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EX-31.2 - EXHIBIT 31.2 - GREENE COUNTY BANCORP INCex31_2.htm
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EX-32.1 - EXHIBIT 32.1 - GREENE COUNTY BANCORP INCex32_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 SEPTEMBER 30, 2018

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 every Interactive Data File required to be submitted 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 November 8, 2018, the registrant had 8,537,814 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
 
8-30
     
Item 2.
30-42
     
Item 3.
43
     
Item 4.
43
     
PART II.
OTHER INFORMATION
 
     
Item 1.
44
     
Item 1A.
44
     
Item 2.
44
     
Item 3.
44
     
Item 4.
44
     
Item 5.
44
     
Item 6.
44
     
  45

2

Greene County Bancorp, Inc.
Consolidated Statements of Financial Condition
At September 30, 2018 and June 30, 2018
(Unaudited)
(In thousands, except share and per share amounts)

ASSETS
 
September 30, 2018
   
June 30, 2018
 
Total cash and cash equivalents
 
$
35,132
   
$
26,504
 
                 
Long term certificate of deposit
   
2,385
     
2,385
 
Securities available-for-sale, at fair value
   
119,600
     
120,806
 
Securities held-to-maturity, at amortized cost (fair value $279,061 at September 30, 2018; $274,177 at June 30, 2018)
   
280,774
     
274,550
 
Equity securities, at fair value
   
232
     
217
 
Federal Home Loan Bank stock, at cost
   
4,147
     
1,545
 
                 
Loans
   
736,076
     
715,641
 
Allowance for loan losses
   
(12,308
)
   
(12,024
)
Unearned origination fees and costs, net
   
758
     
814
 
Net loans receivable
   
724,526
     
704,431
 
                 
Premises and equipment
   
13,267
     
13,304
 
Accrued interest receivable
   
5,437
     
5,057
 
Foreclosed real estate
   
79
     
119
 
Prepaid expenses and other assets
   
2,294
     
2,560
 
Total assets
 
$
1,187,873
   
$
1,151,478
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Noninterest-bearing deposits
 
$
109,358
   
$
102,694
 
Interest-bearing deposits
   
893,103
     
922,540
 
Total deposits
   
1,002,461
     
1,025,234
 
                 
Borrowings from Federal Home Loan Bank, short-term
   
58,800
     
-
 
Borrowings from Federal Home Loan Bank, long-term
   
17,150
     
18,150
 
Accrued expenses and other liabilities
   
9,821
     
11,903
 
Total liabilities
   
1,088,232
     
1,055,287
 
                 
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 - 8,537,814 shares at September 30, 2018, and June 30, 2018
   
861
     
861
 
Additional paid-in capital
   
11,017
     
11,017
 
Retained earnings
   
89,853
     
86,213
 
Accumulated other comprehensive loss
   
(1,813
)
   
(1,623
)
Treasury stock, at cost 73,526 shares at September 30, 2018, and June 30, 2018
   
(277
)
   
(277
)
Total shareholders’ equity
   
99,641
     
96,191
 
Total liabilities and shareholders’ equity
 
$
1,187,873
   
$
1,151,478
 

See notes to consolidated financial statements

3

Greene County Bancorp, Inc.
Consolidated Statements of Income
For the Three Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands, except share and per share amounts)

   
2018
   
2017
 
Interest income:
           
Loans
 
$
8,298
   
$
7,059
 
Investment securities - taxable
   
194
     
165
 
Mortgage-backed securities
   
1,114
     
817
 
Investment securities - tax exempt
   
1,360
     
1,036
 
Interest-bearing deposits and federal funds sold
   
31
     
12
 
Total interest income
   
10,997
     
9,089
 
                 
Interest expense:
               
Interest on deposits
   
1,036
     
809
 
Interest on borrowings
   
304
     
110
 
Total interest expense
   
1,340
     
919
 
                 
Net interest income
   
9,657
     
8,170
 
Provision for loan losses
   
354
     
347
 
Net interest income after provision for loan losses
   
9,303
     
7,823
 
                 
Noninterest income:
               
Service charges on deposit accounts
   
1,037
     
851
 
Debit card fees
   
640
     
566
 
Investment services
   
115
     
72
 
E-commerce fees
   
37
     
38
 
Other operating income
   
223
     
213
 
Total noninterest income
   
2,052
     
1,740
 
                 
Noninterest expense:
               
Salaries and employee benefits
   
3,478
     
2,882
 
Occupancy expense
   
402
     
356
 
Equipment and furniture expense
   
214
     
113
 
Service and data processing fees
   
495
     
487
 
Computer software, supplies and support
   
223
     
143
 
Advertising and promotion
   
120
     
55
 
FDIC insurance premiums
   
127
     
93
 
Legal and professional fees
   
329
     
231
 
Other
   
573
     
533
 
Total noninterest expense
   
5,961
     
4,893
 
                 
Income before provision for income taxes
   
5,394
     
4,670
 
Provision for income taxes
   
1,014
     
1,198
 
Net income
 
$
4,380
   
$
3,472
 
                 
Basic earnings per share
 
$
0.51
   
$
0.41
 
Basic average shares outstanding
   
8,537,814
     
8,502,734
 
Diluted earnings per share
 
$
0.51
   
$
0.41
 
Diluted average shares outstanding
   
8,537,814
     
8,531,242
 
Dividends per share
 
$
0.1000
   
$
0.0975
 

See notes to consolidated financial statements

4

Greene County Bancorp, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands)

   
2018
   
2017
 
Net Income
 
$
4,380
   
$
3,472
 
Other comprehensive income (loss) income:
               
Unrealized holding (losses) gains on available-for-sale securities, net of income tax (benefit) expense of ($27) and $145, respectively
   
(76
)
   
235
 
                 
Total other comprehensive (loss) income, net of taxes
   
(76
)
   
235
 
                 
Comprehensive income
 
$
4,304
   
$
3,707
 

See notes to consolidated financial statements.

5

Greene County Bancorp, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the Three Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands)

   
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
           
2
                     
4
     
6
 
Dividends declared
                   
(379
)
                   
(379
)
Net income
                   
3,472
                     
3,472
 
Other comprehensive income, net of taxes
                           
235
             
235
 
Balance at September 30, 2017
 
$
861
   
$
10,992
   
$
76,165
   
$
(757
)
 
$
(406
)
 
$
86,855
 

   
Common
Stock
   
Additional
Paid-In
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Loss
   
Treasury
Stock
   
Total
Shareholders'
Equity
 
Balance at June 30, 2018
 
$
861
   
$
11,017
   
$
86,213
   
$
(1,623
)
 
$
(277
)
 
$
96,191
 
Impact of Adopting ASU 2016-01(1)
                   
114
     
(114
)
           
-
 
Dividends declared
                   
(854
)
                   
(854
)
Net income
                   
4,380
                     
4,380
 
Other comprehensive loss, net of taxes
                           
(76
)
           
(76
)
Balance at September 30, 2018
 
$
861
   
$
11,017
   
$
89,853
   
$
(1,813
)
 
$
(277
)
 
$
99,641
 


(1)
See Note 9 Impact of Recent Accounting Pronouncements – cumulative effect of change in measurement of equity securities.

See notes to consolidated financial statements.

6

Greene County Bancorp, Inc.
Consolidated Statements of Cash Flows
For the Three Months Ended September 30, 2018 and 2017
(Unaudited)
(In thousands)

   
2018
   
2017
 
Cash flows from operating activities:
           
Net Income
 
$
4,380
   
$
3,472
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
   
154
     
157
 
Deferred income tax (benefit) expense
   
(388
)
   
1,214
 
Net amortization of premiums and discounts
   
81
     
213
 
Net amortization of deferred loan costs and fees
   
110
     
134
 
Provision for loan losses
   
354
     
347
 
Net gain on equity securities
   
(15
)
   
-
 
Losses on sale of foreclosed real estate
   
9
     
37
 
Net increase (decrease) in accrued income taxes
   
426
     
(647
)
Net increase in accrued interest receivable
   
(380
)
   
(341
)
Net decrease in prepaid and other assets
   
255
     
175
 
Net (decrease) increase in other liabilities
   
(2,082
)
   
1,717
 
Net cash provided by operating activities
   
2,904
     
6,478
 
                 
Cash flows from investing activities:
               
Securities available-for-sale:
               
Proceeds from maturities
   
32,825
     
17,594
 
Purchases of securities
   
(32,921
)
   
(27,125
)
Principal payments on securities
   
1,191
     
571
 
Securities held-to-maturity:
               
Proceeds from maturities
   
4,519
     
4,137
 
Purchases of securities
   
(23,918
)
   
(12,050
)
Principal payments on securities
   
13,102
     
5,851
 
Net (purchase) redemption of Federal Home Loan Bank Stock
   
(2,602
)
   
556
 
Net increase in loans receivable
   
(20,593
)
   
(14,768
)
Proceeds from sale of foreclosed real estate
   
65
     
38
 
Purchases of premises and equipment
   
(117
)
   
(101
)
Net cash used by investing activities
   
(28,449
)
   
(25,297
)
                 
Cash flows from financing activities
               
Net increase (decrease) in short-term advances
   
58,800
     
(6,200
)
Repayment of long-term FHLB advances
   
(1,000
)
   
(2,500
)
Payment of cash dividends
   
(854
)
   
(379
)
Proceeds from issuance of stock options
   
-
     
6
 
Net (decrease) increase in deposits
   
(22,773
)
   
58,034
 
Net cash provided by financing activities
   
34,173
     
48,961
 
                 
Net increase  in cash and cash equivalents
   
8,628
     
30,142
 
Cash and cash equivalents at beginning of period
   
26,504
     
16,277
 
Cash and cash equivalents at end of period
 
$
35,132
   
$
46,419
 
                 
Non-cash investing activities:
               
Foreclosed loans transferred to foreclosed real estate
 
$
34
   
$
28
 
Cash paid during period for:
               
Interest
 
$
1,332
   
$
931
 
Income taxes
 
$
975
   
$
630
 

See notes to consolidated financial statements

7

Greene County Bancorp, Inc.
Notes to Consolidated Financial Statements
At and for the Three Months Ended September 30, 2018 and 2017

(1)
Basis of Presentation

Within the accompanying unaudited consolidated statement of financial condition, and related notes to the consolidated financial statements, June 30, 2018 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 months ended September 30, 2018 and 2017 are unaudited.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  To the extent that information and notes required by GAAP for complete financial statements are contained in or are consistent with the audited financial statements incorporated by reference to Greene County Bancorp, Inc.’s Annual Report on Form 10-K for the year ended June 30, 2018, such information and notes have not been duplicated herein.  In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included.   Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation.  These reclassifications, if any, had no effect on net income or retained earnings as previously reported.  All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three months ended September 30, 2018 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2019.   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 months ended September 30, 2018.

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.

8

(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 15 full-service offices, an operations center and lending center located in its market area within the Hudson Valley Region of New York State.    The Bank of Greene County is primarily engaged in the business of attracting deposits from the general public in The Bank of Greene County’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities.  Greene Risk Management, Inc. is a pooled captive insurance company, which provides additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.  The Bank of Greene County also owns and operates two subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd. Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities. Greene Property Holdings, Ltd. is a real estate investment trust, which holds mortgages and notes which were originated through and serviced by The Bank of Greene County.

(3)
Use of Estimates

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

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

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

(4)
Securities

Securities at September 30, 2018 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
 
$
5,539
   
$
2
   
$
45
   
$
5,496
 
State and political subdivisions
   
92,149
     
173
     
2
     
92,320
 
Mortgage-backed securities-residential
   
3,091
     
8
     
114
     
2,985
 
Mortgage-backed securities-multi-family
   
17,296
     
50
     
251
     
17,095
 
Corporate debt securities
   
1,769
     
-
     
65
     
1,704
 
Total securities available-for-sale
   
119,844
     
233
     
477
     
119,600
 
Securities held-to-maturity:
                               
U.S. government sponsored enterprises
   
9,247
     
-
     
356
     
8,891
 
State and political subdivisions
   
142,647
     
2,501
     
827
     
144,321
 
Mortgage-backed securities-residential
   
5,698
     
41
     
10
     
5,729
 
Mortgage-backed securities-multi-family
   
120,333
     
75
     
3,134
     
117,274
 
Corporate debt securities
   
1,469
     
7
     
2
     
1,474
 
Other securities
   
1,380
     
9
     
17
     
1,372
 
Total securities held-to-maturity
   
280,774
     
2,633
     
4,346
     
279,061
 
Total securities
 
$
400,618
   
$
2,866
   
$
4,823
   
$
398,661
 

9

Securities at June 30, 2018 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
 
$
5,543
   
$
18
   
$
30
   
$
5,531
 
State and political subdivisions
   
92,052
     
204
     
1
     
92,255
 
Mortgage-backed securities-residential
   
3,332
     
13
     
98
     
3,247
 
Mortgage-backed securities-multi-family
   
18,249
     
64
     
244
     
18,069
 
Corporate debt securities
   
1,771
     
-
     
67
     
1,704
 
Total securities available-for-sale
   
120,947
     
299
     
440
     
120,806
 
Securities held-to-maturity:
                               
U.S. government sponsored enterprises
   
9,245
     
-
     
278
     
8,967
 
State and political subdivisions
   
136,335
     
3,091
     
532
     
138,894
 
Mortgage-backed securities-residential
   
6,472
     
72
     
7
     
6,537
 
Mortgage-backed securities-multi-family
   
118,780
     
123
     
2,845
     
116,058
 
Corporate debt securities
   
1,466
     
11
     
9
     
1,468
 
Other securities
   
2,252
     
16
     
15
     
2,253
 
Total securities held-to-maturity
   
274,550
     
3,313
     
3,686
     
274,177
 
Total securities
 
$
395,497
   
$
3,612
   
$
4,126
   
$
394,983
 

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 September 30, 2018, 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 September 30, 2018.

   
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
 
$
2,018
   
$
1
     
1
   
$
955
   
$
44
     
1
   
$
2,973
   
$
45
     
2
 
State and political subdivisions
   
8,928
     
2
     
10
     
-
     
-
     
-
     
8,928
     
2
     
10
 
Mortgage-backed securities-residential
   
1,382
     
32
     
3
     
886
     
82
     
1
     
2,268
     
114
     
4
 
Mortgage-backed securities-multi-family
   
2,429
     
31
     
2
     
6,330
     
220
     
4
     
8,759
     
251
     
6
 
Corporate debt securities
   
1,452
     
63
     
6
     
252
     
2
     
1
     
1,704
     
65
     
7
 
Total securities available-for-sale
   
16,209
     
129
     
22
     
8,423
     
348
     
7
     
24,632
     
477
     
29
 
Securities held-to-maturity:
                                                                       
U.S. government sponsored enterprises
   
3,120
     
126
     
1
     
5,770
     
230
     
2
     
8,890
     
356
     
3
 
State and political subdivisions
   
44,063
     
605
     
221
     
8,735
     
222
     
71
     
52,798
     
827
     
292
 
Mortgage-backed securities-residential
   
2,245
     
10
     
4
     
-
     
-
     
-
     
2,245
     
10
     
4
 
Mortgage-backed securities-multi-family
   
81,835
     
2,204
     
37
     
22,372
     
930
     
15
     
104,207
     
3,134
     
52
 
Corporate debt securities
   
467
     
2
     
1
     
-
     
-
     
-
     
467
     
2
     
1
 
Other securities
   
805
     
15
     
3
     
159
     
2
     
3
     
964
     
17
     
6
 
Total securities held-to-maturity
   
132,535
     
2,962
     
267
     
37,036
     
1,384
     
91
     
169,571
     
4,346
     
358
 
Total securities
 
$
148,744
   
$
3,091
     
289
   
$
45,459
   
$
1,732
     
98
   
$
194,203
   
$
4,823
     
387
 

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, 2018.

   
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
 
$
969
   
$
30
     
1
   
$
-
   
$
-
     
-
   
$
969
   
$
30
     
1
 
State and political subdivisions
   
2,094
     
1
     
4
     
-
     
-
     
-
     
2,094
     
1
     
4
 
Mortgage-backed securities-residential
   
2,420
     
98
     
3
     
-
     
-
     
-
     
2,420
     
98
     
3
 
Mortgage-backed securities-multi-family
   
9,177
     
244
     
7
     
-
     
-
     
-
     
9,177
     
244
     
7
 
Corporate debt securities
   
1,450
     
65
     
6
     
254
     
2
     
1
     
1,704
     
67
     
7
 
Total securities available-for-sale
   
16,110
     
438
     
21
     
254
     
2
     
1
     
16,364
     
440
     
22
 
Securities held-to-maturity:
                                                                       
U.S. government sponsored enterprises
   
7,018
     
227
     
1
     
1,949
     
51
     
1
     
8,967
     
278
     
2
 
State and political subdivisions
   
34,743
     
434
     
167
     
4,352
     
98
     
34
     
39,095
     
532
     
201
 
Mortgage-backed securities-residential
   
1,403
     
7
     
3
     
-
     
-
     
-
     
1,403
     
7
     
3
 
Mortgage-backed securities-multi-family
   
94,927
     
2,586
     
45
     
6,398
     
259
     
3
     
101,325
     
2,845
     
48
 
Corporate debt securities
   
457
     
9
     
1
     
-
     
-
     
-
     
457
     
9
     
1
 
Other securities
   
892
     
14
     
1
     
75
     
1
     
1
     
967
     
15
     
2
 
Total securities held-to-maturity
   
139,440
     
3,277
     
218
     
12,774
     
409
     
39
     
152,214
     
3,686
     
257
 
Total securities
 
$
155,550
   
$
3,715
     
239
   
$
13,028
   
$
411
     
40
   
$
168,578
   
$
4,126
     
279
 

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.  Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2018.  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.

There were no transfers of securities available-for-sale to held-to-maturity during the three months ended September 30, 2018 or 2017. During the three months ended September 30, 2018 and 2017, 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 months ended September 30, 2018 and 2017.

11

The estimated fair values of debt securities at September 30, 2018, 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
 
$
92,403
   
$
92,572
 
After one year through five years
   
4,539
     
4,541
 
After five years through ten years
   
2,515
     
2,407
 
After ten years
   
-
     
-
 
Total available-for-sale debt securities
   
99,457
     
99,520
 
Mortgage-backed securities
   
20,387
     
20,080
 
Total available-for-sale securities
   
119,844
     
119,600
 
                 
Held-to-maturity debt securities
               
Within one year
   
26,618
     
26,707
 
After one year through five years
   
64,460
     
64,834
 
After five years through ten years
   
46,008
     
46,020
 
After ten years
   
17,657
     
18,497
 
Total held-to-maturity debt securities
   
154,743
     
156,058
 
Mortgage-backed securities
   
126,031
     
123,003
 
Total held-to-maturity securities
   
280,774
     
279,061
 
Total debt securities
 
$
400,618
   
$
398,661
 

At September 30, 2018 and June 30, 2018, respectively, securities with an aggregate fair value of $387.1 million and $383.0 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank.  At September 30, 2018 and June 30, 2018, securities with an aggregate fair value of $1.7 million were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window.  Greene County Bancorp, Inc. did not participate in any securities lending programs during the quarters ended September 30, 2018 or 2017.

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 months ended September 30, 2018 or 2017.

12

(5)
Loans and Allowance for Loan Losses

Loan segments and classes at September 30, 2018 and June 30, 2018 are summarized as follows:

(In thousands)
 
September 30, 2018
   
June 30, 2018
 
Residential real estate:
           
Residential real estate
 
$
262,264
   
$
255,848
 
Residential construction and land
   
9,803
     
9,951
 
Multi-family
   
21,076
     
14,961
 
Commercial real estate:
               
Commercial real estate
   
289,425
     
283,935
 
Commercial construction
   
38,836
     
39,366
 
Consumer loan:
               
Home equity
   
21,744
     
21,919
 
Consumer installment
   
5,217
     
5,017
 
Commercial loans
   
87,711
     
84,644
 
Total gross loans
   
736,076
     
715,641
 
Allowance for loan losses
   
(12,308
)
   
(12,024
)
Deferred fees and costs
   
758
     
814
 
Loans receivable, net
 
$
724,526
   
$
704,431
 

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 historically has been 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.  Over the past few years, The Bank of Greene County has shifted more focus on the origination of commercial loans including commercial real estate.  The Bank of Greene County has also formed relationships with other community banks within our region to participate in larger commercial loan relationships.  These types of loans are generally considered to be riskier due to the size and complexity of the loan relationship.  By entering into a participation agreement with the other bank, The Bank of Greene County can obtain the loan relationship while limiting its exposure to credit loss.  Management completes its due diligence in underwriting these loans and monitors the servicing of these loans.

Loan balances by internal credit quality indicator at September 30, 2018 are shown below.

(In thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential real estate
 
$
259,668
   
$
343
   
$
88
   
$
2,165
   
$
262,264
 
Residential construction and land
   
9,803
     
-
     
-
     
-
     
9,803
 
Multi-family
   
18,934
     
-
     
2,059
     
83
     
21,076
 
Commercial real estate
   
278,842
     
312
     
8,756
     
1,515
     
289,425
 
Commercial construction
   
38,660
     
-
     
-
     
176
     
38,836
 
Home equity
   
20,894
     
-
     
-
     
850
     
21,744
 
Consumer installment
   
5,187
     
13
     
-
     
17
     
5,217
 
Commercial loans
   
86,542
     
-
     
513
     
656
     
87,711
 
Total gross loans
 
$
718,530
   
$
668
   
$
11,416
   
$
5,462
   
$
736,076
 

14

Loan balances by internal credit quality indicator at June 30, 2018 are shown below.

(In thousands)
 
Performing
   
Watch
   
Special Mention
   
Substandard
   
Total
 
Residential real estate
 
$
252,811
   
$
577
   
$
88
   
$
2,372
   
$
255,848
 
Residential construction and land
   
9,951
     
-
     
-
     
-
     
9,951
 
Multi-family
   
12,743
     
-
     
2,132
     
86
     
14,961
 
Commercial real estate
   
273,077
     
317
     
8,994
     
1,547
     
283,935
 
Commercial construction
   
39,190
     
-
     
-
     
176
     
39,366
 
Home equity
   
21,170
     
128
     
-
     
621
     
21,919
 
Consumer installment
   
4,969
     
30
     
-
     
18
     
5,017
 
Commercial loans
   
83,148
     
195
     
457
     
844
     
84,644
 
Total gross loans
 
$
697,059
   
$
1,247
   
$
11,671
   
$
5,664
   
$
715,641
 

The Company had no loans classified doubtful or loss at September 30, 2018 or June 30, 2018.

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 September 30, 2018 and June 30, 2018.  Loans on nonaccrual status totaled $3.4 million at September 30, 2018 of which $1.8 million were in the process of foreclosure. At September 30, 2018, there were 10 residential loans in the process of foreclosure totaling $1.2 million.  Included in nonaccrual loans were $1.6 million of loans which were less than 90 days past due at September 30, 2018, 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 $62,000 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 $3.5 million at June 30, 2018 of which $1.9 million were in the process of foreclosure.  At June 30, 2018, there were 11 residential loans in the process of foreclosure totaling $1.2 million.  Included in nonaccrual loans were $1.3 million of loans which were less than 90 days past due at June 30, 2018, 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 September 30, 2018:

(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
 
$
3,140
   
$
337
   
$
823
   
$
4,300
   
$
257,964
   
$
262,264
   
$
1,634
 
Residential construction and land
   
-
     
-
     
-
     
-
     
9,803
     
9,803
     
-
 
Multi-family
   
141
     
-
     
-
     
141
     
20,935
     
21,076
     
-
 
Commercial real estate
   
1,150
     
481
     
568
     
2,199
     
287,226
     
289,425
     
1,119
 
Commercial construction
   
-
     
-
     
-
     
-
     
38,836
     
38,836
     
-
 
Home equity
   
179
     
-
     
408
     
587
     
21,157
     
21,744
     
529
 
Consumer installment
   
19
     
13
     
8
     
40
     
5,177
     
5,217
     
17
 
Commercial loans
   
433
     
103
     
-
     
536
     
87,175
     
87,711
     
88
 
Total gross loans
 
$
5,062
   
$
934
   
$
1,807
   
$
7,803
   
$
728,273
   
$
736,076
   
$
3,387
 

15

The following table sets forth information regarding delinquent and/or nonaccrual loans at June 30, 2018:

(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
 
$
1,617
   
$
458
   
$
1,211
   
$
3,286
   
$
252,562
   
$
255,848
   
$
1,778
 
Residential construction and land
   
-
     
-
     
-
     
-
     
9,951
     
9,951
     
-
 
Multi-family
   
-
     
-
     
-
     
-
     
14,961
     
14,961
     
-
 
Commercial real estate
   
1,568
     
487
     
568
     
2,623
     
281,312
     
283,935
     
1,147
 
Commercial construction
   
-
     
-
     
-
     
-
     
39,366
     
39,366
     
-
 
Home equity
   
38
     
128
     
299
     
465
     
21,454
     
21,919
     
298
 
Consumer installment
   
3
     
30
     
8
     
41
     
4,976
     
5,017
     
18
 
Commercial loans
   
250
     
195
     
182
     
627
     
84,017
     
84,644
     
276
 
Total gross loans
 
$
3,476
   
$
1,298
   
$
2,268
   
$
7,042
   
$
708,599
   
$
715,641
   
$
3,517
 

The Bank of Greene County had no accruing loans delinquent more than 90 days at September 30, 2018 and $62,000 at June 30, 2018, 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.