Greene County Bancorp - 10-Q quarterly report FY2014 Q3

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

oTRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT

GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number 0-25165

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

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

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

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

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

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

As of May 14, 2014, the registrant had 4,213,757 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	4-5
	* Consolidated Statements of Comprehensive Income	6
	* Consolidated Statements of Changes in Shareholders’ Equity	7
	* Consolidated Statements of Cash Flows	8
	* Notes to Consolidated Financial Statements	9-27

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28-39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	40

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	41

	Signatures	42
	Exhibit 31.1 302 Certification of Chief Executive Officer
	Exhibit 31.2 302 Certification of Chief Financial Officer
	Exhibit 32.1 906 Statement of Chief Executive Officer
	Exhibit 32.2 906 Statement of Chief Financial Officer
	Exhibit 101 Extensible Business Reporting Language (XBRL)

Index

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

As of March 31, 2014 and June 30, 2013

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	March 31, 2014			June 30, 2013
Total cash and cash equivalents	$	55,599		$	6,222

Long term certificate of deposit		250			250
Securities available for sale, at fair value		51,280			69,644
Securities held to maturity, at amortized cost		177,089			176,519
Federal Home Loan Bank stock, at cost		1,383			1,388

Loans		399,007			365,839
Allowance for loan losses		(7,341	)		(7,040	)
Unearned origination fees and costs, net		814			627
Net loans receivable		392,480			359,426

Premises and equipment, net		14,246			14,349
Accrued interest receivable		2,967			2,663
Foreclosed real estate		716			296
Prepaid expenses and other assets		4,463			2,848
Total assets	$	700,473		$	633,605

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest bearing deposits	$	62,124		$	57,926
Interest bearing deposits		559,114			500,513
Total deposits		621,238			558,439

Borrowings from Federal Home Loan Bank, short-term		-			10,600
Borrowings from Federal Home Loan Bank, long-term		14,500			4,000
Accrued expenses and other liabilities		4,939			4,458
Total liabilities		640,677			577,497

SHAREHOLDERS' EQUITY
Preferred stock, Authorized - 1,000,000 shares; Issued - None		-			-
Common stock, par value $.10 per share; Authorized - 12,000,000 shares; Issued - 4,305,670 shares Outstanding 4,213,757 shares at March 31, 2014, and 4,192,654 shares at June 30, 2013		431			431
Additional paid-in capital		11,208			11,168
Retained earnings		50,086			46,112
Accumulated other comprehensive loss		(1,235	)		(750	)
Treasury stock, at cost 91,913 shares at March 31, 2014, and 113,016 shares at June 30, 2013		(694	)		(853	)
Total shareholders’ equity		59,796			56,108
Total liabilities and shareholders’ equity	$	700,473		$	633,605

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Nine Months Ended March 31, 2014 and 2013

(Unaudited)

(In thousands, except share and per share amounts)

	2014		2013
Interest income:
Loans	$	13,790	$	13,693
Investment securities - taxable		494		552
Mortgage-backed securities		1,905		2,696
Investment securities - tax exempt		1,525		1,254
Interest bearing deposits and federal funds sold		17		28
Total interest income		17,731		18,223

Interest expense:
Interest on deposits		1,647		1,974
Interest on borrowings		113		183
Total interest expense		1,760		2,157

Net interest income		15,971		16,066
Provision for loan losses		1,109		1,316
Net interest income after provision for loan losses		14,862		14,750

Noninterest income:
Service charges on deposit accounts		1,916		1,969
Debit card fees		1,148		996
Investment services		302		224
E-commerce fees		72		75
Net gain on sale of available-for-sale securities		-		10
Other operating income		476		442
Total noninterest income		3,914		3,716

Noninterest expense:
Salaries and employee benefits		6,766		6,254
Occupancy expense		990		927
Equipment and furniture expense		343		411
Service and data processing fees		1,051		1,217
Computer software, supplies and support		307		269
Advertising and promotion		202		254
FDIC insurance premiums		280		248
Legal and professional fees		645		506
Other		1,254		1,279
Total noninterest expense		11,838		11,365

Income before provision for income taxes		6,938		7,101
Provision for income taxes		1,963		2,131
Net income	$	4,975	$	4,970

Basic earnings per share	$	1.18	$	1.19
Basic average shares outstanding		4,203,350		4,185,707
Diluted earnings per share	$	1.17	$	1.18
Diluted average shares outstanding		4,239,657		4,224,814
Dividends per share	$	0.525	$	0.525

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three Months Ended March 31, 2014 and 2013

(Unaudited)

(In thousands, except share and per share amounts)

	2014		2013
Interest income:
Loans	$	4,666	$	4,525
Investment securities - taxable		161		181
Mortgage-backed securities		611		855
Investment securities - tax exempt		507		418
Interest bearing deposits and federal funds sold		9		6
Total interest income		5,954		5,985

Interest expense:
Interest on deposits		548		637
Interest on borrowings		52		44
Total interest expense		600		681

Net interest income		5,354		5,304
Provision for loan losses		288		331
Net interest income after provision for loan losses		5,066		4,973

Noninterest income:
Service charges on deposit accounts		585		584
Debit card fees		373		325
Investment services		110		55
E-commerce fees		21		25
Net gain on sale of available-for-sale securities		-		-
Other operating income		159		152
Total noninterest income		1,248		1,141

Noninterest expense:
Salaries and employee benefits		2,509		2,181
Occupancy expense		371		334
Equipment and furniture expense		81		128
Service and data processing fees		397		408
Computer software, supplies and support		100		86
Advertising and promotion		66		81
FDIC insurance premiums		88		90
Legal and professional fees		190		165
Other		473		473
Total noninterest expense		4,275		3,946

Income before provision for income taxes		2,039		2,168
Provision for income taxes		543		631
Net income	$	1,496	$	1,537

Basic earnings per share	$	0.36	$	0.37
Basic average shares outstanding		4,211,531		4,187,671
Diluted earnings per share	$	0.35	$	0.36
Diluted average shares outstanding		4,243,398		4,227,166
Dividends per share	$	0.175	$	0.175

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Nine Months Ended March 31, 2014 and 2013

(Unaudited)

(In thousands)

	2014			2013
Net income	$	4,975		$	4,970
Other comprehensive income (loss):
Unrealized holding losses on available for sale securities, net of income tax benefit of ($408) and ($92), respectively		(647	)		(147	)

Reclassification adjustment for gain on sale of available-for-sale securities realized in net income, net of income taxes of $-- and ($4), respectively		-			(6	)

Accretion of unrealized loss on securities transferred to held to maturity, net of income taxes of $102 and $11, respectively⁽¹⁾		162			17

Pension actuarial gain, net of income taxes of $-- and $15⁽²⁾		-			23

Total other comprehensive loss, net of taxes		(485	)		(113	)

Comprehensive income	$	4,490		$	4,857

⁽¹⁾	The accretion of the unrealized holding losses in accumulated other comprehensive income at the date of transfer partially offsets the amortization of the difference between the par value and fair value of the investment securities at the date of transfer, and is an adjustment of interest income.

⁽²⁾	These accumulated other comprehensive income components are included in the computation of net periodic benefit cost and are included in salaries and employee benefit expense within noninterest expense.

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31, 2014 and 2013

(Unaudited)

(In thousands)

	2014		2013
Net income	$	1,496	$	1,537
Other comprehensive income (loss):
Unrealized holding gains (losses) on available for sale securities, net of income taxes of $26 and ($55), respectively		41		(87	)

Accretion of unrealized loss on securities transferred to held to maturity, net of income taxes of $75 and $3, respectively⁽¹⁾		119		5

Pension actuarial gain, net of income taxes of $-- and $5⁽²⁾		-		8

Total other comprehensive income (loss), net of taxes		160		(74	)

Comprehensive income	$	1,656	$	1,463

⁽¹⁾	The accretion of the unrealized holding losses in accumulated other comprehensive income at the date of transfer partially offsets the amortization of the difference between the par value and fair value of the investment securities at the date of transfer, and is an adjustment of interest income.

⁽²⁾	These accumulated other comprehensive income components are included in the computation of net periodic benefit cost and are included in salaries and employee benefit expense within noninterest expense.

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Nine Months Ended March 31, 2014 and 2013

(Unaudited)

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total Shareholders' Equity
Balance at June 30, 2012	$	431	$	11,119	$	41,869		$	173		$	(928	)	$	52,664
Options exercised				44								68			112
Dividends declared						(1,798	)								(1,798	)
Net income						4,970									4,970
Other comprehensive loss, net of taxes									(113	)					(113	)
Balance at March 31, 2013	$	431	$	11,163	$	45,041		$	60		$	(860	)	$	55,835

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders' Equity
Balance at June 30, 2013	$	431	$	11,168	$	46,112		$	(750	)	$	(853	)	$	56,108
Options exercised				13								159			172
Tax benefit of stock based compensation				27											27
Dividends declared						(1,001	)								(1,001	)
Net income						4,975									4,975
Other comprehensive loss, net of taxes									(485	)					(485	)
Balance at March 31, 2014	$	431	$	11,208	$	50,086		$	(1,235	)	$	(694	)	$	59,796

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Nine Months Ended March 31, 2014 and 2013

(Unaudited)

(In thousands)

	2014			2013
Cash flows from operating activities:
Net income	$	4,975		$	4,970
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		486			561
Deferred income tax benefit		(985	)		(290	)
Net amortization of premiums and discounts		1,408			1,089
Net amortization of deferred loan costs and fees		267			199
Provision for loan losses		1,109			1,316
Net gain on sale of available-for-sale securities		-			(10	)
Loss on sale of foreclosed real estate		49			26
Excess tax benefit from share-based payment arrangements		(27	)		-
Net increase in accrued income taxes		(230	)		(1,198	)
Net increase in accrued interest receivable		(304	)		(187	)
Net (increase) decrease in prepaid and other assets		(319	)		271
Net increase (decrease) in accrued expenses and other liabilities		733			(1,015	)
Net cash provided by operating activities		7,162			5,732

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities		515			5,350
Proceeds from sale of securities		-			10
Purchases of securities		-			(9,286	)
Principal payments on securities		5,324			13,827
Securities held to maturity:
Proceeds from maturities		17,207			18,315
Purchases of securities		(13,497	)		(50,509	)
Principal payments on securities		6,046			15,862
Net redemption of Federal Home Loan Bank Stock		5			765
Purchase of long term certificate of deposit		-			(250	)
Net increase in loans receivable		(35,004	)		(25,334	)
Proceeds from sale of foreclosed real estate		105			274
Purchases of premises and equipment		(383	)		(165	)
Net cash used by investing activities		(19,682	)		(31,141	)

Cash flows from financing activities
Net decrease in short-term FHLB advances		(10,600	)		(14,000	)
Proceeds from long-term FHLB advances		10,500			-
Repayment of long-term FHLB advances		-			(3,000	)
Payment of cash dividends		(1,001	)		(1,798	)
Proceeds from issuance of stock options		172			112
Excess tax benefit from share-based payment arrangements		27			-
Net increase in deposits		62,799			74,781
Net cash provided by financing activities		61,897			56,095

Net increase in cash and cash equivalents		49,377			30,686
Cash and cash equivalents at beginning of period		6,222			7,742
Cash and cash equivalents at end of period	$	55,599		$	38,428

Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	574		$	475
Available for sale securities transferred at fair value to held to maturity		11,735			-
Cash paid during period for:
Interest		1,749			2,188
Income taxes		3,178			3,619

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Notes to Consolidated Financial Statements

As of and for the Nine and Three Months Ended March 31, 2014 and 2013

(1)	Basis of Presentation

The accompanying consolidated statement of financial condition as of June 30, 2013 was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiary, The Bank of Greene County (the “Bank”) and the Bank’s wholly owned subsidiary, Greene County Commercial Bank and Greene Property Holdings, Ltd. The consolidated financial statements at and for the nine and three months ended March 31, 2014 and 2013 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, 2013, such information and notes have not been duplicated herein. In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included. Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation. These reclassifications, if any, had no effect on net income or retained earnings as previously reported. All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations, and other data, for the nine and three months ended March 31, 2014 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2014. 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 loan 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 collectibility may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses. However, this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters. This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors.

Securities are evaluated for other-than-temporary impairment by performing periodic reviews of individual securities in the investment portfolio. Greene County Bancorp, Inc. makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors, including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, the likelihood to be required to sell the security before it recovers the entire amortized cost, external credit ratings and recent downgrades. The Company is required to record other-than-temporary impairment charges through earnings, if it has the intent to sell, or will more likely than not be required to sell an impaired debt security before a recovery of its amortized cost basis. In addition, the Company is required to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis. 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. Non-credit related impairment must be recorded as decreases to accumulated other comprehensive income as long as the Company has no intent or requirement to sell an impaired security before a recovery of amortized cost basis.

(2)	Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its two banking subsidiaries. The Bank of Greene County has twelve full-service offices and an operations 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 County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities.

Index

(3)	Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could 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 and impairment is other-than-temporary. The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss of the entire amortized cost is expected, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value.

(4)	Securities

Securities at March 31, 2014 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	$	12,666	$	226	$	-	$	12,892
State and political subdivisions		1,327		24		5		1,346
Mortgage-backed securities-residential		5,293		187		-		5,480
Mortgage-backed securities-multi-family		26,633		154		582		26,205
Asset-backed securities		15		-		1		14
Corporate debt securities		4,815		390		23		5,182
Total debt securities		50,749		981		611		51,119
Equity securities		62		99		-		161
Total securities available for sale		50,811		1,080		611		51,280
Securities held to maturity:
U.S. government sponsored enterprises		3,000		3		115		2,888
State and political subdivisions		84,421		611		395		84,637
Mortgage-backed securities-residential		23,948		1,127		-		25,075
Mortgage-backed securities-multi-family		64,742		696		2,682		62,756
Other securities		978		-		31		947
Total securities held to maturity		177,089		2,437		3,223		176,303
Total securities	$	227,900	$	3,517	$	3,834	$	227,583

Index

Securities at June 30, 2013 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	$	12,729	$	260	$	-	$	12,989
State and political subdivisions		1,849		29		20		1,858
Mortgage-backed securities-residential		7,340		193		-		7,533
Mortgage-backed securities-multi-family		42,096		289		466		41,919
Asset-backed securities		17		-		1		16
Corporate debt securities		4,827		380		31		5,176
Total debt securities		68,858		1,151		518		69,491
Equity securities		68		85		-		153
Total securities available for sale		68,926		1,236		518		69,644
Securities held to maturity:
U.S. treasury securities		5,500		17		-		5,517
U.S. government sponsored enterprises		2,999		16		113		2,902
State and political subdivisions		82,801		362		755		82,408
Mortgage-backed securities-residential		29,077		1,515		9		30,583
Mortgage-backed securities-multi-family		55,086		1,236		1,093		55,229
Other securities		1,056		-		35		1,021
Total securities held to maturity		176,519		3,146		2,005		177,660
Total securities	$	245,445	$	4,382	$	2,523	$	247,304

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. The Company’s investments in mortgage-backed securities include pass-through securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA. As of March 31, 2014 and June 30, 2013, no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio. The Company’s investments in state and political subdivisions securities generally are municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured. The obligations issued by school districts are supported by state aid. Primarily, these investments are issued by municipalities within New York State.

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2014.

	Less Than 12 Months				More Than 12 Months				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
State and political subdivisions	$	803	$	5	$	-	$	-	$	803	$	5
Mortgage-backed securities-multi-family		21,358		520		963		62		22,321		582
Asset-backed securities		-		-		14		1		14		1
Corporate debt securities		761		23		-		-		761		23
Total securities available for sale		22,922		548		977		63		23,899		611
Securities held to maturity:
U.S. government sponsored enterprises		1,885		115		-		-		1,885		115
State and political subdivisions		14,310		390		64		5		14,374		395
Mortgage-backed securities-multi-family		31,952		1,842		9,377		840		41,329		2,682
Other securities		443		25		81		6		524		31
Total securities held to maturity		48,590		2,372		9,522		851		58,112		3,223
Total securities	$	71,512	$	2,920	$	10,499	$	914	$	82,011	$	3,834

Index

	Less Than 12 Months				More Than 12 Months				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities available for sale:
State and political subdivisions	$	791	$	20	$	-	$	-	$	791	$	20
Mortgage-backed securities-multi-family		33,298		466		-		-		33,298		466
Asset-backed securities		-		-		16		1		16		1
Corporate debt securities		758		31		-		-		758		31
Total securities available for sale		34,847		517		16		1		34,863		518
Securities held to maturity:
U.S. government sponsored enterprises		1,887		113		-		-		1,887		113
State and political subdivisions		28,597		745		1,597		10		30,194		755
Mortgage-backed securities-residential		1,228		9		-		-		1,228		9
Mortgage-backed securities-multi-family		33,044		1,093		-		-		33,044		1,093
Other securities		753		35		-		-		753		35
Total securities held to maturity		65,509		1,995		1,597		10		67,106		2,005
Total securities	$	100,356	$	2,512	$	1,613	$	11	$	101,969	$	2,523

At March 31, 2014, there were 76 securities which have been in a continuous unrealized loss position for less than 12 months and 9 securities with a continuous unrealized loss position of more than 12 months. When the fair value of a held to maturity or available for sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present. The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover. The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

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

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”). Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis. Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized. For securities classified as held to maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods. For equity securities, the entire amount of OTTI is recognized in income. Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2014. Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads at the end of the quarter.

During the nine months ended March 31, 2014, $11.7 million of securities available-for-sale were transferred to held-to-maturity and included primarily mortgage-backed securities. These securities were transferred at fair value which reflected a net unrealized loss of $805,000. This unrealized loss is being accreted to other comprehensive income over the remaining average lives of these securities.

During the nine and three months ended March 31, 2014, there were no sales of securities and no gains or losses were recognized. During the nine months ended March 31, 2013, a gain on sale of $10,000 was recognized on a security that was previously written off as other-than-temporarily impaired. During the three months ended March 31, 2013, there were no sales of securities and no gains or losses were recognized. There was no other-than-temporary impairment loss recognized during the nine and three months ended March 31, 2014 and 2013.

Index

The estimated fair values of debt securities at March 31, 2014, 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	$	5,278	$	5,309
After one year through five years		8,615		9,050
After five years through ten years		4,915		5,061
After ten years		-		-
Total available for sale debt securities		18,808		19,420
Mortgage-backed and asset-backed securities		31,941		31,699
Equity securities		62		161
Total available for sale securities		50,811		51,280

Held to maturity debt securities
Within one year		19,440		19,464
After one year through five years		30,528		30,874
After five years through ten years		25,655		25,545
After ten years		12,776		12,589
Total held to maturity debt securities		88,399		88,472
Mortgage-backed		88,690		87,831
Total held to maturity securities		177,089		176,303
Total securities	$	227,900	$	227,583

As of March 31, 2014 and June 30, 2013, respectively, securities with an aggregate fair value of $197.5 million and $200.9 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank. As of March 31, 2014 and June 30, 2013, securities with an aggregate fair value of $5.2 million were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window. Greene County Bancorp, Inc. did not participate in any securities lending programs during the nine and three months ended March 31, 2014 or 2013.

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 nine and three months ended March 31, 2014 or 2013.

(5)	Loans and Allowance for Loan Losses

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

Index

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. Regulatory 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 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: real estate loans, home equity, consumer installment and commercial loans. The real estate portfolio consists of residential, nonresidential, and construction loan classes. The inherent risk within the loan portfolio varies depending upon each of these loan types.

The Bank of Greene County’s primary lending activity is the origination of residential mortgage loans, including home equity loans, which are collateralized by residences. Generally, residential mortgage loans are made in amounts up to 80 % 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%, 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 80% 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.

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

Index

Loan balances by internal credit quality indicator as of March 31, 2014 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential mortgage	$	221,735	$	128	$	298	$	4,149	$	226,310
Nonresidential mortgage		102,830		-		3,240		1,934		108,004
Residential construction and land		3,229		-		-		-		3,229
Commercial construction		2,517		-		-		-		2,517
Multi-family		3,998		-		-		114		4,112
Home equity		20,154		-		-		339		20,493
Consumer installment		4,075		-		-		3		4,078
Commercial loans		28,975		-		583		706		30,264
Total gross loans	$	387,513	$	128	$	4,121	$	7,245	$	399,007

Loan balances by internal credit quality indicator as of June 30, 2013 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential mortgage	$	207,606	$	294	$	302	$	4,324	$	212,526
Nonresidential mortgage		87,509		-		2,197		1,776		91,482
Residential construction and land		2,691		-		-		-		2,691
Commercial construction		2,466		-		-		1,057		3,523
Multi-family		4,785		-		-		726		5,511
Home equity		20,099		221		23		28		20,371
Consumer installment		4,073		5		-		-		4,078
Commercial loans		24,454		-		516		687		25,657
Total gross loans	$	353,683	$	520	$	3,038	$	8,598	$	365,839

The Company had no loans classified Doubtful or Loss at March 31, 2014 or June 30, 2013.

Nonaccrual Loans

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. Nonaccrual 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 March 31, 2014 and June 30, 2013. While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years. This growth has been the result of adverse changes within the economy and increases in local unemployment. The growth is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years. Loans on nonaccrual status totaled $5.8 million at March 31, 2014 of which $3.7 million were in the process of foreclosure. Included in nonaccrual loans were $2.2 million of loans which were less than 90 days past due at March 31, 2014, 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 $1.0 million 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 $6.3 million at June 30, 2013 of which $4.9 million were in the process of foreclosure. Included in nonaccrual loans, were $781,000 of loans which were less than 90 days past due at June 30, 2013, but have a recent history of delinquency greater than 90 days past due.

Index

The following table sets forth information regarding delinquent and/or nonaccrual loans as of March 31, 2014:

(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 mortgage	$	174	$	744	$	2,433	$	3,351	$	222,959	$	226,310	$	3,319
Nonresidential mortgage		1,724		785		1,062		3,571		104,433		108,004		1,937
Residential construction and land		-		-		-		-		3,229		3,229		-
Commercial construction		-		-		-		-		2,517		2,517		-
Multi-family		-		-		-		-		4,112		4,112		-
Home equity		52		96		221		369		20,124		20,493		243
Consumer installment		44		2		1		47		4,031		4,078		1
Commercial loans		150		605		204		959		29,305		30,264		311
Total gross loans	$	2,144	$	2,232	$	3,921	$	8,297	$	390,710	$	399,007	$	5,811

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2013:

(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 mortgage	$	1,255	$	165	$	3,875	$	5,295	$	207,231	$	212,526	$	3,599
Nonresidential mortgage		215		978		1,655		2,848		88,634		91,482		2,018
Residential construction and land		38		-		-		38		2,653		2,691		-
Commercial construction		-		-		-		-		3,523		3,523		-
Multi-family		144		-		463		607		4,904		5,511		463
Home equity		269		221		28		518		19,853		20,371		51
Consumer installment		34		5		-		39		4,039		4,078		-
Commercial loans		530		78		82		690		24,967		25,657		195
Total gross loans	$	2,485	$	1,447	$	6,103	$	10,035	$	355,804	$	365,839	$	6,326

The Bank of Greene County had accruing loans delinquent more than 90 days as of March 31, 2014 totaling $269,000 and had accruing loans delinquent more than 90 days as of June 30, 2013 totaling $559,000. 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 borrowers have made arrangements with the Bank to bring the loans current within a specified time period and have made a series of payments as agreed.

The table below details additional information related to nonaccrual loans for the nine and three months ended March 31:

	For the nine months ended March 31,				For the three months ended March 31,
(In thousands)	2014		2013		2014		2013
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	389	$	398	$	181	$	123
Interest income that was recorded on nonaccrual loans		92		180		28		54

Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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. The Bank of Greene County considers residential mortgages, home equity loans, smaller commercial 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 and commercial 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. Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually evaluated for impairment, are either designated as 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:

	As of March 31, 2014						For the nine months ended March 31, 2014				For the three months ended March 31, 2014
(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 mortgage	$	284	$	284	$	-	$	355	$	7	$	267	$	6
Nonresidential mortgage		464		464		-		537		23		513		6
		748		748		-		892		30		780		12
With an allowance recorded:
Residential mortgage		3,066		3,085		580		3,025		45		2,876		15
Nonresidential mortgage		2,821		3,002		391		2,243		37		2,775		17
Commercial construction		-		-		-		467		17		-		-
Multi-family		-		-		-		257		-		-		-
Home equity		200		200		87		133		-		200		-
Commercial loans		605		605		3		607		27		605		7
		6,692		6,892		1,061		6,732		126		6,456		39
Total impaired:
Residential mortgage		3,350		3,369		580		3,380		52		3,143		21
Nonresidential mortgage		3,285		3,466		391		2,780		60		3,288		23
Commercial construction		-		-		-		467		17		-		-
Multi-family		-		-		-		257		-		-		-
Home equity		200		200		87		133		-		200		-
Commercial loans		605		605		3		607		27		605		7
	$	7,440	$	7,640	$	1,061	$	7,624	$	156	$	7,236	$	51

Index

	As of June 30, 2013						For the nine months ended March 31, 2013				For the three months ended March 31, 2013
(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 mortgage	$	852	$	852	$	-	$	123	$	14	$	215	$	3
Nonresidential mortgage		783		783		-		1,265		64		1,260		17
Commercial loans		-		-		-		108		13		77		3
		1,635		1,635		-		1,496		91		1,552		23
With an allowance recorded:
Residential mortgage		2,582		2,632		520		2,552		55		2,651		17
Nonresidential mortgage		1,339		1,339		305		1,015		22		1,085		14
Commercial construction		1,057		1,057		331		1,068		35		1,063		7
Multi-family		463		463		16		885		22		886		6
Home equity		-		-		-		257		4		-		-
Commercial loans		610		610		7		572		29		571		9
		6,051		6,101		1,179		6,349		167		6,256		53
Total impaired:											``
Residential mortgage		3,434		3,484		520		2,675		69		2,866		20
Nonresidential mortgage		2,122		2,122		305		2,280		86		2,345		31
Commercial construction		1,057		1,057		331		1,068		35		1,063		7
Multi-family		463		463		16		885		22		886		6
Home equity		-		-		-		257		4		-		-
Commercial loans		610		610		7		680		42		648		12
	$	7,686	$	7,736	$	1,179	$	7,845	$	258	$	7,808	$	76

The table below details loans that have been modified as a troubled debt restructuring during the nine and three month periods ended March 31, 2014 and 2013.

(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Current Outstanding Recorded Investment
Nine months ended March 31, 2014
Residential mortgage		2	$	367	$	367	$	361
Nonresidential mortgage		5		1,789		1,848		1,837

Nine months ended March 31, 2013
Residential mortgage		1		246		261		261


Three months ended March 31, 2014
Nonresidential mortgage		2	$	142	$	160	$	159

Three months ended March 31, 2013
Residential mortgage		-		-		-		-

These loans have been classified as troubled debt restructurings due to concessions granted to the debtors that The Bank of Greene County would not otherwise consider as a result of financial difficulties of the borrowers. For these loans, concessions consisted of any combination of the following: additional funds were advanced, the interest rate was reduced and/or the term extended. If the borrower performs under the terms of the modification, and the ultimate collectability of all amounts contractually due under the modified terms is not in doubt, these loans will be returned to accrual status. These loans identified as a troubled debt restructuring have been evaluated for impairment and the impact to the allowance for loan loss was immaterial.

Index

The table below details loans that have been modified as troubled debt restructurings during the previous twelve months which have subsequently defaulted during the nine months ended March 31, 2014:

(Dollars in thousands)	Number of Contracts		Recorded Investment		Allowance for Loan Loss
Nine months ended March 31, 2014
Residential mortgage		2	$	284	$	65
Nonresidential mortgage		1		460		120

The Company had no loans that had been modified as troubled debt restructurings during the twelve months prior to March 31, 2014 which had subsequently defaulted during the three months ended March 31, 2014. The Company had no loans that had been modified as troubled debt restructurings during the twelve months prior to March 31, 2013 which had subsequently defaulted during the nine and three months ended March 31, 2013.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the losses inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of 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 residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Commercial mortgage 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 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. 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 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 nine months ended March 31, 2014

(In thousands)	Balance at June 30, 2013		Charge-offs		Recoveries		Provision			Balance at March 31, 2014
Residential mortgage	$	2,627	$	344	$	1	$	456		$	2,740
Nonresidential mortgage		2,476		87		-		456			2,845
Residential construction and land		37		-		-		8			45
Commercial construction		392		-		-		(330	)		62
Multi-family		139		24		7		(61	)		61
Home equity		275		44		-		141			372
Consumer installment		222		171		55		98			204
Commercial loans		809		205		4		182			790
Unallocated		63		-		-		159			222
Total	$	7,040	$	875	$	67	$	1,109		$	7,341

Index

Activity for the three months ended March 31, 2014

(In thousands)	Balance at December 31, 2013		Charge-offs		Recoveries		Provision			Balance at March 31, 2014
Residential mortgage	$	2,772	$	62	$	1	$	29		$	2,740
Nonresidential mortgage		2,740		-		-		105			2,845
Residential construction and land		47		-		-		(2	)		45
Commercial construction		86		-		-		(24	)		62
Multi-family		107		-		7		(53	)		61
Home equity		360		36		-		48			372
Consumer installment		243		51		23		(11	)		204
Commercial loans		773		-		-		17			790
Unallocated		43		-		-		179			222
Total	$	7,171	$	149	$	31	$	288		$	7,341

	Allowance for Loan Losses				Loans Receivable
	Ending Balance March 31, 2014 Impairment Analysis				Ending Balance March 31, 2014 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential mortgage	$	580	$	2,160	$	3,350	$	222,960
Nonresidential mortgage		391		2,454		3,285		104,719
Residential construction and land		-		45		-		3,229
Commercial construction		-		62		-		2,517
Multi-family		-		61		-		4,112
Home equity		87		285		200		20,293
Consumer installment		-		204		-		4,078
Commercial loans		3		787		605		29,659
Unallocated		-		222		-		-
Total	$	1,061	$	6,280	$	7,440	$	391,567

Activity for the nine months ended March 31, 2013

(In thousands)	Balance at June 30, 2012		Charge-offs		Recoveries		Provision			Balance at March 31, 2013
Residential mortgage	$	2,163	$	286	$	-	$	613		$	2,490
Nonresidential mortgage		2,076		139		-		368			2,305
Residential construction and land		19		-		-		9			28
Commercial construction		407		-		-		8			415
Multi-family		337		-		-		(72	)		265
Home equity		187		-		-		90			277
Consumer installment		207		201		70		127			203
Commercial loans		645		15		-		144			774
Unallocated		136		-		-		29			165
Total	$	6,177	$	641	$	70	$	1,316		$	6,922

Index

Activity for the three months ended March 31, 2013

(In thousands)	Balance at December 31, 2012		Charge-offs		Recoveries		Provision			Balance at March 31, 2013
Residential mortgage	$	2,429	$	13	$	-	$	74		$	2,490
Nonresidential mortgage		2,246		119		-		178			2,305
Residential construction and land		43		-		-		(15	)		28
Commercial construction		391		-		-		24			415
Multi-family		286		-		-		(21	)		265
Home equity		361		-		-		(84	)		277
Consumer installment		281		69		28		(37	)		203
Commercial loans		727		-		-		47			774
Unallocated		-		-		-		165			165
Total	$	6,764	$	201	$	28	$	331		$	6,922

	Allowance for Loan Losses				Loans Receivable
	Ending Balance June 30, 2013 Impairment Analysis				Ending Balance June 30, 2013 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential mortgage	$	520	$	2,107	$	3,434	$	209,092
Nonresidential mortgage		305		2,171		2,122		89,360
Residential construction and land		-		37		-		2,691
Commercial construction		331		61		1,057		2,466
Multi-family		16		123		463		5,048
Home equity		-		275		-		20,371
Consumer installment		-		222		-		4,078
Commercial loans		7		802		610		25,047
Unallocated		-		63		-		-
Total	$	1,179	$	5,861	$	7,686	$	358,153

(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 as of March 31, 2014 and June 30, 2013 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.

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.

Index

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
	March		Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	31, 2014		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	12,892	$	-	$	12,892	$	-
State and political subdivisions		1,346		-		1,346		-
Mortgage-backed securities-residential		5,480		-		5,480		-
Mortgage-backed securities-multi-family		26,205		-		26,205		-
Asset-backed securities		14		14		-		-
Corporate debt securities		5,182		5,182		-		-
Equity securities		161		161		-		-
Securities available for sale	$	51,280	$	5,357	$	45,923	$	-

			Fair Value Measurements Using
	June		Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	30, 2013		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	12,989	$	-	$	12,989	$	-
State and political subdivisions		1,858		-		1,858		-
Mortgage-backed securities-residential		7,533		-		7,533		-
Mortgage-backed securities-multi-family		41,919		-		41,919		-
Asset-backed securities		16		16		-		-
Corporate debt securities		5,176		5,176		-		-
Equity securities		153		153		-		-
Securities available for sale	$	69,644	$	5,345	$	64,299	$	-

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.

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 for which the Company has re-measured impairment generally based on the fair value of the underlying collateral supporting the loan and, as a result, the carrying value of the loan less the calculated valuation amount may not necessarily represent the actual fair value of the loan. Real estate collateral is typically valued using independent appraisals or other indications of value based on recent comparable sales of similar properties or assumptions generally observable in the marketplace and the related nonrecurring fair value measurement adjustments have generally been classified as Level 3. Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace and therefore such valuations have been classified as Level 3.

Index

			Fair Value Measurements Using
(In thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2014
Impaired loans	$	2,942	$	-	$	-	$	2,942

June 30, 2013
Impaired loans	$	5,460	$	-	$	-	$	5,460

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
March 31, 2014
Impaired Loans	$	2,942	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		0.00%-38.85	%		17.64	%
				Liquidation expenses⁽³⁾		0.00%-10.00	%		4.95	%
June 30, 2013
Impaired Loans	$	5,460	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		4.00%-41.74	%		23.98	%
				Liquidation expenses⁽³⁾		3.49%-9.52	%		5.86	%

⁽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 may be adjusted downwards by management for qualitative factors such as the estimated costs to liquidate the collateral.

At March 31, 2014, loans subject to nonrecurring fair value measurement had a recorded investment of $3.7 million with related allowances of $805,000. At June 30, 2013, loans subject to nonrecurring fair value measurement had a recorded investment of $6.6 million with related allowances of $1.2 million. No other financial assets or liabilities were re-measured during the year on a nonrecurring basis.

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. 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 March 31, 2014 and June 30, 2013, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

Index

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

(In thousands)	March 31, 2014				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	55,599	$	55,599	$	55,599	$	-	$	-
Long term certificate of deposit		250		250		250		-		-
Securities available for sale		51,280		51,280		5,357		45,923		-
Securities held to maturity		177,089		176,303		-		176,303		-
Federal Home Loan Bank stock		1,383		1,383		-		1,383		-
Net loans		392,480		398,252		-		-		398,252
Accrued interest receivable		2,967		2,967		-		2,967		-
Deposits		621,238		621,365		-		621,365		-
Federal Home Loan Bank borrowings		14,500		14,157		-		14,157		-
Accrued interest payable		66		66		-		66		-

(In thousands)	June 30, 2013				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	6,222	$	6,222	$	6,222	$	-	$	-
Long term certificate of deposit		250		250		250		-		-
Securities available for sale		69,644		69,644		5,345		64,299		-
Securities held to maturity		176,519		177,660		-		177,660		-
Federal Home Loan Bank stock		1,388		1,388		-		1,388		-
Net loans		359,426		367,377		-		-		367,377
Accrued interest receivable		2,663		2,663		-		2,663		-
Deposits		558,439		558,517		-		558,517		-
Federal Home Loan Bank borrowings		14,600		14,378		-		14,378		-
Accrued interest payable		55		55		-		55		-

(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 anti-dilutive securities or contracts outstanding during the nine and three months ended March 31, 2014 and 2013.

	Net Income		Weighted Average Number Of Shares Outstanding		Earnings per Share

Nine months ended March 31, 2014	$	4,975,000
Basic				4,203,350	$	1.18
Effect of dilutive stock options				36,307		(0.01	)
Diluted				4,239,657	$	1.17

Nine months ended March 31, 2013	$	4,970,000
Basic				4,185,707	$	1.19
Effect of dilutive stock options				39,107		(0.01	)
Diluted				4,224,814	$	1.18

Three months ended March 31, 2014	$	1,496,000
Basic				4,211,531	$	0.36
Effect of dilutive stock options				31,867		(0.01	)
Diluted				4,243,398	$	0.35

Three months ended March 31, 2013	$	1,537,000
Basic				4,187,671	$	0.37
Effect of dilutive stock options				39,495		(0.01	)
Diluted				4,227,166	$	0.36

Index

(8)

Dividends

On January 21, 2014, the Board of Directors declared a cash dividend for the quarter ended December 31, 2013 of $0.175 per share. The dividend, which reflected an annual cash dividend rate of $0.70 cents per share, was unchanged from the dividend declared during the previous quarter. The dividend was payable to stockholders of record as of February 14, 2014, and was paid on February 28, 2014. Historically, Greene County Bancorp, MHC has waived its right to receive dividends declared on its shares of the Company’s common stock. As a result of the Dodd-Frank Act, the Federal Reserve Board adopted interim final regulations that imposed significant conditions and restrictions on the ability of mutual holding companies to waive the receipt of dividends from their subsidiaries. Consequently, the MHC could not waive its right to receive dividends for the quarters ended September 30, 2012 and December 31, 2012. The Federal Reserve Board requires that the MHC obtain approval of its members and receive the non-objection of the Federal Reserve Board to continue to waive dividends for the twelve months subsequent to the approval. The approval to waive the dividend was obtained from the members of the MHC at the special meeting of members held on February 19, 2013, and the non-objection of the Federal Reserve Board for such dividend waiver was also received. Accordingly, dividends were waived to Greene County Bancorp, MHC on all subsequent declaration dates through February 19, 2014.

A special meeting of members of the MHC was held on February 18, 2014 to vote on a proposal for the MHC to continue to waive its right to receive annual dividends declared by Greene County Bancorp, Inc. for the 12 months subsequent to the approval of this proposal. This proposal was approved at the special meeting, and the MHC has received the Federal Reserve Board’s non-objection to the dividend waiver through February 18, 2015. Greene County Bancorp, MHC’s ability to waive dividends beyond this date cannot be reasonably determined at this time.

(9)	Impact of Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued an amendment to its guidance on “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”. This Update has been issued to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The adoption of these amendments is not expected to have an effect on our consolidated results of operations or financial position.

(10)	Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension cost related to the defined benefit pension plan for the nine and three months ended March 31, 2014 and 2013 were as follows:

	Nine months ended March 31,						Three months ended March 31,
(In thousands)	2014			2013			2014			2013
Interest cost	$	168		$	134		$	56		$	45
Expected return on plan assets		(237	)		(153	)		(79	)		(51	)
Amortization of net loss		69			57			23			19
Net periodic pension cost	$	-		$	38		$	-		$	13

The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan during the fiscal year 2014.

Index

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 are selected by the Board to participate.

The SERP Plan provides a benefit to the participating executives from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). Accordingly, the SERP Plan obligates the Bank to make a contribution to each executive’s account on the first business day of each July and permits each executive to defer up to 50% of his or her base salary and 100% of his or her annual bonus to the SERP Plan, subject to the requirements of Section 409A of the Internal Revenue Code (“Code”). In addition, the Bank may, but is not required to, make additional discretionary contributions to the executives’ accounts from time to time. An executive becomes vested in the Bank’s contributions after 10 calendar years of service following the effective date of the SERP Plan, and is fully vested immediately for all deferral of salary and bonus. However, the Executive will vest in the present value of his or her account in the event of death, disability or a change in control of the Bank or the Company. In the event the executive is terminated involuntarily or resigns for good reason following a change in control, the present value of all remaining Bank contributions is accelerated and paid to the executive’s account, subject to potential reduction to avoid an excess parachute payment under Code Section 280G. In the event of the executive’s death, disability or termination within two years after a change in control, executive’s account will be paid in a lump sum to the executive or his beneficiary, as applicable. In the event executive is entitled to a benefit from the SERP Plan due to retirement or other termination of employment, the benefit will be paid in 10 annual installments.

The net periodic pension costs related to the SERP Plan for the nine and three months ended March 31, 2014 were $88,000 and $30,000, respectively, consisting primarily of service costs and interest costs. The net periodic pension costs related to the SERP Plan for the nine and three months ended March 31, 2013 were $71,000 and $24,000, respectively, consisting primarily of service costs and interest costs. The total liability for the SERP Plan was $802,000 and $595,200 as of March 31, 2014 and June 30, 2013, respectively.

(11)	Stock-Based Compensation

At March 31, 2014, Greene County Bancorp, Inc. had two stock-based compensation plans, which are described more fully in Note 10 of the consolidated financial statements and notes thereto for the fiscal year ended June 30, 2013.

Stock Option Plan

At March 31, 2014 and 2013, all granted shares related to the 2008 Option Plan were fully vested, with no remaining compensation cost to be recognized.

A summary of the Company’s stock option activity and related information for its option plan for the nine months ended March 31, 2014 and 2013 is as follows:

	2014					2013
				Weighted Average					Weighted Average
				Exercise					Exercise
				Price					Price
	Shares			Per Share		Shares			Per Share
Outstanding at beginning of year		87,400		$	12.50		103,700		$	12.50
Exercised		(27,965	)	$	12.50		(9,000	)	$	12.50
Outstanding at period end		59,435		$	12.50		94,700		$	12.50

Exercisable at period end		59,435		$	12.50		94,700		$	12.50

The following table presents stock options outstanding and exercisable at March 31, 2014:

Options Outstanding and Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$	12.50		59,435		4.50	$	12.50

The total intrinsic value of the options exercised during the nine and three months ended March 31, 2014 was approximately $378,000 and $71,000, respectively. The total intrinsic value of the options exercised during the nine and three months ended March 31, 2013 was approximately $66,000 and $47,000, respectively. There were no stock options granted during the nine or three months ended March 31, 2014 or 2013. All outstanding options were fully vested at March 31, 2014 or 2013.

Index

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 total of 900,000 phantom stock options are available for awards under the Plan. A phantom stock option represents the right to receive a cash payment on the date the award vests. The participant receives an amount equal to the positive difference between the strike price on the grant date and the book value of a share of the Company stock on the determination date, which is the last day of the plan year that is the end of the third plan year after the grant date of the award, unless otherwise specified by the Committee. The strike price will be the price established by the Committee, which will not be less than 100% of the book value of a share on a specified date, as determined under generally accepted accounting principles (GAAP) as of the last day of the quarter ending on or immediately preceding the valuation date with adjustments made, in the sole discretion of the Committee, to exclude accumulated other comprehensive income (loss). During the nine months ended March 31, 2014 and 2013, phantom stock options totaling 227,330 and 243,473, respectively, were awarded under the Plan. The Company recognized $546,800 and $106,800 in compensation costs related to the Plan during the nine months ended March 31, 2014 and 2013, respectively. The Company recognized $207,000 and $0 in compensation costs related to the Plan during the three months ended March 31, 2014 and 2013, respectively.

(12)	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss as of March 31, 2014 and June 30, 2013 are presented in the following table:

(In thousands)
	March 31, 2014			June 30, 2013
Unrealized gain on available for sale securities, net of tax	$	287		$	441
Unrealized loss on securities transferred to held to maturity, net of tax		(346	)		(15	)
Net losses and past service liability for defined benefit plan, net of tax		(1,176	)		(1,176	)
Accumulated other comprehensive loss	$	(1,235	)	$	(750	)

(13)	Subsequent events

In addition to the dividend discussed in Note 8, on April 15, 2014, the Board of Directors declared a cash dividend for the quarter ended March 31, 2014 of $0.175 per share. The dividend reflects an annual cash dividend rate of $0.70 per share, which was the same as the dividend declared during the previous quarter. The dividend will be payable to stockholders of record as of May 15, 2014, and will be paid on May 30, 2014. Historically, the MHC has waived its right to receive dividends declared on its shares of the Company’s common stock. The MHC intends to waive its receipt of the dividend payable on May 30, 2014. See Note 8 Dividends for further discussion regarding the MHC waiver of dividends.

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

Comparison of Financial Condition as of March 31, 2014 and June 30, 2013

ASSETS

Total assets of the Company were $700.5 million at March 31, 2014 as compared to $633.6 million at June 30, 2013, an increase of $66.9 million, or 10.6%. Securities available for sale and held to maturity amounted to $228.4 million, or 32.6% of assets, at March 31, 2014 as compared to $246.2 million, or 38.9% of assets, at June 30, 2013, a decrease of $17.8 million, or 7.2%. Net loans grew by $33.1 million, or 9.2%, to $392.5 million at March 31, 2014 as compared to $359.4 million at June 30, 2013.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased $49.4 million to $55.6 million at March 31, 2014 from $6.2 million at June 30, 2013. 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, including available-for-sale and held-to-maturity issues, decreased $17.8 million, or 7.2%, to $228.4 million at March 31, 2014 as compared to $246.2 million at June 30, 2013. Securities purchases totaled $13.5 million during the nine months ended March 31, 2014 and consisted of state and political subdivision securities. Principal pay-downs and maturities during the nine months amounted to $29.1 million, of which $11.4 million were mortgage-backed securities, $12.2 million were state and political subdivision securities, and $5.5 million were U.S. Treasury securities. Greene County Bancorp, Inc. held 37.6% of its securities portfolio at March 31, 2014 in 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.

	March 31, 2014					June 30, 2013
			Percentage					Percentage
(Dollars in thousands)	Balance		of Portfolio			Balance		of Portfolio
Securities available for sale:
U.S. government sponsored enterprises	$	12,892		5.6	%	$	12,989		5.3	%
State and political subdivisions		1,346		0.6			1,858		0.7
Mortgage-backed securities-residential		5,480		2.4			7,533		3.1
Mortgage-backed securities-multifamily		26,205		11.5			41,919		17.0
Asset-backed securities		14		0.0			16		0.0
Corporate debt securities		5,182		2.3			5,176		2.1
Total debt securities		51,119		22.4			69,491		28.2
Equity securities		161		0.1			153		0.1
Total securities available for sale		51,280		22.5			69,644		28.3
Securities held to maturity:
U.S. treasury securities		-		-			5,500		2.2
U.S. government sponsored enterprises		3,000		1.3			2,999		1.2
State and political subdivisions		84,421		37.0			82,801		33.7
Mortgage-backed securities-residential		23,948		10.5			29,077		11.8
Mortgage-backed securities-multifamily		64,742		28.3			55,086		22.4
Other securities		978		0.4			1,056		0.4
Total securities held to maturity		177,089		77.5			176,519		71.7
Total securities	$	228,369		100.0	%	$	246,163		100.0	%

During the nine and three months ended March 31, 2014, there were no sales of securities and no gains or losses were recognized. During the nine months ended March 31, 2013, a gain on sale of $10,000 was recognized on a security that was previously written off as other-than-temporarily impaired. There were no sales of securities and no gains or losses recognized during the three months ended March 31, 2013. There was no other-than-temporary impairment loss recognized during the nine and three months ended March 31, 2014 and 2013.

Index

LOANS

Net loans receivable increased $33.1 million, or 9.2%, to $392.5 million at March 31, 2014 from $359.4 million at June 30, 2013. The loan growth experienced during the nine months consisted primarily of $16.5 million in nonresidential real estate loans, $13.8 million in residential mortgage loans, and $4.6 million in commercial loans, and was partially offset by a $1.4 million decrease in multi-family mortgage loans and a $468,000 decrease in construction loans. The continued low interest rate environment and we believe 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.

(Dollars in thousands)	March 31, 2014						June 30, 2013
Real estate mortgages:	Balance			Percentage of Portfolio			Balance			Percentage of Portfolio
Residential mortgage	$	226,310			56.8	%	$	212,526			58.1	%
Nonresidential mortgage		108,004			27.1			91,482			25.0
Construction and land		5,746			1.4			6,214			1.7
Multi-family		4,112			1.0			5,511			1.5
Total real estate mortgages		344,172			86.3			315,733			86.3
Home equity		20,493			5.1			20,371			5.6
Consumer installment		4,078			1.0			4,078			1.1
Commercial loans		30,264			7.6			25,657			7.0
Total gross loans		399,007			100.0	%		365,839			100.0	%
Deferred fees and costs		814						627
Allowance for loan losses		(7,341	)					(7,040	)
Total net loans	$	392,480					$	359,426

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 residential mortgages, home equity loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Commercial mortgage 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 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. 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.

Index

Analysis of allowance for loan losses activity

	At or for the nine months ended March 31,
(Dollars in thousands)	2014			2013
Balance at the beginning of the period	$	7,040		$	6,177
Charge-offs:
Residential real estate mortgages		344			286
Nonresidential mortgage		87			139
Multi-family		24			-
Home equity		44			-
Consumer installment		171			201
Commercial loans		205			15
Total loans charged off		875			641

Recoveries:
Residential real estate mortgages		1			-
Multi-family		7			-
Consumer installment		55			70
Commercial loans		4			-
Total recoveries		67			70

Net charge-offs		808			571

Provisions charged to operations		1,109			1,316
Balance at the end of the period	$	7,341		$	6,922

Net charge-offs to average loans outstanding		0.43	%		0.22	%
Net charge-offs to nonperforming assets		23.80	%		10.18	%
Allowance for loan losses to nonperforming loans		120.74	%		98.31	%
Allowance for loan losses to total loans receivable		1.84	%		1.94	%

Nonaccrual Loans and Nonperforming Assets

Management generally 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. 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 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 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. Loans that are either delinquent a minimum of 60 days or are on nonaccrual status, and are not individually considered impaired, are either designated as Special Mention or Substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation. For further discussion and detail regarding the Allowance for Loan Losses and impaired loans please refer to Note (5) Credit Quality of Loans and Allowance for Loan Losses. 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)	At March 31, 2014			At June 30, 2013
Nonaccrual loans:
Residential	$	3,319		$	3,599
Nonresidential		1,937			2,018
Multi-family		-			463
Home equity loans		243			51
Consumer installment		1			-
Commercial loans		311			195
Total nonaccrual loans		5,811			6,326
90 days & accruing
Residential		269			559
Total 90 days & accruing		269			559
Real Estate Owned:
Residential		571			100
Nonresidential		145			196
Total real estate owned		716			296
Total nonperforming assets	$	6,796		$	7,181

Troubled debt restructurings:
Nonperforming (included above)	$	2,051		$	1,518
Performing (accruing and excluded above)		2,597			1,261

Total nonperforming assets as a percentage of total assets		0.97	%		1.13	%
Total nonperforming loans to net loans		1.55	%		1.92	%

The table below details additional information related to nonaccrual loans for the nine and three months ended March 31:

	For the nine months ended March 31,				For the three months ended March 31
(In thousands)	2014		2013		2014		2013
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	389	$	398	$	181	$	123
Interest income that was recorded on nonaccrual loans		92		180		28		54

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.

The table below details additional information on impaired loans as of the dates indicated:

(In thousands)	March 31, 2014		June 30, 2013
Balance of impaired loans, with a valuation allowance	$	6,692	$	6,051
Allowances relating to impaired loans included in allowance for loan losses		1,061		1,179
Balance of impaired loans, without a valuation allowance		748		1,635

	For the nine months ended March 31,				For the three months ended March 31
(In thousands)	2014		2013		2014		2013
Average balance of impaired loans for the periods ended	$	7,624	$	7,845	$	7,236	$	7,808
Interest income recorded on impaired loans during the periods ended		156		258		51		76

Index

Nonperforming assets amounted to $6.8 million at March 31, 2014 and $7.2 million as of June 30, 2013, a decrease of approximately $385,000 or 5.4%, and total impaired loans amounted to $7.4 million at March 31, 2014 compared to $7.7 million at June 30, 2013, a decrease of $246,000 or 3.2%. The decrease in nonperforming assets resulted from an increase in the level of charge-off activity during the period which totaled $875,000 for the nine months ended March 31, 2014, loans returned to performing status of $201,000 and the payoff of $1.8 million in nonperforming loans. This activity was partially offset by the addition of $2.7 million in loans being added to nonperforming status during the nine months ended March 31, 2014. Loans on nonaccrual status totaled $5.8 million at March 31, 2014 of which $3.7 million were in the process of foreclosure. Included in nonaccrual loans were $2.2 million of loans which were less than 90 days past due at March 31, 2014, 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 $1.0 million 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. While the Bank makes every reasonable effort to work with the borrowers to collect amounts due, the number of loans in process of foreclosure has grown substantially over the past several years. The growth in nonperforming assets is also due in part to the extended length of time required to meet all of the legal requirements mandated by New York State law prior to a foreclosure sale, which may be in excess of two years.

DEPOSITS

Total deposits increased $62.8 million, or 11.2%, to $621.2 million at March 31, 2014 from $558.4 million at June 30, 2013. The growth in deposits was primarily in NOW deposits, noninterest bearing checking and money market products. Noninterest bearing deposits increased $4.2 million, or 7.3%, NOW deposits increased $45.1 million, or 22.7%, and money market deposits increased $15.2 million, or 17.7%, when comparing March 31, 2014 and June 30, 2013, resulting from an increase in municipal deposits of $47.3 million. During the three months ended March 31, 2014, municipalities received funds from both tax collection and state funding. These deposits tend to fluctuate throughout the year based on tax collection dates and the usage of these assessments by the municipalities during their fiscal year. The Company has strategically maintained a complementary mix of municipalities with differing fiscal year end dates, and closely monitors the cash flows of these municipal accounts to ensure adequate liquidity. At March 31, 2014, municipal deposits comprised 31.8% of total deposits. Savings deposits also increased during the nine months ended March 31, 2014 by $4.3 million. Partially offsetting these increases was a decrease in certificates of deposits of $5.9 million, or 10.5%, to $50.3 million at March 31, 2014 from $56.2 million at June 30, 2013. With the continued low interest rate environment, certificates of deposit continue to decline.

(In thousands)	At March 31, 2014		Percentage of Portfolio			At June 30, 2013		Percentage of Portfolio
Noninterest bearing deposits	$	62,124		10.0	%	$	57,926		10.4	%
Certificates of deposit		50,278		8.1			56,181		10.1
Savings deposits		164,260		26.5			160,004		28.6
Money market deposits		100,853		16.2			85,685		15.3
NOW deposits		243,723		39.2			198,643		35.6
Total deposits	$	621,238		100.0	%	$	558,439		100.0	%

BORROWINGS

During the three months ended March 31, 2014, the Company entered into an Irrevocable Letter of Credit Reimbursement Agreement with the Federal Home Loan Bank (“FHLB”), whereby upon The Bank of Greene County’s request, on behalf of Greene County Commercial Bank, an irrevocable letter of credit is issued to secure municipal transactional deposit accounts. At March 31, 2014, The Bank of Greene County had pledged approximately $204.8 million of its residential mortgage portfolio as collateral for borrowing and stand-by letters of credit at the FHLB. The maximum amount of funding available from the FHLB was $165.1 million at March 31, 2014, of which $14.5 million in long-term borrowings and $5.1 million in stand-by letters of credit were outstanding at March 31, 2014. There were no short term borrowings outstanding at March 31, 2014. Interest rates on short term borrowings are determined at the time of borrowing. Long-term borrowings consisted of fixed rate, fixed term advances with a weighted average rate of 1.45% and a weighted average maturity of 51 months. The Bank has recently increased its level of long-term borrowing to strengthen its overall interest rate risk position, to help mitigate the potential negative impact of rising interest rates.

The Bank also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings. At March 31, 2014, approximately $5.2 million of collateral 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 March 31, 2014.

Index

The Bank of Greene County has established unsecured lines of credit with Atlantic Central Bankers Bank and another depository institution for $6.0 million and $5.0 million, respectively. These lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing. At March 31, 2014 and June 30, 2013 there were no balances outstanding on either of these lines of credit, and there was no activity during the nine months ended March 31, 2014 and 2013.

Scheduled maturities of term borrowings at March 31, 2014 were as follows:

(In thousands)
Fiscal year end
2017		2,500
2018		4,500
Due after 2018		7,500
	$	14,500

EQUITY

Shareholders’ equity increased to $59.8 million at March 31, 2014 from $56.1 million at June 30, 2013, as net income of $5.0 million was partially offset by dividends declared and paid of $1.0 million, and a $485,000 increase in accumulated other comprehensive loss. Other changes in equity, totaling a $199,000 increase, were the result of options exercised with the Company’s 2008 Stock Option Plan.

Index

Comparison of Operating Results for the Nine and Three Months Ended March 31, 2014 and 2013

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the nine and three months ended March 31, 2014 and 2013. 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 non-performing loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

Nine Months Ended March 31, 2014 and 2013

				2014								2013
(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	$	385,390		$	13,790		4.77	%	$	346,903		$	13,693		5.26	%
Securities²		237,263			3,884		2.18			233,344			4,458		2.55
Interest bearing bank balances and federal funds		8,603			17		0.26			11,996			28		0.30
FHLB stock		1,427			40		3.74			1,283			44		4.57
Total interest earning assets		632,683			17,731		3.74	%		593,526			18,223		4.09	%
Cash and due from banks		6,854								7,828
Allowance for loan losses		(7,044								(6,554
Other non-interest earning assets		17,809								18,023
Total assets	$	650,302							$	612,823

Interest-Bearing Liabilities:
Savings and money market deposits	$	250,520		$	699		0.37	%	$	230,398		$	840		0.49	%
NOW deposits		212,754			693		0.43			196,824			744		0.50
Certificates of deposit		52,035			255		0.65			66,112			390		0.79
Borrowings		15,477			113		0.97			10,760			183		2.27
Total interest bearing liabilities		530,786			1,760		0.44	%		504,094			2,157		0.57	%
Non-interest bearing deposits		58,722								50,869
Other non-interest bearing liabilities		3,088								3,667
Shareholders' equity		57,706								54,193
Total liabilities and equity	$	650,302							$	612,823

Net interest income				$	15,971							$	16,066
Net interest rate spread							3.30	%							3.52	%
Net earnings assets	$	101,897							$	89,432
Net interest margin							3.38	%							3.61	%
Average interest earning assets to average interest bearing liabilities		119.20	%							117.74	%

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.

Index

Three Months Ended March 31, 2014 and 2013

				2014								2013
(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	$	396,162		$	4,666		4.71	%	$	354,451		$	4,525		5.11	%
Securities²		229,929			1,263		2.20			241,317			1,441		2.39
Interest bearing bank balances and federal funds		17,681			9		0.20			11,292			6		0.21
FHLB stock		1,591			16		4.02			1,195			13		4.35
Total interest earning assets		645,363			5,954		3.69	%		608,255			5,985		3.93	%
Cash and due from banks		7,873								7,374
Allowance for loan losses		(7,189								(6,833
Other non-interest earning assets		19,661								18,672
Total assets	$	665,708							$	627,468

Interest-Bearing Liabilities:
Savings and money market deposits	$	250,886		$	229		0.36	%	$	242,978		$	279		0.46	%
NOW deposits		221,867			239		0.43			202,187			246		0.49
Certificates of deposit		50,231			80		0.64			62,712			112		0.71
Borrowings		19,110			52		1.09			8,790			44		2.00
Total interest bearing liabilities		542,094			600		0.44	%		516,667			681		0.53	%
Non-interest bearing deposits		59,625								51,506
Other non-interest bearing liabilities		4,945								4,085
Shareholders' equity		59,044								55,210
Total liabilities and equity	$	665,708							$	627,468

Net interest income				$	5,354							$	5,304
Net interest rate spread							3.25	%							3.40	%
Net earnings assets	$	103,269							$	91,588
Net interest margin							3.32	%							3.49	%
Average interest earning assets to average interest bearing liabilities		119.05	%							117.73	%

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.

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.

	Nine Months Ended March 31,									Three Months Ended March 31,
(Dollars in thousands)	2014 versus 2013									2014 versus 2013
	Increase/(Decrease)						Total			Increase/(Decrease)						Total
	Due To						Increase/			Due To						Increase/
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)

Interest Earning Assets:
Loans receivable, net¹	$	1,439		$	(1,342	)	$	97		$	510		$	(369	)	$	141
Securities²		75			(649	)		(574	)		(66	)		(112	)		(178	)
Interest bearing bank balances and federal funds		(7	)		(4	)		(11	)		3			(0	)		3
FHLB stock		5			(9	)		(4	)		4			(1	)		3
Total interest earning assets		1,512			(2,004	)		(492	)		451			(482	)		(31	)

Interest-Bearing Liabilities:
Savings and money market deposits		72			(213	)		(141	)		9			(59	)		(50	)
NOW deposits		57			(108	)		(51	)		24			(31	)		(7	)
Certificates of deposit		(74	)		(61	)		(135	)		(21	)		(11	)		(32	)
Borrowings		61			(131	)		(70	)		35			(27	)		8
Total interest bearing liabilities		116			(513	)		(397	)		47			(128	)		(81	)
Net change in net interest income	$	1,396		$	(1,491	)	$	(95	)	$	404		$	(354	)	$	50

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 1.02% for the nine months ended March 31, 2014 as compared to 1.08% for the nine months ended March 31, 2013, and was 0.90% and 0.98% for the three months ended March 31, 2014 and 2013, respectively. Annualized return on average equity decreased to 11.50% for the nine months and 10.13% for the three months ended March 31, 2014 as compared to 12.23% for the nine months and 11.14% for the three months ended March 31, 2013. The decrease in return on average assets and return on average equity was primarily the result of growth in both average assets and average equity with no growth in net income. Net income amounted to $5.0 million for the nine months ended March 31, 2014 and 2013 and amounted to $1.5 million for the three months ended March 31, 2014 and 2013. Average assets increased $37.5 million, or 6.1% to $650.3 million for the nine months ended March 31, 2014 as compared to $612.8 million for the nine months ended March 31, 2013. Average equity increased $3.5 million, or 6.5%, to $57.7 million for the nine months ended March 31, 2014 as compared to $54.2 million for the nine months ended March 31, 2013. Average assets increased $38.2 million, or 6.1% to $665.7 million for the three months ended March 31, 2014 as compared to $627.5 million for the three months ended March 31, 2013. Average equity increased $3.8 million, or 6.9% to $59.0 million for the three months ended March 31, 2014 as compared to $55.2 million for the three months ended March 31, 2013.

Index

INTEREST INCOME

Interest income amounted to $17.7 million and $6.0 million for the nine and three months ended March 31, 2014, respectively, as compared to $18.2 million and $6.0 million for the nine and three months ended March 31, 2013, respectively. Interest income decreased $492,000, and $31,000 when comparing the nine and three months ended March 31, 2014 and 2013. The decrease was the result of a decline in yields on interest earning assets of 35 basis points and 24 basis points when comparing the nine and three months ended March 31, 2014 and 2013, respectively, offset by increases in average earning asset balances of $39.2 million and $37.1 million for these same periods. Average loan balances increased $38.5 million while the yield on loans decreased 49 basis points when comparing the nine months ended March 31, 2014 and 2013, and average securities increased $4.0 million while the yield on such securities decreased 37 basis points when comparing these same periods. Average loan balances increased $41.7 million while the yield on loans decreased 40 basis points when comparing the three months ended March 31, 2014 and 2013, and average securities decreased $11.4 million while the yield on such securities decreased 19 basis points when comparing these same periods.

INTEREST EXPENSE

Interest expense amounted to $1.8 million and $600,000 for the nine and three months ended March 31, 2014, respectively, as compared to $2.2 million and $681,000 for the nine and three months ended March 31, 2013, respectively. Interest expense decreased $397,000 and $81,000 when comparing the nine and three months ended March 31, 2014 and 2013. Decreases in rates on interest bearing liabilities contributed to the decrease in overall interest expense. As illustrated in the rate/volume table, interest expense was reduced $513,000 due to a 13 basis point decrease in the average rate on interest bearing liabilities when comparing the nine months ended March 31, 2014 and 2013, and was reduced $128,000 due to a 9 basis point decrease in the average rate on interest bearing liabilities when comparing the three months ended March 31, 2014 and 2013.

The average rate paid on NOW deposits decreased 7 basis points and 6 basis points when comparing the nine and three months ended March 31, 2014 and 2013, respectively. The average balance of such accounts increased by $15.9 million when comparing the nine months ended March 31, 2014 and 2013, and increased by $19.7 million when comparing the three months ended March 31, 2014 and 2013. The average balance of certificates of deposit decreased by $14.1 million and the average rate paid decreased by 14 basis points when comparing the nine months ended March 31, 2014 and 2013. The average balance of certificates of deposit decreased by $12.5 million and the average rate paid decreased by 7 basis points when comparing the three months ended March 31, 2014 and 2013. The average balance of savings and money market deposits increased by $20.1 million when comparing the nine months ended March 31, 2014 and 2013 and increased by $7.9 million when comparing the three months ended March 31, 2014 and 2013. The average rate paid on savings and money markets decreased 12 basis points and 10 basis points when comparing the nine and three month ended March 31, 2014 and 2013, respectively. The average balance of borrowings increased $4.7 million and $10.3 million when comparing the nine and three months ended March 31, 2014 and 2013. The rate paid on these borrowings decreased 130 basis points and 91 basis points when comparing the same periods.

NET INTEREST INCOME

Net interest income decreased $95,000 to $16.0 million for the nine months ended March 31, 2014 from $16.1 million for the nine months ended March 31, 2013. Net interest spread decreased 22 basis points to 3.30% as compared to 3.52% when comparing the nine months ended March 31, 2014 and 2013, respectively. Net interest margin decreased 23 basis points to 3.38% for the nine months ended March 31, 2014 as compared to 3.61% for the nine months ended March 31, 2013. Net interest income totaled $5.4 million and $5.3 million for the three months ended March 31, 2014 and 2013, respectively. Net interest spread decreased 15 basis points to 3.25% as compared to 3.40% when comparing the three months ended March 31, 2014 and 2013, respectively. Net interest margin decreased 17 basis points to 3.32% for the three months ended March 31, 2014 as compared to 3.49% for the three months ended March 31, 2013. The continued decline in rates, partially offset by growth in interest earning asset balances has resulted in the narrowing of the spread and margin when comparing the nine and three months ended March 31, 2014 and 2013.

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.

Index

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. The provision for loan losses amounted to $1.1 million and $1.3 million for the nine months ended March 31, 2014 and 2013, respectively, and was $288,000 and $331,000 for the three months ended March 31, 2014 and 2013, respectively. The level of allowance for loan losses to total loans receivable decreased to 1.84% as of March 31, 2014 as compared to 1.94% as of June 30, 2013. Nonperforming loans amounted to $6.1 million and $6.9 million at March 31, 2014 and June 30, 2013, respectively. Net charge-offs amounted to $808,000 and $571,000 for the nine months ended March 31, 2014 and 2013, respectively, an increase of $237,000. Net charge-offs amounted to $118,000 and $173,000 for the three months ended March 31, 2014 and 2013, respectively, a decrease of $55,000. At March 31, 2014, nonperforming assets were 0.97% of total assets and nonperforming loans were 1.55% of net loans. 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

Noninterest income increased $198,000, or 5.3%, to $3.9 million for the nine months ended March 31, 2014 as compared to $3.7 million for the nine months ended March 31, 2013. Noninterest income increased $107,000, or 9.4%, for the three months ended March 31, 2014 as compared to March 31, 2013 and totaled $1.2 million and $1.1 million, respectively. These increases were primarily due to an increase in debit card fees resulting from continued growth in the number of checking accounts with debit cards, and income generated from increased sales of investment products to customers through investment services.

NONINTEREST EXPENSE

Noninterest expense increased $473,000, or 4.2%, when comparing the nine months ended March 31, 2014 and 2013 and totaled $11.8 million and $11.4 million, respectively. The increase was primarily due to an increase in salaries and employee benefits of $512,000 resulting from expenses recognized for the Company’s phantom stock option plan as well as various other employee benefits. The increase was also due to a $139,000 increase in legal and professional fees resulting from an increase in consulting services utilized during the nine months ended March 31, 2014. This increase was partially offset by a $166,000 decrease in service and data processing fees due to lower debit card processing fees resulting from the renegotiation of the contract between the Company and its vendor which provided for reduced fees during the nine months ended March 31, 2014. It is expected that these fees will increase in subsequent periods as these incentives have expired.

Noninterest expense increased $329,000, or 8.3%, when comparing the three months ended March 31, 2014 and 2013 and total $4.3 million and $3.9 million, respectively. Similar to results for the nine months ended March 31, 2014, salaries and employee benefits increased $328,000 and legal and professional fees increased $25,000 and service and data processing fees decreased $11,000 when comparing the three months ended March 31, 2014 and 2013. Also, occupancy expense increased $37,000 and equipment and furniture expense decreased $47,000 when comparing the three months ended March 31, 2014 and 2013. These fluctuations were the result of higher real estate taxes paid and lower depreciation expense as older fixed assets have become fully depreciated.

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 28.3% and 26.6% for the nine and three months ended March 31, 2014, compared to 30.0% and 29.1% for the nine and three months ended March 31, 2013. The effective tax rate has continued to decline as a result of purchases of tax exempt bonds and loans as well as continued loan growth within the Company’s real estate investment trust subsidiary.

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.

Mortgage loan commitments, including construction and land loan commitments, totaled $19.0 million at March 31, 2014. The unused portion of overdraft lines of credit amounted to $719,000, the unused portion of home equity lines of credit amounted to $8.1 million, and the unused portion of commercial lines of credit and commercial loan commitments amounted to $13.0 million at March 31, 2014. 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 March 31, 2014 and June 30, 2013. Consolidated shareholders’ equity represented 8.5% of total assets at March 31, 2014 and 8.9% of total assets of June 30, 2013.

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

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 March 31, 2014, 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: May 14, 2014

By: /s/ Donald E. Gibson

Donald E. Gibson
President and Chief Executive Officer

Date: May 14, 2014

By: /s/ Michelle M. Plummer

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

Greene County Bancorp - 10-Q quarterly report FY2014 Q3

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