Greene County Bancorp - 10-Q quarterly report FY2016 Q1

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015

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

GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number 0-25165

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

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

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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: ☐ No: ☒

As of November 13, 2015, the registrant had 4,225,957 shares of common stock outstanding at $ 0.10 par value per share.

GREENE COUNTY BANCORP, INC.

INDEX

PART I.	FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements (unaudited)
	* Consolidated Statements of Financial Condition	3
	* Consolidated Statements of Income	4
	* Consolidated Statements of Comprehensive Income	5
	* Consolidated Statements of Changes in Shareholders’ Equity	6
	* Consolidated Statements of Cash Flows	7
	* Notes to Consolidated Financial Statements	8-26

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27-38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	39

Item 6.	Exhibits	39

	Signatures	40
	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 September 30, 2015 and June 30, 2015

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	September 30, 2015			June 30, 2015
Total cash and cash equivalents	$	12,117		$	15,538

Long term certificate of deposit		1,230			1,230
Securities available-for-sale, at fair value		95,757			86,034
Securities held-to-maturity, at amortized cost (fair value $178,960 at September 30, 2015; $171,976 at June 30, 2015)		174,560			169,000
Federal Home Loan Bank stock, at cost		1,832			2,494

Loans		468,019			450,755
Allowance for loan losses		(8,466	)		(8,142	)
Unearned origination fees and costs, net		905			883
Net loans receivable		460,458			443,496

Premises and equipment		14,476			14,515
Accrued interest receivable		3,185			3,026
Foreclosed real estate		836			847
Prepaid expenses and other assets		3,294			2,467
Total assets	$	767,745		$	738,647

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	79,111		$	73,359
Interest-bearing deposits		585,197			549,358
Total deposits		664,308			622,717

Borrowings from Federal Home Loan Bank, short-term		8,200			22,900
Borrowings from Federal Home Loan Bank, long-term		18,800			18,800
Accrued expenses and other liabilities		7,656			7,310
Total liabilities		698,964			671,727

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 4,224,457 shares at September 30, 2015, and 4,222,357 shares at June 30, 2015		431			431
Additional paid-in capital		11,230			11,220
Retained earnings		58,491			56,696
Accumulated other comprehensive loss		(758	)		(798	)
Treasury stock, at cost 81,213 shares at September 30, 2015,
and 83,313 shares at June 30, 2015		(613	)		(629	)
Total shareholders’ equity		68,781			66,920
Total liabilities and shareholders’ equity	$	767,745		$	738,647

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three Months Ended September 30, 2015 and 2014

(Unaudited)

(In thousands, except share and per share amounts)

	2015		2014
Interest income:
Loans	$	5,293	$	4,839
Investment securities - taxable		134		143
Mortgage-backed securities		767		705
Investment securities - tax exempt		667		552
Interest-bearing deposits and federal funds sold		2		2
Total interest income		6,863		6,241

Interest expense:
Interest on deposits		531		501
Interest on borrowings		83		61
Total interest expense		614		562

Net interest income		6,249		5,679
Provision for loan losses		374		411
Net interest income after provision for loan losses		5,875		5,268

Noninterest income:
Service charges on deposit accounts		717		716
Debit card fees		452		415
Investment services		93		102
E-commerce fees		24		28
Other operating income		160		208
Total noninterest income		1,446		1,469

Noninterest expense:
Salaries and employee benefits		2,424		2,367
Occupancy expense		363		324
Equipment and furniture expense		120		76
Service and data processing fees		410		454
Computer software, supplies and support		133		233
Advertising and promotion		101		81
FDIC insurance premiums		100		91
Legal and professional fees		260		213
Other		609		438
Total noninterest expense		4,520		4,277

Income before provision for income taxes		2,801		2,460
Provision for income taxes		651		685
Net income	$	2,150	$	1,775

Basic earnings per share	$	0.51	$	0.42
Basic average shares outstanding		4,223,156		4,214,358
Diluted earnings per share	$	0.51	$	0.42
Diluted average shares outstanding		4,249,380		4,245,325
Dividends per share	$	0.185	$	0.180

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three Months Ended September 30, 2015 and 2014

(Unaudited)

(In thousands)

	2015		2014
Net Income	$	2,150	$	1,775
Other comprehensive income:
Unrealized holding gains on available-for-sale securities, net of income taxes of $21 and $12, respectively		34		18

Accretion of unrealized loss on securities transferred to held-to-maturity, net of income taxes of $4 and $67, respectively		6		105

Total other comprehensive income, net of taxes		40		123

Comprehensive income	$	2,190	$	1,898

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended September 30, 2015 and 2014

(Unaudited)

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total Shareholders' Equity
Balance at June 30, 2014	$	431		11,208	$	51,305		$	(1,050	)	$	(694	)	$	61,200
Options exercised				15								24			39
Tax benefit of stock based compensation				6											6
Dividends declared						(344	)								(344	)
Net income						1,775									1,775
Other comprehensive income, net of taxes									123						123
Balance at September 30, 2014	$	431	$	11,229	$	52,736		$	(927	)	$	(670	)	$	62,799

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders' Equity
Balance at June 30, 2015	$	431	$	11,220	$	56,696		$	(798	)	$	(629	)	$	66,920
Options exercised				10								16			26
Dividends declared						(355	)								(355	)
Net income						2,150									2,150
Other comprehensive income, net of taxes									40						40
Balance at September 30, 2015	$	431	$	11,230	$	58,491		$	(758	)	$	(613	)	$	68,781

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Three Months Ended September 30, 2015 and 2014

(Unaudited)

(In thousands)

	2015			2014
Cash flows from operating activities:
Net Income	$	2,150		$	1,775
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		158			130
Deferred income tax expense		751			635
Net amortization of premiums and discounts		174			344
Net amortization of deferred loan costs and fees		102			15
Provision for loan losses		374			411
Losses (gains) on sale of foreclosed real estate		106			(7	)
Excess tax benefit from share based compensation		-			(6	)
Net (decrease) increase in accrued income taxes		(764	)		30
Net increase in accrued interest receivable		(159	)		(208	)
Net decrease (increase) in prepaid and other assets		209			(168	)
Net decrease in other liabilities		(702	)		(784	)
Net cash provided by operating activities		2,399			2,167

Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities		15,735			2,250
Purchases of securities		(26,970	)		(12,889	)
Principal payments on securities		1,512			1,394
Securities held-to-maturity:
Proceeds from maturities		2,788			5,091
Purchases of securities		(10,860	)		(8,942	)
Principal payments on securities		2,403			1,500
Net redemption of Federal Home Loan Bank Stock		662			117
Net increase in loans receivable		(17,756	)		(7,969	)
Proceeds from sale of foreclosed real estate		223			302
Purchases of premises and equipment		(119	)		(180	)
Net cash used by investing activities		(32,382	)		(19,326	)

Cash flows from financing activities
Net (decrease) increase in short-term FHLB advances		(14,700	)		1,650
Payment of cash dividends		(355	)		(344	)
Proceeds from issuance of stock options		26			39
Excess tax benefit from share based compensation		-			6
Net increase in deposits		41,591			21,734
Net cash provided by financing activities		26,562			23,085

Net (decrease) increase in cash and cash equivalents		(3,421	)		5,926
Cash and cash equivalents at beginning of period		15,538			13,809
Cash and cash equivalents at end of period	$	12,117		$	19,735

Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	318			158
Cash paid during period for:
Interest	$	613		$	572
Income taxes	$	664		$	20

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Notes to Consolidated Financial Statements

As of and for the Three Months Ended September 30, 2015 and 2014

(1)	Basis of Presentation

The accompanying unaudited consolidated statement of financial condition as of June 30, 2015 was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, The Bank of Greene County (the “Bank”) and Greene Risk Management, Inc., and the Bank’s wholly owned subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd. The consolidated financial statements at and for the three months ended September 30, 2015 and 2014 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, 2015, such information and notes have not been duplicated herein. In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included. Amounts in the prior year’s consolidated financial statements have been reclassified whenever necessary to conform to the current year’s presentation. These reclassifications, if any, had no effect on net income or retained earnings as previously reported. All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three months ended September 30, 2015 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2016. 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. 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 subsidiaries, The Bank of Greene County and Greene Risk Management, Inc. The Bank of Greene County has 13 full-service offices, an operations center and lending center located in its market area within the Hudson Valley Region of New York State. The Bank of Greene County is primarily engaged in the business of attracting deposits from the general public in The Bank of Greene County’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities. Greene Risk Management, Inc. is a pooled captive insurance company, which provides additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible. The Bank of Greene County also owns and operates two subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd. Greene County Commercial Bank’s primary business is to attract deposits from and provide banking services to local municipalities. Greene Property Holdings, Ltd.is a real estate investment trust, which holds mortgages and notes which were originated through and serviced by The Bank of Greene County.

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 on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, intent to sell the security, whether it is more likely than not we will be required to sell the security before recovery, whether loss 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 September 30, 2015 consisted of the following:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available-for-sale:
U.S. government sponsored enterprises	$	4,602	$	267	$	-	$	4,869
State and political subdivisions		53,807		13		-		53,820
Mortgage-backed securities-residential		7,407		146		12		7,541
Mortgage-backed securities-multi-family		24,128		553		34		24,647
Asset-backed securities		7		-		1		6
Corporate debt securities		4,541		205		11		4,735
Total debt securities		94,492		1,184		58		95,618
Equity securities		62		77		-		139
Total securities available-for-sale		94,554		1,261		58		95,757
Securities held-to-maturity:
U.S. government sponsored enterprises		2,000		-		26		1,974
State and political subdivisions		87,527		3,259		58		90,728
Mortgage-backed securities-residential		15,806		725		-		16,531
Mortgage-backed securities-multi-family		67,503		1,053		549		68,007
Other securities		1,724		4		8		1,720
Total securities held-to-maturity		174,560		5,041		641		178,960
Total securities	$	269,114	$	6,302	$	699	$	274,717

Index

Securities at June 30, 2015 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	$	7,608	$	247	$	-	$	7,855
State and political subdivisions		39,574		9		1		39,582
Mortgage-backed securities-residential		7,797		155		10		7,942
Mortgage-backed securities-multi-family		25,291		486		42		25,735
Asset-backed securities		10		-		1		9
Corporate debt securities		4,544		242		12		4,774
Total debt securities		84,824		1,139		66		85,897
Equity securities		62		75		-		137
Total securities available-for-sale		84,886		1,214		66		86,034
Securities held-to-maturity:
U.S. government sponsored enterprises		2,000		-		49		1,951
State and political subdivisions		81,501		2,137		187		83,451
Mortgage-backed securities-residential		17,468		768		-		18,236
Mortgage-backed securities-multi-family		67,239		990		665		67,564
Other securities		792		-		18		774
Total securities held-to-maturity		169,000		3,895		919		171,976
Total securities	$	253,886	$	5,109	$	985	$	258,010

Greene County Bancorp, Inc.’s current policies generally limit securities investments to U.S. Government and securities of government sponsored enterprises, federal funds sold, municipal bonds, corporate debt obligations and certain mutual funds. In addition, the Company’s policies permit investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage obligations issued by these entities. As of September 30, 2015, all mortgage-backed securities including collateralized mortgage obligations were securities of government sponsored enterprises, no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio. The Company’s investments in state and political subdivisions securities generally are municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured. The obligations issued by school districts are supported by state aid. Primarily, these investments are issued by municipalities within New York State.

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2015.

	Less Than 12 Months						More Than 12 Months						Total
(In thousands, except number of securities)	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities
Securities available-for-sale:
Mortgage-backed securities-residential	$	-	$	-		-	$	1,566	$	12		1	$	1,566	$	12		1
Mortgage-backed securities-multi-family		2,023		22		1		731		12		1		2,754		34		2
Asset-backed securities		-		-		-		6		1		1		6		1		1
Corporate debt securities		273		1		1		491		10		2		764		11		3
Total securities available-for-sale		2,296		23		2		2,794		35		5		5,090		58		7
Securities held-to-maturity:
U.S. government sponsored enterprises		-		-		-		1,974		26		1		1,974		26		1
State and political subdivisions		4,691		36		27		1,118		22		6		5,809		58		33
Mortgage-backed securities-multi-family		11,540		98		4		28,283		451		6		39,823		549		10
Other securities		340		5		2		205		3		3		545		8		5
Total securities held-to-maturity		16,571		139		33		31,580		502		16		48,151		641		49
Total securities	$	18,867	$	162		35	$	34,374	$	537		21	$	53,241	$	699		56

Index

	Less Than 12 Months						More Than 12 Months						Total
(In thousands, except number of securities)	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities
Securities available-for-sale:
State and political subdivisions	$	799	$	1		1	$	-	$	-			$	799	$	1		1
Mortgage-backed securities-residential		-		-		-		1,630		10		1		1,630		10		1
Mortgage-backed securities-multi-family		2,023		26		1		753		16		1		2,776		42		2
Asset-backed securities		-		-		-		9		1		1		9		1		1
Corporate debt securities		273		2		1		491		10		2		764		12		3
Total securities available-for-sale		3,095		29		3		2,883		37		5		5,978		66		8
Securities held-to-maturity:
U.S. government sponsored enterprises		-		-		-		1,951		49		1		1,951		49		1
State and political subdivisions		11,171		143		49		1,221		44		9		12,392		187		58
Mortgage-backed securities-multi-family		14,464		100		4		28,187		565		6		42,651		665		10
Other securities		334		11		1		202		7		1		536		18		2
Total securities held-to-maturity		25,969		254		54		31,561		665		17		57,530		919		71
Total securities	$	29,064	$	283		57	$	34,444	$	702		22	$	63,508	$	985		79

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 September 30, 2015. 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 quarters ended September 30, 2015 and 2014, there were no sales of securities and no gains or losses were recognized. There was no other-than-temporary impairment loss recognized during the quarters ended September 30, 2015 and 2014.

Index

The estimated fair values of debt securities at September 30, 2015, 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	$	53,508	$	53,522
After one year through five years		9,442		9,902
After five years through ten years		-		-
After ten years		-		-
Total available-for-sale debt securities		62,950		63,424
Mortgage-backed and asset-backed securities		31,542		32,194
Equity securities		62		139
Total available-for-sale securities		94,554		95,757

Held-to-maturity debt securities
Within one year		12,893		13,125
After one year through five years		48,370		49,779
After five years through ten years		21,743		22,606
After ten years		8,245		8,912
Total held-to-maturity debt securities		91,251		94,422
Mortgage-backed		83,309		84,538
Total held-to-maturity securities		174,560		178,960
Total securities	$	269,114	$	274,717

As of September 30, 2015 and June 30, 2015, respectively, securities with an aggregate fair value of $242.8 million and $223.1 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 September 30, 2015 and June 30, 2015, securities with an aggregate fair value of $4.7 million and $4.8 million, respectively, were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window. Greene County Bancorp, Inc. did not participate in any securities lending programs during the quarters ended September 30, 2015 or 2014.

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 fiscal quarters ended September 30, 2015 or 2014.

Index

(5)	Loans and Allowance for Loan Losses

Loan segments and classes at September 30, 2015 and June 30, 2015 are summarized as follows:

(In thousands)	September 30, 2015			June 30, 2015
Residential real estate:
Residential real estate	$	228,993		$	226,648
Residential construction and land		4,564			3,621
Multi-family		4,374			4,287
Commercial real estate:
Commercial real estate		154,067			142,323
Commercial construction		6,269			8,936
Consumer loan:
Home equity		21,389			21,019
Consumer installment		4,083			4,123
Commercial loans		44,280			39,798
Total gross loans		468,019			450,755
Allowance for loan losses		(8,466	)		(8,142	)
Deferred fees and costs		905			883
Loans receivable, net	$	460,458		$	443,496

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

When The Bank of Greene County classifies problem assets as either Substandard or Doubtful, it generally establishes a specific valuation allowance or “loss reserve” in an amount deemed prudent by management. General allowances represent loss allowances that have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular loans. When The Bank of Greene County identifies problem loans as being impaired, it is required to evaluate whether the Bank will be able to collect all amounts due either through repayments or the liquidation of the underlying collateral. If it is determined that impairment exists, the Bank is required either to establish a specific allowance for losses equal to the amount of impairment of the assets, or to charge-off such amount. The Bank of Greene County’s determination as to the classification of its loans and the amount of its valuation allowance is subject to review by its regulatory agencies, which can order the establishment of additional general or specific loss allowances. The Bank of Greene County reviews its portfolio monthly to determine whether any assets require classification in accordance with applicable regulations.

The Bank primarily has four segments within its loan portfolio that it considers when measuring credit quality: residential real estate loans, commercial real estate loans, consumer loans and commercial loans. The residential real estate portfolio consists of residential, construction, and multifamily loan classes. Commercial real estate loans consist of commercial real estate and commercial construction loan classes. Consumer loans consist of home equity loan and consumer installment loan classes. The inherent risk within the loan portfolio varies depending upon each of these loan types.

The Bank of Greene County’s primary lending activity is the origination of residential mortgage loans, including home equity loans, which are collateralized by residences. Generally, residential mortgage loans are made in amounts up to 89.9% of the appraised value of the property. However, The Bank of Greene County will originate residential mortgage loans with loan-to-value ratios of up to 95.0%, with private mortgage insurance. In the event of default by the borrower, The Bank of Greene County will acquire and liquidate the underlying collateral. By originating the loan at a loan-to-value ratio of 89.9% or less or obtaining private mortgage insurance, The Bank of Greene County limits its risk of loss in the event of default. However, the market values of the collateral may be adversely impacted by declines in the economy. Home equity loans may have an additional inherent risk if The Bank of Greene County does not hold the first mortgage. The Bank of Greene County may stand in a secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.

Index

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

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

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

Commercial lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate mortgage lending. Real estate lending is generally considered to be collateral-based, with loan amounts based on fixed loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment.

Loan balances by internal credit quality indicator as of September 30, 2015 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential real estate	$	226,798	$	422	$	96	$	1,677	$	228,993
Residential construction and land		4,564		-		-		-		4,564
Multi-family		4,270		-		-		104		4,374
Commercial real estate		150,926		459		543		2,139		154,067
Commercial construction		6,269		-		-		-		6,269
Home equity		21,129		-		15		245		21,389
Consumer installment		4,078		-		-		5		4,083
Commercial loans		42,932		-		831		517		44,280
Total gross loans	$	460,966	$	881	$	1,485	$	4,687	$	468,019

Index

Loan balances by internal credit quality indicator as of June 30, 2015 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential real estate	$	224,195	$	638	$	97	$	1,718	$	226,648
Residential construction and land		3,621		-		-		-		3,621
Multi-family		4,182		-		-		105		4,287
Commercial real estate		138,468		-		986		2,869		142,323
Commercial construction		8,936		-		-		-		8,936
Home equity		20,731		-		15		273		21,019
Consumer installment		4,117		6		-		-		4,123
Commercial loans		38,334		-		844		620		39,798
Total gross loans	$	442,584	$	644	$	1,942	$	5,585	$	450,755

The Company had no loans classified Doubtful or Loss at September 30, 2015 or June 30, 2015.

Nonaccrual Loans

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent. A nonaccrual loan is defined as a loan in which collectability is questionable and therefore interest on the loan will no longer be recognized on an accrual basis. A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan. A loan does not have to be 90 days delinquent in order to be classified as nonaccrual. Nonaccrual loans consisted primarily of loans secured by real estate at September 30, 2015 and June 30, 2015. Loans on nonaccrual status totaled $4.2 million at September 30, 2015, of which $654,000 were in the process of foreclosure. Included in nonaccrual loans were $2.3 million of loans which were less than 90 days past due at September 30, 2015, 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 $250,000 of loans which were making payments pursuant to forbearance agreements. Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment). During this term of the forbearance agreement, the Bank has agreed not to continue foreclosure proceedings. Loans on nonaccrual status totaled $4.6 million at June 30, 2015 of which $1.2 million were in the process of foreclosure. Included in nonaccrual loans were $2.6 million of loans which were less than 90 days past due at June 30, 2015, but have a recent history of delinquency greater than 90 days past due.

The following table sets forth information regarding delinquent and/or nonaccrual loans as of September 30, 2015:

(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total Loans		Loans on Non- accrual
Residential real estate	$	1,592	$	114	$	713	$	2,419	$	226,574	$	228,993	$	913
Residential construction and land		-		-		-		-		4,564		4,564		-
Multi-family		-		-		-		-		4,374		4,374		-
Commercial real estate		250		1		1,168		1,419		152,648		154,067		2,692
Commercial construction		-		-		-		-		6,269		6,269		-
Home equity		203		15		5		223		21,166		21,389		126
Consumer installment		54		-		1		55		4,028		4,083		5
Commercial loans		99		-		75		174		44,106		44,280		439
Total gross loans	$	2,198	$	130	$	1,962	$	4,290	$	463,729	$	468,019	$	4,175

Index

The following table sets forth information regarding delinquent and/or nonaccrual loans as of June 30, 2015:

(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total Loans		Loans on Non- accrual
Residential real estate	$	1,233	$	329	$	785	$	2,347	$	224,301	$	226,648	$	1,087
Residential construction and land		28		-		-		28		3,593		3,621		-
Multi-family		-		-		-		-		4,287		4,287		-
Commercial real estate		339		1		1,132		1,472		140,851		142,323		2,964
Commercial construction		-		-		-		-		8,936		8,936		-
Home equity		244		-		33		277		20,742		21,019		169
Consumer installment		25		6		-		31		4,092		4,123		-
Commercial loans		-		-		175		175		39,623		39,798		388
Total gross loans	$	1,869	$	336	$	2,125	$	4,330	$	446,425	$	450,755	$	4,608

The Bank of Greene County had accruing loans delinquent more than 90 days totaling $82,000 and $84,000 as of September 30, 2015 and June 30, 2015, respectively. The loans delinquent more than 90 days and accruing consist of loans that are well collateralized and the borrowers have demonstrated the ability and willingness to pay. The borrower has made arrangements with the Bank to bring the loan current within a specified time period and has made a series of payments as agreed.

The table below details additional information related to nonaccrual loans for the three months ended September 30:

(In thousands)	2015		2014
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	101	$	128
Interest income that was recorded on nonaccrual loans		49		46

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 September 30, 2015						For the three months ended September 30, 2015
(In thousands)	Recorded Investment		Unpaid Principal		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	308	$	308	$	-	$	349	$	2
Commercial real estate		1,194		1,401		-		1,199		6
Home equity		127		127		-		134		1
Total impaired loans with no allowance		1,629		1,836		-		1,682		9

With an allowance recorded:
Residential real estate		1,397		1,397		264		1,404		14
Commercial real estate		558		558		76		671		6
Commercial loans		92		92		1		92		1
Total impaired loans with allowance		2,047		2,047		341		2,167		21

Total impaired:
Residential real estate		1,705		1,705		264		1,753		16
Commercial real estate		1,752		1,959		76		1,870		12
Home equity		127		127		-		134		1
Commercial loans		92		92		1		92		1
Total impaired loans	$	3,676	$	3,883	$	341	$	3,849	$	30

	As of June 30, 2015						For the three months ended September 30, 2014
(In thousands)	Recorded Investment		Unpaid Principal		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	432	$	432	$	-	$	206	$	3
Commercial real estate		1,206		1,412		-		458		7
Home equity		154		154		-		96		-
Commercial loans		-		-		-		-		-
Total impaired loans with no allowance		1,792		1,998		-		760		10

With an allowance recorded:
Residential real estate		1,411		1,411		263		2,585		31
Commercial real estate		895		895		187		2,522		42
Home equity		-		-		-		200		-
Commercial loans		93		93		1		601		10
Total impaired loans with allowance		2,399		2,399		451		5,908		83

Total impaired loans:
Residential real estate		1,843		1,843		263		2,791		34
Commercial real estate		2,101		2,307		187		2,980		49
Home equity		154		154		-		296		-
Commercial loans		93		93		1		601		10
Total impaired loans	$	4,191	$	4,397	$	451	$	6,668	$	93

Index

There were no loans that have been modified as a troubled debt restructuring during the three months ended September 30, 2015 or 2014.

There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to June 30, 2015 or 2014 which have subsequently defaulted during the three months ended September 30, 2015 or 2014, respectively.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the loan portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of certain identified loans on which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, payment status of the loan, historical loan loss experience and other factors that warrant recognition in providing for the loan loss allowance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review The Bank of Greene County’s allowance for loan losses. Such agencies may require The Bank of Greene County to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The Bank of Greene County considers smaller balance residential mortgages, home equity loans, commercial loans and installment loans to customers as small, homogeneous loans, which are evaluated for impairment collectively based on historical loss experience. Larger balance residential, commercial mortgage and business loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Bank of Greene County charges loans off against the allowance for credit losses when it becomes evident that a loan cannot be collected within a reasonable amount of time or that it will cost the Bank more than it will receive, and all possible avenues of repayment have been analyzed, including the potential of future cash flow, the value of the underlying collateral, and strength of any guarantors or co-borrowers. Generally, consumer loans and smaller 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 three months ended September 30, 2015
(In thousands)	Balance at June 30, 2015		Charge-offs		Recoveries		Provision			Balance at September 30, 2015
Residential real estate	$	2,454	$	-	$	-	$	(68	)	$	2,386
Residential construction and land		50		-		-		12			62
Multi-family		40		-		-		(15	)		25
Commercial real estate		3,699		14		17		112			3,814
Commercial construction		233		-		-		(71	)		162
Home equity		314		-		-		5			319
Consumer installment		223		78		25		70			240
Commercial loans		1,129		-		-		123			1,252
Unallocated		-		-		-		206			206
Total	$	8,142	$	92	$	42	$	374		$	8,466

Index

	Allowance for Loan Losses				Loans Receivable
	Ending Balance September 30, 2015 Impairment Analysis				Ending Balance September 30, 2015 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	264	$	2,122	$	1,705	$	227,288
Residential construction and land		-		62		-		4,564
Multi-family		-		25		-		4,374
Commercial real estate		76		3,738		1,752		152,315
Commercial construction		-		162		-		6,269
Home equity		-		319		127		21,262
Consumer installment		-		240		-		4,083
Commercial loans		1		1,251		92		44,188
Unallocated		-		206		-		-
Total	$	341	$	8,125	$	3,676	$	464,343

	Activity for the three months ended September 30, 2014
(In thousands)	Balance at June 30, 2014		Charge-offs		Recoveries		Provision			Balance at September 30, 2014
Residential real estate	$	2,731	$	74	$	-	$	(10	)	$	2,647
Residential construction and land		42		-		-		(1	)		41
Multi-family		59		-		-		(14	)		45
Commercial real estate		2,936		-		-		228			3,164
Commercial construction		38		-		-		71			109
Home equity		361		-		-		15			376
Consumer installment		240		55		19		39			243
Commercial loans		811		-		-		20			831
Unallocated		201		-		-		63			264
Total	$	7,419	$	129	$	19	$	411		$	7,720

	Allowance for Loan Losses				Loans Receivable
	Ending Balance June 30, 2015 Impairment Analysis				Ending Balance June 30, 2015 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	263	$	2,191	$	1,843	$	224,805
Residential construction and land		-		50		-		3,621
Multi-family		-		40		-		4,287
Commercial real estate		187		3,512		2,101		140,222
Commercial construction		-		233		-		8,936
Home equity		-		314		154		20,865
Consumer installment		-		223		-		4,123
Commercial loans		1		1,128		93		39,705
Unallocated		-		-		-		-
Total	$	451	$	7,691	$	4,191	$	446,564

(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 September 30, 2015 and June 30, 2015 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.

Index

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.

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
(In thousands)	September 30, 2015		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government sponsored enterprises	$	4,869	$	-	$	4,869	$	-
State and political subdivisions		53,820		-		53,820		-
Mortgage-backed securities-residential		7,541		-		7,541		-
Mortgage-backed securities-multi-family		24,647		-		24,647		-
Asset-backed securities		6		6		-		-
Corporate debt securities		4,735		4,735		-		-
Equity securities		139		139		-		-
Securities available-for-sale	$	95,757	$	4,880	$	90,877	$	-

			Fair Value Measurements Using
(In thousands)	June 30, 2015		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
U.S. Government sponsored enterprises	$	7,855	$	-	$	7,855	$	-
State and political subdivisions		39,582		-		39,582		-
Mortgage-backed securities-residential		7,942		-		7,942		-
Mortgage-backed securities-multi-family		25,735		-		25,735		-
Asset-backed securities		9		9		-		-
Corporate debt securities		4,774		4,774		-		-
Equity securities		137		137		-		-
Securities available-for-sale	$	86,034	$	4,920	$	81,114	$	-

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

Index

In addition to disclosures of the fair value of assets on a recurring basis, FASB ASC Topic on “Fair Value Measurement” requires disclosures for assets and liabilities measured at fair value on a nonrecurring basis, such as impaired assets, in the period in which a re-measurement at fair value is performed. Loans are generally not recorded at fair value on a recurring basis. Periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral-dependent loans calculated as required by the “Receivables –Loan Impairment” subtopic of the FASB ASC when establishing the allowance for credit losses. Impaired loans are those loans 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. The Company has also re-measured impairment based on the discounted cash flows for those loans that have been modified as a troubled-debt restructuring. The cash flows of the restructured debt have been discounted by the original interest rate prior to the restructuring of the loan to establish the fair value and is therefore classified as Level 3.

			Fair Value Measurements Using
(In thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2015
Impaired loans	$	693	$	-	$	-	$	693
Foreclosed real estate		836		-		-		836

June 30, 2015
Impaired loans	$	922	$	-	$	-	$	922
Foreclosed real estate		490		-		-		490

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
September 30, 2015
Impaired Loans	$	693	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		0.00%-38.85	%		21.70	%
				Liquidation expenses⁽³⁾		0.00%-7.50	%		3.45	%
Foreclosed real estate		836	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		25.15%-54.17	%		21.77	%
				Liquidation expenses⁽³⁾		0.42%-11.64	%		8.82	%
June 30, 2015
Impaired loans	$	922	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		0.00%-38.85	%		22.81	%
				Liquidation expenses⁽³⁾		0.00%-7.50	%		3.91	%
Foreclosed real estate		490	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		7.41%-54.17	%		24.65	%
				Liquidation expenses⁽³⁾		0.42%-10.86	%		6.40	%

⁽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 September 30, 2015, loans subject to nonrecurring fair value measurement had a recorded investment of $862,000 with related allowances of $169,000. At June 30, 2015, loans subject to nonrecurring fair value measurement had a recorded investment of $1.2 million with related allowances of $277,000. No other financial assets or liabilities were re-measured during the year on a nonrecurring basis.

Index

The carrying amounts reported in the statements of financial condition for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate their fair values. Fair values of securities are based on quoted market prices (Level 1), where available, or matrix pricing (Level 2), which is a mathematical technique, used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. The carrying amount of Federal Home Loan Bank stock approximates fair value due to its restricted nature. 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 September 30, 2015 and June 30, 2015, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

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

(In thousands)	September 30, 2015				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	12,117	$	12,117	$	12,117	$	-	$	-
Long term certificate of deposit		1,230		1,230		1,230		-		-
Securities available-for-sale		95,757		95,757		4,880		90,877		-
Securities held-to-maturity		174,560		178,960		-		178,960		-
Federal Home Loan Bank stock		1,832		1,832		-		1,832		-
Net loans		460,458		469,418		-		-		469,418
Accrued interest receivable		3,185		3,185		-		3,185		-
Deposits		664,308		664,495		-		664,495		-
Federal Home Loan Bank borrowings		27,000		27,042		-		27,042		-
Accrued interest payable		65		65		-		65		-

(In thousands)	June 30, 2015				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	15,538	$	15,538	$	15,538	$	-	$	-
Long term certificate of deposit		1,230		1,230		1,230		-		-
Securities available-for-sale		86,034		86,034		4,920		81,114		-
Securities held-to-maturity		169,000		171,976		-		171,976		-
Federal Home Loan Bank stock		2,494		2,494		-		2,494		-
Net loans		443,496		450,437		-		-		450,437
Accrued interest receivable		3,026		3,026		-		3,026		-
Deposits		622,717		622,900		-		622,900		-
Federal Home Loan Bank borrowings		41,700		41,598		-		41,598		-
Accrued interest payable		64		64		-		64		-

Index

(7)	Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period. There were no anti-dilutive securities or contracts outstanding during the quarters ended September 30, 2015 and 2014.

	Net Income		Weighted Average Number Of Shares Outstanding		Earnings per Share

Three months ended September 30, 2015	$	2,150,000
Basic				4,223,156	$	0.51
Effect of dilutive stock options				26,224		(0.00	)
Diluted				4,249,380	$	0.51

Three months ended September 30, 2014	$	1,775,000
Basic				4,214,358	$	0.42
Effect of dilutive stock options				30,967		(0.00	)
Diluted				4,245,325	$	0.42

(8)

Dividends

On July 21, 2015, the Board of Directors declared a cash dividend for the quarter ended June 30, 2015 of $0.185 per share on Greene County Bancorp, Inc.’s common stock. The dividend reflects an annual cash dividend rate of $0.74 per share, compared to an annual cash dividend rate of $0.72 declared during the previous quarter. The dividend was payable to stockholders of record as of August 14, 2015, and was paid on August 31, 2015. The MHC has waived its right to receive dividends declared on its shares of the Company’s common stock for the quarter ended June 30, 2015.

(9)	Impact of Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) issued an amendment (ASU 2014-04) 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 did not have an effect on our consolidated results of operations or financial position.

In May 2014, the FASB issued an amendment (ASU 2014-09) to its guidance on “Revenue from Contracts with Customers (Topic 606). The objective of the ASU is to align the recognition of revenue with the transfer of promised goods or services provided to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services. This ASU will replace most existing revenue recognition guidance under GAAP when it becomes effective. In August, 2015, the FASB issued an amendment (ASU 2015-14) which defers the effective date of this new guidance by one year. The amendments in this ASU are effective for public business entities for annual periods, beginning after December 15, 2017. The Company has not yet determined the effect of the standard on its ongoing financial reporting.

In August 2014, the FASB issued an amendment (ASU 2014-14) to its guidance on “Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40)”. The objective of the ASU is to reduce the diversity in how creditors classify government-guaranteed mortgage loans, including FHA or VA guaranteed loans, upon foreclosure, to provide more decision-useful information about a creditor’s foreclosed mortgage loans that are expected to be recovered, at least in part, through government guarantees. 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, 2017. Public entities would be permitted to elect to early adopt for annual reporting periods beginning after December 15, 2016. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

Index

In January 2015, the FASB issued an Update (ASU 2015-01) to its guidance on “Income Statement-Extraordinary and Unusual Items (Subtopic 225-20)”. The objective of the ASU is to simplify the income statement presentation by eliminating the concept of extraordinary items, and will align GAAP more closely with International Accounting Standards which prohibits the presentation and disclosure of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this guidance is not expected to have a material impact on our consolidated results of operations or financial position.

In May 2015, the FASB issued an Update (ASU 2015-09) to its guidance on “Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts”. The objective of the ASU is to improve the transparency of significant estimates made in measuring liabilities related to short-duration insurance contracts, improve comparability by requiring consistent disclosure of information, and provide financial statement users with additional information to facilitate analysis of the amount, timing, and uncertainty of cash flows arising from contracts issued by insurance entities and the development of loss reserve estimates. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The Company has not yet determined the effect of the standard on its ongoing financial reporting.

(10)	Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension cost related to the defined benefit pension plan for the three months ended September 30, 2015 and 2014 were as follows:

	Three months ended September 30,
(In thousands)	2015			2014
Interest cost	$	58		$	55
Expected return on plan assets		(77	)		(81	)
Amortization of net loss		34			26
Net periodic pension cost	$	15		$	-

The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan during fiscal 2016.

SERP

The Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP Plan”), effective as of July 1, 2010. The SERP Plan benefits certain key senior executives of the Bank who have been selected by the Board to participate.

The SERP Plan is intended to provide a benefit from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). Accordingly, the SERP Plan obligates the Bank to make an allocation 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 the 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 three months ended September 30, 2015 and 2014 were $58,000 and $48,000, respectively, consisting primarily of service costs and interest costs. The total liability for the SERP Plan was $1.6 million and $1.4 million as of September 30, 2015 and June 30, 2015, respectively.

Index

(11)	Stock-Based Compensation

At September 30, 2015, 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 year ended June 30, 2015.

Stock Option Plan

At September 30, 2015 and 2014, 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 three months ended September 30, 2015 and 2014 is as follows:

	2015					2014
	Shares			Weighted Average Exercise Price Per Share		Shares			Weighted Average Exercise Price Per Share
Outstanding at beginning of year		47,835		$	12.50		59,435		$	12.50
Exercised		(2,100	)	$	12.50		(3,100	)	$	12.50
Outstanding at period end		45,735		$	12.50		56,335		$	12.50

Exercisable at period end		45,735		$	12.50		56,335		$	12.50

The following table presents stock options outstanding and exercisable at September 30, 2015:

Options Outstanding and Exercisable
Range of Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price
$	12.50		45,735		3.00	$	12.50

The total intrinsic value of the options exercised during the three months ended September 30, 2015 and 2014, was approximately $33,000 and $44,000, respectively. There were no stock options granted during the three months ended September 30, 2015 or 2014. All outstanding options were fully vested at September 30, 2015 and 2014.

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. Effective July 1, 2014, the Plan was amended to increase the number of phantom stock options available for awards from 900,000 to 1,800,000. The Plan is intended to provide benefits to employees and directors of the Company or any subsidiary as designated by the Compensation Committee of the Board of Directors of the Company (“Committee”). A phantom stock option represents the right to receive a cash payment on the date the award vests. The 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).

Index

A summary of the Company’s phantom stock option activity and related information for its option plan for the three months ended September 30, 2015 and 2014 is as follows:

	2015			2014
Number of options outstanding at beginning of year		628,754			665,426
Options granted		246,880			241,090
Options paid in cash upon vesting		(198,357	)		(227,484	)
Number of options outstanding at period end		677,277			679,032

The Company paid out $710,500 and $757,700 in cash during the three months ended September 30, 2015 and 2014, respectively, on options vested. The Company recognized $180,000 and $170,000 in compensation costs related to the phantom stock option plan during the three months ended September 30, 2015 and 2014, respectively. The total liability for the long-term incentive plan was $610,000 and $1.1 million as of September 30, 2015 and June 30, 2015, respectively.

(12)	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss as of September 30, 2015 and June 30, 2015 are presented in the following table:

(In thousands)
Accumulated other comprehensive (loss) income:	September 30, 2015			June 30, 2015
Unrealized gain on available-for-sale securities, net of tax	$	738		$	704
Unrealized loss on securities transferred to held-to-maturity, net of tax		(5	)		(11	)
Net losses and past service liability for defined benefit plan, net of tax		(1,491	)		(1,491	)
Accumulated other comprehensive loss	$	(758	)	$	(798	)

(13)	Subsequent events

On October 20, 2015, the Board of Directors declared a cash dividend for the quarter ended September 30, 2015 of $0.185 per share on Greene County Bancorp, Inc.’s common stock. The dividend reflects an annual cash dividend rate of $0.74 per share, which was the same rate as the dividend declared during the previous quarter. The dividend will be payable to stockholders of record as of November 13, 2015, and will be paid on November 30, 2015. The MHC intends to waive its receipt of this dividend.

Index

Item 2.

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

Overview of the Company’s Activities and Risks

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

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

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

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

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

Special Note Regarding Forward-Looking Statements

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

(a)

changes in general market interest rates,

(b)

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

(c)

legislative and regulatory changes,

(d)

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

(e)

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

(f)

deposit flows,

(g)

competition, and

(h)

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

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

Index

Comparison of Financial Condition as of September 30, 2015 and June 30, 2015

ASSETS

Total assets of the Company were $767.7 million at September 30, 2015 as compared to $738.6 million at June 30, 2015, an increase of $29.1 million, or 3.9%. Securities available-for-sale and held-to-maturity amounted to $270.3 million, or 35.2% of assets, at September 30, 2015 as compared to $255.0 million, or 34.5% of assets, at June 30, 2015, an increase of $15.3 million, or 6.0%. Net loans grew by $17.0 million, or 3.8%, to $460.5 million at September 30, 2015 as compared to $443.5 million at June 30, 2015.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents decreased $3.4 million to $12.1 million at September 30, 2015 from $15.5 million at June 30, 2015. The level of cash and cash equivalents is a function of the daily account clearing needs and deposit levels as well as activities associated with securities transactions and loan funding. All of these items can cause cash levels to fluctuate significantly on a daily basis.

SECURITIES

Securities available-for-sale and held-to-maturity increased $15.3 million, or 6.0%, to $270.3 million at September 30, 2015 as compared to $255.0 million at June 30, 2015. Securities purchases totaled $37.8 million during the quarter ended September 30, 2015 and consisted of $36.8 million of state and political subdivision securities and $1.0 million of mortgage-backed securities. Principal pay-downs and maturities during the quarter amounted to $22.4 million, of which $3.9 million were mortgage-backed securities, $15.5 million were state and political subdivision securities, and $3.0 million were U.S. government sponsored enterprises securities. At September 30, 2015, 52.3% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promote Greene County Bancorp, Inc.’s participation in the communities in which it operates. Mortgage-backed securities and asset-backed securities held within the portfolio do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.

	September 30, 2015					June 30, 2015
(Dollars in thousands)	Balance		Percentage of portfolio			Balance		Percentage of portfolio
Securities available-for-sale:
U.S. government sponsored enterprises	$	4,869		1.8	%	$	7,855		3.1	%
State and political subdivisions		53,820		19.9			39,582		15.5
Mortgage-backed securities-residential		7,541		2.8			7,942		3.1
Mortgage-backed securities-multifamily		24,647		9.1			25,735		10.1
Asset-backed securities		6		0.0			9		0.0
Corporate debt securities		4,735		1.8			4,774		1.9
Total debt securities		95,618		35.4			85,897		33.7
Equity securities		139		0.1			137		0.1
Total securities available-for-sale		95,757		35.5			86,034		33.8
Securities held-to-maturity:
U.S. government sponsored enterprises		2,000		0.7			2,000		0.8
State and political subdivisions		87,527		32.4			81,501		31.9
Mortgage-backed securities-residential		15,806		5.8			17,468		6.8
Mortgage-backed securities-multifamily		67,503		25.0			67,239		26.4
Other securities		1,724		0.6			792		0.3
Total securities held-to-maturity		174,560		64.5			169,000		66.2
Total securities	$	270,317		100.0	%	$	255,034		100.0	%

LOANS

Net loans receivable increased $17.0 million, or 3.8%, to $460.5 million at September 30, 2015 from $443.5 million at June 30, 2015. The loan growth experienced during the quarter consisted primarily of $11.7 million in commercial real estate loans, $2.3 million in residential real estate loans, $943,000 in residential construction loans, $87,000 in multi-family mortgage loans, $370,000 in home equity loans, and $4.5 million in commercial loans, and was partially offset by a $2.7 million decrease in commercial construction loans, and a $324,000 increase in the allowance for loan losses. We believe that the continued low interest rate environment and strong customer satisfaction from personal service continued to enhance loan growth. If long term rates begin to rise, the Company anticipates some slowdown in new loan demand as well as refinancing activities. The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products. A significant decline in home values, however, in the Company’s markets could have a negative effect on the consolidated results of operations, as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios. Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.

Index

(Dollars in thousands)	September 30, 2015						June 30, 2015
	Balance			Percentage of Portfolio			Balance			Percentage of Portfolio
Residential real estate	$	228,993			48.9	%	$	226,648			50.3	%
Residential construction and land		4,564			1.0			3,621			0.8
Multi-family		4,374			0.9			4,287			0.9
Commercial real estate		154,067			32.9			142,323			31.6
Commercial construction		6,269			1.3			8,936			2.0
Home equity		21,389			4.6			21,019			4.7
Consumer installment		4,083			0.9			4,123			0.9
Commercial loans		44,280			9.5			39,798			8.8
Total gross loans		468,019			100.0	%		450,755			100.0	%
Allowance for loan losses		(8,466	)					(8,142	)
Deferred fees and costs		905						883
Total net loans	$	460,458					$	443,496

ALLOWANCE FOR LOAN LOSSES

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

Index

Analysis of allowance for loan losses activity

	At or for the Three Months Ended September 30,
(Dollars in thousands)	2015			2014
Balance at the beginning of the period	$	8,142		$	7,419
Charge-offs:
Residential real estate		-			74
Commercial real estate		14			-
Consumer installment		78			55
Total loans charged off		92			129

Recoveries:
Commercial real estate		17			-
Consumer installment		25			19
Total recoveries		42			19

Net charge-offs		50			110

Provisions charged to operations		374			411
Balance at the end of the period		8,466			7,720

Net charge-offs to average loans outstanding		0.04	%		0.11	%
Net charge-offs to nonperforming assets		3.93	%		6.86	%
Allowance for loan losses to nonperforming loans		198.87	%		127.1	%
Allowance for loan losses to total loans receivable		1.81	%		1.87	%

Nonaccrual Loans and Nonperforming Assets

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

Generally, management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis. The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.” Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring. It should be noted that management does not evaluate all loans individually for impairment. Generally, The Bank of Greene County considers smaller balance residential mortgages, home equity loans, commercial and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors. In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral. Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors. 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. 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 September 30, 2015		At June 30, 2015
Nonaccruing loans:
Residential real estate	$	913	$	1,087
Commercial real estate		2,692		2,964
Home equity		126		169
Consumer		5		-
Commercial		439		388
Total nonaccruing loans		4,175		4,608
90 days & accruing
Residential real estate		82		84
Total 90 days & accruing		82		84
Total nonperforming loans		4,257		4,692
Foreclosed real estate:
Residential real estate		518		847
Commercial real estate		318
Total foreclosed real estate		836		847
Total nonperforming assets	$	5,093	$	5,539

Troubled debt restructuring:
Nonperforming (included above)	$	1,982	$	2,002
Performing (accruing and excluded above)		960		965

Total nonperforming assets as a percentage of total assets		0.66		0.75	%
Total nonperforming loans to net loans		0.92		1.06	%

The table below details additional information related to nonaccrual loans for the three months ended September 30:

(In thousands)	2015		2014
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	101	$	128
Interest income that was recorded on nonaccrual loans		49		46

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)	September 30, 2015		June 30, 2015		September 30, 2014
Balance of impaired loans, with a valuation allowance	$	2,047	$	2,399	$	5,714
Allowances relating to impaired loans included in allowance for loan losses		341		451		775
Balance of impaired loans, without a valuation allowance		1,629		1,792		758
Average balance of impaired loans for the quarters ended		3,849		5,006		6,668
Interest income recorded on impaired loans during the quarters ended		30		47		93

Nonperforming assets amounted to $5.1 million at September 30, 2015 and $5.5 million as of June 30, 2015, a decrease of $446,000 or 8.1%, and total impaired loans amounted to $3.7 million at September 30, 2015 compared to $4.2 million at June 30, 2015, a decrease of $515,000, or 12.3%. Loans on nonaccrual status totaled $4.2 million at September 30, 2015, of which $654,000 were in the process of foreclosure. Included in nonaccrual loans were $2.3 million of loans which were less than 90 days past due at September 30, 2015, 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 $250,000 of loans which were making payments pursuant to forbearance agreements. Under the forbearance agreements, the customers have made arrangements with the Bank to bring the loans current over a specified period of time (resulting in an insignificant delay in repayment). During this term of the forbearance agreement, the Bank has agreed not to continue foreclosure proceedings. 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.

Index

DEPOSITS

Total deposits increased $41.6 million, or 6.7%, to $664.3 million at September 30, 2015 from $622.7 million at June 30, 2015. This increase was primarily the result of an increase of $37.3 million in balances at Greene County Commercial Bank due primarily to the collection of annual taxes by several local school districts. Noninterest-bearing checking accounts increased $5.7 million, or 7.8%, to $79.1 million at September 30, 2015 as compared to $73.4 million at June 30, 2015. Interest-bearing checking accounts (NOW accounts) increased $35.5 million, or 14.9%, to $274.1 million at September 30, 2015 as compared to $238.6 million at June 30, 2015. Money market deposits increased $2.7 million between June 30, 2015 and September 30, 2015. Partially offsetting these increases were decreases in savings deposits of $2.0 million from $163.9 million at June 30, 2015 to $161.9 million at September 30, 2015, and in certificates of deposit of $402,000 from $43.1 million at June 30, 2015 to $42.7 million at September 30, 2015.

(In thousands)	At September 30, 2015		Percentage of Portfolio			At June 30, 2015		Percentage of Portfolio
Noninterest-bearing deposits	$	79,111		11.9	%	$	73,359		11.8	%
Certificates of deposit		42,719		6.4			43,121		6.9
Savings deposits		161,953		24.4			163,927		26.3
Money market deposits		106,465		16.0			103,724		16.7
NOW deposits		274,060		41.3			238,586		38.3
Total deposits	$	664,308		100.0	%	$	622,717		100.0	%

BORROWINGS

At September 30, 2015, The Bank of Greene County had pledged approximately $208.8 million of its residential mortgage portfolio as collateral for borrowing and stand-by letters of credit at the Federal Home Loan Bank of New York (“FHLB”). The maximum amount of funding available from the FHLB was $172.7 million at September 30, 2015, of which $27.0 million in borrowings were outstanding at September 30, 2015. There were $8.2 million in short term borrowings outstanding at September 30, 2015. Interest rates on short term borrowings are determined at the time of borrowing. The remaining $18.8 million consisted of long-term fixed rate, fixed term advances with a weighted average rate of 1.48% and a weighted average maturity of 37 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 of Greene County has established an Irrevocable Letter of Credit Reimbursement Agreement with the FHLB, whereby upon The Bank of Greene County’s request, on behalf of Greene County Commercial Bank, an irrevocable stand-by letter of credit is issued to secure municipal transactional deposit accounts. At September 30, 2015, there were no outstanding letters of credit.

The Bank of Greene County also pledges securities as collateral at the Federal Reserve Bank discount window for overnight borrowings. At September 30, 2015, approximately $4.7 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 September 30, 2015 or 2014.

The Bank of Greene County has established unsecured lines of credit with Atlantic Central Bankers Bank and another financial institution for $6.0 million and $5.0 million, respectively. The lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing. At September 30, 2015 and 2014, there were no balances outstanding on either of these lines of credit, and there was no activity during the quarters ended September 30, 2015 and 2014.

Index

Scheduled maturities of long-term borrowings at September 30, 2015 were as follows:

(In thousands)
Within the twelve months ended September 30,
2016	$	-
2017		2,500
2018		5,500
2019		4,500
2020		6,000
Due after 2020		300
	$	18,800

EQUITY

Shareholders’ equity increased to $68.8 million at September 30, 2015 from $66.9 million at June 30, 2015, as net income of $2.2 million and a $40,000 decrease in other accumulated comprehensive loss were partially offset by dividends declared and paid of $355,000. Other changes in equity, totaling a $26,000 increase, were the result of options exercised with the Company’s 2008 Stock Option Plan.

Selected Equity Data:
	At September 30, 2015			At June 30, 2015
Shareholders’ equity to total assets, at end of period		8.96	%		9.06	%
Average shareholders’ equity to average assets		9.12	%		9.13	%
Book value per share	$	16.28		$	15.85
Closing market price of common stock	$	27.50		$	28.49

Index

Comparison of Operating Results for the Three Months Ended September 30, 2015 and 2014

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the quarters ended September 30, 2015 and 2014. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, are expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances were based on daily averages. Average loan balances include nonperforming loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

	2015								2014
(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	$	458,848		$	5,293		4.61	%	$	409,009		$	4,839		4.73	%
Securities²		263,133			1,551		2.36			245,244			1,386		2.26
Interest-bearing bank balances and federal funds		1,040			2		0.77			1,159			2		0.69
FHLB stock		1,948			17		3.49			1,655			14		3.38
Total interest-earning assets		724,969			6,863		3.79	%		657,067			6,241		3.80	%
Cash and due from banks		7,861								7,288
Allowance for loan losses		(8,266	)							(7,468	)
Other noninterest-earning assets		18,399								17,354
Total assets	$	742,963								674,241

Interest-Bearing Liabilities:
Savings and money market deposits	$	270,805		$	215		0.32	%	$	252,913		$	204		0.32	%
NOW deposits		251,710			240		0.38			218,080			213		0.39
Certificates of deposit		42,847			76		0.71			48,001			84		0.70
Borrowings		29,574			83		1.12			22,570			61		1.08
Total interest-bearing liabilities		594,936			614		0.41	%		541,564			562		0.41	%
Noninterest-bearing deposits		74,233								67,711
Other noninterest-bearing liabilities		6,063								3,019
Shareholders' equity		67,731								61,947
Total liabilities and equity	$	742,963							$	674,241

Net interest income				$	6,249							$	5,679
Net interest rate spread							3.38	%							3.39	%
Net earnings assets	$	130,033							$	115,503
Net interest margin							3.45	%							3.46	%
Average interest-earning assets to average interest-bearing liabilities		121.86	%							121.33	%

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.

	Three months ended September 30, 2015 versus 2014
	Increase/(Decrease) Due To						Total Increase/
(Dollars in thousands)	Volume			Rate			(Decrease)
Interest-earning Assets:
Loans receivable, net¹	$	579		$	(125	)	$	454
Securities²		103			62			165
Interest-bearing bank balances and federal funds		-			-			-
FHLB stock		3			-			3
Total interest-earning assets		685			(63	)		622

Interest-Bearing Liabilities:
Savings and money market deposits		11			-			11
NOW deposits		33			(6	)		27
Certificates of deposit		(9	)		1			(8	)
Borrowings		20			2			22
Total interest-bearing liabilities		55			(3	)		52
Net change in net interest income	$	630		$	(60	)	$	570

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 increased to 1.16% for the quarter ended September 30, 2015 as compared to 1.05% for the quarter ended September 30, 2014. Annualized return on average equity increased to 12.70% for the quarter ended September 30, 2015 as compared to 11.46% for the quarter ended September 30, 2014. The increase in return on average assets and return on average equity was primarily the result of an increase in net interest income resulting from growth in earning assets, resulting in higher net income. Net income amounted to $2.2 million and $1.8 million for the quarters ended September 30, 2015 and 2014, respectively. Average assets increased $68.8 million, or 10.2% to $743.0 million for the quarter ended September 30, 2015 as compared to $674.2 million for the quarter ended September 30, 2014. Average equity increased $5.8 million, or 9.3%, to $67.7 million for the quarter ended September 30, 2015 as compared to $61.9 million for the quarter ended September 30, 2014.

Index

INTEREST INCOME

Interest income amounted to $6.9 million for the quarter ended September 30, 2015 as compared to $6.2 million for the quarter ended September 30, 2014, an increase of $622,000, or 10.0%. The increase in average loan and securities balances and the increase in securities yields had the greatest impact on interest income when comparing the quarters ended September 30, 2015 and 2014, which was offset by a decrease in the yield on loans. Average loan balances increased $49.8 million while the yield on loans decreased 12 basis points when comparing the quarters ended September 30, 2015 and 2014. Average securities increased $17.9 million and the yield on such securities increased 10 basis points when comparing the quarters ended September 30, 2015 and 2014.

INTEREST EXPENSE

Interest expense amounted to $614,000 for the quarter ended September 30, 2015 as compared to $562,000 for the quarter ended September 30, 2014, an increase of $52,000 or 9.3%. Increases in the average balances on interest-bearing liabilities contributed to the increase in interest expense. As illustrated in the rate/volume table, interest expense increased $55,000 due to a $53.4 million increase in the average balances on interest-bearing liabilities. The rate paid on interest-bearing liabilities was unchanged when comparing the quarter ended September 30, 2015 and 2014, and was 0.41%. The average balance of NOW deposits grew by $33.6 million when comparing the quarters ended September 30, 2015 and 2014. The average balance of savings and money market deposits increased $17.9 million and average balance of certificates of deposit decreased $5.2 million during this same period. The average balance on borrowings increased $7.0 million, and the rate increased 4 basis points when comparing the quarters ended September 30, 2015 and 2014, and was the result of locking in long-term borrowings during the fiscal year ended June 30, 2015 as well as funding loan growth during the quarter ended September 30, 2015.

NET INTEREST INCOME

Net interest income increased $570,000 to $6.2 million for the quarter ended September 30, 2015 from $5.7 million for the quarter ended September 30, 2014. Net interest spread decreased one basis point to 3.38% as compared to 3.39% when comparing the quarters ended September 30, 2015 and 2014, respectively. Net interest margin also decreased one basis point to 3.45% for the quarter ended September 30, 2015 as compared to 3.46% for the quarter ended September 30, 2014. The growth in average loan and securities balances, led to an increase in net interest income when comparing the quarters ended September 30, 2015 and 2014.

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

PROVISION FOR LOAN LOSSES

Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary. The amount recognized for the provision for loan losses is determined by management based on its ongoing analysis of the adequacy of the allowance for loan losses. The provision for loan losses amounted to $374,000 and $411,000 for the quarters ended September 30, 2015 and 2014, respectively. The level of provision has decreased as the result of a decline in delinquencies and loans adversely classified, which has been partially offset by growth in commercial real estate and commercial loans. Allowance for loan losses to total loans receivable remained unchanged at 1.81% as of September 30, 2015 and June 30, 2015. Nonperforming loans amounted to $4.3 million and $4.7 million at September 30, 2015 and June 30, 2015, respectively. Net charge-offs amounted to $50,000 and $110,000 for the quarters ended September 30, 2015 and 2014, respectively, a decrease of $60,000. At September 30, 2015, nonperforming assets were 0.66% of total assets and nonperforming loans were 0.92% 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.

Index

NONINTEREST INCOME

	For the three months ended September 30,				Change from Prior Year
Noninterest income:	2015		2014		Amount			Percent
Service charges on deposit accounts	$	717	$	716	$	1			0.14	%
Debit card fees		452		415		37			8.92
Investment services		93		102		(9	)		(8.82	)
E-commerce fees		24		28		(4	)		(14.29	)
Other operating income		160		208		(48	)		(23.08	)
Total noninterest income	$	1,446	$	1,469	$	(23	)		(1.57	%)

Noninterest income decreased $23,000, or 1.6%, to $1.4 million for the quarter ended September 30, 2015 as compared to $1.5 million for the quarter ended September 30, 2014, primarily due to a decrease in loan related fees which are included in other operating income, partially offset by an increase in debit card fees resulting from continued growth in the number of checking accounts with debit cards.

NONINTEREST EXPENSE

	For the three months ended September 30,				Change from Prior Year
Noninterest expense:	2015		2014		Amount			Percent
Salaries and employee benefits	$	2,424	$	2,367	$	57			2.41	%
Occupancy expense		363		324		39			12.04
Equipment and furniture expense		120		76		44			57.89
Service and data processing fees		410		454		(44	)		(9.69	)
Computer software, supplies and support		133		233		(100	)		(42.92	)
Advertising and promotion		101		81		20			24.69
FDIC insurance premiums		100		91		9			9.89
Legal and professional fees		260		213		47			22.07
Other		609		438		171			39.04
Total noninterest expense	$	4,520	$	4,277	$	243			5.68	%

Noninterest expense increased $243,000, or 5.7%, to $4.5 million for the quarter ended September 30, 2015 as compared to $4.3 million for the quarter ended September 30, 2014. The increase in noninterest expense is primarily the result of an increase in expenses related to foreclosed real estate (primarily real estate taxes) as well as write-downs of several of the properties within foreclosed real estate based on pending sales or a decrease in the list price. Salaries and employee benefits expenses and occupancy expenses also increased and were primarily due to the opening of a new branch in Kingston during the third quarter of fiscal 2015. Partially offsetting the aforementioned increases were decreases in computer software, supplies and support. During the quarter ended September 30, 2014, a one-time fee was paid to one of the Company’s vendors related to the renegotiation of the contract for support services.

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 23.2% for the quarter ended September 30, 2015, compared to 27.8% for the quarter ended September 30, 2014. The effective tax rate has continued to decline as a result of income derived from tax exempt bonds and loans as well as continued loan growth within the Company’s real estate investment trust subsidiary. Also contributing to the lower effective income tax rate is the tax benefits derived from the Company’s pooled captive insurance company, as premium income received by the pooled captive insurance company is exempt from income taxes. The premiums paid to the pooled captive insurance company by the Company and its banking subsidiaries are tax deductible.

LIQUIDITY AND CAPITAL RESOURCES

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

Index

The Bank of Greene County’s unfunded loan commitments are as follows at September 30, 2015:

(In thousands)	2015
Residential real estate loan commitments	$	4,729
Construction and land loan commitments		4,199
Commercial real estate loan commitments		20,783
Home equity available lines of credit		8,147
Consumer overdraft available lines of credit		690
Commercial loan available lines of credit		20,032
Commercial loan commitments		340
Total commitments	$	58,920

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.

The Bank of Greene County and Greene County Commercial Bank met all applicable regulatory capital requirements at September 30, 2015 and June 30, 2015. Consolidated shareholders’ equity represented 9.0% of total assets at September 30, 2015 and 9.1% of total assets of June 30, 2015.

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

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 September 30, 2015, 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: November 13, 2015

By: /s/ Donald E. Gibson

Donald E. Gibson

President and Chief Executive Officer

Date: November 13, 2015

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 FY2016 Q1

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