Edgar Filing: GREENE COUNTY BANCORP INC

form10qdecember312011.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

-----------------------------------

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2011

[ ] 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 February 8, 2012, the registrant had 4,154,562 shares of common stock outstanding at $ 0.10 par value per share.

	GREENE COUNTY BANCORP, INC.



	INDEX



PART I.	FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements (unaudited)
	* Consolidated Statements of Financial Condition	3
	* Consolidated Statements of Income	4-5
	* Consolidated Statements of Comprehensive Income	6
	* Consolidated Statements of Changes in Shareholders’ Equity	7
	* Consolidated Statements of Cash Flows	8
	* Notes to Consolidated Financial Statements	9-28

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29-42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	43

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	[Removed and Reserved]	44

Item 5.	Other Information	44

Item 6.	Exhibits	44

	Signatures	45
	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)	46 47 48 49

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

As of December 31, 2011 and June 30, 2011

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	December 31, 2011			June 30, 2011
Cash and due from banks	$	19,013		$	9,245
Federal funds sold		1,042			721
Total cash and cash equivalents		20,055			9,966

Securities available for sale, at fair value		77,235			90,117
Securities held to maturity, at amortized cost		128,748			124,177
Federal Home Loan Bank stock, at cost		1,273			1,916

Loans		317,041			305,620
Allowance for loan losses		(5,617	)		(5,069	)
Unearned origination fees and costs, net		410			495
Net loans receivable		311,834			301,046

Premises and equipment		15,044			15,407
Accrued interest receivable		2,714			2,716
Foreclosed real estate		361			443
Prepaid expenses and other assets		2,319			1,737
Total assets	$	559,583		$	547,525

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest bearing deposits	$	53,766		$	49,313
Interest bearing deposits		440,203			420,584
Total deposits		493,969			469,897

Borrowings from FHLB, short-term		---			14,300
Borrowings from FHLB, long-term		12,000			12,000
Accrued expenses and other liabilities		2,993			3,247
Total liabilities		508,962			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 - 4,150,228 shares at December 31, 2011
and 4,145,828 shares at June 30, 2011;		431			431
Additional paid-in capital		11,042			11,001
Retained earnings		39,695			37,336
Accumulated other comprehensive income		626			519
Treasury stock, at cost 155,442 shares at December 31, 2011
and 159,842 shares at June 30, 2011		(1,173	)		(1,206	)
Total shareholders’ equity		50,621			48,081
Total liabilities and shareholders’ equity	$	559,583		$	547,525

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Six Months Ended December 31, 2011 and 2010

(Unaudited)

(In thousands, except share and per share amounts)

	2011		2010
Interest income:
Loans	$	8,943	$	9,046
Investment securities - taxable		470		577
Mortgage-backed securities		2,310		1,823
Investment securities - tax exempt		626		576
Interest bearing deposits and federal funds sold		14		20
Total interest income		12,363		12,042

Interest expense:
Interest on deposits		1,714		2,045
Interest on borrowings		227		305
Total interest expense		1,941		2,350

Net interest income		10,422		9,692
Provision for loan losses		896		836
Net interest income after provision for loan losses		9,526		8,856

Noninterest income:
Service charges on deposit accounts		1,255		1,173
Debit card fees		688		619
Investment services		137		148
E-commerce fees		55		55
Net gain on sale of available-for-sale securities		11		212
Other operating income		276		254
Total noninterest income		2,422		2,461

Noninterest expense:
Salaries and employee benefits		3,944		3,971
Occupancy expense		613		611
Equipment and furniture expense		332		280
Service and data processing fees		770		698
Computer software, supplies and support		162		135
Advertising and promotion		145		190
FDIC insurance premiums		152		281
Legal and professional fees		409		319
Other		899		760
Total noninterest expense		7,426		7,245

Income before provision for income taxes		4,522		4,072
Provision for income taxes		1,518		1,396
Net income	$	3,004	$	2,676

Basic EPS	$	0.72	$	0.65
Basic average shares outstanding		4,146,965		4,125,619
Diluted EPS	$	0.72	$	0.64
Diluted average shares outstanding		4,190,187		4,157,903
Dividends per share	$	0.35	$	0.55

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three Months Ended December 31, 2011 and 2010

(Unaudited)

(In thousands, except share and per share amounts)

	2011		2010
Interest income:
Loans	$	4,475	$	4,509
Investment securities - taxable		225		306
Mortgage-backed securities		1,124		941
Investment securities - tax exempt		321		292
Interest bearing deposits and federal funds sold		13		18
Total interest income		6,158		6,066

Interest expense:
Interest on deposits		827		1,015
Interest on borrowings		108		156
Total interest expense		935		1,171

Net interest income		5,223		4,895
Provision for loan losses		422		483
Net interest income after provision for loan losses		4,801		4,412

Noninterest income:
Service charges on deposit accounts		639		606
Debit card fees		350		322
Investment services		62		70
E-commerce fees		25		25
Net gain on sale of available-for-sale securities		--		212
Other operating income		132		126
Total noninterest income		1,208		1,361

Noninterest expense:
Salaries and employee benefits		1,937		2,054
Occupancy expense		295		308
Equipment and furniture expense		187		136
Service and data processing fees		399		355
Computer software, supplies and support		81		64
Advertising and promotion		109		89
FDIC insurance premiums		62		138
Legal and professional fees		227		160
Other		471		413
Total noninterest expense		3,768		3,717

Income before provision for income taxes		2,241		2,056
Provision for income taxes		746		704
Net income	$	1,495	$	1,352

Basic EPS	$	0.36	$	0.33
Basic average shares outstanding		4,148,102		4,129,939
Diluted EPS	$	0.36	$	0.32
Diluted average shares outstanding		4,190,211		4,163,333
Dividends per share	$	0.175	$	0.375

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Six Months Ended December 31, 2011 and 2010

(Unaudited)

(In thousands)

	2011			2010
Net income	$	3,004		$	2,676

Other comprehensive income (loss):
Securities:
Unrealized holding gains (losses) on available for sale securities, arising
during the six months ended December 31, 2011 and 2010,
net of income taxes of $55 and ($297), respectively.		87			(470	)

Reclassification adjustment for gain on sale of available-for-sale securities
realized in net income, net of income taxes of ($4) and ($82), respectively		(7	)		(130	)

Accretion of unrealized loss on securities transferred to held-to-maturity,
net of income taxes of $12 and $15, respectively		19			23

Pension, actuarial gain, net of income tax of $5 and $2		8			4

Other comprehensive income (loss)		107			(573	)

Comprehensive income	$	3,111		$	2,103

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three Months Ended December 31, 2011 and 2010

(Unaudited)

(In thousands)

	2011			2010
Net income	$	1,495		$	1,352

Other comprehensive loss:
Securities:
Unrealized holding losses on available for sale securities, arising
during the three months ended December 31, 2011 and 2010,
net of income taxes of ($81) and ($485), respectively.		(128	)		(769	)

Reclassification adjustment for gain on sale of available-for-sale securities
realized in net income, net of income taxes of $-- and ($82), respectively		---			(130	)

Accretion of unrealized loss on securities transferred to held-to-maturity,
net of income taxes of $6 and $7, respectively		9			11

Pension, actuarial gain, net of income tax of $3 and $1		4			2

Other comprehensive loss		(115	)		(886	)

Comprehensive income	$	1,380		$	466

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended December 31, 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				71								125			196

Stock options compensation				112											112

Dividends declared						(1,002	)								(1,002	)

Net income						2,676									2,676

Total other comprehensive loss, net of taxes									(573	)					(573	)
Balance at
December 31, 2010	$	431	$	10,849	$	35,366		$	550		$	(1,284	)	$	45,912

Balance at

June 30, 2011	$	431	$	11,001	$	37,336		$	519	$	(1,206	)	$	48,081

Stock options exercised				22							33			55

Stock options compensation				19										19

Dividends declared						(645	)							(645	)

Net income						3,004								3,004

Total other comprehensive income, net of taxes									107					107
Balance at
December 31, 2011	$	431	$	11,042	$	39,695		$	626	$	(1,173	)	$	50,621

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended December 31, 2011 and 2010

(Unaudited)

(In thousands)	2011			2010
Cash flows from operating activities:
Net Income	$	3,004		$	2,676
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		416			360
Net amortization of premiums and discounts		520			506
Net amortization of deferred loan costs and fees		131			110
Provision for loan losses		896			836
Stock option compensation		19			112
Net gain on sale of available-for-sale securities		(11	)		(212	)
Loss on sale of foreclosed real estate		132			---
Net decrease in accrued income taxes		(758	)		(239	)
Net decrease in accrued interest receivable		2			98
Net decrease in prepaid and other assets		160			238
Net decrease in other liabilities		(293	)		(30	)
Net cash provided by operating activities		4,218			4,455

Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities		6,440			6,666
Proceeds from sale of securities		770			6,875
Purchases of securities		(4,097	)		(29,583	)
Principal payments on securities		9,699			6,544
Securities held-to-maturity:
Proceeds from maturities		8,887			9,630
Purchases of securities		(18,725	)		(18,725	)
Principal payments on securities		4,990			2,538
Net redemption of Federal Home Loan Bank Stock		643			409
Maturity of long term certificate of deposit		---			1,000
Net increase in loans receivable		(12,258	)		(1,729	)
Proceeds from sale of foreclosed real estate		393			---
Purchases of premises and equipment		(53	)		(903	)
Net cash used in investing activities		(3,311	)		(17,278	)

Cash flows from financing activities:
Net decrease in short-term FHLB advances		(14,300	)		(9,100	)
Payment of cash dividends		(645	)		(1,002	)
Proceeds from stock options exercised		55			196
Net increase in deposits		24,072			44,122
Net cash provided by financing activities		9,182			34,216

Net increase in cash and cash equivalents		10,089			21,393
Cash and cash equivalents at beginning of period		9,966			9,643
Cash and cash equivalents at end of period	$	20,055		$	31,036

Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	443		$	200
Cash paid during the period:
Interest	$	1,934		$	2,345
Income taxes		2,276			1,636
See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Notes to Consolidated Financial Statements

As of and for the Three and Six Months Ended December 31, 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 as of and for the year then ended of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, The Bank of Greene County (the “Bank”) and the Bank’s wholly owned subsidiary, Greene County Commercial Bank. The consolidated financial statements at and for the three and six months ended December 31, 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 shareholders’ equity as previously reported. All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three and six months ended December 31, 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 relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment. The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing 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 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 twelve 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 December 31, 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	$	19,861	$	472	$	---	$	20,333
State and political subdivisions		6,376		181		---		6,557
Mortgage-backed securities-residential		28,153		641		---		28,794
Mortgage-backed securities-multi-family		14,497		661		---		15,158
Asset-backed securities		22		---		1		21
Corporate debt securities		6,109		208		64		6,253
Total debt securities		75,018		2,163		65		77,116
Equity and other securities		67		52		---		119
Total securities available-for-sale		75,085		2,215		65		77,235
Securities held-to-maturity:
U.S. treasury securities		11,046		97		---		11,143
U.S. government sponsored enterprises		998		34		---		1,032
State and political subdivisions		43,986		562		89		44,459
Mortgage-backed securities-residential		53,065		2,088		22		55,131
Mortgage-backed securities-multi-family		19,227		185		2		19,410
Other securities		426		---		---		426
Total securities held-to-maturity		128,748		2,966		113		131,601
Total securities	$	203,833	$	5,181	$	178	$	208,836

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 December 31, 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:
Asset-backed securities		---		---		21		1		21		1
Corporate debt securities		697		64		---		---		697		64
Total securities available-for-sale		697		64		21		1		718		65
Securities held-to-maturity:
State and political subdivisions		2,419		89		---		---		2,419		89
Mortgage-backed securities-residential		6,220		22		---		---		6,220		22
Mortgage-backed securities-multifamily		2,992		2		---		---		2,992		2
Total securities held-to-maturity		11,631		113		---		---		11,631		113
Total securities	$	12,328	$	177	$	21	$	1	$	12,349	$	178

	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 December 31, 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 December 31, 2011. Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads during the reporting period.

Gross realized gains and losses on sales of securities or other-than-temporary impairment of securities recognized in income during the six months ended December 31, 2011 and 2010 are as follows:

	Six months ended December 31,
(in thousands)	2011		2010
Gross realized gains	$	11	$	212
Gross realized losses		---		---
Other-than-temporary impairment losses		---		---
Net gains (losses) recognized	$	11	$	212

During the six months ended December 31, 2011 the Company sold $759,000 of corporate debt securities within its available-for-sale portfolio at a gain of $11,000. During the six months ended December 31, 2010, the Company sold $6.6 million of securities issued by U.S. Government sponsored enterprises which resulted in the recognition of a net gain of $212,000. There were no realized losses or other-than-temporary impairment losses recognized during the three and six months ended December 31, 2011 and 2010.

The estimated fair values of debt securities at December 31, 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. For mortgage-backed securities, the entire balance has been included in the time period of final contractual maturity, without consideration of scheduled principal repayments.

			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	$	1,015	$	11,416	$	5,901	$	2,001	$	20,333
State and political subdivisions		1,561		4,996		---		---		6,557
Mortgage-backed securities-residential		1,040		1,753		6,158		19,843		28,794
Mortgage-backed securities-multi-family		992		14,166		---		---		15,158
Asset-backed securities		---		---		---		21		21
Corporate debt securities		2,083		2,120		2,050		---		6,253
Total debt securities		6,691		34,451		14,109		21,865		77,116
Equity securities		---		---		---		119		119
Total securities available-for-sale		6,691		34,451		14,109		21,984		77,235
Securities held-to-maturity:
U.S. treasury securities		4,014		7,129		---		---		11,143
U.S. government sponsored enterprises		---		1,032		---		---		1,032
State and political subdivisions		9,253		15,986		11,834		7,386		44,459
Mortgage-backed securities-residential		2,556		3,888		20,504		28,183		55,131
Mortgage-backed securities-multi-family		347		2,302		16,761		---		19,410
Other securities		50		1		---		375		426
Total securities held-to-maturity		16,220		30,338		49,099		35,944		131,601
Total securities	$	22,911	$	64,789	$	63,208	$	57,928	$	208,836

As of December 31, 2011, securities with an aggregate fair value of $154.6 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 December 31, 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 three and six months ended December 31, 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, Doubtful or Loss, 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 loan classes. The inherent risk within the loan portfolio varies depending upon each of these loan types.

The Bank of Greene County’s primary lending activity is the origination of residential mortgage loans, including home equity loans, which are collateralized by residences. Generally, residential mortgage loans are made in amounts up to 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 event of default. However, the market values of the collateral may be adversely impacted by declines in the economy. Home equity loans may have an additional inherent risk if The Bank of Greene County does not hold the first mortgage since 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 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 December 31, 2011 are shown below.

(in thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential mortgage	$	179,188	$	1,594	$	---	$	4,794	$	185,576
Nonresidential mortgage		65,654		874		595		2,005		69,128
Residential construction & land		3,734		---		---		---		3,734
Commercial construction		2,589		---		285		---		2,874
Multi-family		4,833		---		431		568		5,832
Home equity		24,575		50		---		102		24,727
Consumer installment		4,078		67		---		15		4,160
Commercial loans		19,883		255		136		736		21,010
Total gross loans	$	304,534	$	2,840	$	1,447	$	8,220	$	317,041

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 December 31, 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 December 31, 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 $7.2 million at December 31, 2011 of which $3.5 million were in the process of foreclosure and an additional $1.1 million 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 $2.6 million in nonaccrual loans, $1.3 million were less than 90 days past due, or were current at December 31, 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 December 31, 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	$1,379	$1,030	$4,236	$6,645	$178,931	$185,576	$4,747
Nonresidential mortgage	1,296	715	1,021	3,032	66,096	69,128	1,702
Residential construction & land	---	---	---	---	3,734	3,734	---
Commercial construction	---	---	---	---	2,874	2,874	---
Multi-family	---	---	439	439	5,393	5,832	439
Home equity	66	50	102	218	24,509	24,727	102
Consumer installment	50	67	15	132	4,028	4,160	15
Commercial loans	108	535	104	747	20,263	21,010	211
Total gross loans	$2,899	$2,397	$5,917	$11,213	$305,828	$317,041	$7,216

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 December 31, 2011 or June 30, 2011.

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


(In thousands)	2011		2010
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	427	$	379
Interest income that was recorded on nonaccrual loans during the fiscal year ended		143		109

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 loss 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 December 31, 2011						For the six months ended December 31, 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		456		456		---		459		21
Total loans with no related allowance		669		732		---		672		21
With an allowance recorded:
Residential mortgage		46		46		2		46		2
Nonresidential mortgage		651		651