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Section 1: 10-Q (10-Q)


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


GREENE COUNTY BANCORP, INC.
(Exact name of registrant as specified in its charter)

Commission file number  0-25165

United States

14-1809721
(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer  Identification Number)

302 Main Street, Catskill, New York

12414
(Address of principal executive office)

(Zip code)

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

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)


3

4

5

6

7

8-31



Item 2.
32-46



Item 3.
47



Item 4.
47



PART II.
OTHER INFORMATION




Item 1.
48



Item 1A.
48



Item 2.
48



Item 3.
48



Item 4.
48



Item 5.
48



Item 6.
48




49

2

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

3

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

4

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.

5

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.

6

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

7

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.

8

(2)
Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its subsidiaries, The Bank of Greene County and Greene Risk Management, Inc.  The Bank of Greene County has 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
 

9

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
 

10

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

11

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.

12

(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.

13

Construction lending generally involves a greater degree of risk than other residential mortgage lending.  The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property within specified cost limits.  The Bank of Greene County completes inspections during the construction phase prior to any disbursements.  The Bank of Greene County limits its risk during the construction as disbursements are not made until the required work for each advance has been completed.  Construction delays may further impair the borrower’s ability to repay the loan.

Loans collateralized by commercial real estate, and multi-family dwellings, such as apartment buildings generally are larger than residential loans and involve a greater degree of risk. Commercial real estate loans often involve large loan balances to single borrowers or groups of related borrowers. Payments on these loans depend to a large degree on the results of operations and management of the properties or underlying businesses, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general. Accordingly, the nature of commercial real estate loans makes them more difficult for management to monitor and evaluate.

Consumer loans generally have shorter terms and higher interest rates than residential mortgage loans. In addition, consumer loans expand the products and services offered by The Bank of Greene County to better meet the financial services needs of its customers.  Consumer loans generally involve greater credit risk than residential mortgage loans because of the difference in the nature of the underlying collateral.  Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance because of the greater likelihood of damage, loss or depreciation in the underlying collateral. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections depend on the borrower’s personal financial stability.  Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Commercial lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate mortgage lending. Real estate lending is generally considered to be collateral-based, with loan amounts based on fixed loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.  Over the past few years, The Bank of Greene County has shifted more focus on the origination of commercial loans including commercial real estate.  The Bank of Greene County has also formed relationships with other community banks within our region to participate in larger commercial loan relationships.  These types of loans are generally considered to be riskier due to the size and complexity of the loan relationship.  By entering into a participation agreement with the other bank, The Bank of Greene County can obtain the loan relationship while limiting its exposure to credit loss.  Management completes its due diligence in underwriting these loans and monitors the servicing of these loans.

Loan balances by internal credit quality indicator at 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
 

14

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
 

15

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.

16

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
 

17

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