GREENE COUNTY BANCORP INC - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - GREENE COUNTY BANCORP INC	ex32_2.htm
EX-32.1 - EXHIBIT 32.1 - GREENE COUNTY BANCORP INC	ex32_1.htm
EX-31.2 - EXHIBIT 31.2 - GREENE COUNTY BANCORP INC	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - GREENE COUNTY BANCORP INC	ex31_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, 2019

☐ 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

Securities registered pursuant to Section 12(b) of the Act:

Title of class	Trading symbol	Name of exchange on which registered
Common Stock, $0.10 par value	GCBC	The Nasdaq Stock Market

Securities Registered Pursuant to Section 12(g) of the Act:

None

(Title of Class)

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 ☒	Emerging Growth Company ☐
Non-accelerated filer ☐	Smaller reporting 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 6, 2020, the registrant had 8,536,414 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)
	* Consolidated Statements of Financial Condition	3
	* Consolidated Statements of Income	4
	* Consolidated Statements of Comprehensive Income	5
	* Consolidated Statements of Changes in Shareholders’ Equity	6
	* Consolidated Statements of Cash Flows	7
	* Notes to Consolidated Financial Statements	8-31

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32-46

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

	Signatures	49

Index

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

At December 31, 2019 and June 30, 2019

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	December 31, 2019			June 30, 2019
Total cash and cash equivalents	$	34,542		$	29,538

Long term certificates of deposit		3,626			2,875
Securities available-for-sale, at fair value		192,999			122,728
Securities held-to-maturity, at amortized cost (fair value $343,896 at December 31, 2019; $313,613 at June 30, 2019)		331,989			304,208
Equity securities, at fair value		265			253
Federal Home Loan Bank stock, at cost		3,554			1,759

Loans		864,186			798,105
Allowance for loan losses		(13,984	)		(13,200	)
Unearned origination fees and costs, net		863			833
Net loans receivable		851,065			785,738

Premises and equipment, net		13,273			13,255
Accrued interest receivable		6,810			5,853
Foreclosed real estate		303			53
Prepaid expenses and other assets		5,525			3,202
Total assets	$	1,443,951		$	1,269,462

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	110,100		$	107,469
Interest-bearing deposits		1,134,558			1,013,100
Total deposits		1,244,658			1,120,569

Borrowings from Federal Home Loan Bank, short-term		48,900			8,000
Borrowings from Federal Home Loan Bank, long-term		12,600			13,600
Accrued expenses and other liabilities		17,247			14,924
Total liabilities		1,323,405			1,157,093

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; Outstanding – 8,536,414 shares at December 31, 2019, and 8,537,814 at June 30, 2019		861			861
Additional paid-in capital		11,017			11,017
Retained earnings		110,374			101,774
Accumulated other comprehensive loss		(1,391	)		(1,006	)
Treasury stock, at cost 74,926 shares at December 31, 2019, and 73,526 shares at June 30, 2019		(315	)		(277	)
Total shareholders’ equity		120,546			112,369
Total liabilities and shareholders’ equity	$	1,443,951		$	1,269,462

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three and Six Months Ended December 31, 2019 and 2018

(Unaudited)

(In thousands, except share and per share amounts)

	For the three months ended December 31,				For the six months ended December 31,
	2019		2018		2019			2018
Interest income:
Loans	$	9,801	$	8,696	$	19,206		$	16,994
Investment securities - taxable		172		217		331			411
Mortgage-backed securities		1,261		1,059		2,505			2,173
Investment securities - tax exempt		1,756		1,406		3,358			2,766
Interest-bearing deposits and federal funds sold		207		28		405			59
Total interest income		13,197		11,406		25,805			22,403

Interest expense:
Interest on deposits		2,205		1,271		4,255			2,307
Interest on borrowings		81		140		139			444
Total interest expense		2,286		1,411		4,394			2,751

Net interest income		10,911		9,995		21,411			19,652
Provision for loan losses		690		354		1,241			708
Net interest income after provision for loan losses		10,221		9,641		20,170			18,944

Noninterest income:
Service charges on deposit accounts		1,111		1,106		2,236			2,143
Debit card fees		755		685		1,498			1,325
Investment services		168		136		313			251
E-commerce fees		31		34		66			71
Other operating income		251		180		469			403
Total noninterest income		2,316		2,141		4,582			4,193

Noninterest expense:
Salaries and employee benefits		3,992		3,677		7,934			7,155
Occupancy expense		441		414		907			816
Equipment and furniture expense		126		127		407			341
Service and data processing fees		638		542		1,212			1,037
Computer software, supplies and support		264		200		506			423
Advertising and promotion		142		76		258			196
FDIC insurance premiums		12		100		(27	)		227
Legal and professional fees		325		283		604			612
Other		595		828		1,156			1,401
Total noninterest expense		6,535		6,247		12,957			12,208

Income before provision for income taxes		6,002		5,535		11,795			10,929
Provision for income taxes		889		951		1,819			1,965
Net income	$	5,113	$	4,584	$	9,976		$	8,964

Basic and diluted earnings per share	$	0.60	$	0.54	$	1.17		$	1.05
Basic and diluted average shares outstanding		8,537,010		8,537,814		8,537,412			8,537,814
Dividends per share	$	0.11	$	0.10	$	0.22		$	0.20

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three and Six Months Ended December 31, 2019 and 2018

(Unaudited)

(In thousands)

	For the three months ended December 31,					For the six months ended December 31,
	2019			2018		2019			2018
Net Income	$	5,113		$	4,584	$	9,976		$	8,964
Other comprehensive (loss) income:
Unrealized holding (losses) gains on available-for-sale securities, net of income tax (benefit) expense of ($40) and $104, for the three months, and ($136) and $77, for the six months ended December 31, 2019 and 2018, respectively		(114	)		293		(385	)		217

Total other comprehensive (loss) income, net of taxes		(114	)		293		(385	)		217

Comprehensive income	$	4,999		$	4,877	$	9,591		$	9,181

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended December 31, 2019 and 2018

(Unaudited)

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders' Equity
Balance at September 30, 2018	$	861	$	11,017	$	89,853		$	(1,813	)	$	(277	)	$	99,641
Dividends declared						(397	)								(397	)
Net income						4,584									4,584
Other comprehensive gain, net of taxes									293						293
Balance at December 31, 2018	$	861	$	11,017	$	94,040		$	(1,520	)	$	(277	)	$	104,121

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders' Equity
Balance at September 30, 2019	$	861	$	11,017	$	106,205		$	(1,277	)	$	(277	)	$	116,529
Stock repurchases												(38	)		(38	)
Dividends declared						(944	)								(944	)
Net income						5,113									5,113
Other comprehensive loss, net of taxes									(114	)					(114	)
Balance at December 31, 2019	$	861	$	11,017	$	110,374		$	(1,391	)	$	(315	)	$	120,546

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended December 31, 2019 and 2018

(Unaudited)

(In thousands)

	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						(1,251	)								(1,251	)
Net income						8,964									8,964
Other comprehensive gain, net of taxes									217						217
Balance at December 31, 2018	$	861	$	11,017	$	94,040		$	(1,520	)	$	(277	)	$	104,121

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders' Equity
Balance at June 30, 2019	$	861	$	11,017	$	101,774		$	(1,006	)	$	(277	)	$	112,369
Stock repurchases												(38	)		(38	)
Dividends declared						(1,376	)								(1,376	)
Net income						9,976									9,976
Other comprehensive loss, net of taxes									(385	)					(385	)
Balance at December 31, 2019	$	861	$	11,017	$	110,374		$	(1,391	)	$	(315	)	$	120,546

⁽¹⁾

Cumulative effect of change in measurement of equity securities (ASU 2016-01).

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Six Months Ended December 31, 2019 and 2018

(Unaudited)

(In thousands)

	2019			2018
Cash flows from operating activities:
Net Income	$	9,976		$	8,964
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		362			318
Deferred income tax expense (benefit)		317			(240	)
Net amortization of premiums and discounts		339			119
Net amortization of deferred loan costs and fees		241			235
Provision for loan losses		1,241			708
Net (gain) loss on equity securities		(12	)		2
Net (gain) loss on sale of foreclosed real estate		(76	)		9
Net (decrease) increase in accrued income taxes		(318	)		155
Net increase in accrued interest receivable		(957	)		(708	)
Net increase in prepaid and other assets		(2,185	)		(648	)
Net increase (decrease) in accrued expenses and other liabilities		2,323			(7	)
Net cash provided by operating activities		11,251			8,907

Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities		48,092			56,351
Purchases of securities		(124,023	)		(44,462	)
Principal payments on securities		5,054			2,003
Securities held-to-maturity:
Proceeds from maturities		18,629			8,286
Purchases of securities		(60,251	)		(27,916	)
Principal payments on securities		13,586			17,138
Net purchase of Federal Home Loan Bank Stock		(1,795	)		(2,328	)
Purchase of long term certificate of deposit		(751	)		-
Net increase in loans receivable		(67,024	)		(46,916	)
Proceeds from sale of foreclosed real estate		41			65
Purchases of premises and equipment		(380	)		(322	)
Net cash used by investing activities		(168,822	)		(38,101	)

Cash flows from financing activities
Net increase in short-term advances		40,900			54,900
Repayment of long-term FHLB advances		(1,000	)		(3,000	)
Payment of cash dividends		(1,376	)		(1,251	)
Purchase of treasury stock		(38	)		-
Net increase (decrease) in deposits		124,089			(16,014	)
Net cash provided by financing activities		162,575			34,635

Net increase in cash and cash equivalents		5,004			5,441
Cash and cash equivalents at beginning of period		29,538			26,504
Cash and cash equivalents at end of period	$	34,542		$	31,945

Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	215		$	34
Cash paid during period for:
Interest	$	4,371		$	2,693
Income taxes	$	1,820		$	2,049

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Notes to Consolidated Financial Statements

At and for the Three and Six Months Ended December 31, 2019 and 2018

(1)	Basis of Presentation

Within the accompanying unaudited consolidated statement of financial condition, and related notes to the consolidated financial statements, June 30, 2019 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, 2019 and 2018 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, 2019, 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. The Company had no reclassifications from amounts in the prior year’s consolidated financial statements to conform to the current year’s presentation. 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, 2019 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2020. 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, 2019.

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.

Index

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

(3)	Use of Estimates

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

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

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

(4)	Securities

Securities at December 31, 2019 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	$	4,511	$	19	$	-	$	4,530
State and political subdivisions		147,915		417		-		148,332
Mortgage-backed securities-residential		10,283		50		17		10,316
Mortgage-backed securities-multi-family		25,174		182		74		25,282
Corporate debt securities		4,511		62		34		4,539
Total securities available-for-sale		192,394		730		125		192,999
Securities held-to-maturity:
U.S. government sponsored enterprises		2,000		-		3		1,997
State and political subdivisions		174,165		8,883		159		182,889
Mortgage-backed securities-residential		11,302		153		1		11,454
Mortgage-backed securities-multi-family		137,193		3,093		119		140,167
Corporate debt securities		1,993		21		8		2,006
Other securities		5,336		47		-		5,383
Total securities held-to-maturity		331,989		12,197		290		343,896
Total securities	$	524,383	$	12,927	$	415	$	536,895

Index

Securities at June 30, 2019 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	$	5,522	$	31	$	-	$	5,553
State and political subdivisions		95,782		788		-		96,570
Mortgage-backed securities-residential		2,634		31		20		2,645
Mortgage-backed securities-multi-family		16,151		259		-		16,410
Corporate debt securities		1,513		37		-		1,550
Total securities available-for-sale		121,602		1,146		20		122,728
Securities held-to-maturity:
U.S. government sponsored enterprises		9,249		1		14		9,236
State and political subdivisions		152,358		6,212		23		158,547
Mortgage-backed securities-residential		4,570		97		-		4,667
Mortgage-backed securities-multi-family		134,970		3,122		17		138,075
Corporate debt securities		1,478		18		25		1,471
Other securities		1,583		34		-		1,617
Total securities held-to-maturity		304,208		9,484		79		313,613
Total securities	$	425,810	$	10,630	$	99	$	436,341

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, 2019, 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 Company’s current securities investment strategy utilizes a risk management approach of diversified investing among three categories: short-, intermediate- and long-term. The emphasis of this approach is to increase overall investment securities yields while managing interest rate risk. The Company will only invest in high quality securities as determined by management’s analysis at the time of purchase. The Company generally does not engage in any derivative or hedging transactions, such as interest rate swaps or caps.

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, 2019.

	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	$	3,026	$	2		1	$	726	$	15		1	$	3,752	$	17		2
Mortgage-backed securities-multi-family		8,137		74		4		-		-		-		8,137		74		4
Corporate debt securities		1,966		34		2		-		-		-		1,966		34		2
Total securities available-for-sale		13,129		110		7		726		15		1		13,855		125		8
Securities held-to-maturity:
U.S. government sponsored enterprises		-		-		-		1,997		3		1		1,997		3		1
State and political subdivisions		13,475		155		86		1,117		4		14		14,592		159		100
Mortgage-backed securities-residential		1,094		1		1		-		-		-		1,094		1		1
Mortgage-backed securities-multi-family		12,938		119		7		-		-		-		12,938		119		7
Corporate debt securities		-		-		-		475		8		1		475		8		1
Total securities held-to-maturity		27,507		275		94		3,589		15		16		31,096		290		110
Total securities	$	40,636	$	385		101	$	4,315	$	30		17	$	44,951	$	415		118

Index

	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	$	856	$	20		1	$	-	$	-		-	$	856	$	20		1
Total securities available-for-sale		856		20		1		-		-		-		856		20		1
Securities held-to-maturity:
U.S. government sponsored enterprises		-		-		-		1,986		14		1		1,986		14		1
State and political subdivisions		3,541		17		22		2,111		6		13		5,652		23		35
Mortgage-backed securities-multi-family		1,250		6		1		3,799		11		3		5,049		17		4
Corporate debt securities		-		-		-		452		25		1		452		25		1
Total securities held-to-maturity		4,791		23		23		8,348		56		18		13,139		79		41
Total securities	$	5,647	$	43		24	$	8,348	$	56		18	$	13,995	$	99		42

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 December 31, 2019. 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 and six months ended December 31, 2019 or 2018. During the three and six months ended December 31, 2019 and 2018, 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, 2019 and 2018.

Index

The estimated fair values of debt securities at December 31, 2019, 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	$	151,934	$	152,370
After one year through five years		1,001		1,019
After five years through ten years		2,002		2,046
After ten years		2,000		1,966
Total available-for-sale debt securities		156,937		157,401
Mortgage-backed securities		35,457		35,598
Total available-for-sale securities		192,394		192,999

Held-to-maturity debt securities
Within one year		31,439		31,793
After one year through five years		81,615		83,961
After five years through ten years		47,539		50,463
After ten years		22,901		26,058
Total held-to-maturity debt securities		183,494		192,275
Mortgage-backed securities		148,495		151,621
Total held-to-maturity securities		331,989		343,896
Total debt securities	$	524,383	$	536,895

At December 31, 2019 and June 30, 2019, respectively, debt securities with an aggregate fair value of $524.2 million and $425.7 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, 2019 and June 30, 2019, debt securities with an aggregate fair value of $4.5 million and $1.5 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 or six months ended December 31, 2019 or 2018.

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, 2019 or 2018.

Index

(5)	Loans and Allowance for Loan Losses

Loan segments and classes at December 31, 2019 and June 30, 2019 are summarized as follows:

(In thousands)	December 31, 2019			June 30, 2019
Residential real estate:
Residential real estate	$	269,925		$	267,802
Residential construction and land		8,667			7,462
Multi-family		25,789			24,592
Commercial real estate:
Commercial real estate		360,424			329,668
Commercial construction		56,648			36,361
Consumer loan:
Home equity		22,744			23,185
Consumer installment		5,769			5,481
Commercial loans		114,220			103,554
Total gross loans		864,186			798,105
Allowance for loan losses		(13,984	)		(13,200	)
Unearned origination fees and costs, net		863			833
Loans receivable, net	$	851,065		$	785,738

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.

Index

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 December 31, 2019 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential real estate	$	265,229	$	1,613	$	1,137	$	1,946	$	269,925
Residential construction and land		8,667		-		-		-		8,667
Multi-family		23,976		-		1,682		131		25,789
Commercial real estate		349,604		-		7,559		3,261		360,424
Commercial construction		51,586		-		4,960		102		56,648
Home equity		22,068		18		26		632		22,744
Consumer installment		5,743		26		-		-		5,769
Commercial loans		111,003		-		2,896		321		114,220
Total gross loans	$	837,876	$	1,657	$	18,260	$	6,393	$	864,186

Index

Loan balances by internal credit quality indicator at June 30, 2019 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential real estate	$	264,138	$	874	$	86	$	2,704	$	267,802
Residential construction and land		7,462		-		-		-		7,462
Multi-family		22,544		137		1,835		76		24,592
Commercial real estate		318,703		616		7,435		2,914		329,668
Commercial construction		36,259		-		-		102		36,361
Home equity		22,392		20		-		773		23,185
Consumer installment		5,461		14		-		6		5,481
Commercial loans		102,103		261		1,082		108		103,554
Total gross loans	$	779,062	$	1,922	$	10,438	$	6,683	$	798,105

The Company had no loans classified doubtful or loss at December 31, 2019 or June 30, 2019. During the six months ended December 31, 2019, the Company downgraded a construction loan to special mention as a result of project cost overruns and several delinquent payments. At December 31, 2019, this loan was performing. Management continues to monitor this loan relationship closely.

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, 2019 and June 30, 2019. Loans on nonaccrual status totaled $3.4 million at December 31, 2019 of which $1.1 million were in the process of foreclosure. At December 31, 2019, there were 10 residential loans in the process of foreclosure totaling $801,000. Included in nonaccrual loans were $1.2 million of loans which were less than 90 days past due at December 31, 2019, 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 $151,000 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, 2019 of which $1.6 million were in the process of foreclosure. At June 30, 2019, there were 12 residential loans in the process of foreclosure totaling $1.5 million. Included in nonaccrual loans were $1.8 million of loans which were less than 90 days past due at June 30, 2019, 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, 2019:

(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	$	1,861	$	1,482	$	1,040	$	4,383	$	265,542	$	269,925	$	1,691
Residential construction and land		-		-		-		-		8,667		8,667		-
Multi-family		-		30		131		161		25,628		25,789		131
Commercial real estate		789		356		674		1,819		358,605		360,424		984
Commercial construction		-		-		-		-		56,648		56,648		-
Home equity		152		18		128		298		22,446		22,744		311
Consumer installment		32		26		-		58		5,711		5,769		-
Commercial loans		163		29		212		404		113,816		114,220		262
Total gross loans	$	2,997	$	1,941	$	2,185	$	7,123	$	857,063	$	864,186	$	3,379

Index

The following table sets forth information regarding delinquent and/or nonaccrual loans at June 30, 2019:

(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	$	2,144	$	870	$	1,385	$	4,399	$	263,403	$	267,802	$	2,474
Residential construction and land		-		-		-		-		7,462		7,462		-
Multi-family		1		137		-		138		24,454		24,592		-
Commercial real estate		280		1,108		102		1,490		328,178		329,668		598
Commercial construction		-		-		-		-		36,361		36,361		-
Home equity		16		136		309		461		22,724		23,185		452
Consumer installment		32		14		6		52		5,429		5,481		6
Commercial loans		430		342		28		800		102,754		103,554		108
Total gross loans	$	2,903	$	2,607	$	1,830	$	7,340	$	790,765	$	798,105	$	3,638

The Bank of Greene County had no accruing loans delinquent more than 90 days at December 31, 2019 or June 30, 2019, 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)	2019		2018		2019		2018
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	53	$	58	$	154	$	129
Interest income that was recorded on nonaccrual loans		42		23		92		55

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.

Index

The tables below detail additional information on impaired loans at the date or periods indicated:

	At December 31, 2019						For the three months ended December 31, 2019				For the six months ended December 31, 2019
(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	$	537	$	537	$	-	$	542	$	11	$	617	$	41
Commercial real estate		370		370		-		375		5		383		12
Home equity		128		128		-		128		-		197		-
Commercial loans		173		173		-		146		1		141		1
Impaired loans with no allowance		1,208		1,208		-		1,191		17		1,338		54

With an allowance recorded:
Residential real estate		1,226		1,226		119		1,124		8		1,051		32
Multi-family		131		131		1		131		1		66		1
Commercial real estate		105		105		5		105		3		53		3
Commercial construction		102		102		7		102		-		102		-
Home equity		460		460		73		460		9		395		14
Commercial loans		159		159		12		159		3		145		4
Impaired loans with allowance		2,183		2,183		217		2,081		24		1,812		54

Total impaired:
Residential real estate		1,763		1,763		119		1,666		19		1,668		73
Multi-family		131		131		1		131		1		66		1
Commercial real estate		475		475		5		480		8		436		15
Commercial construction		102		102		7		102		-		102		-
Home equity		588		588		73		588		9		592		14
Commercial loans		332		332		12		305		4		286		5
Total impaired loans	$	3,391	$	3,391	$	217	$	3,272	$	41	$	3,150	$	108

	At June 30, 2019						For the three months ended December 31, 2018				For the six months ended December 31, 2018
(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	$	727	$	727	$	-	$	158	$	-	$	83	$	3
Commercial real estate		717		717		-		1,145		7		970		15
Home equity		309		309		-		309		-		266		-
Commercial loans		141		141		-		153		-		155		-
Impaired loans with no allowance		1,894		1,894		-		1,765		7		1,474		18

With an allowance recorded:
Residential real estate		1,420		1,420		188		1,614		13		1,757		36
Commercial real estate		-		-		-		-		-		182		-
Commercial construction		102		102		2		176		-		176		-
Home equity		348		348		59		321		5		327		9
Commercial loans		130		130		13		44		-		22		-
Impaired loans with allowance		2,000		2,000		262		2,155		18		2,464		45
Total impaired:
Residential real estate		2,147		2,147		188		1,772		13		1,840		39
Commercial real estate		717		717		-		1,145		7		1,152		15
Commercial construction		102		102		2		176		-		176		-
Home equity		657		657		59		630		5		593		9
Commercial loans		271		271		13		197		-		177		-
Total impaired loans	$	3,894	$	3,894	$	262	$	3,920	$	25	$	3,938	$	63

Index

The table below details loans that have been modified as a troubled debt restructuring during the six months ended December 31, 2018.

(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Current Outstanding Recorded Investment
December 31, 2018
Commercial loans		1	$	127	$	131	$	131

There were no loans that have been modified as a troubled debt restructuring during the three and six months ended December 31, 2019. There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to June 30, 2019 or 2018 which have subsequently defaulted during the three and six months ended December 31, 2019 or 2018, respectively.

Allowance for Loan Losses

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 loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for the loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses. Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The Bank of Greene County considers smaller balance residential mortgages, home equity loans, commercial loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Larger balance residential, commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Bank of Greene County charges loans off against the allowance for credit losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers. Generally, consumer loans and smaller commercial loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses, unless equitable arrangements are made. Included within consumer installment loan charge-offs and recoveries are deposit accounts that have been overdrawn in excess of 60 days. With continued growth in the number of deposit accounts, charge-off activity within this category has also grown, as can be seen from the tables below. For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably estimated. The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by charge-offs.

The following tables set forth the activity and allocation of the allowance for loan losses by loan category during and at the periods indicated. The allowance is allocated to each loan category based on historical loss experience and economic conditions.

	Activity for the three months ended December 31, 2019
(In thousands)	Balance at September 30, 2019		Charge-offs		Recoveries		Provision			Balance at December 31, 2019
Residential real estate	$	1,512	$	48	$	10	$	(4	)	$	1,470
Residential construction and land		99		-		-		(6	)		93
Multi-family		205		-		-		(58	)		147
Commercial real estate		7,159		-		-		351			7,510
Commercial construction		1,291		-		-		176			1,467
Home equity		307		-		-		(37	)		270
Consumer installment		319		139		26		160			366
Commercial loans		2,552		5		6		108			2,661
Total	$	13,444	$	192	$	42	$	690		$	13,984

Index

	Activity for the six months ended December 31, 2019
(In thousands)	Balance at June 30, 2019		Charge-offs		Recoveries		Provision			Balance at December 31, 2019
Residential real estate	$	2,026	$	101	$	10	$	(465	)	$	1,470
Residential construction and land		87		-		-		6			93
Multi-family		180		-		-		(33	)		147
Commercial real estate		7,110		-		-		400			7,510
Commercial construction		872		-		-		595			1,467
Home equity		314		-		-		(44	)		270
Consumer installment		250		248		50		314			366
Commercial loans		2,361		204		36		468			2,661
Total	$	13,200	$	553	$	96	$	1,241		$	13,984

	Allowance for Loan Losses				Loans Receivable
	Ending Balance At December 31, 2019 Impairment Analysis				Ending Balance At December 31, 2019 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	119	$	1,351	$	1,763	$	268,162
Residential construction and land		-		93		-		8,667
Multi-family		1		146		131		25,658
Commercial real estate		5		7,505		475		359,949
Commercial construction		7		1,460		102		56,546
Home equity		73		197		588		22,156
Consumer installment		-		366		-		5,769
Commercial loans		12		2,649		332		113,888
Unallocated		-		-		-		-
Total	$	217	$	13,767	$	3,391	$	860,795

	Activity for the three months ended December 31, 2018
(In thousands)	Balance at September 30, 2018		Charge-offs		Recoveries		Provision			Balance at December 31, 2018
Residential real estate	$	2,108	$	75	$	-	$	37		$	2,070
Residential construction and land		116		-		-		(23	)		93
Multi-family		171		-		-		9			180
Commercial real estate		6,023		-		-		159			6,182
Commercial construction		957		-		-		(81	)		876
Home equity		317		-		-		5			322
Consumer installment		229		89		22		128			290
Commercial loans		2,133		-		153		95			2,381
Unallocated		254		-		-		25			279
Total	$	12,308	$	164	$	175	$	354		$	12,673

Index

	Activity for the six months ended December 31, 2018
(In thousands)	Balance at June 30, 2018		Charge-offs		Recoveries		Provision			Balance at December 31, 2018
Residential real estate	$	2,116	$	96	$	13	$	37		$	2,070
Residential construction and land		114		-		-		(21	)		93
Multi-family		162		-		-		18			180
Commercial real estate		5,979		-		-		203			6,182
Commercial construction		950		-		-		(74	)		876
Home equity		317		-		-		5			322
Consumer installment		224		188		59		195			290
Commercial loans		2,128		-		153		100			2,381
Unallocated		34		-		-		245			279
Total	$	12,024	$	284	$	225	$	708		$	12,673

	Allowance for Loan Losses				Loans Receivable
	Ending Balance June 30, 2019 Impairment Analysis				Ending Balance June 30, 2019 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	188	$	1,838	$	2,147	$	265,655
Residential construction and land		-		87		-		7,462
Multi-family		-		180		-		24,592
Commercial real estate		-		7,110		717		328,951
Commercial construction		2		870		102		36,259
Home equity		59		255		657		22,528
Consumer installment		-		250		-		5,481
Commercial loans		13		2,348		271		103,283
Unallocated		-		-		-		-
Total	$	262	$	12,938	$	3,894	$	794,211

Foreclosed real estate (FRE)

FRE consists of properties acquired through mortgage loan foreclosure proceedings or in full or partial satisfaction of loans. The following table sets forth information regarding FRE at December 31, 2019 and June 30, 2019:

(in thousands)	December 31, 2019		June 30, 2019
Residential real estate	$	303	$	53
Total foreclosed real estate	$	303	$	53

(6)	Fair Value Measurements and Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured at December 31, 2019 and June 30, 2019 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

Index

The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used are as follows:

			Fair Value Measurements Using
			Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	December 31, 2019		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	4,530	$	-	$	4,530	$	-
State and political subdivisions		148,332		-		148,332		-
Mortgage-backed securities-residential		10,316		-		10,316		-
Mortgage-backed securities-multi-family		25,282		-		25,282		-
Corporate debt securities		4,539		4,539		-		-
Securities available-for-sale		192,999	$	4,539	$	188,460		-
Equity securities		265		265		-		-
Total securities measured at fair value	$	193,264	$	4,804	$	188,460	$	-

			Fair Value Measurements Using
			Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	June 30, 2019		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	5,553	$	-	$	5,553	$	-
State and political subdivisions		96,570		-		96,570		-
Mortgage-backed securities-residential		2,645		-		2,645		-
Mortgage-backed securities-multi-family		16,410		-		16,410		-
Corporate debt securities		1,550		1,550		-		-
Securities available-for-sale		122,728		1,550		121,178		-
Equity securities		253		253		-		-
Total securities measured at fair value	$	122,981	$	1,803	$	121,178	$	-

Certain investments that are actively traded and have quoted market prices have been classified as Level 1 valuations. Other available-for-sale investment securities have been valued by reference to prices for similar securities or through model-based techniques in which all significant inputs are observable and, therefore, such valuations have been classified as Level 2.

Index

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses. Impaired loans are those loans in which the Company has measured impairment based on the fair value of the loan’s collateral or the discounted value of expected future cash flows. Fair value is generally determined based upon market value evaluations by third parties of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds. These appraisals may include up to three approaches to value: the sales comparison approach, the income approach (for income-producing property), and the cost approach. Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as, changes in absorption rates or market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets. These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.

Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”). Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses. Values are derived from appraisals, similar to impaired loans, of underlying collateral or discounted cash flow analysis. Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis. In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as, changes in absorption rates and market conditions from the time of valuation and anticipated sales values considering management’s plans for disposition. Either change could result in adjustment to lower the property value estimates indicated in the appraisals. These measurements are classified as Level 3 within the fair value hierarchy.

							Fair Value Measurements Using
(In thousands)	Recorded Investment		Related Allowance		Fair Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2019
Impaired loans	$	2,384	$	217	$	2,167	$	-	$	-	$	2,167
Foreclosed real estate		303		-		303		-		-		303

June 30, 2019
Impaired loans	$	2,335	$	262	$	2,073	$	-	$	-	$	2,073
Foreclosed real estate		53		-		53		-		-		53

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were utilized to determine fair value:

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Range		Weighted Average
December 31, 2019
Impaired Loans	$	1,505	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾	8.57%-33.73	%	27.81	%
				Liquidation expenses⁽³⁾	3.98%-7.03	%	4.83	%
		662	Discounted cash flow	Discount rate	4.19%-8.66	%	6.08	%
Foreclosed real estate		303	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾	0.00-0.00	%	0.00	%
				Liquidation expenses⁽³⁾	6.80	%	6.80	%
June 30, 2019
Impaired loans	$	1,403	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾	0.00%-33.73	%	24.48	%
				Liquidation expenses⁽³⁾	3.98%-6.00	%	4.53	%
		670	Discounted cash flow	Discount rate	4.19%-8.66	%	6.07	%
Foreclosed real estate		53	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾	0.00%-0.00	%	0.00	%
				Liquidation expenses⁽³⁾	10.41	%	10.41	%

⁽¹⁾

Fair value is generally determined through independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.

⁽²⁾

Appraisals may be adjusted downwards by management for qualitative factors such as economic conditions. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received or age of the appraisal.

⁽³⁾

Appraisals are adjusted downwards by management for qualitative factors such as the estimated costs to liquidate the collateral.

Index

The carrying amounts reported in the statements of financial condition for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate their fair values. Fair values of securities are based on quoted market prices (Level 1), where available, or matrix pricing (Level 2), which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. The carrying amount of Federal Home Loan Bank stock approximates fair value due to its restricted nature. The fair values for loans are measured using the "exit price" notion which is a reasonable estimate of what another party might pay in an orderly transaction. Fair values for variable rate loans that reprice frequently, with no significant credit risk, are based on carrying value. Fair value for fixed rate loans are estimated using discounted cash flows and interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values disclosed for demand and savings deposits are equal to carrying amounts at the reporting date. The carrying amounts for variable rate money market deposits approximate fair values at the reporting date. Fair values for fixed rate certificates of deposit are estimated using discounted cash flows and interest rates currently being offered in the market on similar certificates. Fair value for Federal Home Loan Bank long term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings. The carrying value of short-term Federal Home Loan Bank borrowings approximates its fair value.

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At December 31, 2019 and June 30, 2019, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

The carrying amounts and estimated fair value of financial instruments are as follows:

(In thousands)	December 31, 2019				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	34,542	$	34,542	$	34,542	$	-	$	-
Long term certificate of deposit		3,626		3,626		3,626		-		-
Securities available-for-sale		192,999		192,999		4,539		188,460		-
Securities held-to-maturity		331,989		343,896		-		343,896		-
Equity securities		265		265		265		-
Federal Home Loan Bank stock		3,554		3,554		-		3,554		-
Net loans receivable		851,065		850,856		-		-		850,856
Accrued interest receivable		6,810		6,810		-		6,810		-
Deposits		1,244,658		1,244,901		-		1,244,901		-
Borrowings from Federal Home Loan Bank		61,500		61,519		-		61,519		-
Accrued interest payable		133		133		-		133		-

(In thousands)	June 30, 2019				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	29,538	$	29,538	$	29,538	$	-	$	-
Long term certificate of deposit		2,875		2,875		2,875		-		-
Securities available-for-sale		122,728		122,728		1,550		121,178		-
Securities held-to-maturity		304,208		313,613		-		313,613		-
Equity Securities		253		253		253		-		-
Federal Home Loan Bank stock		1,759		1,759		-		1,759		-
Net loans receivable		785,738		781,614		-		-		781,614
Accrued interest receivable		5,853		5,853		-		5,853		-
Deposits		1,120,569		1,120,632		-		1,120,632		-
Borrowings from Federal Home Loan Bank		21,600		21,534		-		21,534		-
Accrued interest payable		110		110		-		110		-

Index

(7)	Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period. There were no dilutive or anti-dilutive securities or contracts outstanding during the three and six months ended December 31, 2019 and 2018.

	For the three months ended December 31,				For the six months ended December 31,
	2019		2018		2019		2018

Net Income	$	5,113,000	$	4,584,000	$	9,976,000	$	8,964,000
Weighted Average Shares – Basic		8,537,010		8,537,814		8,537,412		8,537,814
Weighted Average Shares - Dilute		8,537,010		8,537,814		8,537,412		8,537,814

Earnings per share - Basic	$	0.60	$	0.54	$	1.17	$	1.05
Earnings per share - Diluted	$	0.60	$	0.54	$	1.17	$	1.05

(8)

Dividends

On October 16, 2019, Greene County Bancorp, Inc. announced that its Board of Directors had approved a quarterly cash dividend of $0.11 per share on the Company’s common stock. The dividend reflects an annual cash dividend rate of $0.44 per share which represents a 10.0% increase from the previous annual cash dividend rate of $0.40 per share. The dividend was payable to stockholders of record as of November 15, 2019, and was paid on November 29, 2019. Greene County Bancorp, MHC did not waive its right to receive this dividend.

(9)	Impact of Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

The following accounting standards have been adopted in the first quarter ended September 30, 2019:

On July 1, 2019, the Company adopted ASU 2016-02 Leases and all subsequent amendments (collectively, “ASU 2016-02”). The objective of this ASU is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements to meet that objective. The main difference between previous GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Under this new guidance, a lessee should recognize in the statement of financial position a liability to make lease payments and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. ASU 2016-02 required a modified retrospective transition approach, applying the new standard to all leases existing at the date of initial application. The Company elected to use the effective date, July 1, 2019, as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before July 1, 2019. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Under ASU 2016-02, leases are classified as finance or operating, with the classification affecting the pattern and classification of expense recognition in the income statement. The Company’s leases, consisting of property leases for certain of our bank branches, are classified as operating leases. Operating lease ROU assets and liabilities were recognized in the amount of $1.7 million at commencement date, with no adjustment to retained earnings, based on the present value of lease payments over the lease term. As these leases do not provide an implicit rate, we use our incremental borrowing rate from the Federal Home Loan Bank of New York in determining the present value of lease payments. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for lease payments is recognized on a straight-line basis over the lease term. ASU 2016-02 did not have a material impact on the consolidated statements of income or the consolidated statements of cash flows.

Index

On July 1, 2019, the Company adopted ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) related to premium amortization on purchased callable debt securities. This Update shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted, including adoption in an interim period. If an entity early adopted the amendments in an interim period, any adjustments were reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

Accounting Pronouncements to be adopted in future periods

In June 2016, the FASB issued an Update (ASU 2016-13) to its guidance on “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above. Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. An entity will apply the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which aligns the implementation date for nonpublic entities’ annual financial statements with the implementation date for their interim financial statements and clarifies the scope of the guidance in the amendments in ASU 2016-13. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU 2019-04 clarifies or addresses stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13 related to measuring the allowance for loan losses under the new guidance. The effective dates and transition requirements for the amendments related to this Update are the same as the effective dates and transition requirements in Update 2016-13. In November 2019, the FASB issued ASU 2019-11 Codification Improvements to Topic 326 Financial Instruments Credit Losses provides additional clarification to specific issues about certain aspects of the amendments in Update 2016-13 related to measuring the allowance for loan losses under the new guidance. The Company is currently evaluating the potential impact on our consolidated results of operations or financial position. The initial adjustment will not be reported in earnings and therefore will not have any material impact on our consolidated results of operations, but it is expected that it will have an impact on our consolidated financial position at the date of adoption of this Update. At this time, we have not calculated the estimated impact that this Update will have on our Allowance for Loan Losses, however, we anticipate it will have a significant impact on the methodology process we utilize to calculate the allowance. A vendor has been selected and alternative methodologies are currently being considered. Data requirements and integrity are being reviewed and enhancements incorporated into standard processes. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, excluding small reporting companies such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, FASB issued ASU 2019-10, Financial Instruments – Credit Losses which amends the implementation effective date for small reporting companies, such as the Company, and non-public business entities, for fiscal years beginning after December 15, 2022. All entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the early stages of evaluation and implementation of the guidance.

Index

In August 2018, the FASB issued an Update (ASU 2018-13) to its guidance on “Fair Value Measurement (Topic 820)”. This update modifies the disclosure requirements on fair value measurements. The following disclosure requirements were removed from Topic 820: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; (3) the valuation processes for Level 3 fair value measurements; and (4) for nonpublic entities, the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements held at the end of the reporting period. The following disclosure requirements were modified in Topic 820: (1) in lieu of a rollforward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities; (2) for investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the entity or announced the timing publicly; and (3) the amendments clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The following disclosure requirements were added to Topic 820; however, the disclosures are not required for non-public entities: (1) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. In addition, the amendments eliminate at a minimum from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The amendments in ASU No. 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In August 2018, the FASB has issued an Update (ASU No. 2018-14), “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”, that applies to all employers that sponsor defined benefit pension or other postretirement plans. The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The following disclosure requirements were removed from Subtopic 715-20: (1) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year; (2) the amount and timing of plan assets expected to be returned to the employer; (3) the disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law; related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan; (4) for nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets; and (5) for public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits. The following disclosure requirements were added to Subtopic 715-20: (1) the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates; and (2) an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: (1) the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets; and (2) the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets. ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In April 2019, the FASB issued an Update (ASU 2019-04), Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments to Topic 326 and other topics in this Update include items related to the amendments in Update 2016-13 discussed at the June 2018 and November 2018 Credit Losses TRG meetings. The amendments clarify or address stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13 on a number of different topics, including the following: Accrued Interest, Transfers between Classifications or Categories for Loans and Debt Securities, Recoveries, Consideration of Prepayments in Determining the Effective Interest Rate, Consideration of Estimated Costs to Sell When Foreclosure Is Probable, Vintage Disclosures— Line-of-Credit Arrangements Converted to Term Loans, and Contractual Extensions and Renewals. The ASU also covered a number of issues that related to hedge accounting including: Partial-Term Fair Value Hedges of Interest Rate Risk, Amortization of Fair Value Hedge Basis Adjustments, Disclosure of Fair Value Hedge Basis Adjustments, Consideration of the Hedged Contractually Specified Interest Rate under the Hypothetical Derivative Method, Scoping for Not-for-Profit Entities, Hedge Accounting Provisions Applicable to Certain Private Companies and Not-for-Profit Entities, Application of a First-Payments-Received Cash Flow Hedging Technique to Overall Cash Flows on a Group of Variable Interest Payments, and Transition Guidance For Codification Improvements specific to ASU 2016-01. The following topics were covered within ASU 2019-04: Scope Clarifications, Held-to-Maturity Debt Securities Fair Value Disclosures, Applicability of Topic 820 to the Measurement Alternative, and Remeasurement of Equity Securities at Historical Exchange Rates. ASU 2019-04 has various implementation dates dependent on a number of factors as it pertains to the above items. The Company is in the early stages of evaluation of the guidance.

Index

(10)	Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension cost related to the defined benefit pension plan for the three and six months ended December 31, 2019 and 2018 were as follows:

	Three months ended December 31,						Six months ended December 31,
(In thousands)	2019			2018			2019			2018
Interest cost	$	49		$	54		$	98		$	108
Expected return on plan assets		(63	)		(59	)		(126	)		(118	)
Amortization of net loss		40			35			80			70
Net periodic pension cost	$	26		$	30		$	52		$	60

The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan during fiscal 2020.

SERP

The Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP Plan”), effective as of July 1, 2010. The SERP Plan benefits certain key senior executives of the Bank who have been selected by the Board to participate. The SERP Plan is intended to provide a benefit from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). The SERP Plan is more fully described in Note 10 of the consolidated financial statements as included in the Form 10-K and notes thereto for the year ended June 30, 2019.

The net periodic pension costs related to the SERP Plan for the three and six months ended December 31, 2019 were $214,000 and $419,000. The net periodic pension costs related to the SERP Plan for the three and six months ended December 31, 2018 were $163,000 and $322,000, respectively, consisting primarily of service costs and interest costs. The total liability for the SERP Plan was $5.7 million and $5.0 million at December 31, 2019 and June 30, 2019, respectively, and is included in accrued expenses and other liabilities. The total liability for the SERP Plan includes both accumulated net periodic pension costs and participant contributions.

(11)	Stock-Based Compensation

Phantom Stock Option Plan and Long-term Incentive Plan

The Greene County Bancorp, Inc. 2011 Phantom Stock Option and Long-term Incentive Plan (the “Plan”) was adopted effective July 1, 2011, to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s shareholders. The Plan is intended to provide benefits to employees and directors of the Company or any subsidiary as designated by the Compensation Committee of the Board of Directors of the Company (“Committee”). A phantom stock option represents the right to receive a cash payment on the date the award vests. The Plan is more fully described in Note 11 of the consolidated financial statements and notes thereto for the year ended June 30, 2019.

Index

A summary of the Company’s phantom stock option activity and related information for the Plan for the three and six months ended December 31, 2019 and 2018 is as follows:

	Three months ended December 31,					Six months ended December 31,
	2019			2018		2019			2018
Number of options outstanding, beginning of period		2,319,300			1,742,100		1,711,600			1,634,160
Options Granted		-			-		614,700			592,700
Options Forfeited		-			-		(7,000	)		-
Options Paid in Cash		(554,200	)		-		(554,200	)		(484,760	)
Number of options outstanding, end of period		1,765,100			1,742,100		1,765,100			1,742,100

	Three months ended December 31,				Six months ended December 31,
(In thousands)	2019		2018		2019		2018
Cash paid out on options vested	$	2,516	$	-	$	2,516	$	1,704
Compensation costs recognized		750		695		1,395		1,211

The total liability for the Plan was $3.0 million and $4.1 million at December 31, 2019 and June 30, 2019, respectively, and is included in accrued expenses and other liabilities.

(12)	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss for the three and six months ended December 31, 2019 and 2018 are presented in the following table:

Activity for the three months ended December 31, 2019 and 2018

(In thousands)	Unrealized gain (losses) on securities available- for-sale			Pension benefits			Total
Balance at September 30, 2018	$	(180	)	$	(1,633	)	$	(1,813	)
Other comprehensive gain before reclassification		293			-			293
Other comprehensive gain for the three months ended December 31, 2018		293			-			293
Balance at December 31, 2018	$	113		$	(1,633	)	$	(1,520	)

Balance at September 30, 2019	$	561		$	(1,838	)	$	(1,277	)
Other comprehensive loss before reclassification		(114	)		-			(114	)
Other comprehensive loss for the three months ended December 31, 2019		(114	)		-			(114	)
Balance at December 31, 2019	$	447		$	(1,838	)	$	(1,391	)

Index

Activity for the six months ended December 31, 2019 and 2018

(In thousands)	Unrealized gain (losses) on securities available- for-sale			Pension benefits			Total
Balance at June 30, 2018	$	10		$	(1,633	)	$	(1,623	)
Other comprehensive income before reclassification		217			-			217
Other comprehensive income for the six months ended December 31, 2018		217			-			217
Reclassification for change in accounting⁽¹⁾		(114	)		-			(114	)
Balance at December 31, 2018	$	113		$	(1,633	)	$	(1,520	)

Balance at June 30, 2019	$	832		$	(1,838	)	$	(1,006	)
Other comprehensive loss before reclassification		(385	)		-			(385	)
Other comprehensive income for the six months ended December 31, 2019		(385	)		-			(385	)
Balance at December 31, 2019	$	447		$	(1,838	)	$	(1,391	)

(1)

Adoption of ASU 2016-01 – cumulative effect of change in measurement of equity securities.

(13)	Revenue from Contracts with Customers

The majority of the Company's revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as loans and investment securities which are presented in our consolidated income statements as components of net interest income. All of the Company's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income, with the exception of net gains and losses from sales of foreclosed real estate, which is recognized within non-interest expense. The following table presents revenues subject to ASC 606 for the three and six months ended December 31, 2019 and 2018, respectively.

	For the three months ended December 31,				For the six months ended December 31,
(In thousands)	2019		2018		2019		2018
Service charges on deposit accounts
Insufficient funds fees	$	1,003	$	996	$	2,021	$	1,926
Deposit related fees		41		41		80		78
ATM/point of sale fees		67		69		135		139
Total service charges		1,111		1,106		2,236		2,143
Interchange fee income
Debit card interchange fees		755		685		1,498		1,325
E-commerce fee income
E-commerce fees		31		34		66		71
Investment services income
Investment services		168		136		313		251
Sales of assets
Net gain (loss) on sale of foreclosed real estate		-		-		76		(9	)

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which included services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are recognized at the time the maintenance occurs. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Index

Debit Card Interchange Fee Income: The Company earns interchange fees from debit cardholder transactions conducted through the Visa DPS payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to cardholder.

E-commerce income: The Company earns fees for merchant transaction processing services provided to its business customers by a third party service provider. The fees represent a percentage of the monthly transaction activity net of related costs, and are received from the service provider on a monthly basis.

Investment Services Income: The Company earns fees from investment brokerage services provided to its customers by a third-party service provider. The Company receives commissions from the third-party service provider on a monthly basis based upon customer activity for the month. The Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers. Investment brokerage fees are presented net of related costs.

Net Gains/Losses on Sales of Foreclosed Real Estate: The Company records a gain or loss from the sale of foreclosed real estate when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of foreclosed real estate to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed real estate asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

(14)	Operating leases

The Company leases certain branch properties under long-term, operating lease agreements. The Company’s operating lease agreements contain lease components, which are generally accounted for separately. The Company’s lease agreements do not contain any residual value guarantees. There were no significant rights and obligations of the Company for leases that have not commenced as of the reporting date. The following includes quantitative data related to the Company’s operating leases as of December 31, 2019:

(In thousands, except weighted-average information).
Operating Lease Amounts	December 31, 2019
Right-of-use assets	$	1,701
Lease liabilities	$	1,707

Other Information:
Operating outgoing cash flows from operating leases	$	155
Right-of-use assets obtained in exchange for new operating lease liabilities	$	1,840
Weighted-average remaining lease term (Years)		7.62
Weighted-average discount rate		2.51	%

	Three months ended December 31,		Six months ended December 31,
(In thousands)
Lease Costs
Operating lease cost	$	70	$	142
Variable lease cost	$	10	$	20

Index

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding common area maintenance charges and real estate taxes, as of December 31, 2019:

(in thousands)
Within the twelve months ended December 31,
2020	$	281
2021		283
2022		226
2023		208
2024		218
Thereafter		667
Total undiscounted cash flow		1,883
Less net present value adjustment		(176	)
Lease Liability	$	1,707

Right-of-use assets are included in prepaid expenses and other assets, and lease liabilities are included in accrued expenses and other liabilities within the Company’s statement of condition. The Company did not have any lease commitments that had not yet commenced at December 31, 2019.

(15)	Subsequent events

On January 21, 2020, the Board of Directors declared a cash dividend for the quarter ended December 31, 2019 of $0.11 per share on Greene County Bancorp, Inc.’s common stock. The dividend reflects an annual cash dividend rate of $0.44 per share, which was the same rate as the dividend declared during the previous quarter. The dividend will be payable to stockholders of record as of February 14, 2020, and will be paid on February 28, 2020. The MHC intends to waive its receipt of this dividend.

Index

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Overview of the Company’s Activities and Risks

Greene County Bancorp, Inc.’s results of operations depend primarily on its net interest income, which is the difference between the income earned on Greene County Bancorp, Inc.’s loan and securities portfolios and its cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by Greene County Bancorp, Inc.’s provision for loan losses, gains and losses from sales of securities, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges. Greene County Bancorp, Inc.’s noninterest expense consists principally of compensation and employee benefits, occupancy, equipment and data processing, and other operating expenses. Results of operations are also significantly affected by general economic and competitive conditions, changes in interest rates, as well as government policies and actions of regulatory authorities. Additionally, future changes in applicable law, regulations or government policies may materially affect Greene County Bancorp, Inc.

To operate successfully, the Company must manage various types of risk, including but not limited to, market or interest rate risk, credit risk, transaction risk, liquidity risk, security risk, strategic risk, reputation risk and compliance risk. While all of these risks are important, the risks of greatest significance to the Company relate to market or interest rate risk and credit risk.

Market risk is the risk of loss from adverse changes in market prices and/or interest rates. Since net interest income (the difference between interest earned on loans and investments and interest paid on deposits and borrowings) is the Company’s primary source of revenue, interest rate risk is the most significant non-credit related market risk to which the Company is exposed. Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of the Company’s assets and liabilities.

Interest rate risk is the exposure of the Company’s net interest income to adverse movements in interest rates. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancings, and the flow and mix of deposits.

Credit risk is the risk to the Company’s earnings and shareholders’ equity that results from customers, to whom loans have been made and to the issuers of debt securities in which the Company has invested, failing to repay their obligations. The magnitude of risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased.

Special Note Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements. Greene County Bancorp, Inc. desires to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and is including this statement for the express purpose of availing itself of the protections of the safe harbor with respect to all such forward-looking statements. These forward-looking statements, which are included in this Management’s Discussion and Analysis and elsewhere in this quarterly report, describe future plans or strategies and include Greene County Bancorp, Inc.’s expectations of future financial results. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions identify forward-looking statements. Greene County Bancorp, Inc.’s ability to predict results or the effect of future plans or strategies or qualitative or quantitative changes based on market risk exposure is inherently uncertain. Factors that could affect actual results include but are not limited to:

(a)

changes in general market interest rates,

(b)

general economic conditions, including unemployment rates and real estate values,

(c)

legislative and regulatory changes,

(d)

monetary and fiscal policies of the U.S. Treasury and the Federal Reserve,

(e)

changes in the quality or composition of The Bank of Greene County’s loan portfolio or the consolidated investment portfolios of The Bank of Greene County and Greene County Bancorp, Inc.,

(f)

deposit flows,

(g)

competition, and

(h)

demand for financial services in Greene County Bancorp, Inc.’s market area.

These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements, since results in future periods may differ materially from those currently expected because of various risks and uncertainties.

Index

Non-GAAP Financial Measures

Regulation G, a rule adopted by the Securities and Exchange Commission (SEC), applies to certain SEC filings, including earnings releases, made by registered companies that contain “non-GAAP financial measures.” GAAP is generally accepted accounting principles in the United States of America. Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure (if a comparable GAAP measure exists) and a statement of the Company’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. Financial institutions like the Company and its subsidiary banks are subject to an array of bank regulatory capital measures that are financial in nature but are not based on GAAP and are not easily reconcilable to the closest comparable GAAP financial measures, even in those cases where a comparable measure exists. The Company follows industry practice in disclosing its financial condition under these various regulatory capital measures in its periodic reports filed with the SEC, including period-end regulatory capital ratios for itself and its subsidiary banks, and does so without compliance with Regulation G, on the widely-shared assumption that the SEC regards such non-GAAP measures to be exempt from Regulation G. The Company uses in this Report additional non-GAAP financial measures that are commonly utilized by financial institutions and have not been specifically exempted by the SEC from Regulation G. The Company provides, as supplemental information, such non-GAAP measures included in this Report as described immediately below.

Tax-Equivalent Net Interest Income and Net Interest Margin: Net interest income, as a component of the tabular presentation by financial institutions of Selected Financial Information regarding their recently completed operations, as well as disclosures based on that tabular presentation, is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of another institution or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, tax-equivalent net interest income is generally used by financial institutions, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. While we present net interest income and net interest margin utilizing GAAP measures (no tax-equivalent adjustments) as a component of the tabular presentation within our disclosures, we do provide as supplemental information net interest income and net interest margin on a tax-equivalent basis.

Index

Comparison of Financial Condition at December 31, 2019 and June 30, 2019

ASSETS

Total assets of the Company were $1.4 billion at December 31, 2019 and $1.3 billion at June 30, 2019, an increase of $174.5 million, or 13.8%. Securities available-for-sale and held-to-maturity amounted to $525.0 million at December 31, 2019 as compared to $426.9 million at June 30, 2019, an increase of $98.1 million, or 23.0%. Net loans grew by $65.4 million, or 8.3%, to $851.1 million at December 31, 2019 as compared to $785.7 million at June 30, 2019.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased $5.0 million to $34.5 million at December 31, 2019 from $29.5 million at June 30, 2019. The level of cash and cash equivalents is a function of the daily account clearing needs and deposit levels as well as activities associated with securities transactions and loan funding. All of these items can cause cash levels to fluctuate significantly on a daily basis.

SECURITIES

Securities available-for-sale and held-to-maturity increased $98.1 million, or 23.0%, to $525.0 million at December 31, 2019 as compared to $426.9 million at June 30, 2019. Securities purchases totaled $184.3 million during the six months ended December 31, 2019 and consisted of $132.5 million of state and political subdivision securities and $41.0 million of mortgage-backed securities, $7.3 million of other securities, and $3.5 million of corporate securities. Principal pay-downs and maturities during the six months amounted to $85.4 million, of which $18.0 million were mortgage-backed securities, $58.5 million were state and political subdivision securities, $8.3 million were U.S. government sponsored enterprises and $0.6 million were other securities. At December 31, 2019, 61.4% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promote Greene County Bancorp, Inc.’s participation in the communities in which it operates. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.

	December 31, 2019					June 30, 2019
(Dollars in thousands)	Balance		Percentage of portfolio			Balance		Percentage of portfolio
Securities available-for-sale:
U.S. government sponsored enterprises	$	4,530		0.9	%	$	5,553		1.3	%
State and political subdivisions		148,332		28.2			96,570		22.6
Mortgage-backed securities-residential		10,316		2.0			2,645		0.6
Mortgage-backed securities-multifamily		25,282		4.8			16,410		3.8
Corporate debt securities		4,539		0.9			1,550		0.4
Total securities available-for-sale		192,999		36.8			122,728		28.7
Securities held-to-maturity:
U.S. government sponsored enterprises		2,000		0.4			9,249		2.2
State and political subdivisions		174,165		33.2			152,358		35.7
Mortgage-backed securities-residential		11,302		2.1			4,570		1.1
Mortgage-backed securities-multifamily		137,193		26.1			134,970		31.6
Corporate debt securities		1,993		0.4			1,478		0.3
Other securities		5,336		1.0			1,583		0.4
Total securities held-to-maturity		331,989		63.2			304,208		71.3
Total securities	$	524,988		100.0	%	$	426,936		100.0	%

LOANS

Net loans receivable increased $65.4 million, or 8.3%, to $851.1 million at December 31, 2019 from $785.7 million at June 30, 2019. The loan growth experienced during the six months consisted primarily of $20.3 million in commercial construction loans, $30.8 million in commercial real estate loans, $10.7 million in commercial loans, $2.1 million in residential mortgages, $1.2 million in multi-family loans and $1.2 million in residential construction and land loans. This growth was partially offset by a $441,000 decrease in home equity loans, and $784,000 increase in allowance for loan losses. We believe that the continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth. If long term rates begin to rise, the Company anticipates some slowdown in new loan demand as well as refinancing activities. The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products. A significant decline in home values, however, in the Company’s markets could have a negative effect on the consolidated results of operations, as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios. Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.

Index

(Dollars in thousands)	December 31, 2019						June 30, 2019
	Balance			Percentage of Portfolio			Balance			Percentage of Portfolio
Residential real estate	$	269,925			31.2	%	$	267,802			33.6	%
Residential construction and land		8,667			1.0			7,462			0.9
Multi-family		25,789			3.0			24,592			3.1
Commercial real estate		360,424			41.7			329,668			41.3
Commercial construction		56,648			6.6			36,361			4.5
Home equity		22,744			2.6			23,185			2.9
Consumer installment		5,769			0.7			5,481			0.7
Commercial loans		114,220			13.2			103,554			13.0
Total gross loans		864,186			100.0	%		798,105			100.0	%
Allowance for loan losses		(13,984	)					(13,200	)
Deferred fees and costs		863						833
Total net loans	$	851,065					$	785,738

ALLOWANCE FOR LOAN LOSSES

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 loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for an allowance for loan loss. In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses. Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The Bank of Greene County considers smaller balance residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Larger balance residential and commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Bank of Greene County charges loans off against the allowance for loan losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers. Generally, consumer loans and smaller business loans (not secured by real estate) in excess of 90 days are charged-off against the allowance for loan losses, unless equitable arrangements are made. For loans secured by real estate, a charge-off is recorded when it is determined that the collection of all or a portion of a loan may not be collected and the amount of that loss can be reasonably estimated. The allowance for loan losses is increased by a provision for loan losses (which results in a charge to expense) and recoveries of loans previously charged off and is reduced by charge-offs.

Index

Analysis of allowance for loan losses activity

	At or for the six months ended December 31,
(Dollars in thousands)	2019			2018
Balance at the beginning of the period	$	13,200		$	12,024
Charge-offs:
Residential real estate		101			96
Consumer installment		248			188
Commercial loans		204			-
Total loans charged off		553			284

Recoveries:
Residential real estate mortgages		10			13
Consumer installment		50			59
Commercial loans		36			153
Total recoveries		96			225

Net charge-offs		457			59

Provisions charged to operations		1,241			708
Balance at the end of the period	$	13,984		$	12,673

Net charge-offs to average loans outstanding (annualized)		0.11	%		0.02	%
Net charge-offs to nonperforming assets (annualized)		24.83	%		3.20	%
Allowance for loan losses to nonperforming loans		413.85	%		350.66	%
Allowance for loan losses to total loans receivable		1.62	%		1.66	%

Nonaccrual Loans and Nonperforming Assets

Loans are reviewed on a regular basis to assess collectability of all principal and interest payments due. Management determines that a loan is impaired or nonperforming when it is probable at least a portion of the principal or interest will not be collected in accordance with contractual terms of the note. When a loan is determined to be impaired, the measurement of the loan is based on present value of estimated future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral.

Generally, management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis. 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 viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral. Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors. 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. A loan does not have to be 90 days delinquent in order to be classified as nonperforming. Foreclosed real estate is considered to be a nonperforming asset.

Index

Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)	December 31, 2019			June 30, 2019
Nonaccruing loans:
Residential real estate	$	1,691		$	2,474
Multi-family		131			-
Commercial real estate		984			598
Home equity		311			452
Consumer installment		-			6
Commercial		262			108
Total nonaccruing loans		3,379			3,638
90 days & accruing
Residential real estate		-			-
Total 90 days & accruing		-			-
Total nonperforming loans		3,379			3,638
Foreclosed real estate:
Residential real estate		303			53
Total foreclosed real estate		303			53
Total nonperforming assets	$	3,682		$	3,691

Troubled debt restructuring:
Nonperforming (included above)	$	326		$	531
Performing (accruing and excluded above)		1,047			1,368

Total nonperforming assets as a percentage of total assets		0.25	%		0.29	%
Total nonperforming loans to net loans		0.40	%		0.46	%

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)	2019		2018		2019		2018
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	53	$	58	$	154	$	129
Interest income that was recorded on nonaccrual loans		42		23		92		55

Nonperforming assets amounted to $3.7 million at December 31, 2019 and June 30, 2019. Nonaccrual loans consisted primarily of loans secured by real estate at December 31, 2019 and June 30, 2019. Loans on nonaccrual status totaled $3.4 million at December 31, 2019 of which $1.1 million were in the process of foreclosure. At December 31, 2019, there were 10 residential loans in the process of foreclosure totaling $801,000. Included in nonaccrual loans were $1.2 million of loans which were less than 90 days past due at December 31, 2019, 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 $151,000 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, 2019 of which $1.6 million were in the process of foreclosure. At June 30, 2019, there were 12 residential loans in the process of foreclosure totaling $1.5 million. Included in nonaccrual loans were $1.8 million of loans which were less than 90 days past due at June 30, 2019, but have a recent history of delinquency greater than 90 days past due.

Impaired Loans

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment”. A loan is considered impaired when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring.

Index

The table below details additional information on impaired loans at December 31, 2019 and June 30, 2019:

(In thousands)	December 31, 2019		June 30, 2019
Balance of impaired loans, with a valuation allowance	$	2,183	$	2,000
Allowances relating to impaired loans included in allowance for loan losses		217		262
Balance of impaired loans, without a valuation allowance		1,208		1,894
Total impaired loans		3,391		3,894

	For the three months ended December 31,				For the six months ended December 31,
(In thousands)	2019		2018		2019		2018
Average balance of impaired loans for the periods ended	$	3,272	$	3,920	$	3,150	$	3,938
Interest income recorded on impaired loans during the periods ended		41		25		108		63

DEPOSITS

Deposits totaled $1.2 billion at December 31, 2019 and $1.1 billion at June 30, 2019, an increase of $124.1 million, or 11.1%. Noninterest-bearing deposits increased $2.6 million, or 2.4%, NOW deposits increased $123.1 million, or 19.0%, and savings deposits increased $2.3 million, or 1.1% when comparing December 31, 2019 and June 30, 2019. These increases were offset by a decrease in money market deposits of $3.4 million, or 3.0%, and a decrease in certificates of deposits of $564,000, or 1.5%, when comparing December 31, 2019 and June 30, 2019.

(In thousands)	December 31, 2019		Percentage of Portfolio			June 30, 2019		Percentage of Portfolio
Noninterest-bearing deposits	$	110,100		8.8	%	$	107,469		9.6	%
Certificates of deposit		35,978		2.9			36,542		3.3
Savings deposits		216,966		17.4			214,680		19.2
Money market deposits		111,500		9.0			114,915		10.2
NOW deposits		770,114		61.9			646,963		57.7
Total deposits	$	1,244,658		100.0	%	$	1,120,569		100.0	%

BORROWINGS

At December 31, 2019, The Bank of Greene County had pledged approximately $312.5 million of its residential and commercial mortgage portfolio as collateral for borrowing and irrevocable stand-by letters of credit at the Federal Home Loan Bank of New York (“FHLB”). The maximum amount of funding available from the FHLB was $232.1 million at December 31, 2019, of which $12.6 million in borrowings and $75.6 million in irrevocable stand-by letters of credit were outstanding at December 31, 2019. There were $48.9 million of short-term or overnight borrowings outstanding at December 31, 2019. The $12.6 million consisted of long-term fixed rate advances with a weighted average rate of 1.68% and a weighted average maturity of 13 months. The $75.6 million of irrevocable stand-by letters of credit with the FHLB have been issued to secure municipal transactional deposit accounts, on behalf of Greene County Commercial Bank.

The Bank of Greene County also pledges securities and certificates of deposit as collateral at the Federal Reserve Bank discount window for overnight borrowings. At December 31, 2019, approximately $5.3 million of collateral consisting of $4.5 million in securities and $752,000 of certificates of deposit, was available to be pledged against potential borrowings at the Federal Reserve Bank discount window. There were no balances outstanding with the Federal Reserve Bank at December 31, 2019 or June 30, 2019.

The Bank of Greene County has established unsecured lines of credit with Atlantic Central Bankers Bank for $10.0 million and two other financial institutions for $40.0 million. Greene County Bancorp, Inc. has also established an unsecured line of credit with Atlantic Central Bankers Bank for $7.5 million. The lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing. At December 31, 2019 and June 30, 2019, there were no balances outstanding on any of these lines of credit.

Index

Scheduled maturities of long-term borrowings at December 31, 2019 were as follows:

(In thousands)
Within the twelve months ended December 31,
2020	$	6,500
2021		2,950
2022		3,150
	$	12,600

EQUITY

Shareholders’ equity increased to $120.5 million at December 31, 2019 from $112.4 million at June 30, 2019, resulting primarily from net income of $10.0 million and a decrease in other accumulated comprehensive loss of $385,000, partially offset by dividends declared and paid of $1.4 million.

On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to 200,000 shares of its common stock. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. At December 31, 2019, the Company had repurchased 1,400 shares.

Selected Equity Data:

	December 31, 2019			June 30, 2019
Shareholders’ equity to total assets, at end of period		8.35	%		8.85	%
Book value per share	$	14.12		$	13.16
Closing market price of common stock	$	28.79		$	29.42

	For the six months ended December 31,
	2019			2018
Average shareholders’ equity to average assets		8.52	%		8.60	%
Dividend payout ratio¹		18.80	%		19.05	%
Actual dividends paid to net income²		13.79	%		13.96	%

¹The dividend payout ratio has been calculated based on the dividends declared per share divided by basic earnings per share. No adjustments have been made for dividends waived by Greene County Bancorp, MHC (“MHC”), the owner of 54.0% of the Company’s shares outstanding.

²Dividends declared divided by net income. The MHC waived its right to receive dividends declared during the three months ended September 30, 2019. Dividends declared during the three months ended December 31, 2019 were paid to the MHC. Dividends declared during the three months ended September 30, 2018 were paid to the MHC. The MHC waived its right to receive dividends during the three months ended December 31, 2018. The MHC’s ability to waive the receipt of dividends is dependent upon annual approval of its members as well as receiving the non-objection of the Federal Reserve Board.

Index

Comparison of Operating Results for the Three and Six Months Ended December 31, 2019 and 2018

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the three and six months ended December 31, 2019 and 2018. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, are expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances were based on daily averages. Average loan balances include nonperforming loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

	Three months ended December 31,
	2019								2018
(Dollars in thousands)	Average Outstanding Balance			Interest Earned / Paid		Average Yield / Rate			Average Outstanding Balance			Interest Earned / Paid		Average Yield / Rate
Interest-earning Assets:
Loans receivable, net¹	$	841,604		$	9,801		4.66	%	$	750,182		$	8,696		4.64	%
Securities²		516,840			3,166		2.45			393,525			2,624		2.67
Interest-bearing bank balances and federal funds		43,559			207		1.90			5,111			28		2.19
FHLB stock		1,619			23		5.68			1,950			58		11.90
Total interest-earning assets		1,403,622			13,197		3.76	%		1,150,768			11,406		3.96	%
Cash and due from banks		10,328								9,633
Allowance for loan losses		(13,525	)							(12,452	)
Other noninterest-earning assets		23,445								20,186
Total assets	$	1,423,870							$	1,168,135

Interest-Bearing Liabilities:
Savings and money market deposits	$	318,522		$	323		0.41	%	$	325,726		$	295		0.36	%
NOW deposits		808,219			1,760		0.87			554,996			832		0.60
Certificates of deposit		36,374			122		1.34			45,335			144		1.27
Borrowings		18,485			81		1.75			27,171			140		2.06
Total interest-bearing liabilities		1,181,600			2,286		0.77	%		953,228			1,411		0.59	%
Noninterest-bearing deposits		108,256								102,467
Other noninterest-bearing liabilities		15,760								10,744
Shareholders' equity		118,254								101,696
Total liabilities and equity	$	1,423,870							$	1,168,135

Net interest income				$	10,911							$	9,995
Net interest rate spread							2.99	%							3.37	%
Net earnings assets	$	222,022							$	197,540
Net interest margin							3.11	%							3.47	%
Average interest-earning assets to average interest-bearing liabilities		118.79	%							120.72	%

¹Calculated net of deferred loan fees and costs, loan discounts, and loans in process.

²Includes tax-free securities, mortgage-backed securities, and asset-backed securities.

Taxable-equivalent net interest income and net interest margin	For the three months ended December 31,
(Dollars in thousands)	2019			2018
Net interest income (GAAP)	$	10,911		$	9,995
Tax-equivalent adjustment⁽¹⁾		627			493
Net interest income (fully taxable-equivalent)	$	11,538		$	10,488

Average interest-earning assets	$	1,403,622		$	1,150,768
Net interest margin (fully taxable-equivalent)		3.29	%		3.65	%

¹Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. The rate used for this adjustment was 21% for federal income taxes and 3.98% for New York State income taxes for the periods ended December 31, 2019 and 2018.

Index

	Six months ended December 31,
	2019								2018
(Dollars in thousands)	Average Outstanding Balance			Interest Earned / Paid		Average Yield / Rate			Average Outstanding Balance			Interest Earned / Paid		Average Yield / Rate
Interest-earning Assets:
Loans receivable, net¹	$	823,051		$	19,206		4.67	%	$	737,662		$	16,994		4.61	%
Securities²		479,199			6,148		2.57			396,196			5,264		2.66
Interest-bearing bank balances and federal funds		41,533			405		1.95			5,945			59		1.98
FHLB stock		1,512			46		6.08			2,631			86		6.54
Total interest-earning assets		1,345,295			25,805		3.84	%		1,142,434			22,403		3.92	%
Cash and due from banks		10,532								9,629
Allowance for loan losses		(13,377	)							(12,284	)
Other noninterest-earning assets		22,547								19,671
Total assets	$	1,364,997							$	1,159,450

Interest-Bearing Liabilities:
Savings and money market deposits	$	324,109		$	664		0.41	%	$	334,362		$	588		0.35	%
NOW deposits		748,421			3,346		0.89			527,348			1,473		0.56
Certificates of deposit		36,679			245		1.34			42,453			246		1.16
Borrowings		16,110			139		1.73			42,298			444		2.10
Total interest-bearing liabilities		1,125,319			4,394		0.78	%		946,461			2,751		0.58	%
Noninterest-bearing deposits		107,465								102,341
Other noninterest-bearing liabilities		15,917								10,915
Shareholders' equity		116,296								99,733
Total liabilities and equity	$	1,364,997							$	1,159,450

Net interest income				$	21,411							$	19,652
Net interest rate spread							3.06	%							3.34	%
Net earnings assets	$	219,976							$	195,973
Net interest margin							3.18	%							3.44	%
Average interest-earning assets to average interest-bearing liabilities		119.55	%							120.71	%

¹Calculated net of deferred loan fees and costs, loan discounts, and loans in process.

²Includes tax-free securities, mortgage-backed securities, and asset-backed securities.

Taxable-equivalent net interest income and net interest margin	For the six months ended December 31,
(Dollars in thousands)	2019			2018
Net interest income (GAAP)	$	21,411		$	19,652
Tax-equivalent adjustment⁽¹⁾		1,203			962
Net interest income (fully taxable-equivalent)	$	22,614		$	20,614

Average interest-earning assets	$	1,345,295		$	1,142,434
Net interest margin (fully taxable-equivalent)		3.36	%		3.61	%

Index

Rate / Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected Greene County Bancorp, Inc.’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to:

(i)

Change attributable to changes in volume (changes in volume multiplied by prior rate);

(ii)

Change attributable to changes in rate (changes in rate multiplied by prior volume); and

(iii)

The net change.

The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

(Dollars in thousands)	Three Months Ended December 31, 2019 versus 2018									Six Months Ended December 31, 2019 versus 2018
	Increase/(Decrease) Due To						Total Increase/			Increase/(Decrease) Due To						Total Increase/
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)

Interest Earning Assets:
Loans receivable, net¹	$	1,067		$	38		$	1,105		$	1,988		$	224		$	2,212
Securities²		772			(230	)		542			1,068			(184	)		884
Interest-bearing bank balances and federal funds		183			(4	)		179			347			(1	)		346
FHLB stock		(8	)		(27	)		(35	)		(35	)		(5	)		(40	)
Total interest-earning assets		2,014			(223	)		1,791			3,368			34			3,402

Interest-Bearing Liabilities:
Savings and money market deposits		(7	)		35			28			(19	)		95			76
NOW deposits		467			461			928			779			1,094			1,873
Certificates of deposit		(30	)		8			(22	)		(35	)		34			(1	)
Borrowings		(40	)		(19	)		(59	)		(237	)		(68	)		(305	)
Total interest-bearing liabilities		390			485			875			488			1,155			1,643
Net change in net interest income	$	1,624		$	(708	)	$	916		$	2,880		$	(1,121	)	$	1,759

¹ Calculated net of deferred loan fees, loan discounts, and loans in process.

² Includes tax-free securities, mortgage-backed securities, and asset-backed securities.

GENERAL

Return on average assets and return on average equity are common methods of measuring operating results. Annualized return on average assets decreased to 1.44% for the three months ended December 31, 2019 as compared to 1.57% for the three months ended December 31, 2018, and was 1.46% and 1.55% for the six months ended December 31, 2019 and 2018, respectively. Annualized return on average equity decreased to 17.29% for the three months and 17.16% for the six months ended December 31, 2019, as compared to 18.03% for the three months and 17.98% for the six months ended December 31, 2018. The decrease in return on average assets and return on average equity was primarily the result of balance sheet growth outpacing growth in net income. Net income amounted to $5.1 million and $4.6 million for the three months ended December 31, 2019 and 2018, respectively, an increase of $529,000, or 11.5%, and amounted to $10.0 million and $9.0 million for the six months ended December 31, 2019 and 2018, respectively, an increase of $1.0 million, or 11.1%. Average assets increased $255.7 million, or 21.9%, to $1.4 billion for the three months ended December 31, 2019 as compared to $1.2 billion for the three months ended December 31, 2018. Average equity increased $16.6 million, or 16.3%, to $118.3 million for the three months ended December 31, 2019 as compared to $101.7 million for the three months ended December 31, 2018. Average assets increased $205.5 million, or 17.7%, to $1.4 billion for the six months ended December 31, 2019 as compared to $1.2 billion for the six months ended December 31, 2018. Average equity increased $16.6 million, or 16.6%, to $116.3 million for the six months ended December 31, 2019 as compared to $99.7 million for the six months ended December 31, 2018.

Index

INTEREST INCOME

Interest income amounted to $13.2 million for the three months ended December 31, 2019 as compared to $11.4 million for the three months ended December 31, 2018, an increase of $1.8 million, or 15.8%. Interest income amounted to $25.8 million for the six months ended December 31, 2019 as compared to $22.4 million for the six months ended December 31, 2018, an increase of $3.4 million, or 15.2%. The increase in average loan and securities balances had the greatest impact on interest income when comparing the three and six months ended December 31, 2019 and 2018. Average loan balances increased $91.4 million and $85.4 million while the yield on loans increased two basis points and six basis points when comparing the three and six months ended December 31, 2019 and 2018, respectively. Average securities increased $123.3 million and $83.0 million and the yield on such securities decreased 22 basis points and nine basis points when comparing the three and six months ended December 31, 2019 and 2018.

INTEREST EXPENSE

Interest expense amounted to $2.3 million for the three months ended December 31, 2019 as compared to $1.4 million for the three months ended December 31, 2018, an increase of $875,000 or 62.0%. Interest expense amounted to $4.4 million for the six months ended December 31, 2019 as compared to $2.8 million for the six months ended December 31, 2018, an increase of $1.6 million, or 57.1%. Increases in both the rate paid and the increase in average balances of NOW accounts had the greatest impact on interest expense and was the result of promotions within the Company’s newer markets targeting new businesses, municipal and retail customers as well as the impact from increased market interest rates during fiscal 2019. As illustrated in the rate/volume table, interest expense increased $485,000 and $1.2 million when comparing the three and six months ended December 31, 2019 and 2018 due to the increase in the rate paid on interest-bearing liabilities. Interest expense increased $390,000 and $488,000 when comparing these same periods due to the increased average balances.

Average interest-bearing liabilities increased $228.4 million and $178.9 million when comparing the three and six months ended December 31, 2019, respectively. The average rate paid on interest-bearing liabilities increased 18 basis points to 0.77% from 0.59% when comparing the three months ended December 31, 2019 and 2018, respectively, and increased 20 basis points to 0.78% from 0.58% when comparing the six months ended December 31, 2019 and 2018.

Average deposits increased $237.1 million and $205.0 million for the three and six months ended December 31, 2019 and 2018, respectively, as a result of continued growth across all three of our primary banking lines – retail, commercial and municipal. The average rate paid on NOW deposits increased 27 basis points when comparing the three months ended December 31, 2019 and 2018, and the average balance of such accounts grew by $253.2 million when comparing these same periods. The average rate paid on NOW deposits increased 33 basis points when comparing the six months ended December 31, 2019 and 2018, and the average balance of such accounts increased $221.1 million when comparing these same periods. The average balance of savings and money market deposits decreased $7.2 million and $10.3 million when comparing the three and six months ended December 31, 2019 and 2018, respectively. The rates paid on savings and money market deposits increased five basis points and six basis points when comparing the three and six months ended December 31, 2019 and 2018, respectively. The average balance of certificates of deposit decreased $9.0 million and $5.8 million when comparing the three and six months ended December 31, 2019 and 2018, respectively. The average rate paid on certificate of deposits increased seven basis and 18 basis points when comparing the three and six months ended December 31, 2019 and 2018.

The average balance on borrowings decreased $8.7 million and $26.2 million when comparing the three and six months ended December 31, 2019 and 2018. The rate decreased 31 basis points and 37 basis points when comparing the three and six months ended December 31, 2019 and 2018.

NET INTEREST INCOME

Net interest income increased $916,000 million to $10.9 million for the three months ended December 31, 2019 from $10.0 million for the three months ended December 31, 2018. Net interest income increased $1.7 million to $21.4 million for the six months ended December 31, 2019 from $19.7 million for the six months ended December 31, 2018. These increases in net interest income were primarily the result of growth in the average balance of interest-earning assets, with continued growth in loans and securities, funded primarily from growth in deposits.

Net interest spread decreased 38 basis points to 2.99% for the three months ended December 31, 2019 compared to 3.37% for the three months ended December 31, 2018. Net interest margin decreased 36 basis points to 3.11% for the three months ended December 31, 2019 compared to 3.47% for the three months ended December 31, 2018. Net interest spread and margin decreased 28 basis points and 26 basis points to 3.06% and 3.18%, respectively, for the six months ended December 31, 2019 compared to 3.34% and 3.44%, respectively, for the six months ended December 31, 2018. Decreases in net interest spread and margin are primarily the result of the higher cost of interest-bearing liabilities and lower yields on securities, partially offset by growth in average loan and securities balances.

Index

Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. Tax equivalent net interest margin was 3.29% and 3.65% for the three months ended December 31, 2019 and 2018, respectively, and was 3.36% and 3.61% for the six months ended December 31, 2019 and 2018, respectively. As a result of the enactment of the Tax Cut and Jobs Act of 2017 (“TCJA”) in December 2017, which permanently reduces the maximum corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, the tax benefits derived from tax-exempt securities and loans is lower for the three and six months ended December 31, 2018 compared to December 31, 2017. However, beginning January 1, 2018, pricing of tax-exempt securities and loan originations have been adjusted to reflect the change in the corporate tax rate, thereby producing a tax-equivalent yield on these securities and loans that are comparable to yields obtained on similar taxable investments.

Due to the large portion of fixed-rate residential mortgages in the Company’s portfolio, interest rate risk is a concern and the Company will continue to monitor and adjust the asset and liability mix as much as possible to take advantage of the benefits and reduce the risks or potential negative effects of a rising rate environment. Management attempts to mitigate the interest rate risk through balance sheet composition. Several strategies are used to help manage interest rate risk such as maintaining a high level of liquid assets such as short-term federal funds sold and various investment securities and maintaining a high concentration of less interest-rate sensitive and lower-costing core deposits.

PROVISION FOR LOAN LOSSES

Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary. The amount recognized for the provision for loan losses is determined by management based on its ongoing analysis of the adequacy of the allowance for loan losses.

Provision for loan losses amounted to $690,000 and $354,000 for the three months ended December 31, 2019 and 2018, respectively, and amounted to $1.2 million and $708,000 for the six months ended December 31, 2019 and 2018, respectively. This increase was due to the growth in gross loans as well as an increase in loans adversely classified. Loans classified as substandard or special mention totaled $24.7 million at December 31, 2019 compared to $17.1 million at June 30, 2019, an increase of $7.6 million. Reserves on these loans totaled $1.9 million at December 31, 2019 compared to $1.5 million at June 30, 2019, an increase of $395,000. The increase in classified loans is primarily due to the downgrade of a construction loan to special mention during the six months ended December 31, 2019 as a result of project cost overruns and several delinquent payment. No loans were classified as doubtful or loss at December 31, 2019 or June 30, 2019. Allowance for loan losses to total loans receivable was 1.62% at December 31, 2019, and 1.65% at June 30, 2019.

Net charge-offs for the three months ended December 31, 2019 totaled $149,000 compared to a net recovery for the three months ended December 31, 2018 of $11,000. Net charge-offs totaled $457,000 and $59,000 for the six months ended December 31, 2019 and 2018, respectively. This increase in charge-off activity was primarily within the commercial loan and consumer loan portfolios. Commercial loan net charge-offs totaled $168,000 for the six months ended December 31, 2019 compared to a net recovery of $153,000 for the six months ended December 31, 2018. Consumer loan net charge-offs totaled $198,000 and $129,000 for the six months ended December 31, 2019 and 2018, respectively, an increase of $69,000. The increase in the consumer loan portfolio is the result of an increase in charge-offs related to the deposit overdraft protection program, and is due to the significant growth in the number of checking accounts with overdraft protection as well as a recent increase in the amount of protection provided per account.

Nonperforming loans amounted to $3.4 million and $3.6 million at December 31, 2019 and June 30, 2019, respectively. At December 31, 2019 and June 30, 2019, nonperforming assets were 0.25% and 0.29% of total assets, and nonperforming loans were 0.40% and 0.46% of net loans. At December 31, 2018, nonperforming assets to total assets were 0.31% and nonperforming loans to net loans were 0.48%. The Company has not been an originator of “no documentation” mortgage loans, and the loan portfolio does not include any mortgage loans that the Company classifies as sub-prime.

NONINTEREST INCOME

(In thousands)	For the three months ended December 31,				Change from Prior Year						For the six months ended December 31,				Change from Prior Year
Noninterest income:	2019		2018		Amount			Percent			2019		2018		Amount			Percent
Service charges on deposit accounts	$	1,111	$	1,106	$	5			0.45	%	$	2,236	$	2,143	$	93			4.34	%
Debit card fees		755		685		70			10.22			1,498		1,325		173			13.06
Investment services		168		136		32			23.53			313		251		62			24.70
E-commerce fees		31		34		(3	)		(8.82	)		66		71		(5	)		(7.04	)
Other operating income		251		180		71			39.44			469		403		66			(16.38	)
Total noninterest income	$	2,316	$	2,141	$	175			8.17	%	$	4,582	$	4,193	$	389			9.28	%

Index

Noninterest income increased $175,000, or 8.2%, and totaled $2.3 million and $2.1 million for the three months ended December 31, 2019 and 2018. Noninterest income increased $389,000, or 9.3%, and totaled $4.6 million and $4.2 million for the six months ended December 31, 2019 and 2018. This increase was primarily due to increases in debit card fees and service charges on deposit accounts resulting from continued growth in the number of checking accounts with debit cards, as well as increased monthly or transactional service charges on deposit accounts. Investment services income also increased during the period due to higher sales volume of investment products.

NONINTEREST EXPENSE

(In thousands)	For the three months ended December 31				Change from Prior Year						For the six months ended December 31,					Change from Prior Year
Noninterest expense:	2019		2018		Amount			Percent			2019			2018		Amount			Percent
Salaries and employee benefits	$	3,992	$	3,677	$	315			8.57	%	$	7,934		$	7,155	$	779			10.89	%
Occupancy expense		441		414		27			6.52			907			816		91			11.15
Equipment and furniture expense		126		127		(1	)		(0.79	)		407			341		66			19.35
Service and data processing fees		638		542		96			17.71			1,212			1,037		175			16.88
Computer software, supplies and support		264		200		64			32.00			506			423		83			19.62
Advertising and promotion		142		76		66			86.84			258			196		62			31.63
FDIC insurance premiums		12		100		(88	)		(88.00	)		(27	)		227		(254	)		(111.89	)
Legal and professional fees		325		283		42			14.84			604			612		(8	)		(1.31	)
Other		595		828		(233	)		(28.14	)		1,156			1,401		(245	)		(17.49	)
Total noninterest expense	$	6,535	$	6,247	$	288			4.61	%	$	12,957		$	12,208	$	749			6.14	%

Noninterest expense increased $288,000 or 4.6%, to $6.5 million for the three months ended December 31, 2019 as compared to $6.2 million for the three months ended December 31, 2018. Noninterest expense increased $749,000, or 6.1%, to $13.0 million for the six months ended December 31, 2019, compared to $12.2 million for the six months ended December 31, 2018. This increase, during the three and six months ended December 31, 2019, was primarily due to an increase in salaries and employee benefits expenses, resulting from additional staffing for the addition of a new branch located in Kinderhook-Valatie, New York, which opened in July 2019. As the Company continues to grow, staffing was also increased within our lending department, customer service center and investment center. This increase was partially offset by a decrease in FDIC insurance premiums. In January 2019, the FDIC provided notification to the Company that a credit in the amount of $177,000 was calculated for The Bank of Greene County, and a credit in the amount of $91,000 was calculated for Greene County Commercial Bank, based on a change in assessments under FDIC regulations resulting from the Deposit Insurance Fund Reserve Ratio reaching 1.36. The Deposit Insurance Fund reserve ratio was above 1.38% as of June 30, 2019 and September 30, 2019, and therefore, the FDIC offset regular deposit insurance assessments with credits on the September and December 2019 invoices. The Company received credits totaling $120,000 and $228,000 during the three and six months ended December 31, 2019. This credit was applied against FDIC insurance premiums expense. Other noninterest expense also decreased for both the three and six months ended December 31, 2019 and was due to a charitable donation made to the Company’s Charitable Foundation during the three and six months ended December 31, 2018.

INCOME TAXES

The provision for income taxes directly reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements. The effective tax rate was 14.8% and 15.4% for the three and six months ended December 31, 2019, compared to 17.2% and 18.0% for the three and six months ended December 31, 2018. The statutory tax rate is impacted by the benefits derived from tax exempt bond and loan income, the Company’s real estate investment trust subsidiary income, as well as the tax benefits derived from premiums paid to the Company’s pooled captive insurance subsidiary to arrive at the effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. Greene County Bancorp, Inc.’s most significant form of market risk is interest rate risk since the majority of Greene County Bancorp, Inc.’s assets and liabilities are sensitive to changes in interest rates. Greene County Bancorp, Inc.’s primary sources of funds are deposits and proceeds from principal and interest payments on loans, mortgage-backed securities and debt securities, with lines of credit available through the Federal Home Loan Bank and Atlantic Central Bankers Bank as needed. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and lending activities are greatly influenced by general interest rates, economic conditions and competition.

Index

The Bank of Greene County’s unfunded loan commitments and unused lines of credit are as follows at December 31, 2019:

(In thousands)	2019
Unfunded loan commitments	$	73,667
Unused lines of credit		60,110
Total commitments	$	133,777

Risk Participation Agreements

Risk participation agreements (“RPAs”) are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. Under the terms of these agreements, the “participating bank” receives a fee from the “lead bank” in exchange for the guarantee of reimbursement if the customer defaults on an interest rate swap. The interest rate swap is transacted such that any and all exchanges of interest payments (favorable and unfavorable) are made between the lead bank and the customer. In the event that an early termination of the swap occurs and the customer is unable to make a required close out payment, the participating bank assumes that obligation and is required to make this payment.

RPAs where the Company acts as the lead bank are referred to as “participations-out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company. Participations-out generally occur concurrently with the sale of new customer derivatives. The Company had no participations-out at December 31, 2019 or June 30, 2019. RPAs where the Company acts as the participating bank are referred to as “participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivables from the customer. The Company’s estimate of the credit exposure associated with its risk participations-in was $2.1 million and $1.2 million at December 31, 2019 and June 30, 2019, respectively. The current amount of credit exposure is spread out over five counterparties, and terms range between five to ten years.

Greene County Bancorp, Inc. anticipates that it will have sufficient funds available to meet current loan commitments based on the level of cash and cash equivalents as well as the available-for-sale investment portfolio and borrowing capacity.

Index

The Bank of Greene County and Greene County Commercial Bank met all applicable regulatory capital requirements at December 31, 2019 and June 30, 2019. Consolidated shareholders’ equity represented 8.4% and 8.9% of total assets at December 31, 2019 and at June 30, 2019, respectively.

											To Be Well Capitalized Under
(Dollars in thousands)	Actual					For Capital Adequacy Purposes					Prompt Corrective Action Provisions					Capital Conservation Buffer
The Bank of Greene County	Amount		Ratio			Amount		Ratio			Amount		Ratio			Actual			Required
As of December 31, 2019:

Total risk-based capital	$	128,629		15.45	%	$	66,590		8.0	%	$	83,238		10.0	%		7.45	%		2.50	%
Tier 1 risk-based capital		118,181		14.20			49,943		6.0			66,590		8.0			8.20			2.50
Common equity tier 1 capital		118,181		14.20			37,457		4.5			54,104		6.5			9.70			2.50
Tier 1 leverage ratio		118,181		8.32			56,788		4.0			70,985		5.0			4.32			2.50

As of June 30, 2019:

Total risk-based capital	$	118,113		15.8	%	$	59,842		8.0	%	$	74,802		10.0	%		7.79	%		2.50	%
Tier 1 risk-based capital		108,716		14.5			44,881		6.0			59,842		8.0			8.53			2.50
Common equity tier 1 capital		108,716		14.5			33,661		4.5			48,621		6.5			10.03			2.50
Tier 1 leverage ratio		108,716		8.7			50,049		4.0			62,561		5.0			4.69			2.50

Greene County Commercial Bank
As of December 31, 2019:

Total risk-based capital	$	51,204		43.1	%	$	9,499		8.0	%	$	11,874		10.0	%		35.12	%		2.50	%
Tier 1 risk-based capital		51,204		43.1			7,124		6.0			9,499		8.0			37.12			2.50
Common equity tier 1 capital		51,204		43.1			5,343		4.5			7,718		6.5			38.62			2.50
Tier 1 leverage ratio		51,204		8.4			24,464		4.0			30,580		5.0			4.37			2.50

As of June 30, 2019:

Total risk-based capital	$	47,366		47.4	%	$	7,996		8.0	%	$	9,996		10.0	%		39.39	%		2.50	%
Tier 1 risk-based capital		47,366		47.4			5,997		6.0			7,996		8.0			41.39			2.50
Common equity tier 1 capital		47,366		47.4			4,498		4.5			6,497		6.5			42.89			2.50
Tier 1 leverage ratio		47,366		9.6			19,678		4.0			24,597		5.0			5.63			2.50

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4.

Controls and Procedures

Under the supervision and with the participation of the Company's management, including its Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and in timely altering them to material information relating to the Company (or its consolidated subsidiaries) required to be filed in its periodic SEC filings.

There has been no change in the Company's internal control over financial reporting in connection with the quarterly evaluation that occurred during the Company's last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Index

Part II.

Other Information

Item 1.

Legal Proceedings

Greene County Bancorp, Inc. and its subsidiaries are not engaged in any material legal proceedings at the present time.

Item 1A.

Risk Factors

Not applicable to smaller reporting companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable

The following table presents stock purchases made during the quarter ended December 31, 2019:

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
October 1-31		-	$	-		-		200,000
November 1-30		1,400	$	26.87		1,400		198,600
December 1-31		-	$	-		-		198,600

Item 3.

Defaults Upon Senior Securities

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other Information

Not applicable

There were no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors during the period covered by this Form 10-Q.

Item 6.

Exhibits

	Exhibits
	31.1	Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
	31.2	Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
	32.1	Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
	32.2	Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350
	101	The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended December 31, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) Consolidated Statements of Cash Flows and (iv) related notes, tagged as blocks of text.

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned thereunto duly authorized.

Greene County Bancorp, Inc.

Date: February 6, 2020

By: /s/ Donald E. Gibson

Donald E. Gibson
President and Chief Executive Officer

Date: February 6, 2020

By: /s/ Michelle M. Plummer

Michelle M. Plummer, CPA, CGMA
Executive Vice President, Chief Financial Officer, and Chief Operating Officer

GREENE COUNTY BANCORP INC - FORM 10-Q - February 6, 2020

Attached files

GREENE COUNTY BANCORP INC Reports