GREENE COUNTY BANCORP INC - Quarter Report: 2021 March (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

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

GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number 0-25165

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

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

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

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

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

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

None

(Title of Class)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐

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

Large accelerated filer ☐	Accelerated filer ☐	Emerging Growth Company ☐
Non-accelerated filer ☒	Smaller reporting company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of May 13, 2021, the registrant had 8,513,414 shares of common stock outstanding at $0.10 par value per share.

GREENE COUNTY BANCORP, INC.

INDEX

PART I.	FINANCIAL INFORMATION
			Page
Item 1.	Financial Statements (unaudited)
	*	Consolidated Statements of Financial Condition	3
	*	Consolidated Statements of Income	4
	*	Consolidated Statements of Comprehensive Income	5
	*	Consolidated Statements of Changes in Shareholders’ Equity	6
	*	Consolidated Statements of Cash Flows	7
	*	Notes to Consolidated Financial Statements	8-33

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		34-50

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		50

Item 4.	Controls and Procedures		50

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		51

Item 1A.	Risk Factors		51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		51

Item 3.	Defaults Upon Senior Securities		51

Item 4.	Mine Safety Disclosures		51

Item 5.	Other Information		51

Item 6.	Exhibits		51

	Signatures		52

Index

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

At March 31, 2021 and June 30, 2020

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	March 31, 2021			June 30, 2020
Cash and due from banks	$	145,777		$	40,463
Federal funds sold		10			-
Total cash and cash equivalents		145,787			40,463

Long term certificates of deposit		4,558			4,070
Securities available-for-sale, at fair value		404,186			226,709
Securities held-to-maturity, at amortized cost (fair value $464,419 at March 31, 2021; $405,512 at June 30, 2020)		444,073			383,657
Equity securities, at fair value		286			267
Federal Home Loan Bank stock, at cost		884			1,226

Loans		1,090,880			1,012,660
Allowance for loan losses		(19,668	)		(16,391	)
Unearned origination fees and costs, net		(2,714	)		(2,747	)
Net loans receivable		1,068,498			993,522

Premises and equipment, net		13,976			13,658
Bank owned life insurance		40,173			-
Accrued interest receivable		9,132			8,207
Foreclosed real estate		160			-
Prepaid expenses and other assets		11,110			5,024
Total assets	$	2,142,823		$	1,676,803

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	168,714		$	138,187
Interest-bearing deposits		1,791,315			1,362,888
Total deposits		1,960,029			1,501,075

Borrowings from other banks, short-term		2,000			17,884
Borrowings from Federal Home Loan Bank, long-term		-			7,600
Subordinated notes payable, net		19,622			-
Accrued expenses and other liabilities		22,085			21,439
Total liabilities		2,003,736			1,547,998

SHAREHOLDERS’ EQUITY
Preferred stock, Authorized - 1,000,000 shares; Issued - None		-			-
Common stock, par value $.10 per share; Authorized - 12,000,000 shares; Issued – 8,611,340; Outstanding – 8,513,414 shares at March 31, 2021, and June 30, 2020		861			861
Additional paid-in capital		11,017			11,017
Retained earnings		132,629			118,263
Accumulated other comprehensive loss		(4,512	)		(428	)
Treasury stock, at cost 97,926 shares at March 31, 2021, and June 30, 2020		(908	)		(908	)
Total shareholders’ equity		139,087			128,805
Total liabilities and shareholders’ equity	$	2,142,823		$	1,676,803

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three and Nine Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands, except share and per share amounts)

	For the three months ended March 31,				For the nine months ended March 31,
	2021		2020		2021		2020
Interest income:
Loans	$	11,567	$	9,955	$	33,525	$	29,161
Investment securities - taxable		200		178		526		509
Mortgage-backed securities		981		1,327		3,021		3,832
Investment securities - tax exempt		2,010		1,771		5,945		5,129
Interest-bearing deposits and federal funds sold		30		206		58		611
Total interest income		14,788		13,437		43,075		39,242

Interest expense:
Interest on deposits		951		2,239		3,393		6,494
Interest on borrowings		267		57		687		196
Total interest expense		1,218		2,296		4,080		6,690

Net interest income		13,570		11,141		38,995		32,552
Provision for loan losses		1,434		1,425		3,939		2,666
Net interest income after provision for loan losses		12,136		9,716		35,056		29,886

Noninterest income:
Service charges on deposit accounts		815		1,034		2,555		3,270
Debit card fees		951		698		2,761		2,196
Investment services		174		120		551		433
E-commerce fees		25		24		82		90
Bank owned life insurance		173		-		173		-
Other operating income		223		250		711		719
Total noninterest income		2,361		2,126		6,833		6,708

Noninterest expense:
Salaries and employee benefits		4,788		4,412		13,966		12,346
Occupancy expense		605		496		1,584		1,403
Equipment and furniture expense		168		191		483		598
Service and data processing fees		674		626		1,958		1,838
Computer software, supplies and support		368		285		1,001		791
Advertising and promotion		108		115		328		373
FDIC insurance premiums		204		159		552		132
Legal and professional fees		386		274		981		878
Other		1,066		670		2,187		1,826
Total noninterest expense		8,367		7,228		23,040		20,185

Income before provision for income taxes		6,130		4,614		18,849		16,409
Provision for income taxes		872		563		2,521		2,382
Net income	$	5,258	$	4,051	$	16,328	$	14,027

Basic and diluted earnings per share	$	0.62	$	0.47	$	1.92	$	1.64
Basic and diluted average shares outstanding		8,513,414		8,531,304		8,513,414		8,535,391
Dividends per share	$	0.12	$	0.11	$	0.36	$	0.33

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands)

	For the three months ended March 31,					For the nine months ended March 31,
	2021			2020		2021			2020
Net Income	$	5,258		$	4,051	$	16,328		$	14,027
Other comprehensive (loss) income:
Unrealized holding (losses) gains on available-for-sale securities		(5,261	)		570		(5,528	)		49
Tax effect		(1,375	)		149		(1,444	)		13
Net of tax amount		(3,886	)		421		(4,084	)		36

Total other comprehensive (loss) income, net of taxes		(3,886	)		421		(4,084	)		36

Comprehensive income	$	1,372		$	4,472	$	12,244		$	14,063

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2019	$	861	$	11,017	$	110,374		$	(1,391	)	$	(315	)	$	120,546
Stock repurchases												(593	)		(593	)
Dividends declared						(432	)								(432	)
Net income						4,051									4,051
Other comprehensive income, net of taxes									421						421
Balance at March 31, 2020	$	861	$	11,017	$	113,993		$	(970	)	$	(908	)	$	123,993

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2020	$	861	$	11,017	$	128,392		$	(626	)	$	(908	)	$	138,736
Dividends declared						(1,021	)								(1,021	)
Net income						5,258									5,258
Other comprehensive loss, net of taxes									(3,886	)					(3,886	)
Balance at March 31, 2021	$	861	$	11,017	$	132,629		$	(4,512	)	$	(908	)	$	139,087

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Nine Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at June 30, 2019	$	861	$	11,017	$	101,774		$	(1,006	)	$	(277	)	$	112,369
Stock repurchases												(631	)		(631	)
Dividends declared						(1,808	)								(1,808	)
Net income						14,027									14,027
Other comprehensive income, net of taxes									36						36
Balance at March 31, 2020	$	861	$	11,017	$	113,993		$	(970	)	$	(908	)	$	123,993

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at June 30, 2020	$	861	$	11,017	$	118,263		$	(428	)	$	(908	)	$	128,805
Dividends declared						(1,962	)								(1,962	)
Net income						16,328									16,328
Other comprehensive loss, net of taxes									(4,084	)					(4,084	)
Balance at March 31, 2021	$	861	$	11,017	$	132,629		$	(4,512	)	$	(908	)	$	139,087

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Nine Months Ended March 31, 2021 and 2020

(Unaudited)

(In thousands)

	2021			2020
Cash flows from operating activities:
Net Income	$	16,328		$	14,027
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		573			539
Deferred income tax benefit		(535	)		(285	)
Net amortization of investment premiums and discounts		2,657			625
Net (accretion) amortization of deferred loan costs and fees		(2,498	)		386
Amortization of subordinated debt issuance costs		45			-
Provision for loan losses		3,939			2,666
Bank owned life insurance income		(173	)		-
Net (gain) loss on equity securities		(19	)		15
Net gain on sale of foreclosed real estate		(92	)		(19	)
Net (decrease) increase in accrued income taxes		(2,817	)		762
Net increase in accrued interest receivable		(925	)		(1,653	)
Net increase in prepaid expenses and other assets		(1,699	)		(1,944	)
Net increase in other liabilities		1,055			2,687
Net cash provided by operating activities		15,839			17,806

Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities		147,554			70,520
Purchases of securities		(349,067	)		(164,360	)
Principal payments on securities		17,105			7,329
Securities held-to-maturity:
Proceeds from maturities		21,478			22,873
Purchases of securities		(129,761	)		(121,783	)
Principal payments on securities		46,619			20,127
Net redemption of Federal Home Loan Bank Stock		342			563
Maturity of long term certificates of deposit		735			245
Purchase of long term certificates of deposit		(1,229	)		(1,441	)
Purchase of bank owned life insurance		(40,000	)		-
Net increase in loans receivable		(76,717	)		(101,264	)
Proceeds from sale of foreclosed real estate		232			287
Purchases of premises and equipment		(891	)		(650	)
Net cash used by investing activities		(363,600	)		(267,554	)

Cash flows from financing activities
Net decrease in short-term FHLB advances		-			(8,000	)
Net (decrease) increase in short-term advances other banks		(15,884	)		4,000
Repayment of long-term FHLB advances		(7,600	)		(4,500	)
Net proceeds from subordinated notes payable		19,577			-
Payment of cash dividends		(1,962	)		(1,808	)
Purchase of treasury stock		-			(631	)
Net increase in deposits		458,954			308,963
Net cash provided by financing activities		453,085			298,024

Net increase in cash and cash equivalents		105,324			48,276
Cash and cash equivalents at beginning of period		40,463			29,538
Cash and cash equivalents at end of period	$	145,787		$	77,814

Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	300		$	215
Cash paid during period for:
Interest	$	4,084		$	6,675
Income taxes	$	5,873		$	1,904

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Notes to Consolidated Financial Statements

At and for the Three and Nine Months Ended March 31, 2021 and 2020

(1) Basis of Presentation

Within the accompanying unaudited consolidated statement of financial condition, and related notes to the consolidated financial statements, June 30, 2020 data was derived from the audited consolidated financial statements of Greene County Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, The Bank of Greene County (the “Bank”) and Greene Risk Management, Inc., and the Bank’s wholly owned subsidiaries, Greene County Commercial Bank and Greene Property Holdings, Ltd. The consolidated financial statements at and for the three and nine months ended March 31, 2021 and 2020 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, 2020, such information and notes have not been duplicated herein. In the opinion of management, all adjustments (consisting of only normal recurring items) necessary for a fair presentation of the financial position and results of operations and cash flows at and for the periods presented have been included. The Company had no reclassifications from amounts in the prior year’s consolidated financial statements to conform to the current year’s presentation. All material inter-company accounts and transactions have been eliminated in the consolidation. The results of operations and other data for the three and nine months ended March 31, 2021 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2021. These consolidated financial statements consider events that occurred through the date the consolidated financial statements were issued and should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

Greene County Bancorp, Inc.’s critical accounting policies relate to the allowance for loan losses and the evaluation of securities for other-than-temporary impairment. The allowance for loan losses is based on management’s estimation of an amount that is intended to absorb losses in the existing portfolio. The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the risk inherent in the loan portfolio, the composition of the portfolio, specific impaired loans and current economic conditions. Such evaluation, which includes a review of all loans for which full collectability may not be reasonably assured, considers among other matters, the estimated net realizable value or the fair value of the underlying collateral, economic conditions, historical loan loss experience, management’s estimate of probable credit losses and other factors that warrant recognition in providing for the allowance of loan losses. However, this evaluation involves a high degree of complexity and requires management to make subjective judgments that often require assumptions or estimates about highly uncertain matters. This critical accounting policy and its application are periodically reviewed with the Audit Committee and the Board of Directors. There have been no significant changes in the application of this critical accounting policy during the three and nine months ended March 31, 2021, other than those implemented to respond to the coronavirus pandemic (“COVID-19”) as developed and initiated by governmental laws and programs as discussed throughout this document such as the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) including the Paycheck Protection Program (“PPP”) developed under this law.

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

Index

(2) Nature of Operations

Greene County Bancorp, Inc.’s primary business is the ownership and operation of its subsidiaries, The Bank of Greene County and Greene Risk Management, Inc. The Bank of Greene County has 17 full-service offices and an operations center and lending center located in its market area within the Hudson Valley and Capital District Regions 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. was formed as a New York corporation that has elected under the Internal Revenue Code to be a real estate investment trust, which holds mortgages and notes which were originated through and serviced by The Bank of Greene County.

During calendar year 2020, the world began and continues to respond to the pandemic. COVID-19 has caused business shutdowns or slowdowns, limitations on commercial activity, increased unemployment and commercial property vacancy rates, reduced profitability and ability for borrowers to make mortgage or other lending commitments. The overall economic and financial market instability has impacted households, individuals and businesses. The Company continues to closely monitor the impact of the pandemic on our business and results of operations. The Company recognizes and appreciates the staff who continue to assist retail customers, municipalities and businesses in the communities in which the Company operates as the country and world continue to work through the pandemic. Management believes it is still well positioned to withstand the continued financial impact from this health crisis as it stands by and works hand in hand with local businesses, individuals and households to be stronger than ever.

Depending upon the duration of the COVID-19 pandemic and the adequacy of strategies put in place by local and federal governments, borrowers may not have the ability to repay their debts which may ultimately result in losses to the Company. The fiscal stimulus and relief programs appear to have delayed any materially adverse financial impact to the Company. Once these stimulus programs have been discontinued, the Company’s may experience deterioration in the credit portfolio and loan losses may materialize. The risk of credit losses will be contingent upon efficacy of vaccines including distribution and customers and businesses ability to return to pre-pandemic routines. Economic uncertainty remains high and volatility may continue. Management continues to closely monitor credit relationships, particularly those on payment deferral or adversely classified discussed in more detail below.

(3) Use of Estimates

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

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

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

Index

(4) Securities

Securities at March 31, 2021 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	$	13,081	$	-	$	448	$	12,633
U.S. Treasury securities		19,699		-		79		19,620
State and political subdivisions		209,639		375		-		210,014
Mortgage-backed securities-residential		39,492		273		349		39,416
Mortgage-backed securities-multi-family		122,425		610		3,672		119,363
Corporate debt securities		3,009		131		-		3,140
Total securities available-for-sale		407,345		1,389		4,548		404,186
Securities held-to-maturity:
State and political subdivisions		294,382		15,963		426		309,919
Mortgage-backed securities-residential		32,908		695		202		33,401
Mortgage-backed securities-multi-family		103,448		4,381		110		107,719
Corporate debt securities		7,849		58		76		7,831
Other securities		5,486		63		-		5,549
Total securities held-to-maturity		444,073		21,160		814		464,419
Total securities	$	851,418	$	22,549	$	5,362	$	868,605

Securities at June 30, 2020 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	$	502	$	2	$	-	$	504
State and political subdivisions		176,064		1,043		-		177,107
Mortgage-backed securities-residential		15,148		380		-		15,528
Mortgage-backed securities-multi-family		28,116		798		4		28,910
Corporate debt securities		4,510		163		13		4,660
Total securities available-for-sale		224,340		2,386		17		226,709
Securities held-to-maturity:
U.S. government sponsored enterprises		2,000		11		-		2,011
State and political subdivisions		210,535		14,286		3		224,818
Mortgage-backed securities-residential		38,884		1,002		15		39,871
Mortgage-backed securities-multi-family		127,582		6,680		21		134,241
Corporate debt securities		2,593		7		130		2,470
Other securities		2,063		38		-		2,101
Total securities held-to-maturity		383,657		22,024		169		405,512
Total securities	$	607,997	$	24,410	$	186	$	632,221

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 including subordinated debt of banks and certain mutual funds. In addition, the Company’s policies permit investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage obligations issued by these entities. At March 31, 2021, all mortgage-backed securities including collateralized mortgage obligations were securities of government sponsored enterprises, no private-label mortgage-backed securities or collateralized mortgage obligations were held in the securities portfolio. The Company’s investments in state and political subdivisions securities generally are municipal obligations that are general obligations supported by the general taxing authority of the issuer, and in some cases are insured. The obligations issued by school districts are supported by state aid. Primarily, these investments are issued by municipalities within New York State.

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

Index

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2021.

	Less Than 12 Months						More Than 12 Months						Total
(In thousands, except number of securities)	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities
Securities available-for-sale:
U.S. Government sponsored enterprises	$	12,633	$	448		3	$	-	$	-		-	$	12,633	$	448		3
U.S. Treasury securities		19,620		79		2		-		-		-		19,620		79		2
Mortgage-backed securities-residential		24,844		349		6		-		-		-		24,844		349		6
Mortgage-backed securities-multi-family		89,334		3,672		31		-		-		-		89,334		3,672		31
Total securities available-for-sale		146,431		4,548		42		-		-		-		146,431		4,548		42
Securities held-to-maturity:
State and political subdivisions		33,767		426		78		-		-		-		33,767		426		78
Mortgage-backed securities-residential		13,553		202		3		-		-		-		13,553		202		3
Mortgage-backed securities-multi-family		3,507		110		2		-		-		-		3,507		110		2
Corporate debt securities		2,447		53		2		476		23		1		2,923		76		3
Total securities held-to-maturity		53,274		791		85		476		23		1		53,750		814		86
Total securities	$	199,705	$	5,339		127	$	476	$	23		1	$	200,181	$	5,362		128

	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-multi-family	$	1,051	$	4		1	$	-	$	-		-	$	1,051	$	4		1
Corporate debt securities		2,487		13		3		-		-		-		2,487		13		3
Total securities available-for-sale		3,538		17		4		-		-		-		3,538		17		4
Securities held-to-maturity:
State and political subdivisions		3,336		3		12		-		-		-		3,336		3		12
Mortgage-backed securities-residential		3,604		15		2		-		-		-		3,604		15		2
Mortgage-backed securities-multi-family		3,562		21		3		-		-		-		3,562		21		3
Corporate debt securities		1,103		2		2		361		128		1		1,464		130		3
Total securities held-to-maturity		11,605		41		19		361		128		1		11,966		169		20
Total securities	$	15,143	$	58		23	$	361	$	128		1	$	15,504	$	186		24

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

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

Index

For debt securities, credit-related OTTI is recognized in earnings while noncredit-related OTTI on securities not expected to be sold is recognized in other comprehensive income/loss (“OCI”). Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis. Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized. For securities classified as held-to-maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods. Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2021. Management believes that the reasons for the decline in fair value are due to lower interest rates and partially due to COVID-19 uncertainty at the reporting date.

There were no transfers of securities available-for-sale to held-to-maturity during the three and nine months ended March 31, 2021 or 2020. During the three and nine months ended March 31, 2021 and 2020, there were no sales of securities and no gains or losses were recognized. There was no other-than-temporary impairment loss recognized during the three and nine months ended March 31, 2021 and 2020.

The estimated fair values of debt securities at March 31, 2021, 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	$	206,936	$	207,302
After one year through five years		6,160		6,271
After five years through ten years		30,832		30,316
After ten years		1,500		1,518
Total available-for-sale debt securities		245,428		245,407
Mortgage-backed securities		161,917		158,779
Total available-for-sale securities		407,345		404,186

Held-to-maturity debt securities
Within one year		44,456		45,152
After one year through five years		110,214		114,874
After five years through ten years		75,884		81,133
After ten years		77,163		82,140
Total held-to-maturity debt securities		307,717		323,299
Mortgage-backed securities		136,356		141,120
Total held-to-maturity securities		444,073		464,419
Total debt securities	$	851,418	$	868,605

At March 31, 2021 and June 30, 2020, respectively, securities with an aggregate fair value of $852.6 million and $619.3 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank. At March 31, 2021 and June 30, 2020, securities with an aggregate fair value of $3.1 million and $4.7 million, respectively, were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window. Greene County Bancorp, Inc. did not participate in any securities lending programs during the three and nine months ended March 31, 2021 or 2020, respectively.

Federal Home Loan Bank Stock

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district FHLB according to a predetermined formula. This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, FHLB stock is carried at cost. FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. Impairment of this investment is evaluated quarterly and is a matter of judgment that reflects management’s view of the FHLB’s long-term performance, which includes factors such as the following: its operating performance; the severity and duration of declines in the fair value of its net assets related to its capital stock amount; its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and its liquidity and funding position. After evaluating these considerations, Greene County Bancorp, Inc. concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no other-than-temporary impairment charge was recorded during the three and nine months ended March 31, 2021 or 2020.

Index

(5) Loans and Allowance for Loan Losses

Loan segments and classes at March 31, 2021 and June 30, 2020 are summarized as follows:

(In thousands)	March 31, 2021			June 30, 2020
Residential real estate:
Residential real estate	$	305,267		$	279,332
Residential construction and land		8,467			11,847
Multi-family		37,470			25,104
Commercial real estate:
Commercial real estate		454,792			381,415
Commercial construction		66,913			74,920
Consumer loan:
Home equity		18,957			22,106
Consumer installment		4,499			4,817
Commercial loans		194,515			213,119
Total gross loans		1,090,880			1,012,660
Allowance for loan losses		(19,668	)		(16,391	)
Unearned origination fees and costs, net		(2,714	)		(2,747	)
Loans receivable, net	$	1,068,498		$	993,522

The Bank of Greene County continues working with borrowers through the current pandemic. The Company instituted a loan deferment program in response to the COVID-19 pandemic whereby deferral of principal payments or principal and interest payments have been provided and correspond to the length of the National Emergency as defined under the CARES Act and extended under the Consolidated Appropriations Act which was signed into law on December 27, 2020.

Under Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), loans less than 30 days past due as of March 31, 2020 will be considered current for COVID-19 modifications. Provisions under Section 4013 of the CARES Act were extended as part of the Consolidated Appropriations Act signed into law on December 27, 2020. A financial institution can suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a troubled debt restructuring (“TDR”), and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either January 1, 2022 or the 60th day after the end of the COVID-19 national emergency. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs. Lastly, prior to the enactment of the CARES Act, the banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act. The Company has worked with customers following the guidance and standards set forth in the various federal and state laws and regulatory guidance issued in response to the global pandemic.

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.

Index

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

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

The Bank of Greene County’s primary lending activity historically has been the origination of residential mortgage loans, including home equity loans, which are collateralized by residences. Generally, residential mortgage loans are made in amounts up to 85.0% of the appraised value of the property. 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 85.0% or less, The Bank of Greene County limits its risk of loss in the event of default. However, the market values of the collateral may be adversely impacted by declines in the economy. Home equity loans may have an additional inherent risk if The Bank of Greene County does not hold the first mortgage. The Bank of Greene County may stand in a secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.

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

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

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

Commercial lending generally involves greater risk than residential mortgage lending and involves risks that are different from those associated with residential and commercial real estate mortgage lending. Real estate lending is generally considered to be collateral-based, with loan amounts based on fixed loan-to-collateral values, and liquidation of the underlying real estate collateral is viewed as the primary source of repayment in the event of borrower default. Although commercial loans may be collateralized by equipment or other business assets, the liquidation of collateral in the event of a borrower default is often an insufficient source of repayment because equipment and other business assets may be obsolete or of limited use, among other things. Accordingly, the repayment of a commercial loan depends primarily on the creditworthiness of the borrower (and any guarantors), while liquidation of collateral is a secondary and often insufficient source of repayment. Over the past few years, The Bank of Greene County has shifted more focus on the origination of commercial loans including commercial real estate. The Bank of Greene County has also formed relationships with other community banks within our region to participate in larger commercial loan relationships. These types of loans are generally considered to be riskier due to the size and complexity of the loan relationship. By entering into a participation agreement with the other bank, The Bank of Greene County can obtain the loan relationship while limiting its exposure to credit loss. Management completes its due diligence in underwriting these loans and monitors the servicing of these loans. During the quarter ended March 31, 2021, the Company had on average outstanding $77.6 million in PPP loans which are unsecured commercial loans and are 100% guaranteed by the Small Business Administration.

Index

Loan balances by internal credit quality indicator at March 31, 2021 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential real estate	$	301,919	$	495	$	81	$	2,772	$	305,267
Residential construction and land		8,467		-		-		-		8,467
Multi-family		35,493		-		1,613		364		37,470
Commercial real estate		426,657		-		17,918		10,217		454,792
Commercial construction		63,913		-		2,000		1,000		66,913
Home equity		18,393		-		-		564		18,957
Consumer installment		4,499		-		-		-		4,499
Commercial loans		188,016		-		2,572		3,927		194,515
Total gross loans	$	1,047,357	$	495	$	24,184	$	18,844	$	1,090,880

Loan balances by internal credit quality indicator at June 30, 2020 are shown below.

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential real estate	$	274,973	$	626	$	996	$	2,737	$	279,332
Residential construction and land		11,847		-		-		-		11,847
Multi-family		23,336		-		1,645		123		25,104
Commercial real estate		364,884		-		13,189		3,342		381,415
Commercial construction		67,844		-		6,974		102		74,920
Home equity		21,466		-		-		640		22,106
Consumer installment		4,792		25		-		-		4,817
Commercial loans		210,031		50		2,675		363		213,119
Total gross loans	$	979,173	$	701	$	25,479	$	7,307	$	1,012,660

The Company had no loans classified doubtful or loss at March 31, 2021 and June 30, 2020. Loans classified as substandard or special mention totaled $43.0 million at March 31, 2021 and $32.8 million at June 30, 2020, an increase of $10.2 million. Loans classified as substandard or special mention increased due to insufficient cash flows and revenues for commercial real estate and commercial loans related to the COVID-19 pandemic. These newly classified loans were all performing as of March 31, 2021.

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 March 31, 2021 and June 30, 2020. Loans on nonaccrual status totaled $2.7 million at March 31, 2021 of which $752,000 were in the process of foreclosure. At March 31, 2021, there were six residential loans in the process of foreclosure totaling $450,000 with the remainder in commercial loans. Included in nonaccrual loans were $1.6 million of loans which were less than 90 days past due at March 31, 2021, 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. Loans on nonaccrual status totaled $4.1 million at June 30, 2020 of which $1.3 million were in the process of foreclosure. At June 30, 2020, there were eight residential loans in the process of foreclosure totaling $1.0 million. Included in nonaccrual loans were $1.4 million of loans which were less than 90 days past due at June 30, 2020, but have a recent history of delinquency greater than 90 days past due. The decrease in nonaccrual loans during the nine months ended March 31, 2021, was primarily due to $1.4 million in loan repayments, $583,000 in charge-offs, $293,000 in loans returned to performing status, offset by $907,000 of loans placed into nonperforming status.

Index

The following table sets forth information regarding delinquent and/or nonaccrual loans at March 31, 2021:

(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total Loans		Loans on Non-accrual
Residential real estate	$	2,078	$	306	$	453	$	2,837	$	302,430	$	305,267	$	1,582
Residential construction and land		-		-		-		-		8,467		8,467		-
Multi-family		-		-		-		-		37,470		37,470		-
Commercial real estate		5,012		127		345		5,484		449,308		454,792		529
Commercial construction		-		-		-		-		66,913		66,913		-
Home equity		14		101		128		243		18,714		18,957		243
Consumer installment		25		-		-		25		4,474		4,499		-
Commercial loans		991		117		118		1,226		193,289		194,515		312
Total gross loans	$	8,120	$	651	$	1,044	$	9,815	$	1,081,065	$	1,090,880	$	2,666

The following table sets forth information regarding delinquent and/or nonaccrual loans at June 30, 2020:

(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	$	871	$	345	$	1,691	$	2,907	$	276,425	$	279,332	$	2,513
Residential construction and land		-		-		-		-		11,847		11,847		-
Multi-family		-		-		151		151		24,953		25,104		151
Commercial real estate		393		189		374		956		380,459		381,415		781
Commercial construction		-		-		-		-		74,920		74,920		-
Home equity		29		-		238		267		21,839		22,106		319
Consumer installment		36		25		-		61		4,756		4,817		-
Commercial loans		48		72		245		365		212,754		213,119		313
Total gross loans	$	1,377	$	631	$	2,699	$	4,707	$	1,007,953	$	1,012,660	$	4,077

The Bank of Greene County had no accruing loans delinquent more than 90 days at March 31, 2021 or June 30, 2020, respectively. The loans delinquent more than 90 days and accruing consist of loans that are well collateralized and the borrowers have demonstrated the ability and willingness to pay. The borrower has made arrangements with the Bank to bring the loan current within a specified time period and has made a series of payments as agreed.

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

	For the three months ended March 31,				For the nine months ended March 31
(In thousands)	2021		2020		2021		2020
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	43	$	64	$	174	$	218
Interest income that was recorded on nonaccrual loans		36		51		116		143

In order to assist borrowers through the COVID-19 pandemic, the Company instituted a loan deferment program in response to the COVID-19 pandemic whereby deferral of principal and/or interest payments have been provided and correspond to the length of the National Emergency as defined under the CARES Act and extended under the Consolidated Appropriations Act which was signed into law on December 27, 2020. Payment deferrals consisted of either principal deferrals or full payment deferrals. Based on guidance provided by bank regulators on March 22, 2020 regarding deferrals granted due to COVID-19, these have not been reported as delinquent and we will continue to recognize interest income during the deferral period. At March 31, 2021, there were eight loans totaling $248,000 on nonaccrual that previously participated in this loan deferment program due to COVID-19.

Index

Impaired Loan Analysis

The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.” Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring. It should be noted that management does not evaluate all loans individually for impairment. Generally, The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors. In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are reviewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral. Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors. Based on this evaluation, a delinquent loan’s risk rating may be downgraded to either pass-watch, special mention, or substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation. Loans that have been modified as a troubled debt restructuring are included in impaired loans. The measurement of impairment is generally based on the discounted cash flows based on the original rate of the loan before the restructuring, unless it is determined that the restructured loan is collateral dependent. If the restructured loan is deemed to be collateral dependent, impairment is based on the fair value of the underlying collateral.

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

	At March 31, 2021						For the three months ended March 31, 2021				For the nine months ended March 31, 2021
(In thousands)	Recorded Investment		Unpaid Principal		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	378	$	378	$	-	$	381	$	1	$	392	$	11
Multi-family		-		-		-		-		-		40		-
Commercial real estate		300		300		-		307		-		321		3
Home equity		229		229		-		230		-		173		-
Commercial loans		103		103		-		105		-		164		8
Impaired loans with no allowance		1,010		1,010		-		1,023		1		1,090		22

With an allowance recorded:
Residential real estate		730		730		113		710		2		1,053		27
Commercial construction		102		102		27		102		-		102		-
Home equity		321		321		74		321		2		381		12
Commercial loans		1,756		1,756		73		1,235		85		417		110
Impaired loans with allowance		2,909		2,909		287		2,368		89		1,953		149

Total impaired:
Residential real estate		1,108		1,108		113		1,091		3		1445		38
Multi-family		-		-		-		-		-		40		-
Commercial real estate		300		300		-		307		-		321		3
Commercial construction		102		102		27		102		-		102		-
Home equity		550		550		74		551		2		554		12
Commercial loans		1,859		1,859		73		1,340		85		581		118
Total impaired loans	$	3,919	$	3,919	$	287	$	3,391	$	90	$	3,043	$	171

Index

	At June 30, 2020						For the three months ended March 31, 2020				For the nine months ended March 31, 2020
(In thousands)	Recorded Investment		Unpaid Principal		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	868	$	868	$	-	$	702		11		645		52
Multi-family		123		123		-		42		-		14		-
Commercial real estate		344		344		-		362		1		549		13
Home equity		128		128		-		136		-		177		-
Commercial loans		145		145		-		163		-		134		1
Impaired loans with no allowance		1,608		1,608		-		1,405		12		1,519		66

With an allowance recorded:
Residential real estate		995		995		127		1,176		7		1,227		39
Multi-family		-		-		-		85		-		72		1
Commercial real estate		-		-		-		-		-		35		3
Commercial construction		102		102		15		102		-		102		-
Home equity		431		431		73		449		7		414		21
Commercial loans		134		134		13		165		5		151		9
Impaired loans with allowance		1,662		1,662		228		1,977		19		2,001		73

Total impaired:
Residential real estate		1,863		1,863		127		1,878		18		1,872		91
Multi-family		123		123		-		127		-		86		1
Commercial real estate		344		344		-		362		1		584		16
Commercial construction		102		102		15		102		-		102		-
Home equity		559		559		73		585		7		591		21
Commercial loans		279		279		13		328		5		285		10
Total impaired loans	$	3,270	$	3,270	$	228	$	3,382		31		3,520		139

The table below details loans that have been modified as a troubled debt restructuring.

	Three Months Ended March 31, 2021						Nine Months Ended March 31, 2021
(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment

Commercial loans		3	$	1,391	$	1,391		4	$	1,415	$	1,415
Commercial real estates		1	$	342	$	342		1	$	342	$	342
Residential real estate		1	$	70	$	70		1	$	70	$	70

The increase in total impaired loans for the nine months ended March 31, 2021, is primarily due to five commercial loans totaling $1.7 million and a $70,000 residential loan modified as a troubled debt restructuring through a combination of below market interest rates and lengthened maturities, offset by loans that were paid off. There were no loans that were modified as a trouble debt restructuring during the three and nine months ended March 31, 2020. There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to June 30, 2020 or 2019 which have subsequently defaulted during the three and nine months ended March 31, 2021 or 2020, respectively.

The Bank of Greene County continues working with borrowers through the current pandemic. During fiscal 2020, the Company instituted a loan deferment program in response to the COVID-19 pandemic whereby deferral of principal and/or interest payments have been provided and correspond to the length of the National Emergency as defined under the CARES Act and extended under the Consolidated Appropriations Act which was signed into law on December 27, 2020. At March 31, 2021, the Company still had $18.8 million consisting of 30 loans on payment deferral as a result of the pandemic, which is down from $193.5 million consisting of 706 loans at June 30, 2020. Based on guidance provided by bank regulators on March 22, 2020 regarding deferrals granted due to COVID-19, we have not reported these loans as delinquent and will continue to recognize interest income during the deferral period. These loans will be closely monitored to determine collectability and accrual and delinquency status will be updated as deemed appropriate. The banking regulatory agencies provided guidance as to how certain short-term modifications would not be considered TDRs, and have subsequently confirmed that such guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act. Based on this guidance, the Company does not believe that TDRs will significantly change as a result of the modifications granted.

Index

Allowance for Loan Losses

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

The Bank of Greene County recognizes that strategies put in place to assist borrowers through the COVID-19 pandemic may not be sufficient to fully mitigate the impact to borrowers and that it is likely that a portion of the loan portfolio will default and result in losses to The Bank of Greene County. As a result, The Bank of Greene County has increased its provision for loan losses for the three and nine months ended March 31, 2021 to $1.4 million and $3.9 million, respectively, from $1.4 million and $2.7 million for the three and nine months ended March 31, 2020, respectively. The adequacy of containment strategies introduced to mitigate the impact of COVID-19 to both the economy and local businesses remains uncertain. The increase in provision for loan losses for the nine months ended March 31, 2021 was due to the impact of the COVID-19 pandemic as well as growth in gross loans and an increase in loans adversely classified. Management continues to monitor changes within its economic environment and loan portfolio adjusting the allowance for loan loss as necessary to remain adequately reserved.

Index

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 March 31, 2021
(In thousands)	Balance at December 31, 2020		Charge-offs		Recoveries		Provision			Balance at March 31, 2021
Residential real estate	$	1,998	$	-	$	3	$	(16	)	$	1,985
Residential construction and land		90		-		-		11			101
Multi-family		276		-		-		38			314
Commercial real estate		10,207		-		-		1,572			11,779
Commercial construction		1,847		-		-		94			1,941
Home equity		265		-		-		(64	)		201
Consumer installment		256		101		62		(59	)		157
Commercial loans		3,331		-		-		(141	)		3,190
Total	$	18,270	$	101	$	65	$	1,434		$	19,668

	Activity for the nine months ended March 31, 2021
(In thousands)	Balance at June 30, 2020		Charge-offs		Recoveries		Provision			Balance at March 31, 2021
Residential real estate	$	2,091	$	26	$	10	$	(90	)	$	1,985
Residential construction and land		141		-		-		(40	)		101
Multi-family		176		-		-		138			314
Commercial real estate		8,634		-		-		3,145			11,779
Commercial construction		2,053		-		-		(112	)		1,941
Home equity		295		-		-		(94	)		201
Consumer installment		197		247		101		107			157
Commercial loans		2,804		500		-		886			3,190
Total	$	16,391	$	773	$	111	$	3,939		$	19,668

	Allowance for Loan Losses				Loans Receivable
	Ending Balance At March 31, 2021 Impairment Analysis				Ending Balance At March 31, 2021 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	113	$	1,872	$	1,108	$	304,159
Residential construction and land		-		101		-		8,467
Multi-family		-		314		-		37,470
Commercial real estate		-		11,779		300		454,492
Commercial construction		27		1,914		102		66,811
Home equity		74		127		550		18,407
Consumer installment		-		157		-		4,499
Commercial loans		73		3,117		1,859		192,656
Total	$	287	$	19,381	$	3,919	$	1,086,961

Index

	Activity for the three months ended March 31, 2020
(In thousands)	Balance at December 31, 2019		Charge-offs		Recoveries		Provision		Balance at March 31, 2020
Residential real estate	$	1,470	$	-	$	3	$	391	$	1,864
Residential construction and land		93		-		-		8		101
Multi-family		147		-		-		6		153
Commercial real estate		7,510		-		-		453		7,963
Commercial construction		1,467		-		-		355		1,822
Home equity		270		-		-		3		273
Consumer installment		366		111		33		12		300
Commercial loans		2,661		129		-		164		2,696
Unallocated		-		-		-		33		33
Total	$	13,984	$	240	$	36	$	1,425	$	15,205

	Activity for the nine months ended March 31, 2020
(In thousands)	Balance at June 30, 2019		Charge-offs		Recoveries		Provision			Balance at March 31, 2020
Residential real estate	$	2,026	$	101	$	13	$	(74	)	$	1,864
Residential construction and land		87		-		-		14			101
Multi-family		180		-		-		(27	)		153
Commercial real estate		7,110		-		-		853			7,963
Commercial construction		872		-		-		950			1,822
Home equity		314		-		-		(41	)		273
Consumer installment		250		359		83		326			300
Commercial loans		2,361		333		36		632			2,696
Unallocated		-		-		-		33			33
Total	$	13,200	$	793	$	132	$	2,666		$	15,205

	Allowance for Loan Losses				Loans Receivable
	Ending Balance June 30, 2020 Impairment Analysis				Ending Balance June 30, 2020 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	127	$	1,964	$	1,863	$	277,469
Residential construction and land		-		141		-		11,847
Multi-family		-		176		123		24,981
Commercial real estate		-		8,634		344		381,071
Commercial construction		15		2,038		102		74,818
Home equity		73		222		559		21,547
Consumer installment		-		197		-		4,817
Commercial loans		13		2,791		279		212,840
Total	$	228	$	16,163	$	3,270	$	1,009,390

Foreclosed real estate (FRE)

FRE consists of properties acquired through mortgage loan foreclosure proceedings or in full or partial satisfaction of loans. The following table sets forth information regarding FRE at March 31, 2021 and June 30, 2020:

(in thousands)	March 31, 2021		June 30, 2020
Residential real estate	$	160	$	-
Total foreclosed real estate	$	160	$	-

Index

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

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured at March 31, 2021 and June 30, 2020 and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

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

The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy exists within GAAP that prioritizes 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 for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

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

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

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

			Fair Value Measurements Using
			Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	March 31, 2021		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	12,633	$	-	$	12,633	$	-
U.S. Treasury securities		19,620		-		19,620		-
State and political subdivisions		210,014		-		210,014		-
Mortgage-backed securities-residential		39,416		-		39,416		-
Mortgage-backed securities-multi-family		119,363		-		119,363		-
Corporate debt securities		3,140		3,140		-		-
Securities available-for-sale	$	404,186	$	3,140	$	401,046	$	-
Equity securities		286		286		-		-
Total securities measured at fair value	$	404,472	$	3,426	$	401,046	$	-

Index

			Fair Value Measurements Using
			Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	June 30, 2020		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	504	$	-	$	504	$	-
State and political subdivisions		177,107		-		177,107		-
Mortgage-backed securities-residential		15,528		-		15,528		-
Mortgage-backed securities-multi-family		28,910		-		28,910		-
Corporate debt securities		4,660		4,660		-		-
Securities available-for-sale	$	226,709	$	4,660	$	222,049	$	-
Equity securities		267		267		-		-
Total securities measured at fair value	$	226,976	$	4,927	$	222,049	$	-

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

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

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

Index

							Fair Value Measurements Using
(In thousands)	Recorded Investment		Related Allowance		Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2021
Impaired loans	$	3,038	$	287	$	2,751	$	-	$	-	$	2,751
Foreclosed real estate		160		-		160		-		-		160

June 30, 2020
Impaired loans	$	1,809	$	228	$	1,581	$	-	$	-	$	1,581

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

(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Input	Range			Weighted Average
March 31, 2021
Impaired Loans	$	451	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		8.57%-33.73	%		25.90	%
				Liquidation expenses⁽³⁾		3.98%-5.49	%		4.45	%
		2,300	Discounted cash flow	Discount rate		4.19%-7.49	%		6.08	%
Foreclosed real estate		160	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		0.00%-0.00	%		0.00	%
				Liquidation expenses⁽³⁾		8.01%-10.46	%		9.05	%
June 30, 2020
Impaired loans	$	1,143	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		8.57%-33.73	%		27.55	%
				Liquidation expenses⁽³⁾		3.98%-6.88	%		4.64	%
		438	Discounted cash flow	Discount rate		4.19%-6.63	%		5.64	%

⁽¹⁾

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

⁽²⁾

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

⁽³⁾

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

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

The fair value of commitments to extend credit is estimated based on an analysis of the interest rates and fees currently charged to enter into similar transactions, considering the remaining terms of the commitments and the credit-worthiness of the potential borrowers. At March 31, 2021 and June 30, 2020, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

Index

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

(In thousands)	March 31, 2021				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	145,787	$	145,787	$	145,787	$	-	$	-
Long term certificate of deposit		4,558		4,558		4,558		-		-
Securities available-for-sale		404,186		404,186		3,140		401,046		-
Securities held-to-maturity		444,073		464,419		-		464,419		-
Equity securities		286		286		286		-		-
Federal Home Loan Bank stock		884		884		-		884		-
Net loans receivable		1,068,498		1,064,877		-		-		1,064,877
Accrued interest receivable		9,132		9,132		-		9,132		-
Deposits		1,960,029		1,960,462		-		1,960,462		-
Borrowings		2,000		2,003		-		2,003		-
Subordinated notes payable, net		19,622		19,943		-		19,943		-
Accrued interest payable		115		115		-		115		-

(In thousands)	June 30, 2020				Fair Value Measurements Using
	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	40,463	$	40,463	$	40,463	$	-	$	-
Long term certificate of deposit		4,070		4,070		4,070		-		-
Securities available-for-sale		226,709		226,709		4,660		222,049		-
Securities held-to-maturity		383,657		405,512		-		405,512		-
Equity Securities		267		267		267		-		-
Federal Home Loan Bank stock		1,226		1,226		-		1,226		-
Net loans receivable		993,522		1,004,031		-		-		1,004,031
Accrued interest receivable		8,207		8,027		-		8,027		-
Deposits		1,501,075		1,051,628		-		1,501,628		-
Borrowings		25,484		25,602		-		25,602		-
Accrued interest payable		119		119		-		119		-

(7) Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares that would have been outstanding under the treasury stock method if all potentially dilutive common shares (such as stock options) issued became vested during the period. There were no dilutive or anti-dilutive securities or contracts outstanding during the three and nine months ended March 31, 2021 and 2020.

	For the three months ended March 31,				For the nine months ended March 31,
	2021		2020		2021		2020

Net Income	$	5,258,000	$	4,051,000	$	16,328,000	$	14,027,000
Weighted Average Shares – Basic		8,513,414		8,531,304		8,513,414		8,535,391
Weighted Average Shares - Dilute		8,513,414		8,531,304		8,513,414		8,535,391

Earnings per share - Basic	$	0.62	$	0.47	$	1.92	$	1.64
Earnings per share - Diluted	$	0.62	$	0.47	$	1.92	$	1.64

Index

(8) Dividends

On January 20, 2021, Greene County Bancorp, Inc. (NASDAQ-GCBC) announced that its Board of Directors has approved a quarterly cash dividend of $0.12 per share on the Company’s common stock. The dividend reflects an annual cash dividend rate of $0.48 per share, which is the same rate as the dividend declared during the previous quarter. The dividend was payable to stockholders of record as of February 15, 2021, and was paid on February 26, 2021. Greene County Bancorp, MHC did not waive its right to receive this dividend.

(9) Impact of Recent Accounting Pronouncements

The following accounting standards were adopted in the first quarter ended September 30, 2020:

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

In April 2019, the FASB issued an Update (ASU 2019-04), Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments to Topic 326 and other topics in this Update include items related to the amendments in Update 2016-13 discussed at the June 2018 and November 2018 Credit Losses TRG meetings. The amendments related to Update 2016-13 have the same effective dates as Update 2016-13 and are described in the next paragraph below. The ASU also covered a number of issues that related to hedge accounting including: Partial-Term Fair Value Hedges of Interest Rate Risk, Amortization of Fair Value Hedge Basis Adjustments, Disclosure of Fair Value Hedge Basis Adjustments, Consideration of the Hedged Contractually Specified Interest Rate under the Hypothetical Derivative Method, Scoping for Not-for-Profit Entities, Hedge Accounting Provisions Applicable to Certain Private Companies and Not-for-Profit Entities, and Application of a First-Payments-Received Cash Flow Hedging Technique to Overall Cash Flows on a Group of Variable Interest Payments. The amendments related to Topic 815 are effective with the adoption of the amendments in Update 2017-12. The Company does not have any transactions that are applicable to Update 2017-12, and therefore the adoption of Update 2017-12 and related provisions of Update 2019-04, did not have any impact on our consolidated results of operations or financial position. The ASU also covers Transition Guidance For Codification Improvements specific to ASU 2016-01. The following topics were covered within ASU 2019-04: Scope Clarifications, Held-to-Maturity Debt Securities Fair Value Disclosures, Applicability of Topic 820 to the Measurement Alternative, and Remeasurement of Equity Securities at Historical Exchange Rates. The amendments related to ASU 2016-01 are effective for fiscal years beginning after December 15, 2019. The adoption of this guidance did not have a material impact on our consolidated results of operations or financial position.

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Accounting Pronouncements to be adopted in future periods

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

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

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In March 2020, the FASB issued an Update (ASU 2020-04), Reference Rate Reform (Topic 848). On January 7, 2021, the FASB issued (ASU 2021-01), which refines the scope of ASC 848 and clarifies some of its guidance. The ASU and related amendments provide temporary optional expedients and exceptions to the existing guidance for applying GAAP to affected contract modifications and hedge accounting relationships in the transition away from the London Interbank Offered Rate (“LIBOR”) or other interbank offered rate on financial reporting. The guidance also allows a one-time election to sell and/or reclassify to AFS or trading HTM debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective March 12, 2020 through December 31, 2022 and permits relief solely for reference rate reform actions and permits different elections over the effective date for legacy and new activity. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company’s initial evaluation of LIBOR exposure appears to be minimal and limited to a couple of participation loans or risk participation agreements. The Company is working with the other lead lenders to determine if any potential contract modifications are needed.

In October 2020, the FASB issued an Update (ASU 2020-08), Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. The amendments affect the guidance in ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in that Update shortened the amortization period for certain purchased callable debt securities held at a premium by requiring that entities amortize the premium associated with those callable debt securities within the scope of paragraph 310-20-25-33 to the earliest call date. The Board noted in paragraph BC21 of Update 2017-08 that if the security contained additional future call dates, an entity should consider whether the amortized cost basis exceeded the amount repayable by the issuer at the next call date. If so, the excess should be amortized to the next call date. The amendments in ASU 2020-08 clarify the Board’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of paragraph 310-20-35-33 for each reporting period. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. All entities should apply the amendments in this Update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company is in the early stages of evaluation of the guidance.

(10) Employee Benefit Plans

Defined Benefit Plan

The components of net periodic pension cost related to the defined benefit pension plan for the three and nine months ended March 31, 2021 and 2020 were as follows:

	Three months ended March 31,						Nine months ended March 31,
(In thousands)	2021			2020			2021			2020
Interest cost	$	41		$	49		$	122		$	147
Expected return on plan assets		(64	)		(63	)		(191	)		(189	)
Amortization of net loss		52			40			157			120
Net periodic pension cost	$	29		$	26		$	88		$	78

The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan during fiscal 2021.

SERP

The Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP Plan”), effective as of July 1, 2010. The SERP Plan benefits certain key senior executives of the Bank who have been selected by the Board to participate. The SERP Plan is intended to provide a benefit from the Bank upon retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). The SERP Plan is more fully described in Note 10 of the consolidated financial statements and notes thereto for the year ended June 30, 2020.

Index

The net periodic pension costs related to the SERP Plan for the three and nine months ended March 31, 2021 were $267,000 and $793,000. The net periodic pension costs related to the SERP Plan for the three and nine months ended March 31, 2020 were $219,000 and $638,000. The total liability for the SERP Plan was $7.7 million at March 31, 2021 and $6.4 million at June 30, 2020, respectively, and is included in accrued expenses and other liabilities. The total liability for the SERP Plan includes both accumulated net periodic pension costs and participant contributions.

(11) Stock-Based Compensation

Phantom Stock Option Plan and Long-term Incentive Plan

The Greene County Bancorp, Inc. 2011 Phantom Stock Option and Long-term Incentive Plan (the “Plan”) was adopted effective July 1, 2011, to promote the long-term financial success of the Company and its subsidiaries by providing a means to attract, retain and reward individuals who contribute to such success and to further align their interests with those of the Company’s shareholders. The Plan is intended to provide benefits to employees and directors of the Company or any subsidiary as designated by the Compensation Committee of the Board of Directors of the Company (“Committee”). A phantom stock option represents the right to receive a cash payment on the date the award vests. The Plan is more fully described in Note 11 of the consolidated financial statements and notes thereto for the year ended June 30, 2020.

A summary of the Company’s phantom stock option activity and related information for the Plan for the three and nine months ended March 31, 2021 and 2020 were as follows:

	Three months ended March 31,					Nine months ended March 31,
	2021			2020		2021			2020
Number of options outstanding, beginning of period		1,705,600			1,765,100		1,765,100			1,711,600
Options Granted		-			-		523,700			614,700
Options Forfeited		-			-		-			(7,000	)
Options Paid in Cash		(198,000	)		-		(781,200	)		(554,200	)
Number of options outstanding, end of period		1,507,600			1,765,100		1,507,600			1,765,100

	Three months ended March 31,				Nine months ended March 31,
(In thousands)	2021		2020		2021		2020
Cash paid out on options vested	$	813	$	-	$	3,920	$	2,516
Compensation costs recognized		1,105		875		2,712		2,270

The total liability for the Plan was $3.7 million and $4.9 million at March 31, 2021 and June 30, 2020, respectively, and is included in accrued expenses and other liabilities.

Index

(12) Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss at March 31, 2021 and 2020 are presented as follows:

Activity for the three months ended March 31, 2021 and 2020

(In thousands)	Unrealized gain (losses) on securities available-for- sale			Pension benefits			Total
Balance - December 31, 2019	$	447		$	(1,838	)	$	(1,391	)
Other comprehensive income before reclassification		421			-			421
Other comprehensive income for the three months ended March 31, 2020		421			-			421
Balance - March 31, 2020	$	868		$	(1,838	)	$	(970	)

Balance – December 31, 2020	$	1,552		$	(2,178	)	$	(626	)
Other comprehensive loss before reclassification		(3,886	)		-			(3,886	)
Other comprehensive loss for the three months ended March 31, 2021		(3,886	)		-			(3,886	)
Balance - March 31, 2021	$	(2,334	)	$	(2,178	)	$	(4,512	)

Activity for the nine months ended March 31, 2021 and 2020

(In thousands)	Unrealized gain (losses) on securities available-for- sale			Pension benefits			Total
Balance at June 30, 2019	$	832		$	(1,838	)	$	(1,006	)
Other comprehensive income before reclassification		36			-			36
Other comprehensive income for the nine months ended March 31, 2020		36			-			36
Balance at March 31, 2020	$	868		$	(1,838	)	$	(970	)

Balance at June 30, 2020	$	1,750		$	(2,178	)	$	(428	)
Other comprehensive loss before reclassification		(4,084	)		-			(4,084	)
Other comprehensive loss for the nine months ended March 31, 2021		(4,084	)		-			(4,084	)
Balance at March 31, 2021	$	(2,334	)	$	(2,178	)	$	(4,512	)

(13) Revenue from Contracts with Customers

The majority of the Company’s revenue-generating transactions are not subject to ASC Topic 606, including revenue generated from financial instruments, such as loans and investment securities which are presented in our consolidated income statements as components of net interest income. All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income, with the exception of net gains and losses from sales of foreclosed real estate, which is recognized within non-interest expense.

Index

The following table presents revenues subject to ASC 606 for the three and nine months ended March 31, 2021 and 2020, respectively.

	For the three months ended March 31,					For the nine months ended March 31,
(In thousands)	2021		2020			2021		2020
Service charges on deposit accounts
Insufficient funds fees	$	704	$	928		$	2,230	$	2,950
Deposit related fees		38		40			112		120
ATM/point of sale fees		73		66			213		200
Total service charges		815		1,034			2,555		3,270
Interchange fee and incentive income
Debit card interchange and incentive fees		951		698			2,761		2,196
E-commerce fee income
E-commerce fees		25		24			82		90
Investment services income
Investment services		174		120			551		433
Sales of assets
Net gain (loss) on foreclosed real estate		7		(57	)		92		19

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

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

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

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

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

(14) Operating leases

The Company leases certain branch properties under long-term, operating lease agreements. The Company’s operating lease agreements contain lease components, which are generally accounted for separately. The Company’s lease agreements do not contain any residual value guarantee.

Index

The following includes quantitative data related to the Company’s operating leases as of March 31, 2021 and June 30, 2020, and for the three and nine months ended March 31, 2021 and 2020:

(In thousands, except weighted-average information).
Operating lease amounts:	March 31, 2021		June 30, 2020
Right-of-use assets	$	1,966	$	1,575
Lease liabilities	$	1,994	$	1,587

	Three months ended March 31,		Three months ended March 31,
	2021		2020
(In thousands)
Other information:
Operating outgoing cash flows from operating leases	$	82	$	70
Right-of-use assets obtained in exchange for new operating lease liabilities	$	-	$	-

Lease costs:
Operating lease cost	$	81	$	63
Variable lease cost	$	10	$	10

	Nine months ended March 31,		Nine months ended March 31,
	2021		2020
(In thousands)
Other information:
Operating outgoing cash flows from operating leases	$	225	$	226
Right-of-use assets obtained in exchange for new operating lease liabilities	$	625	$	1,840

Lease costs:
Operating lease cost	$	241	$	205
Variable lease cost	$	30	$	30

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding common area maintenance charges and real estate taxes, as of March 31, 2021:

(in thousands)
Within the twelve months ended March 31,
2021	$	337
2022		282
2023		276
2024		283
2025		266
Thereafter		721
Total undiscounted cash flow		2,165
Less net present value adjustment		(171	)
Lease Liability	$	1,994

Weighted-average remaining lease term (Years)		5.97
Weighted-average discount rate		2.23	%

Right-of-use assets are included in prepaid expenses and other assets, and lease liabilities are included in accrued expenses and other liabilities within the Company’s statement of condition. The Company entered into a new lease commitment for a new branch location on Wolf Road, in Colonie, NY during the year ended June 30, 2020. This lease commenced on July 1, 2020.

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(15) Subsequent events

On April 21, 2021, the Board of Directors declared a cash dividend for the quarter ended March 31, 2021 of $0.12 per share on Greene County Bancorp, Inc.’s common stock. The dividend reflects an annual cash dividend rate of $0.48 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 May 15, 2021, and will be paid on May 28, 2021. 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 refinancing, 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.

Operational risk is the risk to current or anticipated earnings or capital arising from inadequate or failed internal processes or systems, the misconduct or errors of people, and adverse external events. Operational losses result from internal fraud; external fraud; employment practices and workplace safety, clients, products, and business practices; damage to physical assets; business disruption and system failures; and execution, delivery, and process management.

COVID-19 is expected to continue to impact the economy and the Company’s financial results as well as demand for services and products during the remainder for the fiscal year ending June 30, 2021 and into the following fiscal year. The Company has implemented various plans, strategies, and protocols to protect its employees, customers and other stakeholders in response to the pandemic. The Company imposed business travel restrictions, implemented quarantine and remote work from home protocols, and at times during the pandemic, the Company implemented drive-thru only or by appointment protocols for branches and other operational areas which may be reinstated if needed. Enhanced cleaning, sanitation processes and social distancing measurers were also implemented. The Company also enhanced communications with critical vendors to ensure operational functioning of mission-critical activities. The short and long-term implications of the COVID-19 crisis, and related government monetary and fiscal stimulus measures on the Company’s future operations, revenues, earnings, allowance for loan losses, capital and liquidity are difficult to assess and remain uncertain at this time.

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:

Index

(a)

changes in general market interest rates,

(b)

general economic conditions,

(c)

economic or policy changes related to the COVID-19 pandemic,

(d)

legislative and regulatory changes,

(e)

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

(f)

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

(g)

deposit flows,

(h)

competition, and

(i)

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.

Non-GAAP Financial Measures

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

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

Allowance for loan losses to total loans receivable: The allowance for loan losses to total loans receivable ratio is calculated by dividing the balance in the allowance for loan losses by the gross loans outstanding at the end of the period. This ratio is utilized to show the historical relationship between the allowance for loan losses and the balances of loans at the end each period presented in conjunction with other financial information related to asset quality such as nonperforming loans, charge-offs, and classified assets to indicate the overall adequacy of the allowance for loan losses. The Company has adjusted the calculation of the allowance for loan losses to total loans receivable to exclude loans that are 100% guaranteed by the Small Business Administration as these present no credit risk to the Company. With a significant balance in SBA loans at June 30, 2020 and March 31, 2021, this adjusted calculation is used to provide a better basis of comparison with other periods presented within the financial statements presented.

Index

Comparison of Financial Condition at March 31, 2021 and June 30, 2020

ASSETS

Total assets of the Company were $2.1 billion at March 31, 2021 and $1.7 billion at June 30, 2020, an increase of $466.0 million, or 27.8%. Securities available-for-sale and held-to-maturity amounted to $848.3 million at March 31, 2021 as compared to $610.4 million at June 30, 2020, an increase of $237.9 million, or 39.0%. Net loans increased $75.0 million, or 7.5%, to $1.1 billion at March 31, 2021 as compared to $993.5 million at June 30, 2020.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased $105.3 million to $145.8 million at March 31, 2021 from $40.5 million at June 30, 2020. 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 $237.9 million, or 39.0%, to $848.3 million at March 31, 2021 as compared to $610.4 million at June 30, 2020. This increase was the result of utilizing excess cash on hand due to an increase in deposits. Securities purchases totaled $478.8 million during the nine months ended March 31, 2021 and consisted of $281.2 million of state and political subdivision securities, $153.3 million of mortgage-backed securities, $6.8 million of corporate securities, $13.1 million of US Government Agency securities, $19.7 million of US Treasury securities, and $4.7 million of other securities. Principal pay-downs and maturities during the nine months amounted to $232.8 million, primarily consisting of $55.0 million of mortgage-backed securities, $163.5 million of state and political subdivision securities, $7.4 million of collateralized mortgage obligations, $2.5 million of US Government agency securities, $3.0 million of corporate debt securities and $1.4 million of other securities. At March 31, 2021, 59.5% 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.

	March 31, 2021					June 30, 2020
(Dollars in thousands)	Balance		Percentage of portfolio			Balance		Percentage of portfolio
Securities available-for-sale:
U.S. Government sponsored enterprises	$	12,633		1.5	%	$	504		0.1	%
U.S. Treasury securities		19,620		2.3			-		-
State and political subdivisions		210,014		24.8			177,107		29.0
Mortgage-backed securities-residential		39,416		4.6			15,528		2.5
Mortgage-backed securities-multifamily		119,363		14.1			28,910		4.7
Corporate debt securities		3,140		0.4			4,660		0.8
Total securities available-for-sale		404,186		47.7			226,709		37.1
Securities held-to-maturity:
U.S. Government sponsored enterprises		-		-			2,000		0.3
State and political subdivisions		294,382		34.7			210,535		34.5
Mortgage-backed securities-residential		32,908		3.9			38,884		6.4
Mortgage-backed securities-multifamily		103,448		12.2			127,582		20.9
Corporate debt securities		7,849		0.9			2,593		0.4
Other securities		5,486		0.6			2,063		0.4
Total securities held-to-maturity		444,073		52.3			383,657		62.9
Total securities	$	848,259		100.0	%	$	610,366		100.0	%

Index

LOANS

Net loans receivable increased $75.0 million, or 7.5%, to $1.1 billion at March 31, 2021 from $993.5 million at June 30, 2020. Net loans receivable at March 31, 2021 included $90.3 million in SBA Paycheck Protection Program loans. The loan growth experienced during the nine months consisted primarily of $73.4 million in commercial real estate loans, $25.9 million in residential real estate loans and $12.4 million in multi-family loans. This growth was partially offset by a $3.4 million decrease in residential construction and land loans, $8.0 million decrease in commercial construction loans, $3.1 million decrease in home equity loans, $18.6 million decrease in commercial loans, $3.3 million increase in allowance for loan losses offset by a $33,000 net increase in deferred fees due to the forgiveness of SBA PPP loans. SBA PPP loans decreased $9.5 million to $90.3 million from $99.8 million at June 30, 2020, due to the receipt of forgiveness proceeds. The increase in commercial real estate loans was primarily due to large participations with other financial institutions and large commercial construction loans switching to permanent financing during the nine months ended March 31, 2021. The Bank of Greene County continues to use a conservative underwriting policy in regard to all loan originations, and does not engage in sub-prime lending or other exotic loan products. A significant decline in home values, however, in the Company’s markets could have a negative effect on the consolidated results of operations, as any such decline in home values would likely lead to a decrease in residential real estate loans and new home equity loan originations and increased delinquencies and defaults in both the consumer home equity loan and the residential real estate loan portfolios and result in increased losses in these portfolios. Updated appraisals are obtained on loans when there is a reason to believe that there has been a change in the borrower’s ability to repay the loan principal and interest, generally, when a loan is in a delinquent status. Additionally, if an existing loan is to be modified or refinanced, generally, an appraisal is ordered to ensure continued collateral adequacy.

(Dollars in thousands)	March 31, 2021						June 30, 2020
	Balance			Percentage of Portfolio			Balance			Percentage of Portfolio
Residential real estate	$	305,267			28.0	%	$	279,332			27.6	%
Residential construction and land		8,467			0.8			11,847			1.2
Multi-family		37,470			3.4			25,104			2.5
Commercial real estate		454,792			41.7			381,415			37.6
Commercial construction		66,913			6.2			74,920			7.4
Home equity		18,957			1.7			22,106			2.2
Consumer installment		4,499			0.4			4,817			0.5
Commercial loans		194,515			17.8			213,119			21.0
Total gross loans		1,090,880			100.0	%		1,012,660			100.0	%
Allowance for loan losses		(19,668	)					(16,391	)
Deferred fees and costs		(2,714	)					(2,747	)
Total net loans	$	1,068,498					$	993,522

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). The Consolidated Appropriations Act, 2021 provides amendments to the PPP program, including additional loans through the SBA. Although we were not already a qualified SBA lender, we enrolled in the PPP by completing the required documentation and will participate in additional funding under the Consolidated Appropriations Act, 2021. PPP loans have an interest rate of 1.0%, a two-year or five-year loan term to maturity, and principal and interest payments deferred until the lender receives the applicable forgiven amount or ten months after the end of the borrower’s loan forgiveness covered period. The SBA guarantees 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and the loan proceeds are used for other qualifying expenses. The Company had 1,151 PPP loans with a total balance of $90.3 million outstanding at March 31, 2021, compared to 1,267 PPP loans with a total balance of $99.8 million outstanding at June 30, 2020.

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

The Bank of Greene County recognizes that strategies put in place to assist borrowers through the COVID-19 pandemic may not be sufficient to fully mitigate the impact to borrowers and that it is likely that a portion of the loan portfolio will default and result in losses to The Bank of Greene County. As a result, provision for loan losses amounted to $1.4 million for the three months ended March 31, 2021 and 2020, respectively, and amounted to $3.9 million and $2.7 million for the nine months ended March 31, 2021 and 2020, respectively. Much uncertainty remains regarding the duration of the containment strategies and the overall impact to the economy and to local businesses. Management is closely monitoring the changes within its economic environment, stress testing the loan portfolio under various scenarios, and adjusting the allowance for loan loss as necessary to remain adequately reserved.

Analysis of allowance for loan losses activity

	At or for the nine months ended March 31,
(Dollars in thousands)	2021			2020
Balance at the beginning of the period	$	16,391		$	13,200
Charge-offs:
Residential real estate		26			101
Consumer installment		247			359
Commercial loans		500			333
Total loans charged off		773			793

Recoveries:
Residential real estate		10			13
Consumer installment		101			83
Commercial loans		-			36
Total recoveries		111			132

Net charge-offs		662			661

Provisions charged to operations		3,939			2,666
Balance at the end of the period	$	19,668		$	15,205

Net charge-offs to average loans outstanding (annualized)		0.09	%		0.11	%
Net charge-offs to nonperforming assets (annualized)		31.28	%		22.69	%
Allowance for loan losses to nonperforming loans		737.73	%		391.38	%
Allowance for loan losses to total loans receivable		1.80	%		1.69	%
Allowance for loan losses to total loans receivable (excluding PPP loans)		1.97	%		1.69	%

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.

Index

Generally, management places loans on nonaccrual status once the loans have become 90 days or more delinquent or sooner if there is a significant reason for management to believe the collectability is questionable and, therefore, interest on the loan will no longer be recognized on an accrual basis. The Company identifies impaired loans and measures the impairment in accordance with FASB ASC subtopic “Receivables – Loan Impairment.” Management may consider a loan impaired once it is classified as nonaccrual and when it is probable that the borrower will be unable to repay the loan according to the original contractual terms of the loan agreement or the loan is restructured in a troubled debt restructuring. It should be noted that management does not evaluate all loans individually for impairment. Generally, The Bank of Greene County considers residential mortgages, home equity loans and installment loans as small, homogeneous loans, which are evaluated for impairment collectively based on historical loan experience and other factors. In contrast, large commercial mortgage, construction, multi-family, business loans and select larger balance residential mortgage loans are viewed individually and considered impaired if it is probable that The Bank of Greene County will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The majority of The Bank of Greene County loans, including most nonaccrual loans, are small homogenous loan types adequately supported by collateral. Management considers the payment status of loans in the process of evaluating the adequacy of the allowance for loan losses among other factors. Based on this evaluation, a delinquent loan’s risk rating may be downgraded to either pass-watch, special mention, or substandard, and the allocation of the allowance for loan loss is based upon the risk associated with such designation. A loan does not have to be 90 days delinquent in order to be classified as nonperforming. Foreclosed real estate is considered to be a nonperforming asset.

Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)	March 31, 2021		June 30, 2020
Nonaccruing loans:
Residential real estate	$	1,582		$	2,513
Multi-family		-			151
Commercial real estate		529			781
Home equity		243			319
Commercial		312			313
Total nonaccruing loans	$	2,666		$	4,077
Foreclosed real estate:
Residential real estate		160			-
Total foreclosed real estate		160			-
Total nonperforming assets	$	2,826		$	4,077

Troubled debt restructuring:
Nonperforming (included above)	$	364		$	304
Performing (accruing and excluded above)		2,630			909

Total nonperforming assets as a percentage of total assets		0.13	%		0.24	%
Total nonperforming loans to net loans		0.25	%		0.41	%

At March 31, 2021 and June 30, 2020, there were no loans greater than 90 days and accruing.

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

	For the three months ended March 31,				For the nine months ended March 31
(In thousands)	2021		2020		2021		2020
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	43	$	64	$	174	$	218
Interest income that was recorded on nonaccrual loans		36		51		116		143

Nonperforming assets amounted to $2.8 million and $4.1 million at March 31, 2021 and June 30, 2020, respectively. Nonaccrual loans consisted primarily of loans secured by real estate at March 31, 2021 and June 30, 2020. Loans on nonaccrual status totaled $2.7 million at March 31, 2021 of which $752,000 were in the process of foreclosure. At March 31, 2021, there were six residential loans in the process of foreclosure totaling $450,000. Included in nonaccrual loans were $1.6 million of loans which were less than 90 days past due at March 31, 2021, 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. Loans on nonaccrual status totaled $4.1 million at June 30, 2020 of which $1.3 million were in the process of foreclosure. At June 30, 2020, there were eight residential loans in the process of foreclosure totaling $1.0 million. Included in nonaccrual loans were $1.4 million of loans which were less than 90 days past due at June 30, 2020, but have a recent history of delinquency greater than 90 days past due.

In order to assist borrowers through the COVID-19 pandemic, The Bank of Greene County instituted a loan deferment program in response to the COVID-19 pandemic whereby deferral of principal and/or interest payments have been provided and correspond to the length of the National Emergency as defined under the CARES Act. Provisions under the CARES Act were extended under the Consolidated Appropriations Act signed into law on December 27, 2020. Payment deferrals consisted of either principal deferrals or full payment deferrals. Based on guidance provided by bank regulators on March 22, 2020 regarding deferrals granted due to COVID-19, these have not been reported as delinquent and we will continue to recognize interest income during the deferral period. These loans will be closely monitored to determine collectability and accrual and delinquency status will be updated as deemed appropriate.

The following table details loans that have payments deferred at March 31, 2021.

	Full Payment Deferral				Principal Payment Deferral				Total Deferral
(Dollars in thousands)	Balance		Number of Loans		Balance		Number of Loans		Balance		Number of Loans
Residential	$	118		1	$	255		1	$	373		2
Multi-family		-		-		659		5		659		5
Commercial real estate		8,381		11		7,938		5		16,319		16
Home Equity		-		-		-		-		-		-
Consumer installment		9		1		-		-		9		1
Commercial loans		1,433		6		-		-		1,433		6
Total	$	9,941		19	$	8,852		11	$	18,793		30

The following table details loans that have payments deferred at June 30, 2020.

	Full Payment Deferral				Principal Payment Deferral				Total Deferral
(Dollars in thousands)	Balance		Number of Loans		Balance		Number of Loans		Balance		Number of Loans
Residential	$	31,373		172	$	17,664		109	$	49,037		281
Multi-family		8,264		10		4,226		7		12,490		17
Commercial real estate		74,481		173		36,267		85		110,748		258
Commercial construction		339		1		-		-		339		1
Home equity		291		7		140		8		431		15
Consumer installment		116		10		133		17		249		27
Commercial loans		8,537		64		11,643		43		20,180		107
Total	$	123,401		437	$	70,073		269	$	193,474		706

Impaired Loans

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

The table below details additional information on impaired loans at March 31, 2021 and June 30, 2020:

(In thousands)	March 31, 2021		June 30, 2020
Balance of impaired loans, with a valuation allowance	$	2,909	$	1,662
Allowances relating to impaired loans included in allowance for loan losses		287		228
Balance of impaired loans, without a valuation allowance		1,010		1,608
Total impaired loans		3,919		3,270

Index

	For the three months ended March 31,				For the nine months ended March 31,
(In thousands)	2021		2020		2021		2020
Average balance of impaired loans for the periods ended	$	3,391	$	3,382	$	3,043	$	3,520
Interest income recorded on impaired loans during the periods ended		90		31		171		139

DEPOSITS

Deposits totaled $2.0 billion at March 31, 2021 and $1.5 billion at June 30, 2020, an increase of $459.0 million, or 30.6%. Noninterest-bearing deposits increased $30.5 million, or 22.1%, NOW deposits increased $374.0 million, or 39.3%, money market deposits increased $16.7 million, or 12.5%, and savings deposits increased $38.2 million, or 15.8%, when comparing March 31, 2021 and June 30, 2020. These increases were offset by a decrease in certificates of deposits of $418,000, or 1.2%, when comparing March 31, 2021 and June 30, 2020. Deposits increased during the nine months ended March 31, 2021 as a result of an increase in new account relationships including new corporate cash management deposit relationships, the opening of a new branch on Wolf Road in Albany County, NY, and an increase in municipal deposits at Greene County Commercial Bank, primarily from tax collection and new account relationships.

(In thousands)	March 31, 2021		Percentage of Portfolio			June 30, 2020		Percentage of Portfolio
Noninterest-bearing deposits	$	168,714		8.6	%	$	138,187		9.2	%
Certificates of deposit		35,207		1.8			35,625		2.4
Savings deposits		279,539		14.3			241,371		16.1
Money market deposits		150,702		7.7			133,970		8.9
NOW deposits		1,325,867		67.6			951,922		63.4
Total deposits	$	1,960,029		100.0	%	$	1,501,075		100.0	%

BORROWINGS

At March 31, 2021, The Bank of Greene County had pledged approximately $394.5 million of its residential and commercial mortgage portfolio as collateral for borrowing and irrevocable stand-by letters of credit at the Federal Home Loan Bank of New York (“FHLB”). The maximum amount of funding available from the FHLB was $288.4 million at March 31, 2021, of which there were no borrowings outstanding at March 31, 2021. There were no short-term or overnight borrowings outstanding at March 31, 2021. There were no irrevocable stand-by letters of credit outstanding at March 31, 2021.

The Bank of Greene County also pledges securities and certificates of deposit as collateral at the Federal Reserve Bank discount window for overnight borrowings. At March 31, 2021, approximately $3.9 million of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window. There were no balances outstanding with the Federal Reserve Bank at March 31, 2021. The Company had $10.9 million of the Paycheck Protection Plan Lending Facility (“PPPLF”) outstanding as of June 30, 2020, which provides banks additional funding for liquidity whereby PPP loans are pledged as collateral. No PPPLF borrowings were outstanding at March 31, 2021.

The Bank of Greene County has established unsecured lines of credit with Atlantic Central Bankers Bank for $10.0 million and three other financial institutions for $64.5 million. Greene County Bancorp, Inc. has also established an unsecured line of credit with Atlantic Central Bankers Bank for $7.5 million. The lines of credit provide for overnight borrowing and the interest rate is determined at the time of the borrowing. At March 31, 2021, The Bank of Greene County had no balances outstanding on any of these lines of credit. Greene County Bancorp, Inc., had borrowings outstanding with Atlantic Central Bankers Bank of $2.0 million and $7.0 million at March 31, 2021 and June 30, 2020, respectively to fund Bank capital.

The Company entered into Subordinated Note Purchase Agreements with 14 qualified institutional investors on September 17, 2020, issued at 4.75% Fixed-to-Floating Rate due September 15, 2030, in the aggregate principal amount of $20.0 million, carried net of issuance costs of $424,000 amortized over a period of 60 months. These notes are callable on September 15, 2025. At March 31, 2021, there were $19.6 million of Subordinated Note Purchases Agreements outstanding, net of issuance costs.

At March 31, 2021, there were no long-term borrowings and therefore no scheduled maturities of long-term borrowings.

Index

EQUITY

Shareholders’ equity increased to $139.1 million at March 31, 2021 from $128.8 million at June 30, 2020, resulting primarily from net income of $16.3 million, partially offset by dividends declared and paid of $2.0 million and an increase in other accumulated comprehensive loss of $4.1 million.

On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program. Under the repurchase program, the Company may repurchase up to 200,000 shares of its common stock. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. For the nine months ending March 31, 2021, the Company did not repurchase any shares.

Selected Equity Data:
	March 31, 2021			June 30, 2020
Shareholders’ equity to total assets, at end of period		6.49	%		7.68	%
Book value per share	$	16.34		$	15.13
Closing market price of common stock	$	25.01		$	22.30

	For the nine months ended March 31,
	2021			2020
Average shareholders’ equity to average assets		7.25	%		8.37	%
Dividend payout ratio¹		18.75	%		20.12	%
Actual dividends paid to net income²		12.02	%		12.89	%

¹The dividend payout ratio has been calculated based on the dividends declared per share divided by basic earnings per share. No adjustments have been made for dividends waived by Greene County Bancorp, MHC (“MHC”), the owner of 54.1% of the Company’s shares outstanding.

²Dividends declared divided by net income. The MHC waived its right to receive dividends declared during the three months ended September 30, 2019; March 31, 2020; June 30, 2020; September 30, 2020; and December 31, 2020. Dividends declared during the three months ended December 31, 2019 and March 31, 2021 were paid to the MHC. The MHC’s ability to waive the receipt of dividends is dependent upon annual approval of its members as well as receiving the non-objection of the Federal Reserve Board.

Index

Comparison of Operating Results for the Three and Nine Months Ended March 31, 2021 and 2020

Average Balance Sheet

The following table sets forth certain information relating to Greene County Bancorp, Inc. for the three and nine months ended March 31, 2021 and 2020. For the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, are expressed both in dollars and rates. No tax equivalent adjustments were made. Average balances were based on daily averages. Average loan balances include nonperforming loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

	Three months ended March 31,
	2021									2020
(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	$	1,066,451			$	11,567		4.34	%	$	878,442			$	9,955		4.53	%
Securities²		772,319				3,176		1.64			542,018				3,250		2.40
Interest-bearing bank balances and federal funds		126,688				30		0.09			67,460				206		1.22
FHLB stock		993				15		6.04			1,359				26		7.65
Total interest-earning assets		1,966,451				14,788		3.01	%		1,489,279				13,437		3.61	%
Cash and due from banks		15,421									13,401
Allowance for loan losses		(18,854	)								(14,113	)
Other noninterest-earning assets		55,902									23,921
Total assets	$	2,018,920								$	1,512,488

Interest-Bearing Liabilities:
Savings and money market deposits	$	416,808			$	225		0.22	%	$	338,874			$	351		0.41	%
NOW deposits		1,225,451				639		0.21			874,531				1,769		0.81
Certificates of deposit		35,039				87		0.99			35,640				119		1.34
Borrowings		22,012				267		4.85			13,051				57		1.75
Total interest-bearing liabilities		1,699,310				1,218		0.29	%		1,262,096				2,296		0.73	%
Noninterest-bearing deposits		158,318									110,633
Other noninterest-bearing liabilities		22,261									17,197
Shareholders’ equity		139,031									122,562
Total liabilities and equity	$	2,018,920								$	1,512,488

Net interest income					$	13,570								$	11,141
Net interest rate spread								2.72	%								2.88	%
Net earnings assets	$	267,141								$	227,183
Net interest margin								2.76	%								2.99	%
Average interest-earning assets to average interest-bearing liabilities		115.72		%							118.00		%

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

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

Taxable-equivalent net interest income and net interest margin	For the three months ended March 31,
(Dollars in thousands)	2021			2020
Net interest income (GAAP)	$	13,570		$	11,141
Tax-equivalent adjustment⁽¹⁾		751			628
Net interest income (fully taxable-equivalent)	$	14,321		$	11,769

Average interest-earning assets	$	1,966,451		$	1,489,279
Net interest margin (fully taxable-equivalent)		2.91	%		3.16	%

¹Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. The rate used for this adjustment was 21% for federal income taxes and 3.98% for New York State income taxes for the period ended March 31, 2021 and 2020.

Index

	Nine months ended March 31,
	2021									2020
(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	$	1,046,993			$	33,525		4.27	%	$	841,380		$	29,161		4.62	%
Securities²		711,507				9,443		1.77			499,986			9,398		2.51
Interest-bearing bank balances and federal funds		72,802				58		0.11			50,113			611		1.63
FHLB stock		1,163				49		5.62			1,461			72		6.57
Total interest-earning assets		1,832,465				43,075		3.13	%		1,392,940			39,242		3.76	%
Cash and due from banks		12,905									11,481
Allowance for loan losses		(17,651	)								(13,621	)
Other noninterest-earning assets		36,447									23,002
Total assets	$	1,864,166								$	1,413,802

Interest-Bearing Liabilities:
Savings and money market deposits	$	391,061			$	750		0.26	%	$	328,994		$	1,015		0.41	%
NOW deposits		1,107,017				2,349		0.28			790,152			5,115		0.86
Certificates of deposit		35,157				294		1.11			36,335			364		1.34
Borrowings		22,758				687		4.02			15,098			196		1.73
Total interest-bearing liabilities		1,555,993				4,080		0.35	%		1,170,579			6,690		0.76	%
Noninterest-bearing deposits		151,422									108,513
Other noninterest-bearing liabilities		21,684									16,332
Shareholders’ equity		135,067									118,378
Total liabilities and equity	$	1,864,166								$	1,413,802

Net interest income					$	38,995							$	32,552
Net interest rate spread								2.78	%							3.00	%
Net earnings assets	$	276,472								$	222,361
Net interest margin								2.84	%							3.12	%
Average interest-earning assets to average interest-bearing liabilities		117.77									119.00

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

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

Taxable-equivalent net interest income and net interest margin	For the nine months ended March 31,
(Dollars in thousands)	2021			2020
Net interest income (GAAP)	$	38,995		$	32,552
Tax-equivalent adjustment⁽¹⁾		2,207			1,820
Net interest income (fully taxable-equivalent)	$	41,202		$	34,372

Average interest-earning assets	$	1,832,465		$	1,392,940
Net interest margin (fully taxable-equivalent)		3.00	%		3.29	%

Index

Rate / Volume Analysis

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

(i)

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

(ii)

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

(iii)

The net change.

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

(Dollars in thousands)	Three Months Ended March 31, 2021 versus 2020									Nine Months Ended March 31, 2021 versus 2020
	Increase/(Decrease) Due To						Total Increase/			Increase/(Decrease) Due To						Total Increase/
	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)

Interest Earning Assets:
Loans receivable, net¹	$	2,046		$	(434	)	$	1,612		$	6,703		$	(2,339	)	$	4,364
Securities²		1,138			(1,212	)		(74	)		3,297			(3,252	)		45
Interest-bearing bank balances and federal funds		100			(276	)		(176	)		193			(746	)		(553	)
FHLB stock		(6	)		(5	)		(11	)		(13	)		(10	)		(23	)
Total interest-earning assets		3,278			(1,927	)		1,351			10,180			(6,347	)		3,833

Interest-Bearing Liabilities:
Savings and money market deposits		65			(191	)		(126	)		162			(427	)		(265	)
NOW deposits		525			(1,655	)		(1,130	)		1,532			(4,298	)		(2,766	)
Certificates of deposit		(2	)		(30	)		(32	)		(11	)		(59	)		(70	)
Borrowings		59			151			210			136			355			491
Total interest-bearing liabilities		647			(1,725	)		(1,078	)		1,819			(4,429	)		(2,610	)
Net change in net interest income	$	2,631		$	(202	)	$	2,429		$	8,361		$	(1,918	)	$	6,443

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

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

GENERAL

Return on average assets and return on average equity are common methods of measuring operating results. Annualized return on average assets decreased to 1.04% for the three months ended March 31, 2021 as compared to 1.07% for the three months ended March 31, 2020, and was 1.17% and 1.32% for the nine months ended March 31, 2021 and 2020, respectively. Annualized return on average equity increased to 15.13% for the three months and 16.12% for the nine months ended March 31, 2021, as compared to 13.22% for the three months and 15.80% for the nine months ended March 31, 2020. The decrease in return on average assets for the three and nine months ended March 31, 2021, was primarily the result of balance sheet growth outpacing growth in net income. The increase in return on average shareholders’ equity for the three and nine months ended March 31, 2021 was primarily due to the receipt of $1.3 million and $2.8 million in PPP fee income due to forgiveness of funds received on SBA PPP loans. Net income amounted to $5.3 million and $4.1 million for the three months ended March 31, 2021 and 2020, respectively, an increase of $1.2 million, or 29.8%, and amounted to $16.3 million and $14.0 million for the nine months ended March 31, 2021 and 2020, respectively, an increase of $2.3 million, or 16.4%. Average assets increased $506.4 million, or 33.5%, to $2.0 billion for the three months ended March 31, 2021 as compared to $1.5 billion for the three months ended March 31, 2020. Average equity increased $16.5 million, or 13.4%, to $139.0 million for the three months ended March 31, 2021 as compared to $122.6 million for the three months ended March 31, 2020. Average assets increased $450.4 million, or 31.9%, to $1.9 billion for the nine months ended March 31, 2021 as compared to $1.4 billion for the nine months ended March 31, 2020. Average equity increased $16.7 million, or 14.1%, to $135.1 million for the nine months ended March 31, 2021 as compared to $118.4 million for the nine months ended March 31, 2020.

Index

INTEREST INCOME

Interest income amounted to $14.8 million for the three months ended March 31, 2021 as compared to $13.4 million for the three months ended March 31, 2020, an increase of $1.4 million, or 10.1%. Interest income amounted to $43.1 million for the nine months ended March 31, 2021 as compared to $39.2 million for the nine months ended March 31, 2020, an increase of $3.9 million, or 9.8%. The increase in average balances on loans and securities as well as the recognition of PPP fee income due to the forgiveness of SBA PPP loans had the greatest impact on interest income, offset by the decrease in rates on securities. Average loan balances increased $188.0 million and $205.6 million and the yield on loans decreased 19 and 35 basis points when comparing the three and nine months ended March 31, 2021 and 2020, respectively. Included in interest-earning assets at March 31, 2021 were $90.3 million of SBA Paycheck Protection Program (PPP) loans at a rate of 1.00%. A decline in yields on loans was offset by the receipt of $1.3 million and $2.8 million in SBA PPP fee income for the three and nine months ended March 31, 2021, which was realized through a deferred origination fee and recognized within interest income. There were no SBA PPP loans outstanding at March 31, 2020. Average securities increased $230.3 million and $211.5 million, and the yield on such securities decreased 76 and 74 basis points when comparing the three and nine months ended March 31, 2021 and 2020, respectively.

INTEREST EXPENSE

Interest expense amounted to $1.2 million for the three months ended March 31, 2021 as compared to $2.3 million for the three months ended March 31, 2020, a decrease of $1.1 million, or 47.0%. Interest expense amounted to $4.1 million for the nine months ended March 31, 2021 as compared to $6.7 million for the nine months ended March 31, 2020, a decrease of $2.6 million or 39.0%. As illustrated in the rate/volume table, interest expense decreased $1.1 million and $2.6 million when comparing the three and nine months ended March 31, 2021 and 2020 due to the decrease in the rate paid on interest-bearing liabilities. Decreases in the rate paid on interest-bearing liabilities was offset by an increase in interest expense of $647,000 and $1.8 million when comparing these same periods due to the increased average balances.

Cost of interest-bearing liabilities decreased 44 and 41 basis points when comparing the three and nine months ended March 31, 2021 and 2020, respectively. The cost of NOW deposits decreased 60 and 58 basis points, the cost of savings and money market deposits decreased 19 and 15 basis points, and the cost of certificates of deposit decreased 35 and 23 basis points when comparing the three and nine months ended March 31, 2021, and 2020, respectively. The decrease in cost of interest-bearing liabilities was offset by growth in the average balance of interest-bearing liabilities of $437.2 million and $385.4 million, most notably due to an increase in NOW deposits of $350.9 million and $316.9 million, an increase in average savings and money market deposits of $77.9 million and $62.1 million, and an increase in borrowings of $9.0 million and $7.7 million when comparing the three and nine months ended March 31, 2021 and 2020, respectively. The cost of borrowings increased 310 and 229 basis points when comparing the three and nine months ended March 31, 2021 and 2020. The increase in cost of borrowings was due to the Company entering into Subordinated Note Purchase Agreements in September 2020. Yields on interest-earning assets and costs of interest-bearing deposits continue to decline as a result of the low interest rate environment brought on by Federal Reserve Board interest rate decreases during fiscal 2020 and its stance to continue the low interest rate environment to support an economic recovery as the pandemic crisis is contained and potentially moderated during the vaccine roll-out.

NET INTEREST INCOME

Net interest income increased $2.4 million to $13.6 million and $6.4 million to $39.0 million for the three and nine months ended March 31, 2021. The increase in net interest income was primarily the result of the growth in the average balance of interest-earning assets, which increased $477.2 million and $439.5 million when comparing the three and nine months ended March 31, 2021 and 2020, respectively. Included in interest-earning assets at March 31, 2021, are $90.3 million of SBA Paycheck Protection Program (PPP) loans at a rate of 1.00%. Included in interest income was the receipt of $1.3 million and $2.8 million in SBA PPP fee income for the three and nine months ended March 31, 2021, which was realized through a deferred origination fee and recognized within interest income. Costs of interest-bearing liabilities decreased 44 and 41 basis points when comparing the three and nine months ended March 31, 2021 and 2020, respectively. The decline in costs was offset by growth in average interest-bearing liabilities of $437.2 million and $385.4 million when comparing the three and nine months ended March 31, 2021 and 2020, respectively.

Net interest rate spread and margin both decreased when comparing the three and nine months ended March 31, 2021 and 2020. Net interest rate spread decreased 16 basis points to 2.72% for the three months ended March 31, 2021 compared to 2.88% for the three months ended March 31, 2020. Net interest margin decreased 23 basis points to 2.76% for the three months ended March 31, 2021 compared to 2.99% for the three months ended March 31, 2020. Net interest rate spread decreased 22 basis points to 2.78% for the nine months ended March 31, 2021 compared to 3.00% for the nine months ended March 31, 2020. Net interest margin decreased 28 basis points to 2.84% for the nine months ended March 31, 2021 compared to 3.12% for the nine months ended March 31, 2020. Decreases in net interest rate spread and net interest margin resulted primarily from the higher cost of interest-bearing liabilities and lower yields on securities, partially offset by growth in average loan and securities balances.

Index

Net interest income on a taxable-equivalent basis includes the additional amount of interest income that would have been earned if the Company’s investment in tax-exempt securities and loans had been subject to federal and New York State income taxes yielding the same after-tax income. Tax equivalent net interest margin was 2.91% and 3.16% for the three months ended March 31, 2021 and 2020, respectively, and was 3.00% and 3.29% for the nine months ended March 31, 2021 and 2020, respectively.

Due to the large portion of fixed-rate residential mortgages in the Company’s portfolio, the Company closely monitors its interest rate risk, 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 changes in interest rates, including in 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.

The Federal Reserve Bank has taken a number of measures in an attempt to mitigate the impact of the Coronavirus on the economy. The Federal Reserve Bank has maintained interest rates near 0.00%-0.25% which has had an impact to the Company for the three and nine months ended March 31, 2021. It is anticipated that the low interest rate environment will continue to have a negative impact on the Company’s interest spread and margin during the fiscal year ended June 30, 2021. The Company continually monitors its interest rate risk and the impact to net interest income and capital from the interest rate decrease is well within established limits.

PROVISION FOR LOAN LOSSES

Management continues to closely monitor asset quality and adjust the level of the allowance for loan losses when necessary. The amount recognized for the provision for loan losses is determined by management based on its ongoing analysis of the adequacy of the allowance for loan losses. Provision for loan losses amounted to $1.4 million for the three months ended March 31, 2021 and 2020, respectively, and $3.9 million and $2.7 million for the nine months ended March 31, 2021 and 2020, respectively. The increase in provision for loan losses for the nine months ended March 31, 2021 was due to the impact of the COVID-19 pandemic as well as growth in gross loans and an increase in loans adversely classified. The Company instituted a loan deferral program in response to the COVID-19 pandemic whereby deferral of principal and/or interest payments have been provided and correspond to the length of the National Emergency as defined under the CARES Act and extended under the Consolidated Appropriations Act which was signed into law on December 27, 2020. At March 31, 2021, the Company had $18.8 million, or 30 loans, on payment deferral as a result of the pandemic, which is a decrease from $193.5 million, or 706 loans, at June 30, 2020. Management continues to monitor these loans, and it remains uncertain whether all of these loans will continue to perform as agreed once they reach the end of the deferral period. Loans classified as substandard or special mention totaled $43.0 million at March 31, 2021 and $32.8 million at June 30, 2020, an increase of $10.2 million. Loans classified as substandard or special mention increased due to insufficient cash flows and revenues for commercial real estate and commercial loans related to the COVID-19 pandemic. Reserves on loans classified as substandard or special mention totaled $5.2 million at March 31, 2021 compared to $2.4 million at June 30, 2020, an increase of $2.8 million. No loans were classified as doubtful or loss at March 31, 2021 or June 30, 2020. Allowance for loan losses to total loans receivable was 1.80% at March 31, 2021 compared to 1.62% at June 30, 2020. Total loans receivable included $90.3 million and $99.8 million of SBA Paycheck Protection Program (PPP) loans at March 31, 2021 and June 30, 2020, respectively. Excluding these SBA guaranteed loans, the allowance for loan losses to total loans receivable would have been 1.97% and 1.80% at March 31, 2021 and June 30, 2020, respectively.

Net charge-offs for the three months ended March 31, 2021 totaled $36,000 compared to $204,000 for the three months ended March 31, 2020. Net charge-offs totaled $662,000 and $661,000 for the nine months ended March 31, 2021 and 2020, respectively. The primary change in the net charge off activity was the result of a commercial charge off that occurred in the second quarter of fiscal 2021. There were no other significant net charge off changes in other loan categories as of the three and nine months ended March 31, 2021.

Nonperforming loans amounted to $2.7 million and $4.1 million at March 31, 2021 and June 30, 2020, respectively. The decrease in nonperforming loans during the period was primarily due to $1.4 million in loan repayments, $583,000 in charge-offs, and $293,000 in loans returned to performing status, offset by $907,000 of loans placed into nonperforming status. At March 31, 2021 nonperforming assets were 0.13% of total assets compared to 0.24% at June 30, 2020. Nonperforming loans were 0.25% and 0.41% of net loans at March 31, 2021 and June 30, 2020, respectively. Nonperforming assets to total assets were 0.25% and nonperforming loans to net loans were 0.44% at March 31, 2020. 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

(In thousands)	For the three months ended March 31,				Change from Prior Year						For the nine months ended March 31,				Change from Prior Year
Noninterest income:	2021		2020		Amount			Percent			2021		2020		Amount			Percent
Service charges on deposit accounts	$	815	$	1,034	$	(219	)		(21.18	)%	$	2,555	$	3,270	$	(715	)		(21.87	)%
Debit card fees		951		698		253			36.25			2,761		2,196		565			25.73
Investment services		174		120		54			45.00			551		433		118			27.25
E-commerce fees		25		24		1			4.17			82		90		(8	)		(8.89	)
Bank owned life insurance		173		-		173			100.00			173		-		173			100.00
Other operating income		223		250		(27	)		(10.80	)		711		719		(8	)		(1.11	)
Total noninterest income	$	2,361	$	2,126	$	235			11.05	%	$	6,833	$	6,708	$	125			1.86	%

Noninterest income increased $235,000, or 11.1%, and totaled $2.4 million and $2.1 million for the three months ended March 31, 2021 and 2020, respectively. Noninterest income increased $125,000, or 1.9%, and totaled $6.8 million and $6.7 million for the nine months ended March 31, 2021 and 2020, respectively. The increase was primarily due to an increase in debit card fees resulting from continued growth in the number of checking accounts with debit cards and the income from bank owned life insurance offset by decreases in service charges on deposit accounts, primarily from a lower volume of nonsufficient fund fees.

NONINTEREST EXPENSE

(In thousands)	For the three months ended March 31,				Change from Prior Year						For the nine months ended March 31,				Change from Prior Year
Noninterest expense:	2021		2020		Amount			Percent			2021		2020		Amount			Percent
Salaries and employee benefits	$	4,788	$	4,412	$	376			8.52	%	$	13,966	$	12,346	$	1,620			13.12	%
Occupancy expense		605		496		109			21.98			1,584		1,403		181			12.90
Equipment and furniture expense		168		191		(23	)		(12.04	)		483		598		(115	)		(19.23	)
Service and data processing fees		674		626		48			7.67			1,958		1,838		120			6.53
Computer software, supplies and support		368		285		83			29.12			1,001		791		210			26.55
Advertising and promotion		108		115		(7	)		(6.09	)		328		373		(45	)		(12.06	)
FDIC insurance premiums		204		159		45			28.30			552		132		420			318.18
Legal and professional fees		386		274		112			40.88			981		878		103			11.73
Other		1,066		670		396			59.10			2,187		1,826		361			19.77
Total noninterest expense	$	8,367	$	7,228	$	1,139			15.76	%	$	23,040	$	20,185	$	2,855			14.14	%

Noninterest expense increased $1.1 million, or 15.8%, to $8.4 million for the three months ended March 31, 2021 as compared to $7.2 million for the three months ended March 31, 2020. Noninterest expense increased $2.9 million, or 14.1%, to $23.0 million for the nine months ended March 31, 2021, compared to $20.2 million for the nine months ended March 31, 2020. The increase in noninterest expense during the three and nine months ended March 31, 2021 was primarily due to an increase in salaries and employee benefits expense resulting from additional staffing for a new branch located in Albany, New York, which opened in September 2020. Due to continued growth, staffing was also increased within our lending department, information technology department and branch offices. FDIC insurance premiums also increased for the three and nine months ended March 31, 2021, compared to the three and nine months ended March 31, 2020, when credits were applied to the premiums.

INCOME TAXES

Provision for income taxes reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements. The effective tax rate was 14.2% and 13.4% for the three and nine months ended March 31, 2021, compared to 12.2% and 14.5% for the three and nine months ended March 31, 2020, respectively. The statutory tax rate is impacted by the benefits derived from tax-exempt bond and loan income, the Company’s real estate investment trust subsidiary income, income received on the bank owned life insurance, as well as the tax benefits derived from premiums paid to the Company’s pooled captive insurance subsidiary to arrive at the effective tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. Greene County Bancorp, Inc.’s most significant form of market risk is interest rate risk since the majority of Greene County Bancorp, Inc.’s assets and liabilities are sensitive to changes in interest rates. Greene County Bancorp, Inc.’s primary sources of funds are deposits and proceeds from principal and interest payments on loans, mortgage-backed securities and debt securities, with lines of credit available through the Federal Home Loan Bank and Atlantic Central Bankers Bank as needed. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, mortgage prepayments, and lending activities are greatly influenced by general interest rates, economic conditions and competition. The impact of the COVID-19 pandemic has added to the uncertainty regarding the Company’s liquidity needs, with reductions in interest and principal payments from loans and changes in deposit activity, estimating cash flow has become more challenging. At March 31, 2021, the Company had $145.8 million in cash and cash equivalents, representing 6.8% of total assets, and had $372.3 million available in unused lines of credit. The Federal Reserve has instituted a program, the Paycheck Protection Plan Lending Facility (“PPPLF”) to provide banks additional funding for liquidity whereby the PPP loans are pledged as collateral. The PPPLF allows banks to offer these loans to local businesses while maintaining strong liquidity to meet cash flow needs. Principal repayment of these borrowings will be made upon receipt of payment on the underlying loans being pledged as collateral and interest will be charged at a rate of 0.35%. At June 30, 2020, the Company had $10.9 million of PPPLF borrowings outstanding. The PPPLF was paid off during the nine months ended March 31, 2021.

Index

At March 31, 2021, liquidity measures were as follows:

Cash equivalents/(deposits plus short term borrowings)	7.43	%
(Cash equivalents plus unpledged securities)/(deposits plus short term borrowings)	10.30	%
(Cash equivalents plus unpledged securities plus additional borrowing capacity)/(deposits plus short term borrowings)	29.33	%

The Bank of Greene County’s unfunded loan commitments and unused lines of credit are as follows at March 31, 2021:

(In thousands)	2021
Unfunded loan commitments	$	110,172
Unused lines of credit		84,015
Standby letters of credit		192
Total commitments	$	194,380

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.

Risk Participation Agreements

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

RPAs where the Company acts as the lead bank are referred to as “participations-out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company. Participations-out generally occur concurrently with the sale of new customer derivatives. The Company had no participations-out at March 31, 2021 or June 30, 2020. RPAs where the Company acts as the participating bank are referred to as “participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivables from the customer. The Company’s estimate of the credit exposure associated with its risk participations-in was $5.8 million and $3.3 million at March 31, 2021 and June 30, 2020, respectively. The current amount of credit exposure is spread out over ten counterparties, and terms range between one to ten years.

The Bank of Greene County and Greene County Commercial Bank met all applicable regulatory capital requirements at March 31, 2021 and June 30, 2020.

Index

(Dollars in thousands)	Actual					For Capital Adequacy					To Be Well Capitalized Prompt Action					Capital Conservation Buffer
The Bank of Greene County	Amount		Ratio			Amount		Ratio			Amount		Ratio			Actual			Required
As of March 31, 2021:

Total risk-based capital	$	175,267		16.4	%	$	85,521		8.0	%	$	106,901		10.0	%		8.40	%		2.50	%
Tier 1 risk-based capital		161,827		15.1			64,141		6.0			85,521		8.0			9.14			2.50
Common equity tier 1 capital		161,827		15.1			48,106		4.5			69,486		6.5			10.64			2.50
Tier 1 leverage ratio		161,827		8.0			80,561		4.0			100,701		5.0			4.04			2.50

As of June 30, 2020:

Total risk-based capital	$	142,524		16.0	%	$	71,393		8.0	%	$	89,241		10.0	%		7.97	%		2.50	%
Tier 1 risk-based capital		131,305		14.7			53,545		6.0			71,393		8.0			8.71			2.50
Common equity tier 1 capital		131,305		14.7			40,158		4.5			58,007		6.5			10.21			2.50
Tier 1 leverage ratio⁽¹⁾		131,305		8.1			65,238		4.0			81,547		5.0			4.05			2.50

Greene County Commercial Bank
As of March 31, 2021:

Total risk-based capital	$	66,062		38.8	%	$	13,623		8.0	%	$	17,028		10.0	%		30.80	%		2.50	%
Tier 1 risk-based capital		66,062		38.8			10,217		6.0			13,623		8.0			32.80			2.50
Common equity tier 1 capital		66,062		38.8			7,663		4.5			11,068		6.5			34.30			2.50
Tier 1 leverage ratio		66,062		8.3			31,873		4.0			39,841		5.0			4.29			2.50

As of June 30, 2020:

Total risk-based capital	$	60,832		45.3	%	$	10,754		8.0	%	$	13,442		10.0	%		37.26	%		2.50	%
Tier 1 risk-based capital		60,832		45.3			8,065		6.0			10,754		8.0			39.26			2.50
Common equity tier 1 capital		60,832		45.3			6,049		4.5			8,737		6.5			40.76			2.50
Tier 1 leverage ratio		60,832		9.0			26,976		4.0			33,720		5.0			5.02			2.50

⁽¹⁾	Average assets have been adjusted for PPPLF borrowings in calculation of Tier 1 Leverage Ratio.

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

On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program. Under the repurchase program, the Company is authorized to repurchase up to 200,000 shares of its common stock. Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance. There were no additional share repurchases during the quarter ended March 31, 2021.

Item 3.

Defaults Upon Senior Securities

Not applicable

Item 4.

Mine Safety Disclosures

Not applicable

Item 5.

Other Information

Not applicable

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

Item 6.

Exhibits

Exhibits
31.1	Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
32.2	Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350
101	The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended December 31, 2020, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Financial Condition, (iii) Consolidated Statements of Cash Flows and (iv) related notes, tagged as blocks of text.

Index

SIGNATURES

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

Greene County Bancorp, Inc.

Date: May 13, 2021

By: /s/ Donald E. Gibson

Donald E. Gibson
President and Chief Executive Officer

Date: May 13, 2021

By: /s/ Michelle M. Plummer

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