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EX-32.2 - EXHIBIT 32.2 - GREENE COUNTY BANCORP INCex32_2.htm
EX-32.1 - EXHIBIT 32.1 - GREENE COUNTY BANCORP INCex32_1.htm
EX-31.2 - EXHIBIT 31.2 - GREENE COUNTY BANCORP INCex31_2.htm
EX-31.1 - EXHIBIT 31.1 - GREENE COUNTY BANCORP INCex31_1.htm

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

 
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.
 


 
GREENE COUNTY BANCORP, INC.
 
     
 
INDEX
 
     
PART I.
FINANCIAL INFORMATION
 
   
Page
Item 1.
Financial Statements (unaudited)
 
 
3
 
4
 
5
 
6
 
7
 
8-29
     
Item 2.
30-44
     
Item 3.
44
     
Item 4.
44
     
PART II.
OTHER INFORMATION
 
     
Item 1.
45
     
Item 1A.
45
     
Item 2.
45
     
Item 3.
45
     
Item 4.
45
     
Item 5.
45
     
Item 6.
45
     
 
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)
 
 
2

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
 
3

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
 
4

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.
 
5

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.
 
6

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
 
7

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.
 
8

(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
 
 
9

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
 
 
10

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 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.
 
11

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.
 
12

(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.
 
13

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
 
 
14

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.

Nonaccrual Loans

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
 
 
15

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
 

Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.”  Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.  It should be noted that management does not evaluate all loans individually for impairment.  Generally, The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors.  In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are 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.
 
16

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
 

   
As of June 30, 2017
   
For the three months ended
December 31, 2016
   
For the six months ended
December 31, 2016
 
(In thousands)
 
Recorded
Investment
   
Unpaid
Principal
   
Related
Allowance
   
Average
Recorded
Investment
   
Interest Income
Recognized
   
Average
Recorded
Investment
   
Interest
Income
Recognized
 
With no related allowance recorded:
                               
Residential real estate
 
$
-
   
$
-
   
$
-
   
$
266
   
$
-
   
$
266
   
$
-
 
Commercial real estate
   
809
     
809
     
-
     
821
     
4
     
921
     
14
 
Home equity
   
186
     
186
     
-
     
2
     
-
     
4
     
-
 
Commercial loans
   
186
     
186
     
-
     
65
     
1
     
33
     
1
 
Impaired loans with no allowance
   
1,181
     
1,181
     
-
     
1,154
     
5
     
1,224
     
15
 
                                                         
With an allowance recorded:
                                                       
Residential real estate
   
1,455
     
1,455
     
278
     
1,238
     
12