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

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2010

OR

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


GREENE COUNTY BANCORP, INC.

(Exact name of issuer as specified in its charter)

Commission file number  0-25165


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

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


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

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

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

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

Large accelerated filer   _____                                                                           Accelerated filer _____
Non-accelerated filer     _____                                                                           Smaller reporting company      X   

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes:               No:     X      

As of February 11, 2011, the registrant had 4,145,828 shares of common stock outstanding at $ .10 par value.

 
 

 


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

 
 









Consolidated Statements of Financial Condition
As of December 31, 2010 and June 30, 2010
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
December 31,  2010  
   
June 30, 2010
 
Cash and due from banks
  $ 22,663     $ 9,253  
Federal funds sold
    8,373       390  
    Total cash and cash equivalents
    31,036       9,643  
                 
Long term certificate of deposit
    ---       1,000  
Securities available for sale, at fair value
    98,315       89,805  
Securities held to maturity, at amortized cost
    83,830       77,520  
Federal Home Loan Bank stock, at cost
    1,457       1,866  
                 
Loans
    300,361       299,200  
  Allowance for loan losses
    (4,649 )     (4,024 )
  Unearned origination fees and costs, net
    453       406  
    Net loans receivable
    296,165       295,582  
                 
Premises and equipment
    15,347       14,804  
Accrued interest receivable
    2,633       2,731  
Foreclosed real estate
    200       ---  
Prepaid expenses and other assets
    2,373       2,372  
               Total assets
  $ 531,356     $ 495,323  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest bearing deposits
  $ 46,198     $ 44,239  
Interest bearing deposits
    419,656       377,493  
    Total deposits
    465,854       421,732  
                 
Borrowings from FHLB, short-term
    ---       9,100  
Borrowings from FHLB, long-term
    17,000       17,000  
Accrued expenses and other liabilities
    2,590       2,988  
                Total liabilities
    485,444       450,820  
                 
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 -   4,135,495 shares at December 31, 2010
               
                            4,118,912 shares at June 30, 2010;
    431       431  
Additional paid-in capital
    10,849       10,666  
Retained earnings
    35,366       33,692  
Accumulated other comprehensive income
    550       1,123  
Treasury stock, at cost 170,175 shares at December 31, 2010
               
                                     186,758 shares at June 30, 2010
    (1,284 )     (1,409 )
               Total shareholders’ equity
    45,912       44,503  
               Total liabilities and shareholders’ equity
  $ 531,356     $ 495,323  
See notes to consolidated financial statements.

 
 

 

Consolidated Statements of Income
For the Six Months Ended December 31, 2010 and 2009
(Unaudited)
 (In thousands, except share and per share amounts)
Interest income:
 
2010
   
2009
 
    Loans
  $ 9,046     $ 8,456  
    Investment securities - taxable
    577       592  
    Mortgage-backed securities
    1,823       1,812  
    Investment securities - tax exempt
    576       516  
    Interest bearing deposits and federal funds sold
    20       10  
Total interest income
    12,042       11,386  
                 
Interest expense:
               
    Interest on deposits
    2,045       2,466  
    Interest on borrowings
    305       333  
Total interest expense
    2,350       2,799  
                 
Net interest income
    9,692       8,587  
Provision for loan losses
    836       677  
Net interest income after provision for loan losses
    8,856       7,910  
                 
Non-interest income:
               
    Service charges on deposit accounts
    1,173       1,506  
    Debit card fees
    619       527  
    Investment services
    148       134  
    E-commerce fees
    55       53  
    Net gain (loss) on sale of available-for-sale securities
    212       (5 )
    Other operating income
    254       223  
Total non-interest income
    2,461       2,438  
                 
Non-interest expense:
               
    Salaries and employee benefits
    3,971       3,561  
    Occupancy expense
    611       612  
    Equipment and furniture expense
    280       298  
    Service and data processing fees
    698       656  
    Computer software, supplies and support
    135       179  
    Advertising and promotion
    190       115  
    FDIC insurance premiums
    281       271  
    Legal and professional fees
    181       185  
    Other
    898       808  
Total non-interest expense
    7,245       6,685  
                 
Income before provision for income taxes
    4,072       3,663  
Provision for income taxes
    1,396       1,263  
Net income
  $ 2,676     $ 2,400  
                 
Basic EPS
  $ 0.65     $ 0.58  
Basic average shares outstanding
    4,125,619       4,106,704  
Diluted EPS
  $ 0.64     $ 0.58  
Diluted average shares outstanding
    4,157,903       4,133,758  
Dividends per share
  $ 0.55     $ 0.34  
See notes to consolidated financial statements.

 Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended December 31, 2010 and 2009
(Unaudited)
(In thousands, except share and per share amounts)
Interest income:
 
2010
   
2009
 
    Loans
  $ 4,509     $ 4,289  
    Investment securities - taxable
    306       276  
    Mortgage-backed securities
    941       892  
    Investment securities - tax exempt
    292       267  
    Interest bearing deposits and federal funds sold
    18       6  
Total interest income
    6,066       5,730  
                 
Interest expense:
               
    Interest on deposits
    1,015       1,216  
    Interest on borrowings
    156       166  
Total interest expense
    1,171       1,382  
                 
Net interest income
    4,895       4,348  
Provision for loan losses
    483       429  
Net interest income after provision for loan losses
    4,412       3,919  
                 
Non-interest income:
               
    Service charges on deposit accounts
    606       758  
    Debit card fees
    322       279  
    Investment services
    70       75  
    E-commerce fees
    25       23  
    Net gain (loss) on sale of available-for-sale securities
    212       (5 )
    Other operating income
    126       107  
Total non-interest income
    1,361       1,237  
                 
Non-interest expense:
               
    Salaries and employee benefits
    2,054       1,755  
    Occupancy expense
    308       310  
    Equipment and furniture expense
    136       145  
    Service and data processing fees
    355       313  
    Computer software, supplies and support
    64       97  
    Advertising and promotion
    89       37  
    FDIC insurance premiums
    138       136  
    Legal and professional fees
    91       110  
    Other
    482       400  
Total non-interest expense
    3,717       3,303  
                 
Income before provision for income taxes
    2,056       1,853  
Provision for income taxes
    704       637  
Net income
  $ 1,352     $ 1,216  
                 
Basic EPS
  $ 0.33     $ 0.29  
Basic average shares outstanding
    4,129,939       4,108,097  
Diluted EPS
  $ 0.32     $ 0.29  
Diluted average shares outstanding
    4,163,333       4,134,732  
Dividends per share
  $ 0.375     $ 0.17  
See notes to consolidated financial statements.


Consolidated Statements of Comprehensive Income
For the Six Months Ended December 31, 2010 and 2009
(Unaudited)
(In thousands)
   
2010
   
2009
 
Net income
  $ 2,676     $ 2,400  
                 
Other comprehensive (loss) income:
               
Securities:
               
Unrealized holding (losses) gains on available for sale securities, arising
               
  during the six months ended December 31, 2010 and 2009,
               
  net of income taxes of ($297) and $248, respectively.
    (470 )     393  
                 
Accretion of unrealized loss on securities transferred to held-to-maturity,
               
  net of income taxes of $15 and $18, respectively
    23       29  
                 
Reclassification adjustment for (gain) loss on sale of available-for-sale
               
  securities realized in net income, net of income taxes
               
  of ($82), and $2, respectively
    (130 )     3  
                 
Pension actuarial gain, net of tax
    4       ---  
                 
Other comprehensive (loss) income
    (573 )     425  
                 
Comprehensive income
  $ 2,103     $ 2,825  

Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended December 31, 2010 and 2009
(Unaudited)
(In thousands)
   
2010
   
2009
 
Net income
  $ 1,352     $ 1,216  
                 
Other comprehensive loss:
               
Securities:
               
Unrealized holding losses on available for sale securities, arising
               
  during the three months ended December 31, 2010 and 2009,
               
  net of income taxes of ($485) and ($18), respectively.
    (769 )     (29 )
                 
Accretion of unrealized loss on securities transferred to held-to-maturity,
               
  net of income taxes of $7 and $9, respectively
    11       15  
                 
Reclassification adjustment for (gain) loss on sale of available-for-sale
               
  securities realized in net income, net of income taxes
               
  of ($82), and $2, respectively
    (130 )     3  
                 
Pension actuarial gain, net of tax
    2       ---  
Other comprehensive loss
    (886 )     (11 )
                 
Comprehensive income
  $ 466     $ 1,205  
See notes to consolidated financial statements.

 
 

 


Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended December 31, 2010 and 2009
(Unaudited)
(In thousands)


       
Accumulated
   
   
Additional
 
Other
 
Total
 
Common
Paid – In
Retained
Comprehensive
Treasury
Shareholders’
 
Stock
Capital
Earnings
Income
Stock
Equity
             
Balance at
            
June 30, 2009
     $431
    $10,508
      $30,045
      $792
($1,512)
$40,264
             
Options exercised
 
             (41)
   
      76
         35
             
Stock options compensation
 
           112
     
        112
             
Dividends declared
   
           (613)
   
        (613)
             
Net income
   
         2,400
   
     2,400
             
Total other comprehensive income, net of taxes
     
        425
 
       425
Balance at
            
December 31, 2009
     $431
     $10,579
      $31,832
    $1,217
($1,436)
$42,623
Balance at
June 30, 2010
     $431
    $10,666
      $33,692
   $1,123
($1,409)
$44,503
             
Stock options exercised
 
              71
   
     125
       196
             
Stock options compensation
 
            112
     
       112
              
Dividends declared
   
        (1,002)
   
     (1,002)
             
Net income
   
        2,676
   
    2,676
             
Total other comprehensive (loss), net of taxes
     
     (573)
 
       (573)
Balance at
           
December 31, 2010
     $431
      $10,849
     $35,366
     $550
   ($1,284)
$45,912
             

See notes to consolidated financial statements.

 
 

 

Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2010 and 2009
(Unaudited)
(In thousands)
   
2010
   
2009
 
Cash flows from operating activities:
           
Net Income
  $ 2,676     $ 2,400  
Adjustments to reconcile net income to net cash provided by operating activities:
               
     Depreciation
    360       471  
     Net amortization of premiums and discounts
    506       402  
     Net amortization of deferred loan costs and fees
    110       93  
     Provision for loan losses
    836       677  
     Stock option compensation
    112       112  
     Net (gain) loss on sale of available-for-sale securities
    (212 )     5  
     Net loss on sale of foreclosed real estate
    ---       8  
     Net (decrease) increase in accrued income taxes
    (239 )     728  
     Net decrease (increase) in accrued interest receivable
    98       (160 )
     Net decrease (increase) decrease in prepaid and other assets
    238       (1,902 )
     Net decrease in other liabilities
    (30 )     (957 )
          Net cash provided by operating activities
    4,455       1,877  
                 
Cash flows from investing activities:
               
   Securities available-for-sale:
               
     Proceeds from maturities
    6,666       3,000  
     Proceeds from sale of securities
    6,875       1,820  
     Purchases of securities
    (29,583 )     (1,069 )
     Principal payments on securities
    6,544       4,531  
   Securities held-to-maturity:
               
     Proceeds from maturities
    9,630       5,822  
     Purchases of securities
    (18,725 )     (8,438 )
     Principal payments on securities
    2,538       1,589  
   Net redemption (purchase) of Federal Home Loan Bank Stock
    409       (396 )
   Maturity of long term certificate of deposit
    1,000       ---  
   Net increase in loans receivable
    (1,729 )     (16,255 )
   Proceeds from sale of foreclosed real estate
    ---       207  
   Purchases of premises and equipment
    (903 )     (302 )
          Net cash used in investing activities
    (17,278 )     (9,491 )
                 
Cash flows from financing activities:
               
     Net (decrease) increase in short-term borrowings
    (9,100 )     10,300  
     Payment of cash dividends
    (1,002 )     (613 )
     Proceeds from stock options exercised
    196       35  
     Net increase in deposits
    44,122       505  
          Net cash provided by financing activities
    34,216       10,227  
                 
Net increase in cash and cash equivalents
    21,393       2,613  
Cash and cash equivalents at beginning of period
    9,643       9,443  
Cash and cash equivalents at end of period
  $ 31,036     $ 12,056  
Non-cash investing activities:
               
Foreclosed loans transferred to foreclosed real estate
  $ 200     $ ---  
Cash paid during the period:
               
Interest
  $ 2,345     $ 2,795  
Income taxes
    1,636       569  
See notes to consolidated financial statements.

 
 

 

Notes to Consolidated Financial Statements
As of and for the Three and Six Months Ended December 31, 2010 and 2009


(1)  Basis of Presentation

The accompanying consolidated statement of financial condition as of June 30, 2010 was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, The Bank of Greene County (the “Bank”) and the Bank’s wholly owned subsidiary, Greene County Commercial Bank.  The consolidated financial statements at and for the three and six months ended December 31, 2010 and 2009 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 footnotes required by GAAP for complete financial statements.  To the extent that information and footnotes 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, 2010, such information and footnotes 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 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, 2010 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2011.   These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued.

CRITICAL ACCOUNTING POLICIES

Greene County Bancorp, Inc.’s critical accounting policies relates to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.  The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing portfolio.  The allowance for loan losses is established through a provision for losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans and current economic conditions.  Such evaluation, which includes a review of all loans for which full collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses.  However, this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters.  This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

Securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio.  Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.  The Company considers many factors, including the severity and duration of the impairment; the intent and ability of the Company to hold the equity security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, the likelihood to be required to sell the security before it recovers the entire amortized cost, external credit ratings and recent downgrades.  The Company is required to record other-than-temporary impairment charges through earnings, if it has the intent to sell, or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis.  In addition, the Company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell.  Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis.  Non-credit related 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 has twelve full-service offices and an operations center located in its market area consisting of Greene County, Columbia County and southern Albany County, New York.    The Bank of Greene County is primarily engaged in the business of attracting deposits from the general public in The Bank of Greene County’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities.  Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities.
 
(3)      Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the assessment of other-than-temporary security impairment.

While management uses available information to recognize losses on loans, future additions to the allowance for loan losses (the “Allowance”) may be necessary, based on changes in economic conditions, asset quality or other factors.  In addition, various regulatory authorities, as an integral part of their examination process, periodically review our Allowance.  Such authorities may require us to recognize additions to the Allowance based on their judgments of information available to them at the time of their examination.

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


 
 

 
 
 
(4)       Securities

Securities at December 31, 2010 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
(In thousands)
                       
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 28,476     $ 135     $ 638     $ 27,973  
  State and political subdivisions
    7,567       248       ---       7,815  
  Mortgage-backed securities-residential
    31,083       915       164       31,834  
  Mortgage-backed securities-multi-family
    22,173       1,150       ---       23,323  
  Asset-backed securities
    31       ---       1       30  
  Corporate debt securities
    6,893       345       ---       7,238  
Total debt securities
    96,223       2,793       803       98,213  
  Equity securities and other
    68       34       ---       102  
Total securities available-for-sale
    96,291       2,827       803       98,315  
Securities held-to-maturity:
                               
  U.S. government sponsored enterprises
    7,000       50       ---       7,050  
  State and political subdivisions
    34,633       64       62       34,635  
  Mortgage-backed securities-residential
    37,904       1,509       61       39,352  
  Mortgage-backed securities-multi-family
    3,889       33       4       3,918  
  Other securities
    404       ---       ---       404  
Total securities held-to-maturity
    83,830       1,656       127       85,359  
Total securities
  $ 180,121     $ 4,483     $ 930     $ 183,674  


Securities at June 30, 2010 consisted of the following:
   
 
   
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
(In thousands)
                       
Securities available-for-sale:
                       
  U.S. government sponsored enterprises
  $ 21,942     $ 234     $ ---     $ 22,176  
  State and political subdivisions
    8,392       357       ---       8,749  
  Mortgage-backed securities-residential
    24,838       1,045       ---       25,883  
  Mortgage-backed securities-multi-family
    24,623       1,309       ---       25,932  
  Asset-backed securities
    33       ---       1       32  
  Corporate debt securities
    6,907       97       73       6,931  
Total debt securities
    86,735       3,042       74       89,703  
  Equity securities and other
    67       35       ---       102  
Total securities available-for-sale
    86,802       3,077       74       89,805  
Securities held-to-maturity:
                               
  U.S. government sponsored enterprises
    7,004       64       ---       7,068  
  State and political subdivisions
    29,821       25       ---       29,846  
  Mortgage-backed securities-residential
    36,277       1,362       ---       37,639  
  Mortgage-backed securities-multi-family
    4,058       11       ---       4,069  
  Other securities
    360       ---       ---       360  
Total securities held-to-maturity
    77,520       1,462       ---       78,982  
Total securities
  $ 164,322     $ 4,539     $ 74     $ 168,787  

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, 2010.

   
Less Than 12 Months
   
More Than 12 Months
   
         Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
(in thousands)
                                   
Securities available-for-sale:
                                   
  U.S. government sponsored enterprises
  $ 18,229     $ 638     $ ---     $ ---     $ 18,229     $ 638  
  Mortgage-backed securities-residential
    6,072       164       ---       ---       6,072       164  
  Asset-backed securities
    ---       ---       30       1       30       1  
Total available-for-sale securities
    24,301       802       30       1       24,331       803  
Securities held-to-maturity:
                                               
  State and political subdivisions
    3,824       62       ---       ---       3,824       62  
  Mortgage-backed securities-residential
    1,995       61       ---       ---       1,995       61  
  Mortgage-backed securities-multi-family
    998       4       ---       ---       998       4  
Total held-to-maturity securities
    6,817       127       ---       ---       6,817       127  
Total securities
  $ 31,118     $ 929     $ 30     $ 1     $ 31,148     $ 930  

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, 2010.

   
Less Than 12 Months
   
More Than 12 Months
   
Total
 
   
Fair
   
Unrealized
   
Fair
   
Unrealized
   
Fair
   
Unrealized
 
   
Value
   
Losses
   
Value
   
Losses
   
Value
   
Losses
 
(in thousands)
                                   
Securities available-for-sale:
                                   
  Asset-backed securities
  $ ---     $ ---     $ 32     $ 1     $ 32     $ 1  
  Corporate debt securities
    ---       ---       2,492       73       2,492       73  
Total securities
  $ ---     $ ---     $ 2,524     $ 74     $ 2,524     $ 74  

At December 31, 2010, there was one security which has been in a continuous unrealized loss position for more than 12 months and 32 securities that had been in a continuous unrealized loss position for less than 12 months.    When the fair value of a held to maturity or available for sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present.  The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover.  The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

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

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”).  Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis.  Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized.  For securities classified as held to maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods.  For equity securities, the entire amount of OTTI is recognized in income.  Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2010.  Management believes that the reasons for the decline in fair value were due to interest rates and widening credit spreads at the end of the quarter

Gross realized gains and losses on sales of securities or other-than-temporary impairment of securities recognized in income during the six months ended December 31, 2010 and 2009 are as follows:

   
Six months ended December 31,
 
(in thousands)
 
2010
   
2009
 
Gross realized gains
  $ 212     $ 32  
Gross realized losses
    ---       (37 )
Other-than-temporary impairment losses
    ---       ---  
Net gains (losses) recognized
  $ 212     $ (5 )

During the quarter ended December 31, 2010, the Company sold $6.6 million of securities issued by U.S. Government sponsored enterprises which resulted in the recognition of a net gain of $212,000.  During the quarter ended December 31, 2009, the Company sold $1.8 million of corporate debt securities which resulted in the recognition of a net loss of $5,000.  There were no other-than-temporary impairment losses recognized during the three and six months ended December 31, 2010 and 2009.

The estimated fair value of debt securities at December 31, 2010, by contractual maturity are shown below.  Expected maturities may differ from contractual maturities, because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

         
After    
   
After    
             
   
In      
   
One Year
   
Five Years
             
   
One Year
   
Through 
   
Through  
   
After     
       
(Dollars in thousands)
 
 Or Less  
   
Five Years
   
Ten Years
   
Ten Years
   
Total
 
Securities available-for-sale:
                             
  U.S. Government sponsored enterprises
  $ 1,015     $ 19,715     $ 4,441     $ 2,802     $ 27,973  
  State and political subdivisions
    1,192       6,274       349       ---       7,815  
  Mortgage-backed securities-residential
    844       2,028       6,836       22,126       31,834  
  Mortgage-backed securities-multi-family
    ---       20,401       2,922       ---       23,323  
  Asset-backed securities
    ---       ---       ---       30       30  
  Corporate debt securities
    ---       2,935       4,022       281       7,238  
Total debt securities
    3,051       51,353       18,570       25,239       98,213  
  Equity securities
    ---       ---       ---       102       102  
Total securities available-for-sale
    3,051       51,353       18,570       25,341       98,315  
Securities held-to-maturity:
                                       
  U.S. government sponsored enterprises
    ---       5,034       2,016       ---       7,050  
  State and political subdivisions
    10,585       14,259       5,779       4,012       34,635  
  Mortgage-backed securities-residential
    ---       2,631       16,775       19,946       39,352  
  Mortgage-backed securities-multi-family
    ---       1,515       2,403       ---       3,918  
  Other securities
    20       4       ---       380       404  
Total securities held-to-maturity
    10,605       23,443       26,973       24,338       85,359  
Total securities
  $ 13,656     $ 74,796     $ 45,543     $ 49,679     $ 183,674  

As of December 31, 2010, securities with an aggregate fair value of $133.8 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  Greene County Bancorp, Inc. did not participate in any securities lending programs during the quarters or six months ended December 31, 2010 or 2009.

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 quarter and six months ended December 31, 2010.
 
(5)      Credit Quality of Loans and Allowance for Loan Losses

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

When The Bank of Greene County classifies problem assets as either Substandard or Doubtful, it generally establishes a valuation allowance or "loss reserve" in an amount deemed prudent by management.  General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.  When The Bank of Greene County identifies problem assets as being impaired, it is required either to establish a specific allowance for losses equal to the amount of impairment of the assets, or to charge-off such amount.  The Bank of Greene County's determination as to the classification of its assets and the amount of its valuation allowance is subject to review by its regulatory agencies, which can order the establishment of additional general or specific loss allowances.  The Bank of Greene County reviews its portfolio monthly to determine whether any assets require classification in accordance with applicable regulations.

The inherent risk within the loan portfolio varies depending upon the loan type.   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 85.0% of the appraised value of the property.  However, The Bank of Greene County will originate residential mortgage loans with loan-to-value ratios of up to 95.0%, with private mortgage insurance.  In the event of default by the borrower, The Bank of Greene County will acquire and liquidate the underlying collateral.    By originating the loan at a loan-to-value ratio of 85% or less, The Bank of Greene County limits its risk of loss in the even of default.  However, the market values of the collateral may be adversely impacted by declines in the economy.  Home equity loans may have an additional inherent risk if The Bank of Greene County does not hold the first mortgage.  The Bank of Greene County may stand in a secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.

Construction lending generally involves a greater degree of risk than other residential mortgage lending.  The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property.  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 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 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 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 lending. Real estate lending is generally considered to be collateral based, with loan amounts based on fixed-rate loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.






Loan balances by internal credit quality indicator as of December 31, 2010 are shown below.

(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 173,556     $ 2,317     $ 96     $ 3,481     $ 179,450  
Commercial Real Estate
    54,948       498       1,053       1,638       58,137  
Residential Construction & Land
    4,503       ---       ---       13       4,516  
Commercial Construction
    2,625       ---       ---       ---       2,625  
Multi-family
    5,343       ---       ---       585       5,928  
Home Equity
    26,389       309       ---       202       26,900  
Commercial Business
    16,707       853       819       98       18,477  
Consumer Installment
    4,246       29       ---       53       4,328  
Total Gross Loans
  $ 288,317     $ 4,006     $ 1,968     $ 6,070     $ 300,361  

Loan balances by internal credit quality indicator as of  June 30, 2010 are shown below.

(in thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential mortgage
  $ 178,851     $ 1,591     $ 97     $ 1,986     $ 182,525  
Commercial Real Estate
    50,343       740       2,408       1,095       54,586  
Residential Construction & Land
    6,688       ---       ---       13       6,701  
Commercial Construction
    2,656       ---       ---       ---       2,656  
Multi-family
    5,441       ---       ---       594       6,035  
Home Equity
    26,300       105       ---       197       26,602  
Commercial Business
    14,253       717       837       3       15,810  
Consumer Installment
    4,249       18       ---       18       4,285  
Total Gross Loans
  $ 288,781     $ 3,171     $ 3,342     $ 3,906     $ 299,200  

The Company had no loans classified Doubtful or Loss at December 31, 2010 or June 30, 2010.

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  Nonaccrual is defined as a loan in which collectibility 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, 2010.  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.   Real estate loans on nonaccrual status totaled $5.8 million at December 31, 2010 of which $3.7 million were in the process of foreclosure.  Of the remaining $2.1 million, $1.0 million were making payments pursuant to a forbearance agreement, but remain in a delinquent status.









The following table sets forth information regarding delinquent and/or nonaccrual loans as of December 31, 2010:
(in thousands)
30-59 days
past  due
60-89 days
past due
More than 90 days past due
Total past due
Current
Total Loans
Loans on Non-accrual
Residential mortgage
$4,348
$2,428
$2,522
$9,298
$170,152
$179,450
$3,494
Commercial Real Estate
1,745
1,472
1,141
4,358
53,779
58,137
1,516
Residential Construction & Land
---
13
---
13
4,503
4,516
13
Commercial Construction
---
---
---
---
2,625
2,625
---
Multi-family
---
301
284
585
5,343
5,928
585
Home Equity
28
213
196
437
26,463
26,900
202
Commercial Business
216
647
19
882
17,595
18,477
98
Consumer Installment
66
63
21
150
4,178
4,328
53
Total Gross Loans
$6,403
$5,137
$4,183
$15,723
$284,638
$300,361
$5,961

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2010:
(in thousands)
30-59 days
past due
60-89 days
past due
More than 90
days past due
Total past due
Current
Total Loans
Loans on Non-accrual
Residential mortgage
$1,058
$1,093
$2,001
$4,152
$178,373
$182,525
$2,001
Commercial Real Estate
701
377
1,095
2,173
52,413
54,586
1,095
Residential Construction & Land
---
---
13
13
6,688
6,701
13
Commercial Construction
---
---
---
---
2,656
2,656
---
Multi-family
---
---
594
594
5,441
6,035
594
Home Equity
17
9
197
223
26,379
26,602
197
Commercial Business
28
271
3
302
15,508
15,810
3
Consumer Installment
147
18
18
183
4,102
4,285
18
Total Gross Loans
$1,951
$1,768
$3,921
$7,640
$291,560
$299,200
$3,921

The Bank of Greene County had no accruing loans delinquent more than 90 days as of December 31, 2010 or June 30, 2010.

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  A loan is considered impaired 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.   Loans are reviewed on a regular basis to assess collectability of all principal and interest payments due.  Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected due to an irreversible deterioration in the financial condition of the borrower or the value of the underlying collateral.  When a loan is determined to be impaired, the measurement of the loan is based on present value of estimated future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.







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

   
As of December 30, 2010
   
For the six months ended December 31, 2010
 
(in thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 576     $ 639     $ ---     $ 576     $ 4  
With an allowance recorded:
                                       
  Commercial real estate
    375       375       94       281       ---  

   
As of June 30, 2010
   
For the six months ended December 31, 2009
 
(in thousands)
 
Recorded Investment
   
Unpaid Principal
   
Related Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
With no related allowance recorded:
                             
   Residential mortgage
  $ 212     $ 212     $ ---     $ 276     $ ---  
With an allowance recorded:
                                       
   Residential mortgage
    ---       ---       ---       88       3  

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 all loans on 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 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, construction, multi-family and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements.  The measurement of impaired loans is generally based on the fair value of the underlying collateral.

 

The following tables set forth the allocation of the allowance for loan losses by loan category at the dates indicated.  The allowance is allocated to each loan category based on historical loss experience and economic conditions.
   
Allowance for Loan Loss
   
Loans Receivable
 
   
December 31, 2010       
   
Ending Balance Impairment Analysis
   
Ending Balance Impairment Analysis
 
   
Balance
   
Individually Evaluated
   
Collectively Evaluated
   
Individually Evaluated
   
Collectively Evaluated
 
Residential mortgage
  $ 1,758     $ ---     $ 1,758     $ ---     $ 179,450  
Commercial Real Estate
    1,660       94       1,566       375       57,762  
Residential Construction & Land
    33       ---       33       ---       4,516  
Commercial Construction
    49       ---       49       ---       2,625  
Multi-family
    235       ---       235       ---       5,928  
Home Equity
    216       ---       216       ---       26,900  
Consumer Installment
    157       ---       157       ---       4,328  
Commercial Business
    541       ---       541       ---       18,477  
Total
  $ 4,649     $ 94     $ 4,555     $ 375     $ 299,986  

   
Allowance for Loan Loss
   
Loans Receivable
 
   
June 30, 2010
   
Ending Balance Impairment Analysis
   
Ending Balance Impairment Analysis
 
   
Balance
   
Individually Evaluated
   
Collectively Evaluated
   
Individually Evaluated
   
Collectively Evaluated
 
Residential mortgage
  $ 1,427     $ ---     $ 1,427     $ ---     $ 182,525  
Commercial Real Estate
    1,517       ---       1,517       ---       54,586  
Residential Construction & Land
    97       ---       97       ---       6,701  
Commercial Construction
    ---       ---       ---       ---       2,656  
Multi-family
    223       ---       223       ---       6,035  
Home Equity
    205       ---       205       ---       26,602  
Consumer Installment
    120       ---       120       ---       4,285  
Commercial Business
    435       ---       435       ---       15,810