59,633       1,017       602       2,608       63,860  
Residential construction & land
    3,718       ---       ---       13       3,731  
Commercial construction
    1,789       ---       ---       225       2,014  
Multi-family
    5,036       ---       434       578       6,048  
Home equity
    25,446       64       ---       49       25,559  
Consumer installment
    3,960       7       ---       41       4,008  
Commercial loans
    17,149       274       680       685       18,788  
Total gross loans
  $ 293,346     $ 3,144     $ 1,811     $ 7,319     $ 305,620  

The Company had no loans classified Doubtful or Loss at September 30, 2011 or June 30, 2011.

Nonaccrual Loans

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  Nonaccrual is defined as a loan in which collectability is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan.    A loan does not have to be 90 days delinquent in order to be classified as nonaccrual.   Nonaccrual loans consisted primarily of loans secured by real estate at September 30, 2011 and June 30, 2011.  While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years.  This growth has been the result of adverse changes within the economy and increases in local unemployment.   The growth is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.   Loans on nonaccrual status totaled $7.3 million at September 30, 2011 of which $3.0 million were in the process of foreclosure and an additional $787,000 were making payments pursuant to forbearance agreements.  Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment).  During this period, the Bank has agreed not to continue foreclosure proceedings.  Of the remaining $3.5 million in nonaccrual loans, $1.6 million were less than 90 days past due, or were current at September 30, 2011, but have a recent history of delinquency greater than 90 days past due.   These loans will be returned to accrual status once they have demonstrated a history of timely payments.



The following table sets forth information regarding delinquent and/or nonaccrual loans as of September 30, 2011:
(in thousands)
 
30-59 days past due
   
60-89 days past due
   
More than 90 days past due
   
Total past due
   
Current
   
Total Loans
   
Loans on Non-accrual
 
Residential mortgage
  $ 2,395     $ 887     $ 3,021     $ 6,303     $ 175,933     $ 182,236     $ 3,820  
Nonresidential mortgage
       645       100       1,861       2,606         66,808         69,414       2,331  
Residential construction & land
       ---          ---           ---          ---           3,391         3,391          ---  
Commercial construction
      250          ---          ---            250          1,496        1,746         250  
Multi-family
      128          ---        445            573          5,416         5,989         573  
Home equity
        27           54        102            183         24,980        25,163         102  
Consumer installment
        88           13            4            105          3,728          3,833           23  
Commercial loans
          3         637           81            721          19,531         20,252          167  
Total gross loans
  $ 3,536     $ 1,691     $ 5,514     $ 10,741     $  301,283     $ 312,024     $ 7,266  

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2011:
(in thousands)
 
30-59 days past due
   
60-89 days past due
   
More than 90 days past due
   
Total past due
   
Current
   
Total Loans
   
Loans on Non-accrual
 
Residential mortgage
  $ 1,766     $ 1,292     $ 2,294     $ 5,352     $ 176,260     $ 181,612     $ 3,074  
Nonresidential mortgage
    1,163         687       1,799       3,649         60,211         63,860       2,171  
Residential construction & land
       ---           ---           13            13         3,718         3,731         13  
Commercial construction
      225           ---           ---          225         1,789         2,014       225  
Multi-family
      128           ---         449          577          5,471         6,048       577  
Home equity
      168           64           43          275        25,284        25,559         49  
Consumer installment
         31           25           13            69          3,939          4,008          41  
Commercial loans
         69         546           82           697         18,091         18,788         144  
Total gross loans
  $ 3,550     $ 2,614     $ 4,693     $ 10,857     $ 294,763     $ 305,620     $ 6,294  

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

The table below details additional information related to nonaccrual loans for the three months ended September 30:

(In thousands)
 
2011
   
2010
 
Interest income that would have been recorded if loans had been performing in accordance with original terms
  $ 379     $ 271  
Interest income that was recorded on nonaccrual loans during the fiscal year ended
    67       54  

Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  The Bank of Greene County considers residential mortgages, home equity loans, smaller commercial loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral.  As a result, the level of impaired loans may only be a portion of nonaccrual loans.  Loans that are delinquent or slow paying may not be impaired, especially small homogenous loan types, due to collateral adequacy.  Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors.  Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually considered impaired, are either designated as Special Mention or Substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation.

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

   
As of September 30, 2011
   
For the three months ended September 30, 2011
 
(in thousands)
 
Recorded   Investment
   
Unpaid Principal
   
Related    Allowance
   
Average    Recorded   Investment
   
Interest Income Recognized  
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 213     $ 276     $ ---     $ 213     $ ---  
   Nonresidential mortgage
    461       461       ---       461       4  
Total loans with no related allowance
    674       737       ---       674       4  
With an allowance recorded:
                                       
  Residential mortgage
    46       46       2       46       1  
  Nonresidential mortgage
    994       994       156       1,029       6  
  Multi-family
    433       433       160       434       6  
  Commercial loans
    500       500       20       500       9  
Total loans with related allowance
    1,973       1,973       338       2,009       22  
Total impaired loans:
                                       
  Residential mortgage
    259       322       2       259       1  
  Nonresidential mortgage
    1,455       1,455       156       1,490       10  
  Multi-family
    433       433       160       434       6  
  Commercial loans
    500       500       20       500       9  
Total impaired loans
  $ 2,647     $ 2,710     $ 338     $ 2,683     $ 26  

As a result of adopting the guidance issued by FASB regarding “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring”, the Company reassessed all restructurings that occurred on or after June 30, 2011 for identification as troubled debt restructurings.  The Company identified no loans for which the allowance for loan losses had previously been measured under a general allowance for credit losses methodology that are now considered troubled debt restructurings in accordance with this new guidance.

 
 

 


   
As of June 30, 2011
   
For the three months ended September 30, 2010
 
(in thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related     Allowance
   
Average    Recorded   Investment
   
Interest Income Recognized  
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 213     $ 276     $ ---     $ 213     $ 1  
   Nonresidential mortgage
    462       462       ---       ---       ---  
Total loans with no related allowance
    675       738       ---       213       1  
With an allowance recorded:
                                       
  Residential mortgage
    46       46       2       ---       ---  
  Nonresidential mortgage
    1,255       1,255       292       ---       ---  
  Multi-family
    434       434       160       ---       ---  
  Commercial loans
    500       500       12       ---       ---  
Total loans with related allowance
    2,235       2,235       466       ---       ---  
Total impaired loans:
                                       
  Residential mortgage
    259       322       2       213       1  
  Nonresidential mortgage
    1,717       1,717       292       ---       ---  
  Multi-family
    434       434       160       ---       ---  
  Commercial loans
    500       500       12       ---       ---  
Total impaired loans
  $ 2,910