Edgar Filing: GREENE COUNTY BANCORP INC

form10qdecember312012.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, 2012

[ ] 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 12, 2013, the registrant had 4,185,671 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	29-40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	42

Item 5.	Other Information	42

Item 6.	Exhibits	42

	Signatures	43
	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)	44 45 46 47

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

As of December 31, 2012 and June 30, 2012

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	December 31, 2012			June 30, 2012
Cash and due from banks	$	9,709		$	7,519
Federal funds sold		721			223
Total cash and cash equivalents		10,430			7,742

Long term certificate of deposit		250			-
Securities available for sale, at fair value		77,987			87,528
Securities held to maturity, at amortized cost		167,449			146,389
Federal Home Loan Bank stock, at cost		1,713			1,744

Loans		353,712			332,450
Allowance for loan losses		(6,764	)		(6,177	)
Unearned origination fees and costs, net		599			478
Net loans receivable		347,547			326,751

Premises and equipment		14,605			14,899
Accrued interest receivable		2,747			2,688
Foreclosed real estate		140			260
Prepaid expenses and other assets		1,680			2,655
Total assets	$	624,548		$	590,656

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest bearing deposits	$	54,298		$	52,783
Interest bearing deposits		491,392			459,154
Total deposits		545,690			511,937

Borrowings from FHLB, short-term		14,300			14,000
Borrowings from FHLB, long-term		6,000			7,000
Accrued expenses and other liabilities		3,931			5,055
Total liabilities		569,921			537,992

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 - 4,185,671 shares at December 31, 2012
and 4,182,671 shares at June 30, 2012;		431			431
Additional paid-in capital		11,134			11,119
Retained earnings		43,833			41,869
Accumulated other comprehensive income		134			173
Treasury stock, at cost 119,999 shares at December 31, 2012
and 122,999 shares at June 30, 2012		(905	)		(928	)
Total shareholders’ equity		54,627			52,664
Total liabilities and shareholders’ equity	$	624,548		$	590,656

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Six Months Ended December 31, 2012 and 2011

(Unaudited)

(In thousands, except share and per share amounts)

	2012		2011
Interest income:
Loans	$	9,168	$	8,943
Investment securities - taxable		371		470
Mortgage-backed securities		1,841		2,310
Investment securities - tax exempt		836		626
Interest bearing deposits and federal funds sold		22		14
Total interest income		12,238		12,363

Interest expense:
Interest on deposits		1,337		1,714
Interest on borrowings		139		227
Total interest expense		1,476		1,941

Net interest income		10,762		10,422
Provision for loan losses		985		896
Net interest income after provision for loan losses		9,777		9,526

Noninterest income:
Service charges on deposit accounts		1,385		1,255
Debit card fees		671		688
Investment services		169		137
E-commerce fees		50		55
Net gain on sale of available-for-sale securities		10		11
Other operating income		290		276
Total noninterest income		2,575		2,422

Noninterest expense:
Salaries and employee benefits		4,073		3,944
Occupancy expense		593		613
Equipment and furniture expense		283		332
Service and data processing fees		809		770
Computer software, supplies and support		183		162
Advertising and promotion		173		145
FDIC insurance premiums		158		152
Legal and professional fees		341		409
Other		806		899
Total noninterest expense		7,419		7,426

Income before provision for income taxes		4,933		4,522
Provision for income taxes		1,500		1,518
Net income	$	3,433	$	3,004

Basic EPS	$	0.82	$	0.72
Basic average shares outstanding		4,184,747		4,146,965
Diluted EPS	$	0.81	$	0.72
Diluted average shares outstanding		4,223,329		4,190,187
Dividends per share	$	0.35	$	0.35

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three Months Ended December 31, 2012 and 2011

(Unaudited)

(In thousands, except share and per share amounts)

	2012		2011
Interest income:
Loans	$	4,590	$	4,475
Investment securities - taxable		185		225
Mortgage-backed securities		894		1,124
Investment securities - tax exempt		420		321
Interest bearing deposits and federal funds sold		18		13
Total interest income		6,107		6,158

Interest expense:
Interest on deposits		673		827
Interest on borrowings		64		108
Total interest expense		737		935

Net interest income		5,370		5,223
Provision for loan losses		541		422
Net interest income after provision for loan losses		4,829		4,801

Noninterest income:
Service charges on deposit accounts		693		639
Debit card fees		344		350
Investment services		79		62
E-commerce fees		22		25
Net gain on sale of available-for-sale securities		10		--
Other operating income		148		132
Total noninterest income		1,296		1,208

Noninterest expense:
Salaries and employee benefits		2,000		1,937
Occupancy expense		291		295
Equipment and furniture expense		132		187
Service and data processing fees		412		399
Computer software, supplies and support		90		81
Advertising and promotion		84		109
FDIC insurance premiums		83		62
Legal and professional fees		184		227
Other		470		471
Total noninterest expense		3,746		3,768

Income before provision for income taxes		2,379		2,241
Provision for income taxes		710		746
Net income	$	1,669	$	1,495

Basic EPS	$	0.40	$	0.36
Basic average shares outstanding		4,185,562		4,148,102
Diluted EPS	$	0.39	$	0.36
Diluted average shares outstanding		4,225,746		4,190,211
Dividends per share	$	0.175	$	0.175

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Six Months Ended December 31, 2012 and 2011

(Unaudited)

(In thousands)

	2012			2011
Net income	$	3,433		$	3,004

Other comprehensive (loss) income:
Securities:
Unrealized holding (losses) gainson available for sale securities, arising
during the six months ended December 31, 2012 and 2011,
net of income taxes of ($37) and $55, respectively.		(60	)		87

Reclassification adjustment for gain on sale of available-for-sale securities
realized in net income, net of income taxes of ($4) and ($4), respectively		(6	)		(7	)

Accretion of unrealized loss on securities transferred to held-to-maturity,
net of income taxes of $8 and $12, respectively		12			19

Pension, actuarial gain, net of income tax of $9 and $5		15			8

Other comprehensive (loss) income		(39	)		107

Comprehensive income	$	3,394		$	3,111

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three Months Ended December 31, 2012 and 2011

(Unaudited)

(In thousands)

	2012			2011
Net income	$	1,669		$	1,495

Other comprehensive loss:
Securities:
Unrealized holding losses on available for sale securities, arising
during the three months ended December 31, 2012 and 2011,
net of income taxes of ($122) and ($81), respectively.		(194	)		(128	)

Reclassification adjustment for gain on sale of available-for-sale securities
realized in net income, net of income taxes of ($4) and $--, respectively		(6	)		-

Accretion of unrealized loss on securities transferred to held-to-maturity,
net of income taxes of $4 and $7, respectively		6			9

Pension, actuarial gain, net of income tax of $5 and $3		7			4

Other comprehensive loss		(187	)		(115	)

Comprehensive income	$	1,482		$	1,380

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended December 31, 2012 and 2011

(Unaudited)

(In thousands)

				Accumulated
		Additional		Other		Total
	Common	Paid – In	Retained	Comprehensive	Treasury	Shareholders’
	Stock	Capital	Earnings	Income	Stock	Equity

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

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

Balance at

June 30, 2012	$431	$11,119	$41,869	$173	($928)	$52,664

Options exercised		15			23	38

Dividends declared			(1,469)			(1,469)

Net income			3,433			3,433

Total other comprehensive loss, net of taxes				(39)		(39)
Balance at
December 31, 2012	$431	$11,134	$43,833	$134	($905)	$54,627

See notes to consolidated financial statements.

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended December 31, 2012 and 2011

(Unaudited)

(In thousands)	2012			2011
Cash flows from operating activities:
Net Income	$	3,433		$	3,004
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		381			416
Deferred income tax benefit		(879	)		-
Net amortization of premiums and discounts		668			520
Net amortization of deferred loan costs and fees		131			131
Provision for loan losses		985			896
Stock option compensation		-			19
Net gain on sale of available-for-sale securities		(10	)		(11	)
Loss on sale of foreclosed real estate		27			132
Net increase (decrease) in accrued income taxes		1,985			(758	)
Net (increase) decrease in accrued interest receivable		(59	)		2
Net decrease in prepaid and other assets		256			160
Net decrease in other liabilities		(1,462	)		(293	)
Net cash provided by operating activities		5,456			4,218

Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities		4,010			6,440
Proceeds from sale of securities		10			770
Purchases of securities		(6,208	)		(4,097	)
Principal payments on securities		11,273			9,699
Securities held-to-maturity:
Proceeds from maturities		13,552			8,887
Purchases of securities		(46,736	)		(18,725	)
Principal payments on securities		11,834			4,990
Net redemption of Federal Home Loan Bank Stock		31			643
Purchase of long term certificate of deposit		(250	)		-
Net increase in loans receivable		(22,052	)		(12,258	)
Proceeds from sale of foreclosed real estate		233			393
Purchases of premises and equipment		(87	)		(53	)
Net cash used by investing activities		(34,390	)		(3,311	)

Cash flows from financing activities:
Net increase (decrease) in short-term FHLB advances		300			(14,300	)
Paydown of long-term FHLB advances		(1,000	)		-
Payment of cash dividends		(1,469	)		(645	)
Proceeds from stock options exercised		38			55
Net increase in deposits		33,753			24,072
Net cash provided by financing activities		31,622			9,182
Net increase in cash and cash equivalents		2,688			10,089
Cash and cash equivalents at beginning of period		7,742			9,966
Cash and cash equivalents at end of period	$	10,430		$	20,055

Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	140		$	443
Cash paid during the period:
Interest	$	1,469		$	1,934
Income taxes	$	394		$	2,276
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, 2012 and 2011

(1) Basis of Presentation

The accompanying consolidated statement of financial condition as of June 30, 2012 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 and Greene Property Holdings, Ltd. The consolidated financial statements at and for the three and six months ended December 31, 2012 and 2011 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, 2012, 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 and six months ended December 31, 2012 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2013. 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 loan portfolio. The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the 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 the 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, 2012 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	$	14,771	$	446	$	74	$	15,143
State and political subdivisions		3,770		56		-		3,826
Mortgage-backed securities-residential		10,070		360		-		10,430
Mortgage-backed securities-multi-family		43,268		671		1		43,938
Asset-backed securities		19		-		1		18
Corporate debt securities		4,042		452		-		4,494
Total debt securities		75,940		1,985		76		77,849
Equity and other securities		67		71		-		138
Total securities available-for-sale		76,007		2,056		76		77,987
Securities held-to-maturity:
U.S. treasury securities		7,014		40		-		7,054
U.S. government sponsored enterprises		2,999		25		5		3,019
State and political subdivisions		64,521		725		62		65,184
Mortgage-backed securities-residential		36,318		2,138		--		38,456
Mortgage-backed securities-multi-family		55,637		1,493		129		57,001
Other securities		960		1		2		959
Total securities held-to-maturity		167,449		4,422		198		171,673
Total securities	$	243,456	$	6,478	$	274	$	249,660

Securities at June 30, 2012 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	$	16,816	$	582	$	-	$	17,398
State and political subdivisions		4,783		116		-		4,899
Mortgage-backed securities-residential		18,625		482		1		19,106
Mortgage-backed securities-multi-family		40,077		604		18		40,663
Asset-backed securities		20		-		1		19
Corporate debt securities		5,053		263		-		5,316
Total debt securities		85,374		2,047		20		87,401
Equity and other securities		67		60		-		127
Total securities available-for-sale		85,441		2,107		20		87,528
Securities held-to-maturity:
U.S. treasury securities		11,029		61		-		11,090
U.S. government sponsored enterprises		998		31		-		1,029
State and political subdivisions		62,212		556		99		62,669
Mortgage-backed securities-residential		48,101		2,282		4		50,379
Mortgage-backed securities-multi-family		23,673		952		6		24,619
Other securities		376		-		-		376
Total securities held-to-maturity		146,389		3,882		109		150,162
Total securities	$	231,830	$	5,989	$	129	$	237,690

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, 2012.

	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	$	2,000	$	74	$	-	$	-	$	2,000	$	74
Mortgage-backed securities-multifamily		1,071		1		-		-		1,071		1
Asset-backed securities		-		-		17		1		17		1
Total securities available-for-sale		3,071		75		17		1		3,088		76
Securities held-to-maturity:
U.S. government sponsored enterprises		1,995		5		-		-		1,995		5
State and political subdivisions		8,339		60		442		2		8,781		62
Mortgage-backed securities-multifamily		10,332		129		-		-		10,332		129
Other securities		291		2		-		-		291		2
Total securities held-to-maturity		20,957		196		442		2		21,399		198
Total securities	$	24,028	$	271	$	459	$	3	$	24,487	$	274

	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:
Mortgage-backed securities-residential	$	340	$	1	$	-	$	-	$	340	$	1
Mortgage-backed securities-multi-family		8,837		18		-		-		8,837		18
Asset-backed securities		-		-		19		1		19		1
Total securities available-for-sale		9,177		19		19		1		9,196		20
Securities held-to-maturity:
State and political subdivisions		10,696		99		-		-		10,696		99
Mortgage-backed securities-residential		527		4		-		-		527		4
Mortgage-backed securities-multi-family		4,189		6		-		-		4,189		6
Total securities held-to-maturity		15,412		109		-		-		15,412		109
Total securities	$	24,589	$	128	$	19	$	1	$	24,608	$	129

At December 31, 2012, there were 7 securities which have been in a continuous unrealized loss position for more than 12 months and 38 securities in 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, 2012. 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 three and six months ended December 31, 2012, a gain on sale of $10,000 was recognized on a security that was previously written off as an other-than-temporary impairment. 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. There was no other-than-temporary impairment loss recognized during the three and six months ended December 31, 2012 and 2011.

The estimated fair values of debt securities at December 31, 2012, 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.

(in thousands)

Available for sale debt securities	Amortized Cost		Fair Value
Within one year	$	5,245	$	5,281
After one year through five years		12,169		12,772
After five years through ten years		5,169		5,410
After ten years		-		-
Total available for sale debt securities		22,583		23,463
Mortgage-backed and asset-backed securities		53,357		54,386
Equity securities		67		138
Total available for sale securities		76,007		77,987

Held to maturity debt securities
Within one year		17,627		17,678
After one year through five years		22,691		22,860
After five years through ten years		24,714		25,162
After ten years		10,462		10,516
Total held to maturity debt securities		75,494		76,216
Mortgage-backed		91,955		95,457
Total held to maturity securities		167,449		171,673

Total securities	$	243,456	$	249,660

As of December 31, 2012 and 2011, securities with an aggregate fair value of $204.9 million and $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. As of December 31, 2012 and 2001, securities with an aggregate fair value of $4.5 million and $6.3 million, respectively, were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window. Greene County Bancorp, Inc. did not participate in any securities lending programs during the six months ended December 31, 2012 or 2011.

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 periods ended December 31, 2012 or 2011.

(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 loans. When The Bank of Greene County identifies problem loans 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 loans 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 four segments within its loan portfolio that it considers when measuring credit quality: real estate loans, home equity, 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. 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 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 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, 2012 are shown below.

(in thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential mortgage	$	200,322	$	385	$	543	$	3,601	$	204,851
Nonresidential mortgage		83,719		-		128		2,410		86,257
Residential construction & land		3,059		-		-		-		3,059
Commercial construction		2,052		-		370		1,066		3,488
Multi-family		4,135		-		767		731		5,633
Home equity		22,281		-		-		386		22,667
Consumer installment		4,284		-		-		22		4,306
Commercial loans		22,216		38		306		891		23,451
Total gross loans	$	342,068	$	423	$	2,114	$	9,107	$	353,712

Loan balances by internal credit quality indicator as of June 30, 2012 are shown below.

(in thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential mortgage	$	188,446	$	-	$	557	$	4,375	$	193,378
Nonresidential mortgage		77,761		-		588		2,445		80,794
Residential construction & land		2,156		-		-		-		2,156
Commercial construction		669		-		290		1,075		2,034
Multi-family		4,185		-		780		557		5,522
Home equity		22,708		-		-		100		22,808
Consumer installment		4,044		1		-		25		4,070
Commercial loans		20,045		39		762		842		21,688
Total gross loans	$	320,014	$	40	$	2,977	$	9,419	$	332,450

The Company had no loans classified Doubtful or Loss at December 31, 2012 or June 30, 2012.

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, 2012 and June 30, 2012. 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 $6.7 million at December 31, 2012 of which $3.2 million were in the process of foreclosure. Included in nonaccrual loans, were $2.4 million of loans which were less than 90 days past due at December 31, 2012, 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. Included in total loans past due were $1.1 million of loans which 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 term of the forbearance agreement, the Bank has agreed not to continue foreclosure proceedings.

The following table sets forth information regarding delinquent and/or nonaccrual loans as of December 31, 2012:

(in thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total Loans		Loans on Non-accrual
Residential mortgage	$	570	$	2,775	$	2,986	$	6,331	$	198,520	$	204,851	$	3,164
Nonresidential mortgage		122		1,371		1,114		2,607		83,650		86,257		2,199
Residential construction & land		-		-		-		-		3,059		3,059		-
Commercial construction		-		-		-		-		3,488		3,488		-
Multi-family		-		-		609		609		5,024		5,633		609
Home equity		472		115		60		647		22,020		22,667		386
Consumer installment		91		5		2		98		4,208		4,306		22
Commercial loans		222		500		158		880		22,571		23,451		342
Total gross loans	$	1,477	$	4,766	$	4,929	$	11,172	$	342,540	$	353,712	$	6,722

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2012:

(in thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total Loans		Loans on Non-accrual
Residential mortgage	$	99	$	1,674	$	3,850	$	5,623	$	187,755	$	193,378	$	4,206
Nonresidential mortgage		424		1,088		1,041		2,553		78,241		80,794		1,868
Residential construction & land		-		-		-		-		2,156		2,156		-
Commercial construction		-		-		-		-		2,034		2,034		-
Multi-family		-		-		431		431		5,091		5,522		431
Home equity		52		-		100		152		22,656		22,808		60
Consumer installment		76		4		24		104		3,966		4,070		25
Commercial loans		3		596		257		856		20,832		21,688		303
Total gross loans	$	654	$	3,362	$	5,703	$	9,719	$	322,731	$	332,450	$	6,893

The Bank of Greene County had three accruing loans delinquent 90 days or more as of December 31, 2012 totaling $353,000 and had two accruing loans delinquent more than 90 days as of June 30, 2012 totaling $124,000. The loans delinquent more than 90 days and accruing consist of loans that are well collateralized and the borrowers have demonstrated the ability and willingness to pay. The borrower has made arrangements with the Bank to bring the loan current within a specified time period and has made a series of payments as agreed.

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

	For the six months ended December 31,				For the three months ended December 31
(In thousands)	2012		2011		2012		2011
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	275	$	314	$	125	$	137
Interest income that was recorded on nonaccrual loans		126		143		72		76

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. Generally, The Bank of Greene County considers residential mortgages, home equity 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, business loans and select larger balance residential mortgage 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. 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 evaluated for impairment, 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 at the date or periods indicated:

	As of December 31, 2012			For the six months ended December 31, 2012			For the three months ended December 31, 2012
(in thousands)	Recorded Investment	Unpaid Principal	Related Allowance	Average Recorded Investment	Interest Income Recognized	Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential mortgage	$856	$856	$-	$918	$18	$967		$8
Nonresidential mortgage	1,361	1,361	-	1,367	42	1,364		30
Commercial	117	117	-	124	10	122		10
Total loans with no related allowance	2,334	2,334	-	2,409	70	2,453		48
With an allowance recorded:
Residential mortgage	1,960	2,010	303	1,538	15	2,083		11
Nonresidential mortgage	988	988	341	927	8	988		2
Commercial construction	1,066	1,066	303	1,070	-	1,106		-
Multi-family	888	888	142	885	4	889		2
Home equity	386	386	74	386	4	386		4
Commercial loans	571	571	3	573	3	572		2
Total loans with related allowance	5,859	5,909	1,166	5,379	34	6,024		21
Total impaired loans:
Residential mortgage	2,816	2,866	303	2,456	33	3,050		19
Nonresidential mortgage	2,349	2,349	341	2,294	50	2,352		32
Commercial construction	1,066	1,066	303	1,070	-	1,106		-
Multi-family	888	888	142	885	4	889		2
Home equity	386	386	74	386	4	386		4
Commercial loans	688	688	3	697	13	694		12
Total impaired loans	$8,193	$8,243	$1,166	$7,788	$104	$8,477		$69

	As of June 30, 2012			For the six months ended December 31, 2011		For the three months ended December 31, 2011
(in thousands)	Recorded Investment	Unpaid Principal	Related Allowance	Average Recorded Investment	Interest Income Recognized	Average Recorded Investment	Interest Income Recognized
With no related allowance recorded:
Residential mortgage	$213	$276	$-	$213	$-	$213	$-
Nonresidential mortgage	1,148	1,148	-	459	21	459	17
Multi-family	433	433	-	-	-	-	-
Total loans with no related allowance	1,794	1,857	-	672	21	672	17
With an allowance recorded:
Residential mortgage	200	200	10	46	2	46	1
Nonresidential mortgage	648	648	208	971	13	823	7
Commercial construction	1,075	1,075	365	-	-	-	-
Multi-family	428	428	155	433	12	432	6
Commercial loans	562	562	35	500	17	500	8
Total loans with related allowance	2,913	2,913	773	1,950	44	1,801	22
Total impaired loans:
Residential mortgage	413	476	10	259	2	259	1
Nonresidential mortgage	1,796	1,796	208	1,430	34	1,282	24
Commercial construction	1,075	1,075	365	-	-	-	-
Multi-family	861	861	155	433	12	432	6
Commercial loans	562	562	35	500	17	500	8
Total impaired loans	$4,707	$4,770	$773	$2,622	$65	$2,473	$39

The table below details loans that have been modified as a troubled debt restructuring during the three and six months ended December 31, 2012:

		As of December 31, 2012
(dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment	Current Outstanding Recorded Investment
Residential mortgage	1		$246	$261	$261

This loan has been classified as troubled debt restructurings due to concessions granted to the debtor that The Bank of Greene County would not otherwise consider as a result of financial difficulties of the borrower. For this loan, additional funds were advanced, the interest rate was reduced and the term extended. At December 31, 2012, this loan was not in default but is currently included in non-accrual loans. If the borrower performs under the terms of the modification, and the ultimate collectability of all amounts contractually due under the modified terms is not in doubt, this loan will be returned to accrual status. This loan identified as a troubled debt restructuring has been evaluated for impairment and the impact to the allowance for loan loss was immaterial.

There were no troubled debt restructurings modified within the last twelve months that subsequently defaulted.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for the loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses. Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The Bank of Greene County charges loans off against the allowance for credit losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers. Generally, consumer loans and smaller business loans (not secured by real estate)