U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

OR

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

GREENE COUNTY BANCORP, INC.

(Exact name of registrant as specified in its charter)

Commission file number  0-25165

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

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

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

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

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

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

None

(Title of Class)

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

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

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

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

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

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

As of November 10, 2020, 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	8-30
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30-45
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.	Defaults Upon Senior Securities	46
Item 4.	Mine Safety Disclosures	46
Item 5.	Other Information	46
Item 6.	Exhibits	46
	Signatures	47

2

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

At September 30, 2020 and June 30, 2020

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	September 30, 2020			June 30, 2020
Cash and due from banks	$	76,157		$	40,463
Federal funds sold		10			-
Total cash and cash equivalents		76,167			40,463
Long term certificates of deposit		4,094			4,070
Securities available-for-sale, at fair value		269,670			226,709
Securities held-to-maturity, at amortized cost (fair value $413,566 at September 30, 2020; $405,512 at June 30, 2020)		390,107			383,657
Equity securities, at fair value		273			267
Federal Home Loan Bank stock, at cost		1,158			1,226
Loans		1,049,113			1,012,660
Allowance for loan losses		(17,596	)		(16,391	)
Unearned origination fees and costs, net		(2,735	)		(2,747	)
Net loans receivable		1,028,782			993,522
Premises and equipment, net		14,097			13,658
Accrued interest receivable		8,395			8,207
Prepaid expenses and other assets		6,397			5,024
Total assets	$	1,799,140		$	1,676,803
LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	155,669		$	138,187
Interest-bearing deposits		1,463,324			1,362,888
Total deposits		1,618,993			1,501,075
Borrowings from other banks, short-term		-			17,884
Borrowings from Federal Home Loan Bank, long-term		6,100			7,600
Subordinated notes payable, net		19,633			-
Accrued expenses and other liabilities		21,392			21,439
Total liabilities		1,666,118			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 September 30,2020, and June 30, 2020		861			861
Additional paid-in capital		11,017			11,017
Retained earnings		122,670			118,263
Accumulated other comprehensive loss		(618	)		(428	)
Treasury stock, at cost 97,926 shares at September 30, 2020,and June 30, 2020		(908	)		(908	)
Total shareholders’ equity		133,022			128,805
Total liabilities and shareholders’ equity	$	1,799,140		$	1,676,803

See notes to consolidated financial statements

3

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three Months Ended September 30, 2020 and 2019

(Unaudited)

(In thousands, except share and per share amounts)

	2020		2019
Interest income:
Loans	$	10,192	$	9,405
Investment securities - taxable		144		159
Mortgage-backed securities		1,020		1,244
Investment securities - tax exempt		1,975		1,602
Interest-bearing deposits and federal funds sold		7		198
Total interest income		13,338		12,608
Interest expense:
Interest on deposits		1,389		2,050
Interest on borrowings		133		58
Total interest expense		1,522		2,108
Net interest income		11,816		10,500
Provision for loan losses		1,243		551
Net interest income after provision for loan losses		10,573		9,949
Noninterest income:
Service charges on deposit accounts		806		1,125
Debit card fees		893		743
Investment services		161		145
E-commerce fees		29		35
Other operating income		189		218
Total noninterest income		2,078		2,266
Noninterest expense:
Salaries and employee benefits		4,407		3,942
Occupancy expense		515		466
Equipment and furniture expense		151		281
Service and data processing fees		613		574
Computer software, supplies and support		306		242
Advertising and promotion		111		116
FDIC insurance premiums		174		(39	)
Legal and professional fees		276		279
Other		580		561
Total noninterest expense		7,133		6,422
Income before provision for income taxes		5,518		5,793
Provision for income taxes		643		930
Net income	$	4,875	$	4,863
Basic and diluted earnings per share	$	0.57	$	0.57
Basic and diluted average shares outstanding		8,513,414		8,537,814
Dividends per share	$	0.12	$	0.11

See notes to consolidated financial statements

4

Greene County Bancorp, Inc.

Consolidated Statements of Comprehensive Income

For the Three Months Ended September 30, 2020 and 2019

(Unaudited)

(In thousands)

	2020			2019
Net Income	$	4,875		$	4,863
Other comprehensive loss:
Unrealized holding loss on available-for-sale securities, net of income tax benefit of ($67)and ($96), respectively		(190	)		(271	)
Total other comprehensive loss, net of taxes		(190	)		(271	)
Comprehensive income	$	4,685		$	4,592

See notes to consolidated financial statements.

5

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended September 30, 2020 and 2019

(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
Dividends declared						(432	)								(432	)
Net income						4,863									4,863
Other comprehensive loss, net of taxes									(271	)					(271	)
Balance at September 30, 2019	$	861	$	11,017	$	106,205		$	(1,277	)	$	(277	)	$	116,529

	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						(468	)								(468	)
Net income						4,875									4,875
Other comprehensive loss, net of taxes									(190	)					(190	)
Balance at September 30, 2020	$	861	$	11,017	$	122,670		$	(618	)	$	(908	)	$	133,022

See notes to consolidated financial statements.

6

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Three Months Ended September 30, 2020 and 2019

(Unaudited)

(In thousands)

	2020			2019
Cash flows from operating activities:
Net Income	$	4,875		$	4,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		172			175
Deferred income tax benefit		(722	)		(380	)
Net amortization of premiums and discounts		664			120
Net amortization of deferred loan costs and fees		89			143
Provision for loan losses		1,243			551
Net (gain) loss on equity securities		(6	)		2
Gain on sale of foreclosed real estate		-			(76	)
Net increase in accrued income taxes		36			558
Net increase in accrued interest receivable		(188	)		(117	)
Net increase in prepaid expenses and other assets		(583	)		(1,450	)
Net (decrease) increase in other liabilities		(84	)		1,428
Net cash provided by operating activities		5,496			5,817
Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities		58,292			30,178
Purchases of securities		(103,878	)		(68,828	)
Principal payments on securities		2,131			1,739
Securities held-to-maturity:
Proceeds from maturities		8,046			14,129
Purchases of securities		(28,822	)		(21,466	)
Principal payments on securities		13,899			6,852
Net redemption of Federal Home Loan Bank Stock		68			360
Maturity of long term certificates of deposit		245			-
Purchase of long term certificates of deposit		(269	)		(751	)
Net increase in loans receivable		(36,592	)		(20,710	)
Proceeds from sale of foreclosed real estate		-			41
Purchases of premises and equipment		(611	)		(256	)
Net cash used by investing activities		(87,491	)		(58,712	)
Cash flows from financing activities
Net decrease in short-term advances FHLB		-			(8,000	)
Net decrease in short-term advances other banks		(17,884	)		-
Net proceeds from subordinated notes payable		19,633			-
Repayment of long-term FHLB advances		(1,500	)		-
Payment of cash dividends		(468	)		(432	)
Net increase in deposits		117,918			142,641
Net cash provided by financing activities		117,699			134,209
Net increase in cash and cash equivalents		35,704			81,314
Cash and cash equivalents at beginning of period		40,463			29,538
Cash and cash equivalents at end of period	$	76,167		$	110,852
Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	-		$	215
Cash paid during period for:
Interest	$	1,511		$	2,094
Income taxes	$	1,329		$	752

See notes to consolidated financial statements

7

Greene County Bancorp, Inc.

Notes to Consolidated Financial Statements

At and for the Three Months Ended September 30, 2020 and 2019

(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 months ended September 30, 2020 and 2019 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 months ended September 30, 2020 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.

In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) originated in Wuhan, China and has since spread to other countries, including the U.S. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic. In addition, multiple jurisdictions in the U.S. have declared states of emergency. It is anticipated that these impacts will continue for some time. Potential impacts to the Company include disruptions or restrictions on our employees’ ability to work, lack of demand for new loans or the borrower’s ability to pay the required monthly payments. Changes to the operating environment may also be impacted. Operations include loan applications, processing or other areas requiring contact with the borrower. These changes may increase operating costs. Further impacts may include increased repurchase risk or loan defaults. The future effects of these issues are unknown.

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 months ended September 30, 2020.

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

8

(2) Nature of Operations

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

(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.

9

(4) Securities

Securities at September 30, 2020 consisted of the following:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities available-for-sale:
State and political subdivisions	$	188,558	$	806	$	-	$	189,364
Mortgage-backed securities-residential		23,331		323		19		23,635
Mortgage-backed securities-multi-family		51,659		1,041		147		52,553
Corporate debt securities		4,010		165		57		4,118
Total securities available-for-sale		267,558		2,335		223		269,670
Securities held-to-maturity:
U.S. government sponsored enterprises		2,000		4		-		2,004
State and political subdivisions		226,465		15,040		28		241,477
Mortgage-backed securities-residential		32,166		950		-		33,116
Mortgage-backed securities-multi-family		121,389		7,467		6		128,850
Corporate debt securities		5,094		23		65		5,052
Other securities		2,993		74		-		3,067
Total securities held-to-maturity		390,107		23,558		99		413,566
Total securities	$	657,665	$	25,893	$	322	$	683,236

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 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 September 30, 2020, 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.

10

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2020.

	Less Than 12 Months						More Than 12 Months						Total
(In thousands, except number of securities)	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities
Securities available-for-sale:
Mortgage-backed securities-residential	$	7,228	$	19		2	$	-	$	-		-	$	7,228	$	19		2
Mortgage-backed securities-multi-family		10,464		147		3		-		-		-		10,464		147		3
Corporate debt securities		943		57		1		-		-		-		943		57		1
Total securities available-for-sale		18,635		223		6		-		-		-		18,635		223		6
Securities held-to-maturity:
State and political subdivisions		4,845		28		23		-		-		-		4,845		28		23
Mortgage-backed securities-multi-family		3,450		6		5		-		-		-		3,450		6		5
Corporate debt securities		-		-		-		428		65		1		428		65		1
Total securities held-to-maturity		8,295		34		28		428		65		1		8,723		99		29
Total securities	$	26,930	$	257		34	$	428	$	65		1	$	27,358	$	322		35

The following table shows fair value and gross unrealized losses, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2020.

	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.

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 September 30, 2020.  Management believes that the reasons for the decline in fair value are due to interest rates, widening credit spreads partially due to COVID-19 concerns and market illiquidity at the reporting date.

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There were no transfers of securities available-for-sale to held-to-maturity during the three months ended September 30, 2020 or 2019. During the three months ended September 30, 2020 and 2019, 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 months ended September 30, 2020 and 2019.

The estimated fair values of debt securities at September 30, 2020, 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	$	185,344	$	186,139
After one year through five years		4,180		4,275
After five years through ten years		1,544		1,609
After ten years		1,500		1,459
Total available-for-sale debt securities		192,568		193,482
Mortgage-backed securities		74,990		76,188
Total available-for-sale securities		267,558		269,670
Held-to-maturity debt securities
Within one year		39,303		39,964
After one year through five years		93,973		98,398
After five years through ten years		61,550		66,780
After ten years		41,726		46,458
Total held-to-maturity debt securities		236,552		251,600
Mortgage-backed securities		153,555		161,966
Total held-to-maturity securities		390,107		413,566
Total debt securities	$	657,665	$	683,236

At September 30, 2020 and June 30, 2020, respectively, securities with an aggregate fair value of $667.2million 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 September 30, 2020 and June 30, 2020, securities with an aggregate fair value of $4.1 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 quarters ended September 30, 2020 or 2019.

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 months ended September 30, 2020 or 2019.

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(5) Loans and Allowance for Loan Losses

Loan segments and classes at September 30, 2020 and June 30, 2020 are summarized as follows:

(In thousands)	September 30, 2020			June 30, 2020
Residential real estate:
Residential real estate	$	289,502		$	279,332
Residential construction and land		9,777			11,847
Multi-family		26,241			25,104
Commercial real estate:
Commercial real estate		415,654			381,415
Commercial construction		71,206			74,920
Consumer loan:
Home equity		20,701			22,106
Consumer installment		5,180			4,817
Commercial loans		210,852			213,119
Total gross loans		1,049,113			1,012,660
Allowance for loan losses		(17,596	)		(16,391	)
Unearned origination fees and costs, net		(2,735	)		(2,747	)
Loans receivable, net	$	1,028,782		$	993,522

In early 2020, COVID-19 had spread world-wide and the Federal and state governments have been diligently working to contain the spread.  The containment strategies implemented by local governments has had an enormous impact on the economy and may continue to have a negative impact on borrowers’ ability to make timely loan payments as many businesses are forced to temporarily shut down or operate with limited capacity.  Management is monitoring and addressing the impact on the loan portfolio and working with borrowers.

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

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

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

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

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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 September 30, 2020, the Company had outstanding $100.5 million in PPP loans which are unsecured commercial loans and are 100% guaranteed by the Small Business Administration.

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

(In thousands)	Performing		Watch		Special Mention		Substandard		Total
Residential real estate	$	285,478	$	615	$	82	$	3,327	$	289,502
Residential construction and land		9,777		-		-		-		9,777
Multi-family		24,480		-		1,641		120		26,241
Commercial real estate		398,526		-		13,075		4,053		415,654
Commercial construction		64,130		-		6,974		102		71,206
Home equity		20,127		-		-		574		20,701
Consumer installment		5,180		-		-		-		5,180
Commercial loans		201,883		24		3,722		5,223		210,852
Total gross loans	$	1,009,581	$	639	$	25,494	$	13,399	$	1,049,113

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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 September 30, 2020 and June 30, 2020.  Loans classified as substandard or special mention totaled $38.9 million at September 30, 2020, compared to $32.8 million at June 30, 2020, an increase of $6.1 million.  The increase in classified loans was primarily in loans classified as substandard and was due primarily to a deterioration of borrowers’ cash flow in their most recent financial statements.  These newly classified loans were all performing as of September 30, 2020.

Nonaccrual Loans

Management places loans on nonaccrual status once the loans have become 90 days or more delinquent.  A nonaccrual loan is defined as a loan in which collectability is questionable and therefore interest on the loan will no longer be recognized on an accrual basis.  A loan is not placed back on accrual status until the borrower has demonstrated the ability and willingness to make timely payments on the loan.  A loan does not have to be 90 days delinquent in order to be classified as nonaccrual.   Nonaccrual loans consisted primarily of loans secured by real estate at September 30, 2020 and June 30, 2020.  Loans on nonaccrual status totaled $4.3 million at September 30, 2020 of which $1.5 million were in the process of foreclosure. At September 30, 2020, there were 9 residential loans in the process of foreclosure totaling $1.2 million.  Included in nonaccrual loans were $1.1million of loans which were less than 90 days past due at September 30, 2020, 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 following table sets forth information regarding delinquent and/or nonaccrual loans at September 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	$	1,677 1,677	$	367	$	1,736	$	3,780	$	285,722	$	289,502	$	2,274
Residential construction and land		-		-		-		-		9,777		9,777		-
Multi-family		-		-		148		148		26,093		26,241		148
Commercial real estate		47		300		478		825		414,829		415,654		870
Commercial construction		-		-		-		-		71,206		71,206		-
Home equity		56		-		237		293		20,408		20,701		253
Consumer installment		61		-		-		61		5,119		5,180		-
Commercial loans		585		46		673		1,304		209,548		210,852		802
Total gross loans	$	2,426	$	713	$	3,272	$	6,411	$	1,042,702	$	1,049,113	$	4,347

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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 September 30, 2020 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 months ended September 30:

(In thousands)	2020		2019
Interest income that would have been recorded if loans had been performing in accordance with original terms	$	135	$	101
Interest income that was recorded on nonaccrual loans		38		50

In order to assist borrowers through the COVID-19 pandemic, The Bank of Greene County has instituted a loan deferment program whereby short-term deferral of payments (3-6 months) were provided. 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 September 30, 2020, there were no loans in nonaccrual that previously participated in this loan deferment program due to COVID-19.

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.

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

	At September 30, 2020						For the three months ended September 30, 2020
(In thousands)	Recorded Investment		Unpaid Principal		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	399	$	399	$	-	$	402	$	5
Multi-family		120		120		-		121		-
Commercial real estate		332		332		-		335		1
Home equity		128		128		-		128		-
Commercial loans		275		275		-		277		-
Total impaired loans with no allowance		1,254		1,254		-		1,263		6
With an allowance recorded:
Residential real estate		1,382		1,382		126		1,385		5
Commercial construction		102		102		15		102		-
Home equity		430		430		73		430		4
Total impaired loans with allowance		1,914		1,914		214		1,917		9
Total impaired:
Residential real estate		1,781		1,781		126		1,787		10
Multi-family		120		120		-		121		-
Commercial real estate		332		332		-		335		1
Commercial construction		102		102		15		102		-
Home equity		558		558		73		558		4
Commercial loans		275		275		-		277		-
Total impaired loans	$	3,168	$	3,168	$	214	$	3,180	$	15

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	As of June 30, 2020						For the three months ended September 30, 2019
(In thousands)	Recorded Investment		Unpaid Principal		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Residential real estate	$	868	$	868	$	-	$	692	$	30
Multi-family		123		123		-		-		-
Commercial real estate		344		344		-		704		7
Home equity		128		128		-		266		-
Commercial loans		145		145		-		137		-
Impaired loans with no allowance		1,608		1,608		-		1,799		37
With an allowance recorded:
Residential real estate		995		995		127		1,087		24
Multi-family		-		-		-		-		-
Commercial real estate		-		-		-		-		-
Commercial construction		102		102		15		102		-
Home equity		431		431		73		330		5
Commercial Loans		134		134		13		130		1
Impaired loans with allowance		1,662		1,662		228		1,649		30
Total impaired:
Residential real estate		1,863		1,863		127		1,779		54
Multi-family		123		123		-		-		-
Commercial real estate		344		344		-		704		7
Commercial construction		102		102		15		102		-
Home equity		559		559		73		596		5
Commercial loans		279		279		13		267		1
Total impaired loans	$	3,270	$	3,270	$	228	$	3,448	$	67

There were no loans that have been modified as a troubled debt restructuring during the three months ended September 30, 2020 or 2019.   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 months ended September 30, 2020 or 2019, respectively.

The Bank of Greene County continues working with borrowers through the current pandemic. During fiscal 2020, the Company instituted a loan deferment program whereby short-term deferral of payments (3-6 months) were provided.  At September 30, 2020, the Company still had $67.4 million or 201 loans on payment deferral as a result of the pandemic, which is down from $193.5 million or 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.

Under Section 4013 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then 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 December 31, 2020 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.  Based on this guidance, the Company does not believe that TDRs will significantly change as a result of the modifications granted.

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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 months ended September 30, 2020 to $1.2 million from $551,000 for the three months ended September 30, 2019.  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.

The following tables set forth the activity and allocation of the allowance for loan losses by loan category during and at the periods indicated.  The allowance is allocated to each loan category based on historical loss experience and economic conditions.

	Activity for the three months ended September 30, 2020
(In thousands)	Balance June 30, 2020		Charge-offs		Recoveries		Provision			Balance September 30, 2020
Residential real estate	$	2,091	$	-	$	3	$	(631	)	$	1,463
Residential construction and land		141		-		-		(23	)		118
Multi-family		176		-		-		4			180
Commercial real estate		8,634		-		-		750			9,384
Commercial construction		2,053		-		-		(92	)		1,961
Home equity		295		-		-		(23	)		272
Consumer installment		197		61		20		194			350
Commercial loans		2,804		-		-		1,064			3,868
Total	$	16,391	$	61	$	23	$	1,243		$	17,596

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	Allowance for Loan Losses				Loans Receivable
	Ending Balance At September 30, 2020 Impairment Analysis				Ending Balance At September 30, 2020 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	126	$	1,337	$	1,781	$	287,721
Residential construction and land		-		118		-		9,777
Multi-family		-		180		120		26,121
Commercial real estate		-		9,384		332		415,322
Commercial construction		15		1,946		102		71,104
Home equity		73		199		558		20,143
Consumer installment		-		350		-		5,180
Commercial loans		-		3,868		275		210,577
Total	$	214	$	17,382	$	3,168	$	1,045,945

	Activity for the three months ended September 30, 2019
(In thousands)	Balance at June 30, 2019		Charge-offs		Recoveries		Provision			Balance at September 30, 2019
Residential real estate	$	2,026	$	53	$	-	$	(461	)	$	1,512
Residential construction and land		87		-		-		12			99
Multi-family		180		-		-		25			205
Commercial real estate		7,110		-		-		49			7,159
Commercial construction		872		-		-		419			1,291
Home equity		314		-		-		(7	)		307
Consumer installment		250		109		24		154			319
Commercial loans		2,361		199		30		360			2,552
Total	$	13,200	$	361	$	54	$	551		$	13,444

	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. At September 30, 2020 and June 30, 2020, the Company had no FRE.

(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 September 30, 2020 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.

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

The FASB ASC Topic on “Fair Value Measurement” established a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

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

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

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

	Fair Value Measurements Using
September 30, 2020