(4) Securities

Greene County Bancorp, Inc.’s current policies generally limit securities investments to U.S. Government and securities of government sponsored enterprises, federal funds sold, municipal bonds, corporate debt obligations and certain mutual funds. In addition, the Company’s policies permit investments in mortgage-backed securities, including securities issued and guaranteed by Fannie Mae, Freddie Mac, and GNMA, and collateralized mortgage obligations. As of March 31, 2013, 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 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 does not engage in any derivative or hedging transactions, such as interest rate swaps or caps.

Securities at March 31, 2013 consisted of the following:


(In thousands)	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Securities available for sale:
U.S. government sponsored enterprises	$ 14,750	$ 582	$ -	$ 15,332
State and political subdivisions	2,429	42	-	2,471
Mortgage-backed securities-residential	8,618	320	-	8,938
Mortgage-backed securities-multi-family	44,580	639	277	44,942
Asset-backed securities	17	-	1	16
Corporate debt securities	4,541	455	1	4,995
Total debt securities	74,935	2,038	279	76,694
Equity and other securities	67	79	-	146
Total securities available for sale	75,002	2,117	279	76,840
Securities held to maturity:
U.S. treasury securities	7,006	29	-	7,035
U.S. government sponsored enterprises	2,999	21	16	3,004
State and political subdivisions	63,516	641	64	64,093
Mortgage-backed securities-residential	32,371	1,969	13	34,327
Mortgage-backed securities-multi-family	55,381	1,362	353	56,390
Other securities	934	2	1	935
Total securities held to maturity	162,207	4,024	447	165,784
Total securities	$ 237,209	$ 6,141	$ 726	$ 242,624

Securities at June 30, 2012 consisted of the following:


		Gross	Gross	Estimated
	Amortized	Unrealized	Unrealized	Fair
(In thousands)	Cost	Gains	Losses	Value
Securities available for sale:
U.S. government sponsored enterprises	$ 16,816	$ 582	$ -	$ 17,398
State and political subdivisions	4,783	116	-	4,899
Mortgage-backed securities-residential	18,625	482	1	19,106
Mortgage-backed securities-multi-family	40,077	604	18	40,663
Asset-backed securities	20	-	1	19
Corporate debt securities	5,053	263	-	5,316
Total debt securities	85,374	2,047	20	87,401
Equity and other securities	67	60	-	127
Total securities available for sale	85,441	2,107	20	87,528
Securities held to maturity:
U.S. treasury securities	11,029	61	-	11,090
U.S. government sponsored enterprises	998	31	-	1,029
State and political subdivisions	62,212	556	99	62,669
Mortgage-backed securities-residential	48,101	2,282	4	50,379
Mortgage-backed securities-multi-family	23,673	952	6	24,619
Other securities	376	-	-	376
Total securities held to maturity	146,389	3,882	109	150,162
Total securities	$ 231,830	$ 5,989	$ 129	$ 237,690

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, 2013.


	Less Than 12 Months		More Than 12 Months		Total
(In thousands)	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Securities available for sale:
Mortgage-backed securities-multi-family	$ 8,468	$ 277	$ -	$ -	$ 8,468	$ 277
Asset-backed securities	-	-	16	1	16	1
Corporate debt securities	501	1	-	-	501	1
Total securities available for sale	8,969	278	16	1	8,985	279
Securities held to maturity:
U.S. government sponsored enterprises	1,984	16	-	-	1,984	16
State and political subdivisions	7,097	63	682	1	7,779	64
Mortgage-backed securities-residential	1,584	13	-	-	1,584	13
Mortgage-backed securities-multi-family	33,230	353	-	-	33,230	353
Other securities	241	1	-	-	241	1
Total securities held to maturity	44,136	446	682	1	44,818	447
Total securities	$ 53,105	$ 724	$ 698	$ 2	$ 53,803	$ 726


	Less Than 12 Months		More Than 12 Months		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
(In thousands)	Value	Losses	Value	Losses	Value	Losses
Securities available for sale:
Mortgage-backed securities-residential	$ 340	$ 1	$ -	$ -	$ 340	$ 1
Mortgage-backed securities-multi-family	8,837	18	-	-	8,837	18
Asset-backed securities	-	-	19	1	19	1
Total securities available for sale	9,177	19	19	1	9,196	20
Securities held to maturity:
State and political subdivisions	10,696	99	-	-	10,696	99
Mortgage-backed securities-residential	527	4	-	-	527	4
Mortgage-backed securities-multi-family	4,189	6	-	-	4,189	6
Total securities held to maturity	15,412	109	-	-	15,412	109
Total securities	$ 24,589	$ 128	$ 19	$ 1	$ 24,608	$ 129

At March 31, 2013, there were 7 securities which have been in a continuous unrealized loss position for more than 12 months and 44 securities in a continuous unrealized loss position of less than 12 months. When the fair value of a held to maturity or available for sale security is less than its amortized cost basis, an assessment is made as to whether other-than-temporary impairment (“OTTI”) is present. The Company considers numerous factors when determining whether a potential OTTI exists and the period over which the debt security is expected to recover. The principal factors considered are (1) the length of time and the extent to which the fair value has been less than the amortized cost basis, (2) the financial condition of the issuer (and guarantor, if any) and adverse conditions specifically related to the security, industry or geographic area, (3) failure of the issuer of the security to make scheduled interest or principal payments, (4) any changes to the rating of the security by a rating agency, and (5) the presence of credit enhancements, if any, including the guarantee of the federal government or any of its agencies.

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

For debt securities, credit-related OTTI is recognized in income while noncredit related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”). Credit-related OTTI is measured as the difference between the present value of an impaired security’s expected cash flows and its amortized cost basis. Noncredit-related OTTI is measured as the difference between the fair value of the security and its amortized cost less any credit-related losses recognized. For securities classified as held to maturity, the amount of OTTI recognized in OCI is accreted to the credit-adjusted expected cash flow amounts of the securities over future periods. For equity securities, the entire amount of OTTI is recognized in income. Management evaluated securities considering the factors as outlined above, and based on this evaluation the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2013. Management believes that the reasons for the decline in fair value are due to interest rates and widening credit spreads at the end of the quarter.

During the three months ended March 31, 2013 there were no gains or losses recognized on the sale of securities. During the nine months ended March 31, 2013, a gain on sale of $10,000 was recognized on a security that was previously written off as an other-than-temporary impairment. During the nine months ended March 31, 2012 the Company sold $759,000 of corporate debt securities within its available-for-sale portfolio at a gain of $11,000. There was no other-than-temporary impairment loss recognized during the three and nine months ended March 31, 2013 and 2012.

The estimated fair values of debt securities at March 31, 2013, 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	$ 3,905	$ 3,919
After one year through five years	13,164	13,820
After five years through ten years	4,651	5,059
After ten years	-	-
Total available for sale debt securities	21,720	22,798
Mortgage-backed and asset-backed securities	53,215	53,896
Equity securities	67	146
Total available for sale securities	75,002	76,840

Held to maturity debt securities
Within one year	15,645	15,680
After one year through five years	23,282	23,478
After five years through ten years	25,377	25,730
After ten years	10,151	10,179
Total held to maturity debt securities	74,455	75,067
Mortgage-backed	87,752	90,717
Total held to maturity securities	162,207	165,784
Total securities	$ 237,209	$ 242,624

As of March 31, 2013 and June 30, 2012, securities with an aggregate fair value of $201.3 million and $181.6 million were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with Greene County Commercial Bank. As of March 31, 2013 and June 30, 2012, securities with an aggregate fair value of $5.0 million and $5.3 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 nine months ended March 31, 2013 or 2012.

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 periods ended March 31, 2013 or 2012.