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

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

OR

o 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: o

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: o

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   o
 
Accelerated filer o
Non-accelerated filer     o
 
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: o   No: x

As of November 8, 2013, the registrant had 4,203,256 shares of common stock outstanding at $ 0.10 par value per share.
 
GREENE COUNTY BANCORP, INC.

INDEX
 
PART I.
FINANCIAL INFORMATION
 
 
Page
Item 1.
 
3
 
4
 
5
 
6
 
7
 
8-26
 
 
Item 2.
27-36
 
 
Item 3.
36
 
 
Item 4.
36
 
 
PART II.
OTHER INFORMATION
 
 
Item 1.
37
 
 
Item 1A.
37
 
 
Item 2.
37
 
 
Item 3.
37
 
 
Item 4.
37
 
 
Item 5.
37
 
 
Item 6.
37
 
 
 
38
 
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)
 

2
Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
As of September 30, 2013 and June 30, 2013
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
  
September 30, 2013
    
June 30, 2013
  
Total cash and cash equivalents
  
$
14,831
    
$
6,222
  
 
                
Long term certificate of deposit
    
250
      
250
  
Securities available for sale, at fair value
    
66,118
      
69,644
  
Securities held to maturity, at amortized cost
    
173,848
      
176,519
  
Federal Home Loan Bank stock, at cost
    
1,113
      
1,388
  
 
                
Loans
    
380,430
      
365,839
  
Allowance for loan losses
    
(7,028
)
    
(7,040
)
Unearned origination fees and costs, net
    
736
      
627
  
Net loans receivable
    
374,138
      
359,426
  
 
                
Premises and equipment
    
14,245
      
14,349
  
Accrued interest receivable
    
2,870
      
2,663
  
Foreclosed real estate
    
196
      
296
  
Prepaid expenses and other assets
    
2,857
      
2,848
  
Total assets
  
$
650,466
    
$
633,605
  
 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Noninterest bearing deposits
  
$
58,846
    
$
57,926
  
Interest bearing deposits
    
521,636
      
500,513
  
Total deposits
    
580,482
      
558,439
  
 
                
Borrowings from Federal Home Loan Bank, short-term
    
3,500
      
10,600
  
Borrowings from Federal Home Loan Bank, long-term
    
5,000
      
4,000
  
Accrued expenses and other liabilities
    
4,472
      
4,458
  
Total liabilities
    
593,454
      
577,497
  
 
                
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 4,199,904 shares at September 30, 2013,and 4,192,654 shares at June 30, 2013
    
431
      
431
  
Additional paid-in capital
    
11,158
      
11,168
  
Retained earnings
    
47,534
      
46,112
  
Accumulated other comprehensive loss
    
(1,313
)
    
(750
)
Treasury stock, at cost 105,766 shares at September 30, 2013,and 113,016 shares at June 30, 2013
    
(798
)
    
(853
)
Total shareholders’ equity
    
57,012
      
56,108
  
Total liabilities and shareholders’ equity
  
$
650,466
    
$
633,605
  

See notes to consolidated financial statements
3
Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended September 30, 2013 and 2012
(Unaudited)
(In thousands, except share and per share amounts)

 
  
2013
    
2012
  
Interest income:
  
   
 
Loans
  
$
4,498
    
$
4,578
  
Investment securities - taxable
    
166
      
186
  
Mortgage-backed securities
    
650
      
947
  
Investment securities - tax exempt
    
510
      
416
  
Interest bearing deposits and federal funds sold
    
2
      
4
  
Total interest income
    
5,826
      
6,131
  
 
                
Interest expense:
                
Interest on deposits
    
550
      
664
  
Interest on borrowings
    
28
      
75
  
Total interest expense
    
578
      
739
  
 
                
Net interest income
    
5,248
      
5,392
  
Provision for loan losses
    
313
      
444
  
Net interest income after provision for loan losses
    
4,935
      
4,948
  
 
                
Noninterest income:
                
Service charges on deposit accounts
    
676
      
692
  
Debit card fees
    
389
      
327
  
Investment services
    
105
      
90
  
E-commerce fees
    
26
      
28
  
Other operating income
    
154
      
142
  
Total noninterest income
    
1,350
      
1,279
  
 
                
Noninterest expense:
                
Salaries and employee benefits
    
2,194
      
2,073
  
Occupancy expense
    
323
      
302
  
Equipment and furniture expense
    
113
      
151
  
Service and data processing fees
    
336
      
397
  
Computer software, supplies and support
    
114
      
93
  
Advertising and promotion
    
67
      
89
  
FDIC insurance premiums
    
89
      
75
  
Legal and professional fees
    
205
      
157
  
Other
    
371
      
336
  
Total noninterest expense
    
3,812
      
3,673
  
 
                
Income before provision for income taxes
    
2,473
      
2,554
  
Provision for income taxes
    
719
      
790
  
Net income
  
$
1,754
    
$
1,764
  
 
                
Basic earnings per share
  
$
0.42
    
$
0.42
  
Basic average shares outstanding
    
4,194,714
      
4,183,932
  
Diluted earnings per share
  
$
0.41
    
$
0.42
  
Diluted average shares outstanding
    
4,234,845
      
4,221,451
  
Dividends per share
  
$
0.175
    
$
0.175
  

See notes to consolidated financial statements
4
Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2013 and 2012
(Unaudited)
(In thousands)

 
  
2013
    
2012
  
Net Income
  
$
1,754
    
$
1,764
  
Other comprehensive (loss) income:
                
Unrealized holding (losses) gains on available for sale securities, net of income taxes of ($356) and $85, respectively
    
(565
)
    
134
  
 
                
Accretion of unrealized loss on securities transferred to held to maturity,net of income taxes of $2 and $4, respectively(1)
    
2
      
6
  
 
                
Pension actuarial gain, net of income taxes of $-- and $4(2)
    
-
      
8
  
 
                
Total other comprehensive (loss) income, net of taxes
    
(563
)
    
148
  
 
                
Comprehensive income
  
$
1,191
    
$
1,912
  

(1) The accretion of the unrealized holding losses in accumulated other comprehensive income at the date of transfer partially offsets the amortization of the difference between the par value and fair value of the investment securities at the date of transfer, and is an adjustment of interest income.
(2) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost and are included in salaries and employee benefit expense within noninterest expense (see Note 10 for additional details).

See notes to consolidated financial statements.

5
Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Three Months Ended September 30, 2013 and 2012
(Unaudited)
(In thousands)

 
  
Common
Stock
    
Additional
Paid-In
Capital
    
Retained
Earnings
    
Accumulated
Other
Comprehensive
Income
    
Treasury
Stock
    
Total
Shareholders'
Equity
  
Balance at June 30, 2012
  
$
431
    
$
11,119
    
$
41,869
    
$
173
    
$
(928
)
  
$
52,664
  
Options exercised
            
10
                      
15
      
25
  
Dividends declared
                    
(732
)
                    
(732
)
Net income
                    
1,764
                      
1,764
  
Other comprehensive income, net of taxes
                            
148
              
148
  
Balance at September 30, 2012
  
$
431
    
$
11,129
    
$
42,901
    
$
321
    
$
(913
)
  
$
53,869
  

 
  
Common
Stock
    
Additional
Paid-In
Capital
    
Retained
 Earnings
    
Accumulated
Other
Comprehensive
Loss
    
Treasury
Stock
    
Total
Shareholders'
Equity
  
Balance at June 30, 2013
  
$
431
    
$
11,168
    
$
46,112
    
$
(750
)
  
$
(853
)
  
$
56,108
  
Options exercised
            
(14
)
                    
55
      
41
  
Tax benefit of stock based compensation
            
4
                              
4
  
Dividends declared
                    
(332
)
                    
(332
)
Net income
                    
1,754
                      
1,754
  
Other comprehensive loss, net of taxes
                            
(563
)
            
(563
)
Balance at September 30, 2013
  
$
431
    
$
11,158
    
$
47,534
    
$
(1,313
)
  
$
(798
)
  
$
57,012
  
 
See notes to consolidated financial statements.
6
Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2013 and 2012
(Unaudited)
(In thousands)
 
 
  
2013
    
2012
  
Cash flows from operating activities:
  
   
 
Net Income
  
$
1,754
    
$
1,764
  
Adjustments to reconcile net income to net cash provided by operating activities
                
Depreciation
    
174
      
194
  
Deferred income tax expense
    
651
      
455
  
Net amortization of premiums and discounts
    
495
      
324
  
Net amortization of deferred loan costs and fees
    
81
      
61
  
Provision for loan losses
    
313
      
444
  
Gain on sale of foreclosed real estate
    
(3
)
    
(36
)
Excess tax benefit from share-based payment arrangements
    
(4
)
    
-
  
Net increase in accrued income taxes
    
20
      
248
  
Net increase in accrued interest receivable
    
(207
)
    
(148
)
Net (increase) decrease in prepaids and other assets
    
(25
)
    
82
  
Net decrease in other liabilities
    
(282
)
    
(1,653
)
Net cash provided by operating activities
    
2,967
      
1,735
  
 
                
Cash flows from investing activities:
                
Securities available for sale:
                
Proceeds from maturities
    
-
      
1,210
  
Purchases of securities
    
-
      
(1,080
)
Principal payments on securities
    
2,395
      
5,607
  
Securities held to maturity:
                
Proceeds from maturities
    
6,934
      
6,366
  
Purchases of securities
    
(7,147
)
    
(2,448
)
Principal payments on securities
    
2,602
      
3,373
  
Net redemption of Federal Home Loan Bank Stock
    
275
      
630
  
Net increase in loans receivable
    
(15,106
)
    
(9,766
)
Proceeds from sale of foreclosed real estate
    
103
      
96
  
Purchases of premises and equipment
    
(70
)
    
(45
)
Net cash (used by) provided by investing activities
    
(10,014
)
    
3,943
  
 
                
Cash flows from financing activities
                
Net decrease in short-term FHLB advances
    
(7,100
)
    
(14,000
)
Proceeds from long-term FHLB advances
    
1,000
      
-
  
Payment of cash dividends
    
(332
)
    
(732
)
Proceeds from issuance of stock options
    
41
      
25
  
Excess tax benefit from share-based payment arrangements
    
4
      
-
  
Net increase in deposits
    
22,043
      
24,206
  
Net cash provided by financing activities
    
15,656
      
9,499
  
 
                
Net increase in cash and cash equivalents
    
8,609
      
15,177
  
Cash and cash equivalents at beginning of period
    
6,222
      
7,742
  
Cash and cash equivalents at end of period
  
$
14,831
    
$
22,919
  
 
                
Cash paid during period for:
                
Interest
  
$
581
    
$
735
  
Income taxes
  
$
48
    
$
87
  

See notes to consolidated financial statements
7
Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
As of and for the Three Months Ended September 30, 2013 and 2012

(1) Basis of Presentation

The accompanying unaudited consolidated statement of financial condition as of June 30, 2013 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 months ended September 30, 2013 and 2012 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, 2013, such information and notes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications, if any, had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three months ended September 30, 2013 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2014.   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 within the Hudson Valley Region of New York State.    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.
8
(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 materially 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 September 30, 2013 consisted of the following:
 
(In thousands)
  
Amortized Cost
    
Gross Unrealized
Gains
    
Gross Unrealized
Losses
    
Estimated Fair
Value
  
Securities available for sale:
  
   
   
   
 
U.S. government sponsored enterprises
  
$
12,708
    
$
267
    
$
-
    
$
12,975
  
State and political subdivisions
    
1,847
      
27
      
13
      
1,861
  
Mortgage-backed securities-residential
    
6,408
      
220
      
-
      
6,628
  
Mortgage-backed securities-multi-family
    
40,452
      
225
      
1,365
      
39,312
  
Asset-backed securities
    
16
      
-
      
1
      
15
  
Corporate debt securities
    
4,822
      
375
      
27
      
5,170
  
Total debt securities
    
66,253
      
1,114
      
1,406
      
65,961
  
Equity securities
    
68
      
89
      
-
      
157
  
Total securities available for sale
    
66,321
      
1,203
      
1,406
      
66,118
  
Securities held to maturity:
                                
U.S. treasury securities
    
4,500
      
8
      
-
      
4,508
  
U.S. government sponsored enterprises
    
3,000
      
12
      
122
      
2,890
  
State and political subdivisions
    
83,926
      
423
      
675
      
83,674
  
Mortgage-backed securities-residential
    
26,610
      
1,360
      
1
      
27,969
  
Mortgage-backed securities-multi-family
    
54,736
      
822
      
2,284
      
53,274
  
Other securities
    
1,076
      
-
      
38
      
1,038
  
Total securities held to maturity
    
173,848
      
2,625
      
3,120
      
173,353
  
Total securities
  
$
240,169
    
$
3,828
    
$
4,526
    
$
239,471
  

9
Securities at June 30, 2013 consisted of the following:

(In thousands)
  
Amortized Cost
    
Gross Unrealized
Gains
    
Gross Unrealized
Losses
    
Estimated Fair
Value
  
Securities available for sale:
  
   
   
   
 
U.S. government sponsored enterprises
  
$
12,729
    
$
260
    
$
-
    
$
12,989
  
State and political subdivisions
    
1,849
      
29
      
20
      
1,858
  
Mortgage-backed securities-residential
    
7,340
      
193
      
-
      
7,533
  
Mortgage-backed securities-multi-family
    
42,096
      
289
      
466
      
41,919
  
Asset-backed securities
    
17
      
-
      
1
      
16
  
Corporate debt securities
    
4,827
      
380
      
31
      
5,176
  
Total debt securities
    
68,858
      
1,151
      
518
      
69,491
  
Equity securities
    
68
      
85
      
-
      
153
  
Total securities available for sale
    
68,926
      
1,236
      
518
      
69,644
  
Securities held to maturity:
                                
U.S. treasury securities
    
5,500
      
17
      
-
      
5,517
  
U.S. government sponsored enterprises
    
2,999
      
16
      
113
      
2,902
  
State and political subdivisions
    
82,801
      
362
      
755
      
82,408
  
Mortgage-backed securities-residential
    
29,077
      
1,515
      
9
      
30,583
  
Mortgage-backed securities-multi-family
    
55,086
      
1,236
      
1,093
      
55,229
  
Other securities
    
1,056
      
-
      
35
      
1,021
  
Total securities held to maturity
    
176,519
      
3,146
      
2,005
      
177,660
  
Total securities
  
$
245,445
    
$
4,382
    
$
2,523
    
$
247,304
  
 
Greene County Bancorp, Inc.’s current policies generally limit securities investments to U.S. Government and securities of government sponsored enterprises, federal funds sold, municipal bonds, corporate debt obligations and certain mutual funds.  In addition, the Company’s policies permit investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage obligations.  The Company’s investments in mortgage-backed securities include pass-through securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA.  As of September 30, 2013 and 2012, no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio.  The Company’s investments in state and political subdivisions securities generally are municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured.  The obligations issued by school districts are supported by state aid.  Primarily, these investments are issued by municipalities within New York State.

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2013.

 
  
Less Than 12 Months
    
More Than 12 Months
    
Total
  
(In thousands)
  
Fair Value
    
Unrealized
Losses
    
Fair Value
    
Unrealized
Losses
    
Fair Value
    
Unrealized
Losses
  
Securities available for sale:
  
   
   
   
   
   
 
State and political subdivisions
  
$
797
    
$
13
    
$
-
    
$
-
    
$
797
    
$
13
  
Mortgage-backed securities-multi-family
    
33,671
      
1,365
      
-
      
-
      
33,671
      
1,365
  
Asset-backed securities
    
-
      
-
      
15
      
1
      
15
      
1
  
Corporate debt securities
    
760
      
27
      
-
      
-
      
760
      
27
  
Total securities available for sale
    
35,228
      
1,405
      
15
      
1
      
35,243
      
1,406
  
Securities held to maturity:
                                                
U.S. government sponsored enterprises
    
1,878
      
122
      
-
      
-
      
1,878
      
122
  
State and political subdivisions
    
22,986
      
674
      
484
      
1
      
23,470
      
675
  
Mortgage-backed securities-residential
    
999
      
1
      
-
      
-
      
999
      
1
  
Mortgage-backed securities-multi-family
    
28,388
      
1,794
      
5,730
      
490
      
34,118
      
2,284
  
Other securities
    
749
      
38
      
-
      
-
      
749
      
38
  
Total securities held to maturity
    
55,000
      
2,629
      
6,214
      
491
      
61,214
      
3,120
  
Total securities
  
$
90,228
    
$
4,034
    
$
6,229
    
$
492
    
$
96,457
    
$
4,526
  
10
The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2013.

 
  
Less Than 12 Months
    
More Than 12 Months
    
Total
  
(In thousands)
  
Fair Value
    
Unrealized
Losses
    
Fair Value
    
Unrealized
Losses
    
Fair Value
    
Unrealized
Losses
  
Securities available for sale:
  
   
   
   
   
   
 
State and political subdivisions
  
$
791
    
$
20
    
$
-
    
$
-
    
$
791
    
$
20
  
Mortgage-backed securities-multi-family
    
33,298
      
466
      
-
      
-
      
33,298
      
466
  
Asset-backed securities
    
-
      
-
      
16
      
1
      
16
      
1
  
Corporate debt securities
    
758
      
31
      
-
      
-
      
758
      
31
  
Total securities available for sale
    
34,847
      
517
      
16
      
1
      
34,863
      
518
  
Securities held to maturity:
                                                
U.S. government sponsored enterprises
    
1,887
      
113
      
-
      
-
      
1,887
      
113
  
State and political subdivisions
    
28,597
      
745
      
1,597
      
10
      
30,194
      
755
  
Mortgage-backed securities-residential
    
1,228
      
9
      
-
      
-
      
1,228
      
9
  
Mortgage-backed securities-multi-family
    
33,044
      
1,093
      
-
      
-
      
33,044
      
1,093
  
Other securities
    
753
      
35
      
-
      
-
      
753
      
35
  
Total securities held to maturity
    
65,509
      
1,995
      
1,597
      
10
      
67,106
      
2,005
  
Total securities
  
$
100,356
    
$
2,512
    
$
1,613
    
$
11
    
$
101,969
    
$
2,523
  

At September 30, 2013, there were 124 securities which have been in a continuous unrealized loss position for less than 12 months and 5 securities with a continuous unrealized loss position of more than 12 months.  When the fair value of a held to maturity or available for sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present.  The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover.  The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

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

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”).  Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis.  Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized.  For securities classified as held to maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.  For equity securities, the entire amount of OTTI is recognized in income.  Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2013.  Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads at the end of the quarter.

During the quarters ended September 30, 2013 and 2012, there were no sales of securities and no gains or losses were recognized.  There was no other-than-temporary impairment loss recognized during the quarters ended September 30, 2013 and 2012.

The estimated fair values of debt securities at September 30, 2013, 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.

11
(In thousands)

Available for sale debt securities
  
Amortized Cost
    
Fair Value
  
Within one year
  
$
4,797
    
$
4,864
  
After one year through five years
    
9,652
      
10,082
  
After five years through ten years
    
4,928
      
5,060
  
After ten years
    
-
      
-
  
Total available for sale debt securities
    
19,377
      
20,006
  
Mortgage-backed and asset-backed securities
    
46,876
      
45,955
  
Equity securities
    
68
      
157
  
Total available for sale securities
    
66,321
      
66,118
  
 
                
Held to maturity debt securities
                
Within one year
    
21,548
      
21,595
  
After one year through five years
    
30,244
      
30,452
  
After five years through ten years
    
27,137
      
26,820
  
After ten years
    
13,573
      
13,243
  
Total held to maturity debt securities
    
92,502
      
92,110
  
Mortgage-backed
    
81,346
      
81,243
  
Total held to maturity securities
    
173,848
      
173,353
  
Total securities
  
$
240,169
    
$
239,471
  

As of September 30, 2013 and June 30, 2013, respectively, securities with an aggregate fair value of $193.2 million and $200.9 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 September 30, 2013 and June 30, 2013, securities with an aggregate fair value of $5.2 million 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 quarters ended September 30, 2013 or 2012.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula.  This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par.  As a result of these restrictions, FHLB stock is carried at cost.  FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value.  Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following:   its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position.  After evaluating these considerations, Greene County Bancorp, Inc. concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no other-than-temporary impairment charge was recorded during the fiscal quarters ended September 30, 2013 or 2012.

(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.
12
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.  Regulatory 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 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 % 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%, 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.
13
Loan balances by internal credit quality indicator as of September 30, 2013 are shown below.
 
(In thousands)
  
Performing
    
Watch
    
Special Mention
    
Substandard
    
Total
  
Residential mortgage
  
$
216,915
    
$
445
    
$
301
    
$
4,787
    
$
222,448
  
Nonresidential mortgage
    
92,037
      
-
      
2,182
      
2,027
      
96,246
  
Residential construction and land
    
3,322
      
-
      
-
      
-
      
3,322
  
Commercial construction
    
1,352
      
-
      
-
      
1,050
      
2,402
  
Multi-family
    
4,033
      
-
      
-
      
724
      
4,757
  
Home equity
    
20,578
      
25
      
22
      
253
      
20,878
  
Consumer installment
    
4,203
      
2
      
-
      
6
      
4,211
  
Commercial loans
    
24,954
      
2
      
501
      
709
      
26,166
  
Total gross loans
  
$
367,394
    
$
474
    
$
3,006
    
$
9,556
    
$
380,430
  

Loan balances by internal credit quality indicator as of June 30, 2013 are shown below.
 
(In thousands)
  
Performing
    
Watch
    
Special Mention
    
Substandard
    
Total
  
Residential mortgage
  
$
207,606
    
$
294
    
$
302
    
$
4,324
    
$
212,526
  
Nonresidential mortgage
    
87,509
      
-
      
2,197
      
1,776
      
91,482
  
Residential construction and land
    
2,691
      
-
      
-
      
-
      
2,691
  
Commercial construction
    
2,466
      
-
      
-
      
1,057
      
3,523
  
Multi-family
    
4,785
      
-
      
-
      
726
      
5,511
  
Home equity
    
20,099
      
221
      
23
      
28
      
20,371
  
Consumer installment
    
4,073
      
5
      
-
      
-
      
4,078
  
Commercial loans
    
24,454
      
-
      
516
      
687
      
25,657
  
Total gross loans
  
$
353,683
    
$
520
    
$
3,038
    
$
8,598
    
$
365,839
  

The Company had no loans classified Doubtful or Loss at September 30, 2013 or June 30, 2013.

Nonaccrual Loans

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis.  Nonaccrual is defined as a loan in which collectability is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan.    A loan does not have to be 90 days delinquent in order to be classified as nonaccrual.   Nonaccrual loans consisted primarily of loans secured by real estate at September 30, 2013 and June 30, 2013.  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 $7.4 million at September 30, 2013 of which $5.4 million were in the process of foreclosure.  Included in nonaccrual loans were $1.5 million of loans which were less than 90 days past due at September 30, 2013, 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 $1.3 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.  Loans on nonaccrual status totaled $6.3 million at June 30, 2013 of which $4.9 million were in the process of foreclosure.  Included in nonaccrual loans, were $781,000 of loans which were less than 90 days past due at June 30, 2013, but have a recent history of delinquency greater than 90 days past due.
14
The following table sets forth information regarding delinquent and/or nonaccrual loans as of September 30, 2013:
 
(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
  
$
693
    
$
316
    
$
3,975
    
$
4,984
    
$
217,464
    
$
222,448
    
$
4,067
  
Nonresidential mortgage
    
1,160
      
971
      
1,540
      
3,671
      
92,575
      
96,246
      
2,269
  
Residential construction and land
    
-
      
-
      
-
      
-
      
3,322
      
3,322
      
-
  
Commercial construction
    
-
      
-
      
-
      
-
      
2,402
      
2,402
      
-
  
Multi-family
    
143
      
-
      
463
      
606
      
4,151
      
4,757
      
463
  
Home equity
    
8
      
-
      
254
      
262
      
20,616
      
20,878
      
300
  
Consumer installment
    
79
      
2
      
6
      
87
      
4,124
      
4,211
      
6
  
Commercial loans
    
572
      
2
      
206
      
780
      
25,386
      
26,166
      
317
  
Total gross loans
  
$
2,655
    
$
1,291
    
$
6,444
    
$
10,390
    
$
370,040
    
$
380,430
    
$
7,422
  

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2013:
 
(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
  
$
1,255
    
$
165
    
$
3,875
    
$
5,295
    
$
207,231
    
$
212,526
    
$
3,599
  
Nonresidential mortgage
    
215
      
978
      
1,655
      
2,848
      
88,634
      
91,482
      
2,018
  
Residential construction and land
    
38
      
-
      
-
      
38
      
2,653
      
2,691
      
-
  
Commercial construction
    
-
      
-
      
-
      
-
      
3,523
      
3,523
      
-
  
Multi-family
    
144
      
-
      
463
      
607
      
4,904
      
5,511
      
463
  
Home equity
    
269
      
221
      
28
      
518
      
19,853
      
20,371
      
51
  
Consumer installment
    
34
      
5
      
-
      
39
      
4,039
      
4,078
      
-
  
Commercial loans
    
530
      
78
      
82
      
690
      
24,967
      
25,657
      
195
  
Total gross loans
  
$
2,485
    
$
1,447
    
$
6,103
    
$
10,035
    
$
355,804
    
$
365,839
    
$
6,326
  

Past due loans as of June 30, 2013 have been reclassified to exclude loans on non-accrual but less than 30 days delinquent.  These loans are still included in loans on non-accrual due to 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 Bank of Greene County had accruing loans delinquent more than 90 days as of September 30, 2013 totaling $555,000 and had accruing loans delinquent more than 90 days as of June 30, 2013 totaling $559,000.    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 three months ended September 30:

(In thousands)
  
2013
    
2012
  
Interest income that would have been recorded if loans had been performing in accordance with original terms
  
$
125
    
$
150
  
Interest income that was recorded on nonaccrual loans
    
29
      
54
  
15
Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with Financial Accounting Statndards Board (“FASB”) Accounting Standards Codification (“ASC”)  subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  The Bank of Greene County considers residential mortgages, home equity loans, smaller commercial loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family and commercial 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.  Loans that have been modified as a troubled debt restructuring are included in impaired loans.  The measurement of impairment is generally based on the discounted cash flows based on the original rate of the loan before the restructuring, unless it is determined that the restructured loan is collateral dependent.  If the restructured loan is deemed to be collateral dependent, impairment is based on the fair value of the underlying collateral.

The tables below detail additional information on impaired loans at the date or periods indicated:
         
 
  
As of September 30, 2013
    
For the quarter ended September 30, 2013
  
(In thousands)
  
Recorded
Investment
    
Unpaid
Principal
    
Related
Allowance
    
Average
Recorded
Investment
    
Interest
Income
Recognized
  
With no related allowance recorded:
    
   
   
 
Residential mortgage
  
$
413
    
$
432
    
$
-
    
$
590
    
$
-
  
Nonresidential mortgage
    
541
      
635
      
-
      
653
      
9
  
 
    
954
      
1,067
      
-
      
1,243
      
9
  
With an allowance recorded:
                          
Residential mortgage
    
3,259
      
3,309
      
619
      
3,135
      
15
  
Nonresidential mortgage
    
1,576
      
1,576
      
387
      
1,561
      
8
  
Commercial construction
    
1,050
      
1,050
      
323
      
1,052
      
18
  
Multi-family
    
463
      
463
      
16
      
463
      
-
  
Commercial loans
    
608
      
608
      
7
      
608
      
10
  
 
    
6,956
      
7,006
      
1,352
      
6,819
      
51
  
Total impaired:
                                        
Residential mortgage
    
3,672
      
3,741
      
619
      
3,725
      
15
  
Nonresidential mortgage
    
2,117
      
2,211
      
387
      
2,214
      
17
  
Commercial construction
    
1,050
      
1,050
      
323
      
1,052
      
18
  
Multi-family
    
463
      
463
      
16
      
463
      
-
  
Commercial loans
    
608
      
608
      
7
      
608
      
10
  
 
  
$
7,910
    
$
8,073
    
$
1,352
    
$
8,062
    
$
60
  

16
         
 
  
As of June 30, 2013
    
For the quarter ended September 30, 2012
  
(In thousands)
  
Recorded
Investment
    
Unpaid
Principal
    
Related
Allowance
    
Average
Recorded
Investment
    
Interest
Income
Recognized
  
With no related allowance recorded:
    
   
   
 
Residential mortgage
  
$
852
    
$
852
    
$
-
    
$
-
    
$
-
  
Nonresidential mortgage
    
783
      
783
      
-
      
1,270
      
21
  
Commercial loans
    
-
      
-
      
-
      
125
      
-
  
 
    
1,635
      
1,635
      
-
      
1,395
      
21
  
With an allowance recorded:
                          
Residential mortgage
    
2,582
      
2,632
      
520
      
2,407
      
15
  
Nonresidential mortgage
    
1,339
      
1,339
      
305
      
967
      
6
  
Commercial construction
    
1,057
      
1,057
      
331
      
1,130
      
17
  
Multi-family
    
463
      
463
      
16
      
881
      
8
  
Home equity
    
-
      
-
      
-
      
386
      
-
  
Commercial loans
    
610
      
610
      
7
      
574
      
10
  
 
    
6,051
      
6,101
      
1,179
      
6,345
      
56
  
Total impaired:
                                        
Residential mortgage
    
3,434
      
3,484
      
520
      
2,407
      
15
  
Nonresidential mortgage
    
2,122
      
2,122
      
305
      
2,237
      
27
  
Commercial construction
    
1,057
      
1,057
      
331
      
1,130
      
17
  
Multi-family
    
463
      
463
      
16
      
881
      
8
  
Home equity
    
-
      
-
      
-
      
386
      
-
  
Commercial loans
    
610
      
610
      
7
      
699
      
10
  
 
  
$
7,686
    
$
7,736
    
$
1,179
    
$
7,740
    
$
77
  

The table below details loans that have been modified as a troubled debt restructuring during the quarter ended September 30, 2013.
 
 
  
   
   
   
 
(Dollars in thousands)
  
Number of Contracts
    
Pre-Modification
Outstanding
Recorded Investment
    
Post-Modification
Outstanding
Recorded Investment
    
Current Outstanding
Recorded Investment
  
Residential mortgage
    
2
    
$
367
    
$
367
    
$
365
  
Nonresidential mortgage
    
1
      
442
      
442
      
440
  

These loans have been classified as troubled debt restructurings due to concessions granted to the debtors that The Bank of Greene County would not otherwise consider as a result of financial difficulties of the borrowers.  For these loans, concessions consisted of any combination of the following: additional funds were advanced, the interest rate was reduced and/or the term extended. 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, these loans will be returned to accrual status.   These loans identified as a troubled debt restructuring have been evaluated for impairment and the impact to the allowance for loan loss was immaterial.

The Company did not modify any loans that would be classified as troubled debt restructurings during the quarter ended September 30, 2012.
17
The table below details loans that have been modified as a troubled debt restructuring during the previous twelve months which has subsequently defaulted during the three months ended September 30, 2013:

(Dollars in thousands)
  
Number of
Contracts
    
Recorded
Investment
    
Allowance for
Loan Loss
  
Residential mortgage
    
1
    
$
73
    
$
--
  
Nonresidential mortgage
    
1
      
547
      
182
  

The Company had no loans that had been modified as a troubled debt restructuring during the twelve months prior to September 30, 2012 which had subsequently defaulted during the three months ended September 30, 2012.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the losses 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 considers residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience.  Commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.  The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by charge-offs. Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses, unless equitable arrangements are made.   For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably estimated.
18
The following tables set forth the activity and allocation of the allowance for loan losses by loan category during and at the periods indicated.  The allowance is allocated to each loan category based on historical loss experience and economic conditions.

Activity for the quarter ended September 30, 2013
                             
(In thousands)
  
Balance at June
30, 2013
    
Charge-offs
    
Recoveries
    
Provision
    
Balance at
September 30,
2013
  
Residential mortgage
  
$
2,627
    
$
77
    
$
-
    
$
8
    
$
2,558
  
Nonresidential mortgage
    
2,476
      
-
      
-
      
146
      
2,622
  
Residential construction and land
    
37
      
-
      
-
      
9
      
46
  
Commercial construction
    
392
      
-
      
-
      
(36
)
    
356
  
Multi-family
    
139
      
-
      
-
      
(29
)
    
110
  
Home equity
    
275
      
-
      
-
      
18
      
293
  
Consumer installment
    
222
      
59
      
15
      
43
      
221
  
Commercial loans
    
809
      
204
      
-
      
217
      
822
  
Unallocated
    
63
      
-
      
-
      
(63
)
    
-
  
Total
  
$
7,040
    
$
340
    
$
15
    
$
313
    
$
7,028
  
 
 
  
Allowance for Loan Losses
    
Loans Receivable
  
 
  
Ending Balance September 30, 2013
Impairment Analysis
    
Ending Balance September 30, 2013
Impairment Analysis
  
(In thousands)
  
Individually
Evaluated
    
Collectively
Evaluated
    
Individually
 Evaluated
    
Collectively
Evaluated
  
Residential mortgage
  
$
619
    
$
1,939
    
$
3,672
    
$
218,776
  
Nonresidential mortgage
    
387
      
2,235
      
2,117
      
94,129
  
Residential construction and land
    
-
      
46
      
-
      
3,322
  
Commercial construction
    
323
      
33
      
1,050
      
1,352
  
Multi-family
    
16
      
94
      
463
      
4,294
  
Home equity
    
-
      
293
      
-
      
20,878
  
Consumer installment
    
-
      
221
      
-
      
4,211
  
Commercial loans
    
7
      
815
      
608
      
25,558
  
Total
  
$
1,352
    
$
5,676
    
$
7,910
    
$
372,520
  

Activity for the quarter ended September 30, 2012
                             
(In thousands)
  
Balance at
June 30, 2012
    
Charge-offs
    
Recoveries
    
Provision
    
Balance at September 30, 2012
  
Residential mortgage
  
$
2,163
    
$
39
    
$
-
    
$
226
    
$
2,350
  
Nonresidential mortgage
    
2,076
      
-
      
-
      
28
      
2,104
  
Residential construction and land
    
19
      
-
      
-
      
24
      
43
  
Commercial construction
    
407
      
-
      
-
      
(43
)
    
364
  
Multi-family
    
337
      
-
      
-
      
(44
)
    
293
  
Home equity
    
187
      
-
      
-
      
182
      
369
  
Consumer installment
    
207
      
69
      
23
      
96
      
257
  
Commercial loans
    
645
      
-
      
-
      
39
      
684
  
Unallocated
    
136
      
-
      
-
      
(64
)
    
72
  
Total
  
$
6,177
    
$
108
    
$
23
    
$
444
    
$
6,536
  

19
 
  
Allowance for Loan Losses
    
Loans Receivable
  
 
  
Ending Balance June 30, 2013
Impairment Analysis
    
Ending Balance June 30, 2013
Impairment Analysis
  
(In thousands)
  
Individually
Evaluated
    
Collectively
Evaluated
    
Individually
Evaluated
    
Collectively
Evaluated
  
Residential mortgage
  
$
520
    
$
2,107
    
$
3,434
    
$
209,092
  
Nonresidential mortgage
    
305
      
2,171
      
2,122
      
89,360
  
Residential construction and land
    
-
      
37
      
-
      
2,691
  
Commercial construction
    
331
      
61
      
1,057
      
2,466
  
Multi-family
    
16
      
123
      
463
      
5,048
  
Home equity
    
-
      
275
      
-
      
20,371
  
Consumer installment
    
-
      
222
      
-
      
4,078
  
Commercial loans
    
7
      
802
      
610
      
25,047
  
Unallocated
    
-
      
63
      
-
      
-
  
Total
  
$
1,179
    
$
5,861
    
$
7,686
    
$
358,153
  
 
(6) Fair Value Measurements and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transactio