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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2017

OR

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

GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number  0-25165

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

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

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

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

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

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

Large accelerated filer  ☐	Accelerated filer ☐
Non-accelerated filer     ☐	Smaller reporting company ☒
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES ☐   NO ☒

As of February 14, 2018, the registrant had 8,513,614 shares of common stock outstanding at $ 0.10 par value per share.

 

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	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
	*   Consolidated Statements of Comprehensive Income	5
	*   Consolidated Statements of Changes in Shareholders’ Equity	6
	*   Consolidated Statements of Cash Flows	7
	*   Notes to Consolidated Financial Statements	8-29
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30-44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	45
	Signatures	46
	Exhibit 31.1 302 Certification of Chief Executive Officer
	Exhibit 31.2 302 Certification of Chief Financial Officer
	Exhibit 32.1 906 Statement of Chief Executive Officer
	Exhibit 32.2 906 Statement of Chief Financial Officer
	Exhibit 101 Extensible Business Reporting Language (XBRL)

 

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

At December 31, 2017 and June 30, 2017

(Unaudited)

(In thousands, except share and per share amounts)

 

ASSETS		December 31, 2017				June 30, 2017
Total cash and cash equivalents		$	27,714			$	16,277
Long term certificate of deposit			1,895				2,145
Securities available-for-sale, at fair value			102,969				91,483
Securities held-to-maturity, at amortized cost (fair value $243,287at December 31, 2017; $228,452 at June 30, 2017)			239,140				223,830
Federal Home Loan Bank stock, at cost			2,488				2,131
Loans			674,435				634,331
Allowance for loan losses			(11,352	)			(11,022	)
Unearned origination fees and costs, net			790				878
Net loans receivable			663,873				624,187
Premises and equipment			13,499				13,615
Accrued interest receivable			4,610				4,033
Foreclosed real estate			905				799
Prepaid expenses and other assets			3,717				3,791
Total assets		$	1,060,810			$	982,291
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits		$	99,388			$	95,929
Interest-bearing deposits			821,363				763,606
Total deposits			920,751				859,535
Borrowings from Federal Home Loan Bank, short-term			20,300				6,900
Borrowings from Federal Home Loan Bank, long-term			20,150				22,650
Accrued expenses and other liabilities			10,036				9,685
Total liabilities			971,237				898,770
SHAREHOLDERS' EQUITY
Preferred stock, Authorized - 1,000,000 shares; Issued - None			-				-
Common stock, par value $.10 per share; Authorized - 12,000,000 shares; Issued – 8,611,340 shares;Outstanding - 8,506,614 shares at December 31, 2017, and 8,502,614 shares at June 30, 2017			861				861
Additional paid-in capital			11,000				10,990
Retained earnings			79,421				73,072
Accumulated other comprehensive loss			(1,314	)			(992	)
Treasury stock, at cost 104,726 shares at December 31, 2017, and 108,726 shares at June 30, 2017			(395	)			(410	)
Total shareholders’ equity			89,573				83,521
Total liabilities and shareholders’ equity		$	1,060,810			$	982,291

See notes to consolidated financial statements

 

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three and Six Months Ended December 31, 2017 and 2016

(Unaudited)

(In thousands, except share and per share amounts)

		For the three months ended December 31,								For the six months ended December 31,
		2017				2016				2017				2016
Interest income:
Loans		$	7,287			$	6,382			$	14,346			$	12,435
Investment securities - taxable			163				146				328				296
Mortgage-backed securities			791				1,099				1,608				1,883
Investment securities - tax exempt			1,092				852				2,128				1,676
Interest-bearing deposits and federal funds sold			87				5				99				8
Total interest income			9,420				8,484				18,509				16,298
Interest expense:
Interest on deposits			867				648				1,676				1,254
Interest on borrowings			93				105				203				226
Total interest expense			960				753				1,879				1,480
Net interest income			8,460				7,731				16,630				14,818
Provision for loan losses			352				586				699				1,129
Net interest income after provision for loan losses			8,108				7,145				15,931				13,689
Noninterest income:
Service charges on deposit accounts			934				820				1,785				1,593
Debit card fees			591				510				1,157				1,001
Investment services			122				67				194				137
E-commerce fees			35				31				73				63
Other operating income			205				184				418				367
Total noninterest income			1,887				1,612				3,627				3,161
Noninterest expense:
Salaries and employee benefits			3,110				2,787				6,037				5,455
Occupancy expense			355				339				711				719
Equipment and furniture expense			158				132				271				252
Service and data processing fees			540				499				1,027				947
Computer software, supplies and support			162				148				305				294
Advertising and promotion			112				85				167				208
FDIC insurance premiums			93				93				186				207
Legal and professional fees			229				220				460				418
Other			553				485				1,041				1,042
Total noninterest expense			5,312				4,788				10,205				9,542
Income before provision for income taxes			4,683				3,969				9,353				7,308
Provision for income taxes			1,043				1,043				2,241				1,875
Net income		$	3,640			$	2,926			$	7,112			$	5,433
Basic earnings per share		$	0.43			$	0.34			$	0.84			$	0.64
Basic average shares outstanding			8,504,168				8,491,929				8,503,451				8,487,554
Diluted earnings per share		$	0.43			$	0.34			$	0.83			$	0.64
Diluted average shares outstanding			8,533,126				8,509,316				8,532,274				8,503,913
Dividends per share		$	0.0975			$	0.0950			$	0.1950			$	0.1900

See notes to consolidated financial statements

 

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended December 31, 2017 and 2016

(Unaudited)

(In thousands)

		For the three months ended December 31,								For the six months ended December 31,
		2017				2016				2017				2016
Net Income		$	3,640			$	2,926			$	7,112			$	5,433
Other comprehensive loss:
Unrealized holding losses on available-for-sale securities, net of income tax benefit of ($345) and ($430), for the three months, and  ($200) and ($530), for the six months ended December 31, 2017 and 2016 respectively			(557	)			(693	)			(322	)			(834	)
Accretion of unrealized loss on securities transferred to held-to-maturity, net of income taxes of $- and $- for the three months, and $- and $1 for the six months ended December 31, 2017 and 2016, respectively			-				1				-				1
Total other comprehensive loss, net of taxes			(557	)			(692	)			(322	)			(833	)
Comprehensive income		$	3,083			$	2,234			$	6,790			$	4,600

See notes to consolidated financial statements.

 

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended December 31, 2017 and 2016

(Unaudited)

(In thousands)

		Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Income				Treasury Stock				Total Shareholders' Equity
Balance at June 30, 2016		$	861			$	10,872			$	63,805			$	(725	)		$	(512	)		$	74,301
Options exercised							67												102				169
Tax benefit of stock based compensation							51																51
Dividends declared											(742	)											(742	)
Net income											5,433												5,433
Other comprehensive loss, net of taxes															(833	)							(833	)
Balance at December 31, 2016		$	861			$	10,990			$	68,496			$	(1,558	)		$	(410	)		$	78,379

		Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total Shareholders' Equity
Balance at June 30, 2017		$	861			$	10,990			$	73,072			$	(992	)		$	(410	)		$	83,521
Options exercised							10												15				25
Dividends declared											(763	)											(763	)
Net income											7,112												7,112
Other comprehensive loss, net of taxes															(322	)							(322	)
Balance at December 31, 2017		$	861			$	11,000			$	79,421			$	(1,314	)		$	(395	)		$	89,573

 

See notes to consolidated financial statements.

 

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended December 31, 2017 and 2016

(Unaudited)

(In thousands)

		2017				2016
Cash flows from operating activities:
Net Income		$	7,112			$	5,433
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			318				319
Deferred income tax expense			(2,130	)			(2,196	)
Net amortization of premiums and discounts			385				443
Net amortization of deferred loan costs and fees			253				251
Provision for loan losses			699				1,129
(Gains) losses on sale of foreclosed real estate			(53	)			61
Excess tax benefit from share based compensation			-				(51	)
Net increase in accrued income taxes			3,376				2,438
Net increase in accrued interest receivable			(577	)			(179	)
Net increase in prepaid and other assets			(973	)			(291	)
Net increase (decrease) in other liabilities			351				(786	)
Net cash provided by operating activities			8,761				6,571
Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities			30,543				37,123
Purchases of securities			(43,784	)			(29,683	)
Principal payments on securities			1,206				5,573
Securities held-to-maturity:
Proceeds from maturities			7,347				5,795
Purchases of securities			(31,015	)			(17,646	)
Principal payments on securities			8,001				5,397
Net purchase of Federal Home Loan Bank Stock			(357	)			(978	)
Maturity of long term certificate of deposit			250				65
Net increase in loans receivable			(40,729	)			(70,066	)
Proceeds from sale of foreclosed real estate			38				94
Purchases of premises and equipment			(202	)			(71	)
Net cash used by investing activities			(68,702	)			(64,397	)
Cash flows from financing activities
Net increase in short-term advances			13,400				19,700
Proceeds from long-term FHLB advances			-				2,650
Repayment of long-term FHLB advances			(2,500	)			(500	)
Payment of cash dividends			(763	)			(742	)
Proceeds from issuance of stock options			25				169
Excess tax benefit from share based compensation			-				51
Net increase in deposits			61,216				36,178
Net cash provided by financing activities			71,378				57,506
Net increase (decrease)  in cash and cash equivalents			11,437				(320	)
Cash and cash equivalents at beginning of period			16,277				15,895
Cash and cash equivalents at end of period		$	27,714			$	15,575
Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate		$	91			$	123
Cash paid during period for:
Interest		$	1,882			$	1,471
Income taxes		$	994			$	1,633

See notes to consolidated financial statements

 

Greene County Bancorp, Inc.

Notes to Consolidated Financial Statements

At and for the Three and Six Months Ended December 31, 2017 and 2016

(1)	Basis of Presentation

Within the accompanying unaudited consolidated statement of financial condition, and related notes to the consolidated financial statements, June 30, 2017 data was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, The Bank of Greene County (the “Bank”) and Greene Risk Management, Inc., and the Bank’s wholly owned subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd.  The consolidated financial statements at and for the three and six months ended December 31, 2017 and 2016 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 fiscal year ended June 30, 2017, 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, 2017 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2018.   These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

CRITICAL ACCOUNTING POLICIES

Greene County Bancorp, Inc.’s critical accounting policies relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.  The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing portfolio.  The allowance for loan losses is established through a provision for 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 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, 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. There have been no significant changes in the application of this critical accounting policy during the three and six months ended December 31, 2017.

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

(2)	Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its subsidiaries, The Bank of Greene County and Greene Risk Management, Inc.  The Bank of Greene County has 14 full-service offices, an operations center and lending 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 Risk Management, Inc. is a pooled captive insurance company, which provides additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.  The Bank of Greene County also owns and operates two subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd. Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities. Greene Property Holdings, Ltd.is a real estate investment trust, which holds mortgages and notes which were originated through and serviced by The Bank of Greene County.

 

(3)	Use of Estimates

The preparation of consolidated 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 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 through earnings.

(4)	Securities

Securities at December 31, 2017 consisted of the following:

 

(In thousands)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				EstimatedFair Value
Securities available-for-sale:
U.S. government sponsored enterprises		$	5,552			$	83			$	12			$	5,623
State and political subdivisions			71,627				97				4				71,720
Mortgage-backed securities-residential			4,098				41				43				4,096
Mortgage-backed securities-multi-family			19,899				303				131				20,071
Corporate debt securities			1,260				-				3				1,257
Total debt securities			102,436				524				193				102,767
Equity securities			62				140				-				202
Total securities available-for-sale			102,498				664				193				102,969
Securities held-to-maturity:
U.S. government sponsored enterprises			7,246				-				95				7,151
State and political subdivisions			127,725				3,967				205				131,487
Mortgage-backed securities-residential			7,479				184				-				7,663
Mortgage-backed securities-multi-family			94,183				664				399				94,448
Corporate debt securities			1,000				15				-				1,015
Other securities			1,507				19				3				1,523
Total securities held-to-maturity			239,140				4,849				702				243,287
Total securities		$	341,638			$	5,513			$	895			$	346,256

 

Securities at June 30, 2017 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		$	4,566			$	151			$	-			$	4,717
State and political subdivisions			57,885				227				-				58,112
Mortgage-backed securities-residential			4,868				72				27				4,913
Mortgage-backed securities-multi-family			20,344				483				62				20,765
Asset-backed securities			1				-				-				1
Corporate debt securities			2,765				29				3				2,791
Total debt securities			90,429				962				92				91,299
Equity securities			62				122				-				184
Total securities available-for-sale			90,491				1,084				92				91,483
Securities held-to-maturity:
U.S. government sponsored enterprises			6,000				-				53				5,947
State and political subdivisions			115,805				3,434				95				119,144
Mortgage-backed securities-residential			10,798				274				2				11,070
Mortgage-backed securities-multi-family			88,702				1,259				199				89,762
Corporate debt securities			1,000				-				5				995
Other securities			1,525				21				12				1,534
Total securities held-to-maturity			223,830				4,988				366				228,452
Total securities		$	314,321			$	6,072			$	458			$	319,935

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 issued by these entities.  At December 31, 2017, all mortgage-backed securities including collateralized mortgage obligations were securities of government sponsored enterprises, 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 December 31, 2017.

 

		Less Than 12 Months												More Than 12 Months												Total
(In thousands, except number of securities)		Fair Value				Unrealized Losses				Number of Securities				Fair Value				Unrealized Losses				Number of Securities				Fair Value				Unrealized Losses				Number of Securities
Securities available-for-sale:
U.S. government sponsored enterprises		$	985			$	12				1			$	-			$	-				-			$	985			$	12				1
State and political subdivisions			2,122				4				3				-				-				-				2,122				4				3
Mortgage-backed securities-residential			1,051				43				1				-				-				-				1,051				43				1
Mortgage-backed securities-multi-family			8,129				131				5				-				-				-				8,129				131				5
Corporate debt securities			-				-				-				757				3				2				757				3				2
Total securities available-for-sale			12,287				190				10				757				3				2				13,044				193				12
Securities held-to-maturity:
U.S. government sponsored enterprises			5,181				64				1				1,969				31				1				7,150				95				2
State and political subdivisions			18,840				142				116				3,892				63				35				22,732				205				151
Mortgage-backed securities-multi-family			44,450				388				26				1,424				11				2				45,874				399				28
Other securities			591				3				1				-				-				-				591				3				1
Total securities held-to-maturity			69,062				597				144				7,285				105				38				76,347				702				182
Total securities		$	81,349			$	787				154			$	8,042			$	108				40			$	89,391			$	895				194

 

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, 2017.

		Less Than 12 Months												More Than 12 Months												Total
(In thousands, except number of securities)		Fair Value				Unrealized Losses				Number of Securities				Fair Value				Unrealized Losses				Number of Securities				Fair Value				Unrealized Losses				Number of Securities
Securities available-for-sale:
Mortgage-backed securities-residential		$	1,164			$	27				1			$	-			$	-				-			$	1,164			$	27				1
Mortgage-backed securities-multi-family			6,488				62				4				-				-				-				6,488				62				4
Corporate debt securities			760				3				2				-				-				-				760				3				2
Total securities available for sale			8,412				92				7				-				-				-				8,412				92				7
Securities held to maturity:
U.S. government sponsored enterprises			5,947				53				2				-				-				-				5,947				53				2
State and political subdivisions			8,976				76				64				514				19				6				9,490				95				70
Mortgage-backed securities-residential			1,864				2				1				-				-				-				1,864				2				1
Mortgage-backed securities-multi-family			23,823				199				15				-				-				-				23,823				199				15
Corporate debt securities			995				5				1				-				-				-				995				5				1
Other securities			467				11				1				74				1				1				541				12				2
Total securities held to maturity			42,072				346				84				588				20				7				42,660				366				91
Total securities		$	50,484			$	438				91			$	588			$	20				7			$	51,072			$	458				98

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 before recovery of its amortized cost basis, (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 earnings while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income/loss (“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 earnings.  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, 2017.  Management believes that the reasons for the decline in fair value are due to interest rates, widening credit spreads and market illiquidity at the reporting date.  Also, a decline in the fair value of tax-exempt securities is due to a decrease in the maximum Federal income tax rate from 35% to 21% effective January 1, 2018, resulting in a lower yield to be realized on these securities on a fully-taxable equivalent basis.

There were no transfers of securities available-for-sale to held-to-maturity during the three and six months ended December 31, 2017 or 2016. During the three and six months ended December 31, 2017 and 2016, there were no sales of securities and no gains or losses were recognized.  There was no other-than-temporary impairment loss recognized during the three and six months ended December 31, 2017 and 2016.

 

The estimated fair values of debt securities at December 31, 2017, 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		$	72,628			$	72,719
After one year through five years			4,814				4,896
After five years through ten years			997				985
After ten years			-				-
Total available-for-sale debt securities			78,439				78,600
Mortgage-backed and asset-backed securities			23,997				24,167
Equity securities			62				202
Total available-for-sale securities			102,498				102,969
Held-to-maturity debt securities
Within one year			18,927				19,112
After one year through five years			62,551				63,626
After five years through ten years			41,479				42,685
After ten years			14,521				15,753
Total held-to-maturity debt securities			137,478				141,176
Mortgage-backed			101,662				102,111
Total held-to-maturity securities			239,140				243,287
Total securities		$	341,638			$	346,256

At December 31, 2017 and June 30, 2017, respectively, securities with an aggregate fair value of $334.2 million and $305.7 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  At December 31, 2017 and June 30, 2017, securities with an aggregate fair value of $1.3 million and $2.8 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 three and six months ended December 31, 2017 or 2016.

 

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula.  This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par.  As a result of these restrictions, FHLB stock is carried at cost.  FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value.  Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following: its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position.  After evaluating these considerations, Greene County Bancorp, Inc. concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no other-than-temporary impairment charge was recorded during the three and six months ended December 31, 2017 or 2016.

 

(5)	Loans and Allowance for Loan Losses

Loan segments and classes at December 31, 2017 and June 30, 2017 are summarized as follows:

(In thousands)		December 31, 2017				June 30, 2017
Residential real estate:
Residential real estate		$	252,015			$	245,331
Residential construction and land			7,391				7,160
Multi-family			13,707				9,199
Commercial real estate:
Commercial real estate			272,253				257,964
Commercial construction			24,901				28,430
Consumer loan:
Home equity			21,090				21,076
Consumer installment			4,925				4,790
Commercial loans			78,153				60,381
Total gross loans			674,435				634,331
Allowance for loan losses			(11,352	)			(11,022	)
Deferred fees and costs			790				878
Loans receivable, net		$	663,873			$	624,187

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 Company 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: residential real estate loans, commercial real estate loans, consumer loans and commercial loans.  The residential real estate portfolio consists of residential, construction, and multi-family loan classes. Commercial real estate loans consist of commercial real estate and commercial construction loan classes. Consumer loans consist of home equity loan and consumer installment 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 89.9% 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 89.9% 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 commercial real estate, and multi-family dwellings, such as apartment buildings generally are larger than residential loans and involve a greater degree of risk. Commercial real estate 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 commercial real estate 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 commercial real estate 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 at December 31, 2017 are shown below.

 

(In thousands)		Performing				Watch				Special Mention				Substandard				Total
Residential real estate		$	248,721			$	930			$	90			$	2,274			$	252,015
Residential construction and land			7,391				-				-				-				7,391
Multi-family			12,866				-				756				85				13,707
Commercial real estate			260,337				-				10,217				1,699				272,253
Commercial construction			24,725				-				-				176				24,901
Home equity			20,433				-				-				657				21,090
Consumer installment			4,915				-				-				10				4,925
Commercial loans			77,042				16				242				853				78,153
Total gross loans		$	656,430			$	946			$	11,305			$	5,754			$	674,435

 

Loan balances by internal credit quality indicator at June 30, 2017 are shown below.

(In thousands)		Performing				Watch				Special Mention				Substandard				Total
Residential real estate		$	242,592			$	813			$	91			$	1,835			$	245,331
Residential construction and land			7,160				-				-				-				7,160
Multi-family			9,110				-				-				89				9,199
Commercial real estate			255,090				419				404				2,051				257,964
Commercial construction			28,254				-				-				176				28,430
Home equity			20,858				-				-				218				21,076
Consumer installment			4,770				10				-				10				4,790
Commercial loans			59,030				-				60				1,291				60,381
Total gross loans		$	626,864			$	1,242			$	555			$	5,670			$	634,331

The Company had no loans classified doubtful or loss at December 31, 2017 or June 30, 2017.  The $10.8 million increase in loans designated as special mention at December 31, 2017 compared to June 30, 2017 represented loans which, based on updated annual review, indicated weaknesses in borrowers’ cash flow, warranting management’s closer monitoring.  At December 31, 2017, all of these loans were performing and management believes that the identified weaknesses do not expose the Company to sufficient risk to warrant a classification of substandard.

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  A nonaccrual loan 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, 2017 and June 30, 2017.  Loans on nonaccrual status totaled $3.7 million at December 31, 2017 of which $1.9 million were in the process of foreclosure. At December 31, 2017, there were thirteen residential loans in the process of foreclosure totaling $1.3 million.  Included in nonaccrual loans were $1.7 million of loans which were less than 90 days past due at December 31, 2017, 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 $66,000 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 $3.6 million at June 30, 2017 of which $1.6 million were in the process of foreclosure. At June 30, 2017, there were twelve residential loans in the process of foreclosure totaling $967,000. Included in nonaccrual loans were $1.9 million of loans which were less than 90 days past due at June 30, 2017, but have a recent history of delinquency greater than 90 days past due.

The following table sets forth information regarding delinquent and/or nonaccrual loans at December 31, 2017:

 

(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 real estate		$	2,592			$	794			$	1,187			$	4,573			$	247,442			$	252,015			$	1,752
Residential construction and land			-				-				-				-				7,391				7,391				-
Multi-family			-				-				-				-				13,707				13,707				-
Commercial real estate			1,216				806				391				2,413				269,840				272,253				1,108
Commercial construction			-				-				176				176				24,725				24,901				176
Home equity			94				119				214				427				20,663				21,090				333
Consumer installment			104				-				10				114				4,811				4,925				10
Commercial loans			380				118				-				498				77,655				78,153				284
Total gross loans		$	4,386			$	1,837			$	1,978			$	8,201			$	666,234			$	674,435			$	3,663

 

The following table sets forth information regarding delinquent and/or nonaccrual loans at June 30, 2017:

(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 real estate		$	2,088			$	515			$	935			$	3,538			$	241,793			$	245,331			$	1,240
Residential construction and land			-				-				-				-				7,160				7,160				-
Multi-family			-				-				-				-				9,199				9,199				-
Commercial real estate			74				1,070				540				1,684				256,280				257,964				1,452
Commercial construction			-				176				-				176				28,254				28,430				176
Home equity			220				186				33				439				20,637				21,076				218
Consumer installment			22				10				10				42				4,748				4,790				10
Commercial loans			18				186				202				406				59,975				60,381				476
Total gross loans		$	2,422			$	2,143			$	1,720			$	6,285			$	628,046			$	634,331			$	3,572

The Bank of Greene County had accruing loans delinquent more than 90 days totaling $0 and $69,000 at December 31, 2017 and June 30, 2017, respectively.  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 and six months ended December 31:

		For the three months ended December 31,								For the six months ended December 31
(In thousands)		2017				2016				2017				2016
Interest income that would have been recorded if loans had been performing in accordance with original terms		$	59			$	56			$	137			$	136
Interest income that was recorded on nonaccrual loans			31				26				65				54

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 reviewed 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.  Based on this evaluation, a delinquent loan’s risk rating may be downgraded to either pass-watch, 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 December 31, 2017												For the three months ended December 31, 2017								For the six months ended December 31, 2017
(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:
Commercial real estate		$	801			$	801			$	-			$	803			$	7			$	805			$	15
Home equity			181				181				-				181				-				182				-
Commercial loans			359				359				-				361				-				303				-
Impaired loans with no allowance			1,341				1,341				-				1,345				7				1,290				15
With an allowance recorded:
Residential real estate			1,819				1,819				348				1,668				15				1,602				26
Commercial real estate			413				413				101				418				-				424				-
Commercial construction			176				176				22				176				-				176				-
Home equity			324				324				62				324				5				324				8
Impaired loans with allowance			2,732				2,732				533				2,586				20				2,526				34
Total impaired:
Residential real estate			1,819				1,819				348				1,668				15				1,602				26
Commercial real estate			1,214				1,214				101				1,221				7				1,229				15
Commercial construction			176				176				22				176				-				176				-
Home equity			505				505				62				505				5				506				8
Commercial loans			359				359				-				361				-				303				-
Total impaired loans		$	4,073			$	4,073			$	533			$	3,931			$	27			$	3,816			$	49