Quarterly Report (10-q)

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UNITED STATES

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, 2023

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

Commission File Number: 0-25165

GREENE COUNTY BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)

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 10, 2023, the registrant had 17,026,828 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	31-47

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION	48

Item 1.	Legal Proceedings	48

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

	Signatures	49

Index

Greene County Bancorp, Inc.

Consolidated Statements of Financial Condition

At March 31, 2023 and June 30, 2022

(Unaudited)

(In thousands, except share and per share amounts)

ASSETS	March 31, 2023			June 30, 2022
Total cash and cash equivalents		178,322			69,009

Long-term certificates of deposit		4,581			4,107
Securities available-for-sale, at fair value		316,864			408,062
Securities held-to-maturity, at amortized cost (fair value $685,893 at March 31, 2023; $710,453 at June 30, 2022)		736,983			761,852
Equity securities, at fair value		295			273
Federal Home Loan Bank stock, at cost		1,461			6,803

Loans		1,409,447			1,251,987
Allowance for loan losses		(21,155	)		(22,761	)
Unearned origination fees and costs, net		29			129
Net loans receivable		1,388,321			1,229,355

Premises and equipment, net		14,532			14,362
Bank-owned life insurance		54,714			53,695
Accrued interest receivable		13,992			8,917
Foreclosed real estate		462			68
Prepaid expenses and other assets		18,574			15,237
Total assets	$	2,729,101		$	2,571,740

LIABILITIES AND SHAREHOLDERS’ EQUITY
Noninterest-bearing deposits	$	164,532		$	187,697
Interest-bearing deposits		2,307,791			2,024,907
Total deposits		2,472,323			2,212,604

Borrowings from Federal Home Loan Bank, short-term		-			123,700
Subordinated notes payable, net		49,449			49,310
Accrued expenses and other liabilities		28,651			28,412
Total liabilities		2,550,423			2,414,026

SHAREHOLDERS’ EQUITY
Preferred stock, Authorized - 1,000,000 shares; Issued - None		-			-
Common stock, par value $0.10 per share; Authorized - 36,000,000 shares; Issued – 17,222,680 shares at March 31, 2023 and June 30, 2022; Outstanding – 17,026,828 shares at March 31, 2023, and June 30, 2022		1,722			1,722
Additional paid-in capital		10,156			10,156
Retained earnings		187,807			165,127
Accumulated other comprehensive loss		(20,099	)		(18,383	)
Treasury stock, at cost 195,852 shares at March 31, 2023, and June 30, 2022		(908	)		(908	)
Total shareholders’ equity		178,678			157,714
Total liabilities and shareholders’ equity	$	2,729,101		$	2,571,740

See notes to consolidated financial statements

Index

Greene County Bancorp, Inc.

Consolidated Statements of Income

For the Three and Nine Months Ended March 31, 2023 and 2022

(Unaudited)

(In thousands, except share and per share amounts)

	For the three months ended March 31,					For the nine months ended March 31,
	2023			2022		2023			2022
Interest income:
Loans	$	15,676		$	11,236	$	43,859		$	35,293
Investment securities - taxable		722			386		2,076			1,059
Mortgage-backed securities		1,422			1,278		4,276			3,547
Investment securities - tax exempt		3,836			2,372		10,417			6,716
Interest-bearing deposits and federal funds sold		277			33		473			114
Total interest income		21,933			15,305		61,101			46,729

Interest expense:
Interest on deposits		5,559			748		11,307			2,445
Interest on borrowings		1,148			470		2,811			1,345
Total interest expense		6,707			1,218		14,118			3,790

Net interest income		15,226			14,087		46,983			42,939
Provision for loan losses		(944	)		163		(1,199	)		2,431
Net interest income after provision for loan losses		16,170			13,924		48,182			40,508

Noninterest income:
Service charges on deposit accounts		1,132			1,052		3,583			3,279
Debit card fees		1,082			1,024		3,362			3,214
Investment services		213			216		591			707
E-commerce fees		26			23		81			83
Bank-owned life insurance		340			323		1,020			939
Net loss on sale of available-for-sale securities		-			-		(251	)		-
Other operating income		266			267		666			850
Total noninterest income		3,059			2,905		9,052			9,072

Noninterest expense:
Salaries and employee benefits		6,193			5,332		17,070			15,103
Occupancy expense		617			549		1,654			1,627
Equipment and furniture expense		150			186		529			573
Service and data processing fees		674			649		2,040			1,937
Computer software, supplies and support		407			356		1,157			1,128
Advertising and promotion		115			146		336			345
FDIC insurance premiums		191			225		638			646
Legal and professional fees		507			258		2,655			1,075
Other		1,002			613		2,525			2,178
Total noninterest expense		9,856			8,314		28,604			24,612

Income before provision for income taxes		9,373			8,515		28,630			24,968
Provision for income taxes		1,282			1,327		4,305			3,789
Net income	$	8,091		$	7,188	$	24,325		$	21,179

Basic and diluted earnings per share	$	0.48		$	0.42	$	1.43		$	1.24
Basic and diluted average shares outstanding		17,026,828			17,026,828		17,026,828			17,026,828
Dividends per share	$	0.070		$	0.065	$	0.210		$	0.195

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, 2023 and 2022

(Unaudited)

(In thousands)

	For the three months ended March 31,					For the nine months ended March 31,
	2023		2022			2023			2022
Net Income	$	8,091	$	7,188		$	24,325		$	21,179
Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale securities, gross		3,994		(13,281	)		(2,593	)		(16,791	)
Tax effect		1,067		(3,549	)		(693	)		(4,487	)
Unrealized holding gains (losses) on available-for-sale securities, net		2,927		(9,732	)		(1,900	)		(12,304	)

Reclassification adjustment for loss on sale of available-for-sale securities realized in net income, gross		-		-			251			-
Tax effect		-		-			67			-
Reclassification adjustment for loss on sale of available-for-sale securities realized in net income, net		-		-			184			-

Total other comprehensive income (loss), net of taxes		2,927		(9,732	)		(1,716	)		(12,304	)

Comprehensive income (loss)	$	11,018	$	(2,544	)	$	22,609		$	8,875

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, 2023 and 2022

(Unaudited)

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2021	$	1,722	$	10,156	$	152,746		$	(3,733	)	$	(908	)	$	159,983
Dividends declared						(507	)								(507	)
Net income						7,188									7,188
Other comprehensive loss, net of taxes									(9,732	)					(9,732	)
Balance at March 31, 2022	$	1,722	$	10,156	$	159,427		$	(13,465	)	$	(908	)	$	156,932


	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2022	$	1,722	$	10,156	$	180,263		$	(23,026	)	$	(908	)	$	168,207
Dividends declared						(547	)								(547	)
Net income						8,091									8,091
Other comprehensive income, net of taxes									2,927						2,927
Balance at March 31, 2023	$	1,722	$	10,156	$	187,807		$	(20,099	)	$	(908	)	$	178,678

Greene County Bancorp, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the Nine Months Ended March 31, 2023 and 2022

(Unaudited)

(In thousands)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at June 30, 2021	$	1,722	$	10,156	$	139,775		$	(1,161	)	$	(908	)	$	149,584
Dividends declared						(1,527	)								(1,527	)
Net income						21,179									21,179
Other comprehensive loss, net of taxes									(12,304	)					(12,304	)
Balance at March 31, 2022	$	1,722	$	10,156	$	159,427		$	(13,465	)	$	(908	)	$	156,932


	Common Stock		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at June 30, 2022	$	1,722	$	10,156	$	165,127		$	(18,383	)	$	(908	)	$	157,714
Dividends declared						(1,645	)								(1,645	)
Net income						24,325									24,325
Other comprehensive loss, net of taxes									(1,716	)					(1,716	)
Balance at March 31, 2023	$	1,722	$	10,156	$	187,807		$	(20,099	)	$	(908	)	$	178,678

See notes to consolidated financial statements.

Index

Greene County Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Nine Months Ended March 31, 2023 and 2022

(Unaudited)

(In thousands)

	2023			2022
Cash flows from operating activities:
Net Income	$	24,325		$	21,179
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		647			622
Deferred income tax expense (benefit)		146			(60	)
Net amortization of investment premiums and discounts		1,951			2,523
Net amortization (accretion) of deferred loan costs and fees		197			(2,934	)
Amortization of subordinated debt issuance costs		139			118
Provision for loan losses		(1,199	)		2,431
Bank-owned life insurance income		(1,020	)		(939	)
Net loss on sale of available-for-sale securities		251			-
Net (gain) loss on equity securities		(22	)		11
Net loss (gain) on sale of foreclosed real estate		5			(39	)
Net decrease in accrued income taxes		(2,089	)		(303	)
Net increase in accrued interest receivable		(5,075	)		(1,714	)
Net increase in prepaid expenses and other assets		(767	)		(373	)
Net increase in accrued expense and other liabilities		239			625
Net cash provided by operating activities		17,728			21,147

Cash flows from investing activities:
Securities available-for-sale:
Proceeds from maturities		180,225			172,614
Proceeds from sale of securities		1,675			-
Purchases of securities		(104,456	)		(229,025	)
Proceeds from principal payments on securities		10,446			17,828
Securities held-to-maturity:
Proceeds from maturities		49,576			31,102
Purchases of securities		(42,060	)		(281,518	)
Proceeds from principal payments on securities		16,133			16,324
Net redemption of Federal Home Loan Bank Stock		5,342			-
Purchase of long-term certificates of deposit		(1,225	)		-
Maturity of long-term certificates of deposit		735			425
Purchase of bank-owned life insurance		-			(12,000	)
Net increase in loans receivable		(158,426	)		(47,110	)
Proceeds from sale of foreclosed real estate		63			75
Purchases of premises and equipment		(817	)		(758	)
Net cash used in investing activities		(42,789	)		(332,043	)

Cash flows from financing activities
Net decrease in short-term FHLB advances		(123,700	)		-
Net decrease in short-term advances other banks		-			(3,000	)
Proceeds from subordinated notes payable		-			29,501
Payment of cash dividends		(1,645	)		(1,527	)
Net increase in deposits		259,719			286,762
Net cash provided by financing activities		134,374			311,736

Net decrease in cash and cash equivalents		109,313			840
Cash and cash equivalents at beginning of period		69,009			149,775
Cash and cash equivalents at end of period	$	178,322		$	150,615

Non-cash investing activities:
Foreclosed loans transferred to foreclosed real estate	$	462		$	40
Cash paid during period for:
Interest	$	14,415		$	4,002
Income taxes	$	6,248		$	4,152

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, 2023 and 2022

(1) Basis of Presentation

Within the accompanying unaudited consolidated statements of financial condition, and related notes to the consolidated financial statements, June 30, 2022 data were 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 (the “Commercial Bank”) and Greene Property Holdings, Ltd. The consolidated financial statements at and for the three and nine months ended March 31, 2023 and 2022 are unaudited.

On March 23, 2023, the Company effected a 2-for-1 stock split in the form of a stock dividend on its outstanding shares of common stock. All share and per share data throughout this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the stock split. The shares of common stock retain a par value of $0.10 per share. Accordingly, an amount equal to the par value of the increased shares resulting from the stock split was reclassified from “Additional paid-in capital” to “Common stock”.

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, 2022, 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 material 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, 2023 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2023. 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.

(2) Nature of Operations

The Company’s primary business is the ownership and operation of its subsidiaries. At March 31, 2023, the Bank has 17 full-service banking offices, an operations center, customer call center and lending center located in its market area consisting of the Hudson Valley and Capital District Regions of New York State. The Bank is primarily engaged in the business of attracting deposits from the general public in the Bank’s market area, and investing such deposits, together with other sources of funds, in loans and investment securities. The 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. Currently, certain mortgages and loan notes held by the Bank are transferred and beneficially owned by Greene Property Holdings, Ltd. The Bank continues to service these loans. Greene Risk Management, Inc. was formed in December 2014 as a pooled captive insurance company subsidiary of the Company, incorporated in the State of Nevada. The purpose of this company is to provide additional insurance coverage for the Company and its subsidiaries related to the operations of the Company for which insurance may not be economically feasible.

(3) Use of Estimates

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

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

Index

The Company 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.

(4) Securities

Securities at March 31, 2023 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	$	13,058	$	-	$	2,054	$	11,004
U.S. treasury securities		18,377		-		1,712		16,665
State and political subdivisions		171,980		635		22		172,593
Mortgage-backed securities-residential		30,335		-		3,801		26,534
Mortgage-backed securities-multi-family		91,113		-		17,500		73,613
Corporate debt securities		17,906		-		1,451		16,455
Total securities available-for-sale		342,769		635		26,540		316,864
Securities held-to-maturity:
U.S. treasury securities		33,684		-		2,071		31,613
State and political subdivisions		484,093		4,081		29,051		459,123
Mortgage-backed securities-residential		38,417		-		3,089		35,328
Mortgage-backed securities-multi-family		159,113		-		18,286		140,827
Corporate debt securities		21,637		-		2,674		18,963
Other securities		39		-		-		39
Total securities held-to-maturity		736,983		4,081		55,171		685,893
Total securities	$	1,079,752	$	4,716	$	81,711	$	1,002,757

Securities at June 30, 2022 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	$	13,066	$	-	$	1,747	$	11,319
U.S. treasury securities		20,158		-		1,731		18,427
State and political subdivisions		247,978		374		276		248,076
Mortgage-backed securities-residential		33,186		-		3,289		29,897
Mortgage-backed securities-multi-family		99,353		-		15,644		83,709
Corporate debt securities		17,884		-		1,250		16,634
Total securities available-for-sale		431,625		374		23,937		408,062
Securities held-to-maturity:
U.S. treasury securities		33,623		-		1,643		31,980
State and political subdivisions		493,897		2,760		35,747		460,910
Mortgage-backed securities-residential		42,461		1		2,242		40,220
Mortgage-backed securities-multi-family		171,921		2		13,895		158,028
Corporate debt securities		19,900		16		651		19,265
Other securities		50		-		-		50
Total securities held-to-maturity		761,852		2,779		54,178		710,453
Total securities	$	1,193,477	$	3,153	$	78,115	$	1,118,515

Index

The Company’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, 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. As of March 31, 2023, 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.

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, 2023.

	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	$	-	$	-		-	$	11,004	$	2,054		5	$	11,004	$	2,054		5
U.S. treasury securities		229		1		1		16,436		1,711		7		16,665		1,712		8
State and political subdivisions		24,618		20		8		82		2		1		24,700		22		9
Mortgage-backed securities-residential		521		25		10		26,013		3,776		19		26,534		3,801		29
Mortgage-backed securities-multi-family		2,731		142		1		70,882		17,358		30		73,613		17,500		31
Corporate debt securities		487		14		1		15,968		1,437		15		16,455		1,451		16
Total securities available-for-sale		28,586		202		21		140,385		26,338		77		168,971		26,540		98
Securities held-to-maturity:
U.S. treasury securities		-		-		-		31,613		2,071		8		31,613		2,071		8
State and political subdivisions		216,800		9,556		3,113		132,787		19,495		809		349,587		29,051		3,922
Mortgage-backed securities-residential		2,094		90		11		33,223		2,999		18		35,317		3,089		29
Mortgage-backed securities-multi-family		18,176		712		9		122,651		17,574		49		140,827		18,286		58
Corporate debt securities		11,230		1,618		9		7,733		1,056		9		18,963		2,674		18
Total securities held-to-maturity		248,300		11,976		3,142		328,007		43,195		893		576,307		55,171		4,035
Total securities	$	276,886	$	12,178		3,163	$	468,392	$	69,533		970	$	745,278	$	81,711		4,133

Index

	Less Than 12 Months						More Than 12 Months						Total
(In thousands, except number of securities)	Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities		Fair Value		Unrealized Losses		Number of Securities
Securities available-for-sale:
U.S. government sponsored enterprises	$	11,319	$	1,747		5	$	-	$	-		-	$	11,319	$	1,747		5
U.S. treasury securities		18,427		1,731		8		-		-		-		18,427		1,731		8
State and political subdivisions		140,324		276		148		-		-		-		140,324		276		148
Mortgage-backed securities-residential		29,872		3,289		27		-		-		-		29,872		3,289		27
Mortgage-backed securities-multi-family		71,631		12,868		29		12,078		2,776		5		83,709		15,644		34
Corporate debt securities		16,634		1,250		16		-		-		-		16,634		1,250		16
Total securities available-for-sale		288,207		21,161		233		12,078		2,776		5		300,285		23,937		238
Securities held-to-maturity:
U.S. treasury securities		31,980		1,643		9		-		-		-		31,980		1,643		9
State and political subdivisions		353,837		35,564		2,362		735		183		5		354,572		35,747		2,367
Mortgage-backed securities-residential		39,865		2,242		27		-		-		-		39,865		2,242		27
Mortgage-backed securities-multi-family		155,726		13,895		68		-		-		-		155,726		13,895		68
Corporate debt securities		10,751		651		11		-		-		-		10,751		651		11
Total securities held-to-maturity		592,159		53,995		2,477		735		183		5		592,894		54,178		2,482
Total securities	$	880,366	$	75,156		2,710	$	12,813	$	2,959		10	$	893,179	$	78,115		2,720

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.

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.

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. During the nine months ended March 31, 2023, interest rates have increased, causing the unrealized loss on debt securities to increase, which does not indicate OTTI. Management has evaluated securities considering the other 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, 2023. Unrealized losses on securities improved as of March 31, 2023 compared to December 31, 2022, due to bond yields decreasing, providing a favorable impact to securities valuations as of quarter end.

There were no transfers of securities available-for-sale to held-to-maturity during the three and nine months ended March 31, 2023 or 2022. During the three months ended March 31, 2023 and 2022 and nine months ended March 31, 2022, there were no sales of securities and no gains or losses were recognized. During the nine months ended March 31, 2023, a loss of $251,000 was recognized from one sale of an available-for-sale security. The proceeds were used to fund higher-yielding loans. There was no other-than-temporary impairment loss recognized during the three and nine months ended March 31, 2023 and 2022.

Index

The estimated fair values of debt securities at March 31, 2023, 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	$	171,917	$	172,531
After one year through five years		29,280		27,014
After five years through ten years		18,624		15,995
After ten years		1,500		1,177
Total		221,321		216,717
Mortgage-backed securities		121,448		100,147
Total available-for-sale securities		342,769		316,864

Held-to-maturity debt securities
Within one year		56,489		56,054
After one year through five years		169,883		165,722
After five years through ten years		142,164		134,575
After ten years		170,917		153,387
Total		539,453		509,738
Mortgage-backed securities		197,530		176,155
Total held-to-maturity securities		736,983		685,893
Total debt securities	$	1,079,752	$	1,002,757

At March 31, 2023 and June 30, 2022, securities with an aggregate fair value of $920.1 million and $892.9 million, respectively, were pledged as collateral for deposits in excess of FDIC insurance limits for various municipalities placing deposits with the Commercial Bank. At March 31, 2023 and June 30, 2022, securities with an aggregate fair value of $17.2 million and $17.4 million, respectively, were pledged as collateral for potential borrowings at the Federal Reserve Bank discount window. The Company did not participate in any securities lending programs during the three and nine months ended March 31, 2023 or 2022.

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, the Company concluded that the par value of its investment in FHLB stock will be recovered and, therefore, no impairment charge was recorded during the three and nine months ended March 31, 2023 or 2022.

Index

(5) Loans and Allowance for Loan Losses

Loan segments and classes at March 31, 2023 and June 30, 2022 are summarized as follows:

(In thousands)	March 31, 2023			June 30, 2022
Residential real estate:
Residential real estate	$	374,840		$	360,824
Residential construction and land		17,567			15,298
Multi-family		67,251			63,822
Commercial real estate:
Commercial real estate		702,768			595,635
Commercial construction		108,854			83,748
Consumer loan:
Home equity		21,011			17,877
Consumer installment		4,411			4,512
Commercial loans		112,745			110,271
Total gross loans		1,409,447			1,251,987
Allowance for loan losses		(21,155	)		(22,761	)
Deferred fees and cost, net		29			129
Loans receivable, net	$	1,388,321		$	1,229,355

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 Company 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.”

When the Company 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 Company identifies problem loans as being impaired, it is required to evaluate whether the Company 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 Company 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 Company’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 Company reviews its portfolio quarterly to determine whether any assets require classification in accordance with applicable regulations.

The Company 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.

Residential mortgage loans, including home equity loans, which are collateralized by residences are generally made in amounts up to 85.0% of the appraised value of the property. In the event of default by the borrower the Company will acquire and liquidate the underlying collateral. By originating the loan at a loan-to-value ratio of 85.0% or less, the Company 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 Company does not hold the first mortgage. The Company may stand in a secondary position in the event of collateral liquidation resulting in a greater chance of insufficiency to meet all obligations.

Index

Construction lending generally involves a greater degree of risk than other residential mortgage lending. The repayment of the construction loan is, to a great degree, dependent upon the successful and timely completion of the construction of the subject property within specified cost limits. The Company completes inspections during the construction phase prior to any disbursements. The Company 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 Company 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. The Company has 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 Company 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.

Loan balances by internal credit quality indicator at March 31, 2023 are shown below.

(In thousands)	Performing		Special Mention		Substandard		Total
Residential real estate	$	369,272	$	1,826	$	3,742	$	374,840
Residential construction and land		17,567		-		-		17,567
Multi-family		67,163		88		-		67,251
Commercial real estate		677,929		8,642		16,197		702,768
Commercial construction		108,854		-		-		108,854
Home equity		20,956		-		55		21,011
Consumer installment		4,386		-		25		4,411
Commercial loans		106,722		289		5,734		112,745
Total gross loans	$	1,372,849	$	10,845	$	25,753	$	1,409,447

Index

Loan balances by internal credit quality indicator at June 30, 2022 are shown below.

(In thousands)	Performing		Special Mention		Substandard		Total
Residential real estate	$	355,474	$	28	$	5,322	$	360,824
Residential construction and land		15,297		-		1		15,298
Multi-family		63,730		92		-		63,822
Commercial real estate		555,451		13,777		26,407		595,635
Commercial construction		83,748		-		-		83,748
Home equity		17,369		-		508		17,877
Consumer installment		4,500		-		12		4,512
Commercial loans		104,364		996		4,911		110,271
Total gross loans	$	1,199,933	$	14,893	$	37,161	$	1,251,987

The Company had no loans classified doubtful or loss at March 31, 2023 or June 30, 2022. During the quarter ended March 31, 2023, the Company upgraded one commercial loan relationship from special mention to pass, one large relationship from substandard to special mention, and one relationship from substandard to pass due to improvements in borrower cash flows and improving financial performance. There were also loan payoffs during the quarter ended March 31, 2023, comprised of seven commercial real estate loans that were classified as substandard. This was offset by two commercial real estate loan relationships and one commercial loan relationship downgraded to substandard, and two commercial real estate loan relationship downgraded to special mention during the current quarter. At March 31, 2023, these loans were all performing. Management continues to monitor these loan relationships closely.

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. Loans on nonaccrual status totaled $4.7 million at March 31, 2023, of which there were four residential loans totaling $675,000 that were in process of foreclosure. Included in nonaccrual loans were $4.0 million of loans which were less than 90 days past due at March 31, 2023, 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 $6.3 million at June 30, 2022 of which $528,000 were in the process of foreclosure. At June 30, 2022, there were three residential loans in the process of foreclosure totaling $426,000 and one commercial real estate loan for $102,000 in the process of foreclosure. Included in nonaccrual loans were $4.4 million of loans which were less than 90 days past due at June 30, 2022, but have a recent history of delinquency greater than 90 days past due. The decrease in nonperforming loans during the period was primarily due to $1.3 million in loan repayments, $134,000 in loans returning to performing status, and $508,000 in charge-offs or transfers to foreclosed, partially offset by $293,000 of loans placed into nonperforming status.

The following table sets forth information regarding delinquent and/or nonaccrual loans at March 31, 2023:

(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	$	2,608	$	140	$	687	$	3,435	$	371,405	$	374,840	$	2,650
Residential construction and land		-		-		-		-		17,567		17,567		-
Multi-family		-		-		-		-		67,251		67,251		-
Commercial real estate		1,517		-		20		1,537		701,231		702,768		709
Commercial construction		-		-		-		-		108,854		108,854		-
Home equity		66		-		13		79		20,932		21,011		55
Consumer installment		64		44		-		108		4,303		4,411		-
Commercial loans		1,406		-		19		1,425		111,320		112,745		1,278
Total gross loans	$	5,661	$	184	$	739	$	6,584	$	1,402,863	$	1,409,447	$	4,692

Index

The following table sets forth information regarding delinquent and/or nonaccrual loans at June 30, 2022:

(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	$	66	$	1,676	$	592	$	2,334	$	358,490	$	360,824	$	2,948
Residential construction and land		-		1		-		1		15,297		15,298		1
Multi-family		-		-		-		-		63,822		63,822		-
Commercial real estate		-		385		1,147		1,532		594,103		595,635		1,269
Commercial construction		-		-		-		-		83,748		83,748		-
Home equity		3		-		179		182		17,695		17,877		188
Consumer installment		22		17		-		39		4,473		4,512		7
Commercial loans		-		28		19		47		110,224		110,271		1,904
Total gross loans	$	91	$	2,107	$	1,937	$	4,135	$	1,247,852	$	1,251,987	$	6,317

The Company had no accruing loans delinquent 90 days or more at March 31, 2023 and June 30, 2022. The borrowers have made arrangements with the Bank to bring the loans current within a specified time period and have made a series of payments as agreed.

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 Company 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 or nonaccrual loans that are over $250 thousand and all trouble debt restructured loans are reviewed individually and considered impaired if it is probable that the Company 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 Company’s loans, including most nonaccrual loans, are small homogeneous 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.

Index

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

	At March 31, 2023						For the three months ended March 31, 2023				For the nine months ended March 31, 2023
(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	$	768	$	768	$	-	$	775	$	-	$	895	$	2
Commercial real estate		1,528		1,528		-		755		17		369		25
Home equity		-		-		-		43		-		100		-
Consumer installment		4		4		-		4		-		4		1
Commercial loans		337		337		-		338		4		341		12
Impaired loans with no allowance		2,637		2,637		-		1,915		21		1,709		40

With an allowance recorded:
Residential real estate		2,415		2,415		595		2,421		7		2,221		14
Commercial real estate		3,168		3,168		459		3,851		48		3,696		121
Home equity		-		-		-		-		-		107		4
Commercial loans		1,578		1,578		764		1,839		5		2,479		32
Impaired loans with allowance		7,161		7,161		1,818		8,111		60		8,503		171

Total impaired:
Residential real estate		3,183		3,183		595		3,196		7		3,116		16
Commercial real estate		4,696		4,696		459		4,606		65		4,065		146
Home equity		-		-		-		43		-		207		4
Consumer installment		4		4		-		4		-		4		1
Commercial loans		1,915		1,915		764		2,177		9		2,820		44
Total impaired loans	$	9,798	$	9,798	$	1,818	$	10,026	$	81	$	10,212	$	211

Index

	At June 30, 2022						For the three months ended March 31, 2022				For the nine months ended March 31, 2022
(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	$	990	$	990	$	-	$	846	$	3	$	577	$	13
Commercial real estate		67		67		-		71		1		351		9
Home equity		128		128		-		128		-		128		-
Consumer Installment		5		5		-		2		1		1		1
Commercial loans		346		346		-		224		3		168		5
Impaired loans with no allowance		1,536		1,536		-		1,271		8		1,225		28

With an allowance recorded:
Residential real estate		1,953		1,953		588		2,159		10		1,612		43
Commercial real estate		3,698		3,698		1,118		1,864		75		1,085		93
Commercial construction		102		102		1		102		-		102		-
Home equity		320		320		44		320		4		321		10
Commercial loans		3,162		3,162		596		3,336		29		3,349		116
Impaired loans with allowance		9,235		9,235		2,347		7,781		118		6,469		262

Total impaired:
Residential real estate		2,943		2,943		588		3,005		13		2,189		56
Commercial real estate		3,765		3,765		1,118		1,935		76		1,436		102
Commercial construction		102		102		1		102		-		102		-
Home equity		448		448		44		448		4		449		10
Consumer Installment		5		5		-		2		1		1		1
Commercial loans		3,508		3,508		596		3,560		32		3,517		121
Total impaired loans	$	10,771	$	10,771	$	2,347	$	9,052	$	126	$	7,694	$	290

The table below details loans that have been modified as a troubled debt restructuring during the periods indicated.

(Dollars in thousands)	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Current outstanding Recorded Investment
For the nine months ended March 31, 2023
Residential real estate		2	$	778	$	778	$	778
Commercial real estate		3	$	1,428	$	1,481	$	1,476
Commercial loans		1	$	379	$	379	$	-

For the year ended June 30, 2022
Consumer Installment		1	$	5	$	5	$	5

There were no loans that had been modified as a troubled debt restructuring during the twelve months prior to June 30, 2022 or 2021, which have subsequently defaulted during the nine months ended March 31, 2023 or 2022. There was one commercial loan in the amount of $379,000 that had been modified as a troubled debt restructuring during the three months ended September 30, 2022 that subsequently defaulted during the three months ended March 31, 2023.

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 Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The Company disaggregates its loan portfolio as noted in the below allowance for loan losses tables to evaluate for impairment collectively based on historical loss experience. The Company evaluates nonaccrual loans that are over $250 thousand and all trouble debt restructured loans individually for impairment, if it is probable that the Company will not be able to collect scheduled payments of principal and interest when due, according to the contractual terms of the loan agreements. Loans that are guaranteed, such as SBA loans, are excluded from the homogeneous pool of loans and no allowance is allocated to this segment of the portfolio. The measurement of impaired loans is generally based on the fair value of the underlying collateral. The Company 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 Company 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. 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.

Index

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

	Activity for the three months ended March 31, 2023
(In thousands)	Balance at December 31, 2022		Charge-offs		Recoveries		Provision			Balance at March 31, 2023
Residential real estate	$	2,492	$	-	$	-	$	146		$	2,638
Residential construction and land		193		-		-		(21	)		172
Multi-family		167		-		-		32			199
Commercial real estate		15,450		9		-		(1,869	)		13,572
Commercial construction		1,100		-		-		380			1,480
Home equity		38		-		-		11			49
Consumer installment		284		117		27		51			245
Commercial loans		2,565		103		12		326			2,800
Total	$	22,289	$	229	$	39	$	(944	)	$	21,155

	Activity for the nine months ended March 31, 2023
(In thousands)	Balance at June 30, 2022		Charge-offs		Recoveries		Provision			Balance at March 31, 2023
Residential real estate	$	2,373	$	-	$	5	$	260		$	2,638
Residential construction and land		141		-		-		31			172
Multi-family		119		-		-		80			199
Commercial real estate		16,221		9		-		(2,640	)		13,572
Commercial construction		1,114		-		-		366			1,480
Home equity		89		-		-		(40	)		49
Consumer installment		349		421		102		215			245
Commercial loans		2,355		114		30		529			2,800
Total	$	22,761	$	544	$	137	$	(1,199	)	$	21,155

Index

	Allowance for Loan Losses				Loans Receivable
	Ending Balance At March 31, 2023 Impairment Analysis				Ending Balance At March 31, 2023 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	595	$	2,043	$	3,183	$	371,657
Residential construction and land		-		172		-		17,567
Multi-family		-		199		-		67,251
Commercial real estate		459		13,113		4,696		698,072
Commercial construction		-		1,480		-		108,854
Home equity		-		49		-		21,011
Consumer installment		-		245		4		4,407
Commercial loans		764		2,036		1,915		110,830
Total	$	1,818	$	19,337	$	9,798	$	1,399,649

	Activity for the three months ended March 31, 2022
(In thousands)	Balance at December 31, 2021		Charge-offs		Recoveries		Provision			Balance at March 31, 2022
Residential real estate	$	1,981	$	-	$	3	$	22		$	2,006
Residential construction and land		115		-		-		2			117
Multi-family		76		-		-		10			86
Commercial real estate		15,616		-		-		276			15,892
Commercial construction		1,250		-		-		(121	)		1,129
Home equity		89		-		-		(2	)		87
Consumer installment		280		144		32		95			263
Commercial loans		2,277		-		1		(119	)		2,159
Total	$	21,684	$	144	$	36	$	163		$	21,739

	Activity for the nine months ended March 31, 2022
(In thousands)	Balance at June 30, 2021		Charge-offs		Recoveries		Provision			Balance at March 31, 2022
Residential real estate	$	2,012	$	-	$	10	$	(16	)	$	2,006
Residential construction and land		106		-		-		11			117
Multi-family		186		-		-		(100	)		86
Commercial real estate		13,049		-		-		2,843			15,892
Commercial construction		1,535		-		-		(406	)		1,129
Home equity		165		-		-		(78	)		87
Consumer installment		267		355		89		262			263
Commercial loans		2,348		107		3		(85	)		2,159
Total	$	19,668	$	462	$	102	$	2,431		$	21,739

Index

	Allowance for Loan Losses				Loans Receivable
	Ending Balance June 30, 2022 Impairment Analysis				Ending Balance June 30, 2022 Impairment Analysis
(In thousands)	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
Residential real estate	$	588	$	1,785	$	2,943	$	357,881
Residential construction and land		-		141		-		15,298
Multi-family		-		119		-		63,822
Commercial real estate		1,118		15,103		3,765		591,870
Commercial construction		1		1,113		102		83,646
Home equity		44		45		448		17,429
Consumer installment		-		349		5		4,507
Commercial loans		596		1,759		3,508		106,763
Total	$	2,347	$	20,414	$	10,771	$	1,241,216

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:

(in thousands)	March 31, 2023		June 30, 2022
Residential real estate	$	-	$	68
Commercial real estate		160		-
Commercial loans		302		-
Total foreclosed real estate	$	462	$	68

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

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of March 31, 2023 and June 30, 2022 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.

Index

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, 2023		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	11,004	$	-	$	11,004	$	-
U.S. Treasury securities		16,665		-		16,665		-
State and political subdivisions		172,593		-		172,593		-
Mortgage-backed securities-residential		26,534		-		26,534		-
Mortgage-backed securities-multi-family		73,613		-		73,613		-
Corporate debt securities		16,455		-		16,455		-
Securities available-for-sale		316,864	$	-		316,864		-
Equity securities		295		295		-		-
Total securities measured at fair value	$	317,159	$	295	$	316,864	$	-

			Fair Value Measurements Using
			Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	June 30, 2022		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government sponsored enterprises	$	11,319	$	-	$	11,319	$	-
U.S. Treasury securities		18,427		-		18,427		-
State and political subdivisions		248,076		-		248,076		-
Mortgage-backed securities-residential		29,897		-		29,897		-
Mortgage-backed securities-multi-family		83,709		-		83,709		-
Corporate debt securities		16,634		-		16,634		-
Securities available-for-sale		408,062		-		408,062		-
Equity securities		273		273		-		-
Total securities measured at fair value	$	408,335	$	273	$	408,062	$	-

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.

Index

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.

							Fair Value Measurements Using
(In thousands)	Recorded Investment		Related Allowance		Fair Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2023
Impaired loans	$	7,312	$	1,818	$	5,494	$	-	$	-	$	5,494
Foreclosed real estate		462		-		462		-		-		462

June 30, 2022
Impaired loans	$	9,401	$	2,347	$	7,054	$	-	$	-	$	7,054
Foreclosed real estate		68		-		68		-		-		68

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, 2023
Impaired Loans	$	4,804	Appraisal of collateral⁽¹⁾	Appraisal adjustments(2)		13.19%-33.73	%		33.06	%
				Liquidation expenses(3)		3.98%-6.73	%		8.47	%
		690	Discounted cash flow	Discount rate		3.79%-11.95	%		7.99	%
Foreclosed real estate		462	Appraisal of collateral⁽¹⁾	Appraisal adjustments(2)		0.00	%		0.00	%
				Liquidation expenses(3)		6.00	%		6.00	%
June 30, 2022
Impaired loans	$	4,333	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		7.06%-33.73	%		21.67	%
				Liquidation expenses⁽³⁾		3.98%-5.58	%		4.72	%
		2,721	Discounted cash flow	Discount rate		4.19%-11.95	%		6.21	%
Foreclosed real estate		68	Appraisal of collateral⁽¹⁾	Appraisal adjustments⁽²⁾		10.46	%		10.46	%

⁽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.

No other financial assets or liabilities were re-measured during the year on a nonrecurring basis.

The carrying amounts reported in the statements of financial condition for total cash and cash equivalents, long term certificates of deposit, 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 values 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 long term certificates of deposit are estimated using discounted cash flows and interest rates currently being offered in the market on similar certificates. Fair value for Federal Home Loan Bank long term borrowings are estimated using discounted cash flows and interest rates currently being offered on similar borrowings. The carrying value of short-term Federal Home Loan Bank borrowings approximates its fair value. Fair value for subordinated notes payable is estimated based on a discounted cash flow methodology or observations of recent highly-similar transactions.

Index

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, 2023 and June 30, 2022, the estimated fair values of these off-balance sheet financial instruments were immaterial, and are therefore excluded from the table below.

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

	March 31, 2023				Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	178,322	$	178,322	$	178,322	$	-	$	-
Long term certificates of deposit		4,581		4,379		-		4,379		-
Securities available-for-sale		316,864		316,864		-		316,864		-
Securities held-to-maturity		736,983		685,893		-		685,893		-
Equity securities		295		295		295		-		-
Federal Home Loan Bank stock		1,461		1,461		-		1,461		-
Net loans receivable		1,388,321		1,278,163		-		-		1,278,163
Accrued interest receivable		13,992		13,992		-		13,992		-
Deposits		2,472,323		2,472,849		-		2,472,849		-
Subordinated notes payable, net		49,449		47,078		-		47,078		-
Accrued interest payable		306		306		-		306		-

	June 30, 2022				Fair Value Measurements Using
(In thousands)	Carrying Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents	$	69,009	$	69,009	$	69,009	$	-	$	-
Long term certificates of deposit		4,107		3,993		-		3,993		-
Securities available-for-sale		408,062		408,062		-		408,062		-
Securities held-to-maturity		761,852		710,453		-		710,453		-
Equity securities		273		273		273		-		-
Federal Home Loan Bank stock		6,803		6,803		-		6,803		-
Net loans receivable		1,229,355		1,170,960		-		-		1,170,960
Accrued interest receivable		8,917		8,917		-		8,917		-
Deposits		2,212,604		2,212,743		-		2,212,743		-
Borrowings		123,700		123,793		-		123,793		-
Subordinated notes payable, net		49,310		49,168		-		49,168		-
Accrued interest payable		603		603		-		603		-

(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, 2023 and 2022.

Index

On March 23, 2023, the Company effected a 2-for-1 stock split in the form of a stock dividend on its outstanding shares of common stock. Weighted-average number of shares and earnings per share have been retroactively adjusted in all periods presented as if the new shares had been issued and outstanding at the same time as the original shares.

	For the three months ended March 31,				For the nine months ended March 31,
	2023		2022		2023		2022

Net Income	$	8,091,000	$	7,188,000	$	24,325,000	$	21,179,000
Weighted Average Shares – Basic		17,026,828		17,026,828		17,026,828		17,026,828
Weighted Average Shares – Diluted		17,026,828		17,026,828		17,026,828		17,026,828

Earnings per share – Basic	$	0.48	$	0.42	$	1.43	$	1.24
Earnings per share – Diluted	$	0.48	$	0.42	$	1.43	$	1.24

(8) Dividends

On February 21, 2023, the Board of Directors declared a 2-for-1 stock split on the Company’s common stock effective March 23, 2023 to outstanding common stockholders of record as of March 8, 2023.

On January 18, 2023, the Company announced that its Board of Directors has approved a quarterly cash dividend of $0.07 per share on the Company’s common stock. The dividend reflects an annual cash dividend rate of $0.28 per share. The dividend rate reflects the 2-for-1 stock split, distributed after the close of trading on March 23, 2023 and is unchanged from the previous quarterly dividend, which was $0.14 on a pre-split adjusted basis, which was the same rate as the dividend declared during the previous quarter. The dividend was payable to stockholders of record as of February 13, 2023, and was paid on February 27, 2023. Greene County Bancorp, MHC waived its right to receive this dividend.

(9) Impact of Recent Accounting Pronouncements

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 ASU 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 ASU 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 ASU 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 ASU 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. At this time, we have not calculated the estimated impact that this Update will have on our allowance for credit losses, however, we anticipate it will have a significant impact on the methodology process we utilize to calculate the allowance. To date, the Company has implemented a detailed project plan, established a governance structure, selected a software vendor, hired resources to support the CECL modeling, incorporated data requirements and enhancements into our standard processes, selected portfolio segmentations, determined the credit loss methodology for each portfolio, performed parallel calculations for certain elements of the model, selected a model validation firm and have finalized the methodology and reserve processes for the CECL related to HTM investment and the CECL related to off-balance sheet credit exposures. We are in the process of documenting accounting policy elections, processes and controls. 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. The Company will implement this standard for the fiscal year beginning July 1, 2023.

Index

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 does not expect the impact of adopting the new guidance to have a material impact on the consolidated financial statements. The Company’s LIBOR exposure is minimal and limited to a couple of participation loans and risk participation agreements. The Company is working with the lead lenders to execute the required contract modifications.

In March 2022, the FASB issued ASU No. 2022-02, amendments related to Troubled Debt Restructurings (TDRs) for all entities after they adopt ASU 2016-13 and amendments related to vintage disclosures that affect public business entities with investments in financing receivables, under Financial Instruments-Credit Losses (Topic 326). The ASU eliminates the guidance on TDRs and requires an evaluation on all loan modifications to determine if they result in a new loan or a continuation of the existing loan. The ASU also requires that entities disclose current-period gross charge-offs by year of origination and eliminates the recognition and measurement guidance for TDRs in Subtopic 310-40. The effective dates for the amendments in this Update are the same as the effective dates in ASU 2016-13. The amendments in this Update should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company will implement the Update with the adoption of ASU 2016-13.

Index

(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, 2023 and 2022 were as follows:

	Three months ended March 31,						Nine months ended March 31,
(In thousands)	2023			2022			2023			2022
Interest cost	$	50		$	42		$	150		$	126
Expected return on plan assets		(55	)		(70	)		(165	)		(210	)
Amortization of net loss		27			32			81			96
Net periodic pension cost	$	22		$	4		$	66		$	12

The interest cost, expected return on plan assets and amortization of net loss components are included in other noninterest expense on the consolidated statements of income. On an annual basis, upon the completion of the third-party actuarial valuation related to the defined benefit pension plan, the Company records adjustments to accumulated other comprehensive income. The Company does not anticipate that it will make any additional contributions to the defined benefit pension plan during fiscal 2023.

SERP

The Board of Directors of The Bank of Greene County adopted The Bank of Greene County Supplemental Executive Retirement Plan (the “SERP”), effective as of July 1, 2010. The SERP benefits certain key senior executives of the Bank who have been selected by the Board to participate. The SERP is intended to provide a benefit from the Bank upon vested retirement, death or disability or voluntary or involuntary termination of service (other than “for cause”). The SERP is more fully described in Note 9 of the consolidated financial statements for the year ended June 30, 2022.

The net periodic pension costs related to the SERP for the three and nine months ended March 31, 2023 were $396,000 and $1.2 million, respectively, included within salaries and benefits expense on the consolidated statements of income. The total liability for the SERP was $11.5 million at March 31, 2023 and $9.9 million at June 30, 2022, and is included in accrued expenses and other liabilities. The total liability for the SERP 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 10 of the consolidated financial statements for the year ended June 30, 2022. All share and per share data has been retroactively adjusted in all periods presented to reflect the 2-for-1 stock split, which was paid on March 23, 2023, as if the new share options had been granted at the same time as the original share options

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, 2023 and 2022 were as follows:

	Three months ended March 31,						Nine months ended March 31,
	2023			2022			2023			2022
Number of options outstanding, beginning of period		2,614,840			3,013,040			2,959,040			3,015,200
Options Granted		-			-			807,200			950,240
Options Paid in Cash		(70,000	)		(54,000	)		(1,221,400	)		(1,006,400	)
Number of options outstanding, end of period		2,544,840			2,959,040			2,544,840			2,959,040

Index

	Three months ended March 31,				Nine months ended March 31,
(In thousands)	2023		2022		2023		2022
Cash paid out on options vested	$	184	$	83	$	4,288	$	3,137
Compensation costs recognized	$	1,239	$	1,143	$	3,233	$	3,020

The total liability for the Plan was $5.1 million and $6.1 million at March 31, 2023 and June 30, 2022, respectively, and is included in accrued expenses and other liabilities on the consolidated statements of financial condition.

(12) Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss at March 31, 2023 and 2022 are presented as follows:

Activity for the three months ended March 31, 2023 and 2022

(In thousands)	Unrealized gain (losses) on securities available-for- sale			Pension benefits			Total
Balance - December 31, 2021	$	(2,224	)	$	(1,509	)	$	(3,733	)
Other comprehensive loss before reclassification		(9,732	)		-			(9,732	)
Other comprehensive loss for the three months ended March 31, 2022		(9,732	)		-			(9,732	)
Balance – March 31, 2022	$	(11,956	)	$	(1,509	)	$	(13,465	)

Balance - December 31, 2022	$	(21,911	)	$	(1,115	)	$	(23,026	)
Other comprehensive income before reclassification		2,927			-			2,927
Other comprehensive income for the three months ended March 31, 2023		2,927			-			2,927
Balance - March 31, 2023	$	(18,984	)	$	(1,115	)	$	(20,099	)

Activity for the nine months ended March 31, 2023 and 2022

(In thousands)	Unrealized gain (losses) on securities available-for- sale			Pension benefits			Total
Balance at June 30, 2021	$	348		$	(1,509	)	$	(1,161	)
Other comprehensive loss before reclassification		(12,304	)		-			(12,304	)
Other comprehensive loss for the nine months ended March 31, 2022		(12,304	)		-			(12,304	)
Balance at March 31, 2022	$	(11,956	)	$	(1,509	)	$	(13,465	)

Balance – June 30, 2022	$	(17,268	)	$	(1,115	)	$	(18,383	)
Other comprehensive loss before reclassification		(1,900	)		-			(1,900	)
Amounts reclassified to net loss on sale of available-for-sale securities non-interest income		251			-			251
Tax expense effect		67			-			67
Net of tax		184			-			184
Other comprehensive loss for the nine months ended March 31, 2023		(1,716	)		-			(1,716	)
Balance at March 31, 2023	$	(18,984	)	$	(1,115	)	$	(20,099	)

(13) Operating leases

The Company leases certain branch properties under long-term, operating lease agreements. The Company’s operating lease agreements contain non-lease components, which are accounted for separately. The Company’s lease agreements do not contain any residual value guarantee. The Company entered into a new lease commitment for a new branch location in East Greenbush, NY during the quarter ended March 31, 2023.

Index

The following includes quantitative data related to the Company’s operating leases as of March 31, 2023 and June 30, 2022, and for the three and nine months ended March 31, 2023 and 2022:

(In thousands, except weighted-average information).
Operating lease amounts:	March 31, 2023		June 30, 2022
Right-of-use assets	$	2,291	$	1,980
Lease liabilities	$	2,364	$	2,040

	For the three months ended March 31,
	2023			2022
(In thousands)
Other information:
Operating outgoing cash flows from operating leases		$	90		$	89
Right-of-use assets obtained in exchange for new operating lease liabilities		$	561		$	-

Lease costs:
Operating lease cost		$	87		$	81
Variable lease cost		$	12		$	12

	For the nine months ended March 31,
	2023		2022
(In thousands)
Other information:
Operating outgoing cash flows from operating leases	$	269	$	263
Right-of-use assets obtained in exchange for new operating lease liabilities	$	561	$	415

Lease costs:
Operating lease cost	$	250	$	242
Variable lease cost	$	32	$	32

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, as of March 31, 2023:

(in thousands)
Within the twelve months ended March 31,
2023	$	329
2024		458
2025		452
2026		425
2027		345
Thereafter		562
Total undiscounted cash flow		2,571
Less net present value adjustment		(207	)
Lease Liability	$	2,364

Weighted-average remaining lease term (Years)		5.04
Weighted-average discount rate		2.66	%

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 consolidated statements of financial condition.

Index

(14) Commitments and Contingent Liabilities

In the normal course of business there are various commitments and contingent liabilities outstanding pertaining to the granting of loans and the lines of credit, which are not reflected in the accompanying consolidated financial statements.

The Company’s unfunded loan commitments and unused lines of credit are as follows:

(In thousands)	March 31, 2023		June 30, 2022
Unfunded loan commitments	$	96,111	$	213,420
Unused lines of credit		92,108		85,971
Standby letters of credit		889		189
Total commitments	$	189,108	$	299,580

Commitments to extend credit in the form of loan commitments and lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral, if any, required upon an extension of credit is based on management’s evaluation of customer credit. Commitments to extend mortgage credit are primarily collateralized by first liens on real estate. Collateral on extensions of commercial lines of credit vary but may include accounts receivable, inventory, property, plant and equipment, and income producing commercial property.

The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Except as noted below, management believes there are no such legal proceedings pending or threatened against the Company or its subsidiaries, if determined adversely, would have a material adverse effect on the business, consolidated financial condition, results of operations or cash flows of the Company or any of its subsidiaries.

On April 26, 2022, Andrew Broockmann, a customer of The Bank of Greene County (the “Bank”), filed a putative class action complaint against the Bank in the United States District Court for the Northern District of New York. The complaint alleges that the Bank improperly assessed overdraft fees on debit-card transactions that were authorized on a positive account balance but settled on a negative balance. Mr. Broockmann, on behalf of the putative class, seeks compensatory damages, punitive damages, enjoinment of the conduct complained of, and costs and fees. The complaint is similar to complaints filed against other financial institutions pertaining to overdraft fees. The Bank denies that it improperly assessed overdraft fees or breached any agreement with Mr. Broockmann or with members of the putative class. On February 28, 2023, the parties entered into a settlement agreement which contemplates, among other things, that the Bank will (a) pay a cash payment of $1,150,000, (b) forgive, waive, and not collect an additional $64,500 in uncollected overdraft fees, and (c) cease collecting certain types of overdraft fees. On March 8, 2023, class counsel filed a motion seeking the court’s preliminary approval of the class action settlement. That motion remains pending. The Company had reserved $1.15 million in the quarter ended December 31, 2022 in connection with the matter, which was included in accrued expenses and other liabilities on the consolidated statements of financial condition.

(15) Subsequent events

On April 19, 2023, the Board of Directors announced a cash dividend for the quarter ended March 31, 2023 of $0.07 per share on Greene County Bancorp, Inc.’s common stock. The dividend reflects an annual cash dividend rate of $0.28 per share. The dividend rate reflects the 2-for-1 stock split, distributed after the close of trading on March 23, 2023 and is unchanged from the previous quarterly dividend, which was $0.14 on a pre-split adjusted basis. The dividend will be payable to stockholders of record as of May 15, 2023, and is expected to be paid on May 31, 2023. The Greene County Bancorp, 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

The Company’s results of operations depend primarily on its net interest income, which is the difference between the income earned on the Company’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 the Company’s provision for loan losses, noninterest income and noninterest expense. Noninterest income consists primarily of fees and service charges. The Company’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 the Company.

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.

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 most significant market risk affecting the Company. It 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.

Liquidity risk is the risk the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternate funding sources. The Company’s objective is to fund balance sheet growth while meeting the cash flow requirements of depositors. Management is responsible for liquidity monitoring and has available different sources or uses of liquidity as requirements and demands change. These demands include loan growth and repayments, security purchases and maturities, deposit inflows and outflows, and payments on borrowings. Management continually monitors trends to identify patterns that might improve the predictability and timing of the Company’s liquidity position.

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.

Index

Special Note Regarding Forward-Looking Statements

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

(a)

changes in general market interest rates,

(b)

general economic conditions,

(c)

legislative and regulatory changes,

(d)

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

(e)

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

(f)

deposit flows,

(g)

competition, and

(h)

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

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

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, including period-end regulatory capital ratios for itself and its subsidiary banks, in its periodic reports filed with the SEC, and it 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 interest-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.

Index

Critical Accounting Policies

The Company’s critical accounting policies relate to the allowance for loan losses. 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.

Comparison of Financial Condition at March 31, 2023 and June 30, 2022

ASSETS

Total assets of the Company were $2.7 billion at March 31, 2023 and $2.6 billion at June 30, 2022, an increase of $157.4 million, or 6.1%. Securities available-for-sale and held-to-maturity decreased $116.1 million, or 9.9%, to $1.1 billion at March 31, 2023 as compared to $1.2 billion at June 30, 2022. Net loans receivable increased $159.0 million, or 12.9%, to $1.4 billion at March 31, 2023 from $1.2 billion at June 30, 2022.

CASH AND CASH EQUIVALENTS

Total cash and cash equivalents increased $109.3 million to $178.3 million at March 31, 2023 from $69.0 million at June 30, 2022. 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. The Company increased its overall liquidity and cash position in response the current turmoil in the banking sector. As of March 31, 2023 the Company has maintained a strong liquidity position.

SECURITIES

Securities available-for-sale and held-to-maturity decreased $116.1 million, or 9.9%, to $1.1 billion at March 31, 2023 as compared to $1.2 billion at June 30, 2022. The decrease was the result of utilizing maturing investments to fund loan growth during the period and due to the increase in unrealized loss on available-for-sale securities of $2.3 million. Securities purchases totaled $146.5 million during the nine months ended March 31, 2023 and consisted primarily of $144.5 million of state and political subdivision securities. Principal pay-downs and maturities during the nine months ended March 31, 2023 amounted to $256.4 million, primarily consisting of $229.8 million of state and political subdivision securities, and $24.2 million of mortgage-backed securities. At March 31, 2023, 62.3% of our securities portfolio consisted of state and political subdivision securities to take advantage of tax savings and to promote the Company’s participation in the communities in which it operates. Mortgage-backed securities, which represent 28.2% of our securities portfolio at March 31, 2023, do not contain sub-prime loans and are not exposed to the credit risk associated with such lending.

Index

The following table summarizes the securities portfolio by classification as a percentage of the portfolio. The values are reported at the balance sheet carrying value as of March 31, 2023 and June 30, 2022. Refer to financial statements footnote (4) Securities for the complete fair value of securities.

	March 31, 2023					June 30, 2022
(Dollars in thousands)	Balance		Percentage of portfolio			Balance		Percentage of portfolio
Securities available-for-sale (at fair value):
U.S. Government sponsored enterprises	$	11,004		1.0	%	$	11,319		0.9	%
U.S. Treasury securities		16,665		1.6			18,427		1.6
State and political subdivisions		172,593		16.4			248,076		21.2
Mortgage-backed securities-residential		26,534		2.5			29,897		2.6
Mortgage-backed securities-multifamily		73,613		7.0			83,709		7.2
Corporate debt securities		16,455		1.6			16,634		1.4
Total securities available-for-sale		316,864		30.1			408,062		34.9
Securities held-to-maturity (at amortized cost):
U.S. treasury securities		33,684		3.2			33,623		2.9
State and political subdivisions		484,093		45.9			493,897		42.2
Mortgage-backed securities-residential		38,417		3.6			42,461		3.6
Mortgage-backed securities-multifamily		159,113		15.1			171,921		14.7
Corporate debt securities		21,637		2.1			19,900		1.7
Other securities		39		0.0			50		0.0
Total securities held-to-maturity		736,983		69.9			761,852		65.1
Total securities	$	1,053,847		100.0	%	$	1,169,914		100.0	%

LOANS

Net loans receivable increased $159.0 million, or 12.9%, to $1.4 billion at March 31, 2023 from $1.2 billion at June 30, 2022. The loan growth experienced during the nine months consisted primarily of $107.1 million in commercial real estate loans, $14.0 million in residential real estate loans, $2.3 million in residential construction and land loans, $3.4 million in multi-family loans, and $25.1 million in commercial construction loans. The Company continues to experience loan growth as a result of continued growth in its customer base and its relationships with other financial institutions in originating loan participations. The Company 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. 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.

	March 31, 2023						June 30, 2022
(Dollars in thousands)	Balance			Percentage of Portfolio			Balance			Percentage of Portfolio
Residential real estate	$	374,840			26.6	%	$	360,824			28.8	%
Residential construction and land		17,567			1.2			15,298			1.2
Multi-family		67,251			4.8			63,822			5.1
Commercial real estate		702,768			49.9			595,635			47.6
Commercial construction		108,854			7.7			83,748			6.7
Home equity		21,011			1.5			17,877			1.4
Consumer installment		4,411			0.3			4,512			0.4
Commercial loans		112,745			8.0			110,271			8.8
Total gross loans		1,409,447			100.0	%		1,251,987			100.0	%
Allowance for loan losses		(21,155	)					(22,761	)
Deferred fees and costs, net		29						129
Total net loans	$	1,388,321					$	1,229,355

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 an allowance for loan loss. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgment about information available to them at the time of their examination. The Company disaggregates its loan portfolio as noted in the below allocation of allowance for loan losses table to evaluate for impairment collectively based on historical loss experience. The Company evaluates nonaccrual loans that are over $250 thousand and all trouble debt restructured loans individually for impairment, if it is probable that the Company 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 Company 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 Company 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.

Analysis of allowance for loan losses activity

	At or for the nine months ended March 31,
(Dollars in thousands)	2023			2022
Balance at the beginning of the period	$	22,761		$	19,668
Charge-offs:
Commercial real estate		9			-
Consumer installment		421			355
Commercial loans		114			107
Total loans charged off		544			462

Recoveries:
Residential real estate		5			10
Consumer installment		102			89
Commercial loans		30			3
Total recoveries		137			102

Net charge-offs		407			360

Provisions charged to operations		(1,199	)		2,431
Balance at the end of the period	$	21,155		$	21,739

Net charge-offs to average loans outstanding (annualized)		0.04	%		0.04	%
Net charge-offs to nonperforming assets (annualized)		10.53	%		12.20	%
Allowance for loan losses to nonperforming loans		450.87	%		562.46	%
Allowance for loan losses to total loans receivable		1.50	%		1.88	%

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. 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. For further discussion and detail regarding impaired loans please refer to Part I, Financial Statements (unaudited), Note 5 Loans and Allowance for Loan Losses of this Report.

Analysis of Nonaccrual Loans and Nonperforming Assets

(Dollars in thousands)	March 31, 2023			June 30, 2022
Nonaccruing loans:
Residential real estate	$	2,650		$	2,948
Residential construction and land		-			1
Commercial real estate		709			1,269
Home equity		55			188
Consumer installment		-			7
Commercial		1,278			1,904
Total nonaccruing loans	$	4,692		$	6,317
Foreclosed real estate:
Residential real estate		-			68
Commercial real estate		160
Commercial		302
Total foreclosed real estate		462			68
Total nonperforming assets	$	5,154		$	6,385

Troubled debt restructuring:
Nonperforming (included above)	$	2,718		$	2,707
Performing (accruing and excluded above)		2,829			2,336

Total nonperforming assets as a percentage of total assets		0.19	%		0.25	%
Total nonperforming loans to net loans		0.34	%		0.50	%

At March 31, 2023 and June 30, 2022, there were no loans greater than 90 days and accruing.

Nonperforming assets amounted to $5.2 million and $6.4 million at March 31, 2023 and June 30, 2022, respectively. Loans on nonaccrual status totaled $4.7 million at March 31, 2023, of which there were four residential loans totaling $675,000 that were in process of foreclosure. Included in nonaccrual loans were $4.0 million of loans which were less than 90 days past due at March 31, 2023, 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 $6.3 million at June 30, 2022 of which $528,000 were in the process of foreclosure. At June 30, 2022, there were three residential loans in the process of foreclosure totaling $426,000 and one commercial real estate loan totaling $102,000 in the process of foreclosure. Included in nonaccrual loans were $4.4 million of loans which were less than 90 days past due at June 30, 2022, but have a recent history of delinquency greater than 90 days past due.

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.

Index

The table below details additional information on impaired loans at March 31, 2023 and June 30, 2022:

(In thousands)	March 31, 2023		June 30, 2022
Balance of impaired loans, with a valuation allowance	$	7,161	$	9,235
Allowances relating to impaired loans included in allowance for loan losses		1,818		2,347
Balance of impaired loans, without a valuation allowance		2,637		1,536
Total impaired loans		9,798		10,771

	For the three months ended March 31,				For the nine months ended March 31,
(In thousands)	2023		2022		2023		2022
Average balance of impaired loans for the periods ended	$	10,026	$	9,052	$	10,212	$	7,694
Interest income recorded on impaired loans during the periods ended		81		126		211		290

Residential real estate average balance of impaired loans with a valuation allowance amounted to $2.4 million for the three months ended March 31, 2023, as compared to $2.0 million for the three months ended June 30, 2022, an increase of $400,000. The increase in residential real estate impaired loans was primarily the result of two loan relationships moving into impairment status during the quarter ended March 31, 2023. Commercial loans average balance of impaired loans with a valuation allowance amounted to $1.8 million for the three months ended March 31, 2023, as compared to $3.4 million for the three months ended June 30, 2022, a decrease of $1.6 million. The decrease was primarily the result of one loan paying off during the quarter end December 31, 2022 and one loan moving to foreclosed real estate.

DEPOSITS

Deposits totaled $2.5 billion at March 31, 2023 and $2.2 billion at June 30, 2022, an increase of $259.7 million, or 11.7%. NOW deposits increased $265.2 million, or 17.9%, and certificates of deposits increased $80.6 million, or 197.5% when comparing March 31, 2023 and June 30, 2022. Included within certificates of deposits at March 31, 2023 and June 30, 2022 were $74.6 million and $7.2 million in brokered certificates of deposits, respectively, an increase of $67.4 million. The increase in brokered deposits increased the Company’s overall liquidity and cash position in response the current turmoil in the banking sector. Money market deposits decreased $30.5 million, or 19.4%, savings deposits decreased $32.4 million, or 9.4%, and noninterest-bearing deposits decreased $23.2 million, or 12.3%, when comparing March 31, 2023 and June 30, 2022. Deposits increased during the nine months ended March 31, 2023 as a result of increases in municipal deposits at Greene County Commercial Bank, primarily from tax collection, and new account relationships, and increases in business accounts at the Bank of Greene County from new account relationships.

Major classifications of deposits at March 31, 2023 and June 30, 2022 are summarized as follows:

(In thousands)	March 31, 2023		Percentage of Portfolio			June 30, 2022		Percentage of Portfolio
Noninterest-bearing deposits	$	164,532		6.7	%	$	187,697		8.5	%
Certificates of deposit		121,379		4.9			40,801		1.9
Savings deposits		311,316		12.6			343,731		15.5
Money market deposits		127,119		5.1			157,623		7.1
NOW deposits		1,747,977		70.7			1,482,752		67.0
Total deposits	$	2,472,323		100.0	%	$	2,212,604		100.0	%

BORROWINGS

At March 31, 2023, the Bank had pledged approximately $563.1 million of its residential and commercial mortgage portfolio as collateral for borrowing and irrevocable municipal letters of credit at the Federal Home Loan Bank of New York (“FHLB”). The maximum amount of funding available from the FHLB was $372.5 million at March 31, 2023, of which there were no term borrowings and $180.0 million irrevocable municipal letters of credit outstanding at March 31, 2023. There were zero and $123.7 million in overnight borrowings at March 31, 2023 and June 30, 2022, respectively. Interest rates on overnight borrowings are determined at the time of borrowing. There were no long-term fixed rate, fixed term advances at March 31, 2023 and June 30, 2022. The $180.0 million of irrevocable municipal letters of credit with the FHLB have been issued to secure municipal transactional deposit accounts, on behalf of Greene County Commercial Bank.

Index

The Bank also pledges securities and certificates of deposit as collateral at the Federal Reserve Bank discount window for overnight borrowings. At March 31, 2023, approximately $17.2 million of collateral was available to be pledged against potential borrowings at the Federal Reserve Bank discount window. There were no balances outstanding with the Federal Reserve Bank at March 31, 2023.

The Bank has established unsecured lines of credit with Atlantic Central Bankers Bank for $15.0 million and two other financial institutions for $50.0 million. The Company 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. There were no borrowings outstanding with these lines of credit for both the Company and the Bank at March 31, 2023 and June 30, 2022.

On September 17, 2020, the Company entered into Subordinated Note Purchase Agreements with 14 qualified institutional investors, issued at 4.75% Fixed-to-Floating Rate due September 17, 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, 2023, there were $19.8 million of these Subordinated Note Purchases Agreements outstanding, net of issuance costs.

On September 15, 2021, the Company entered into Subordinated Note Purchase Agreements with 18 qualified institutional investors, issued at 3.00% Fixed-to-Floating Rate due September 15, 2031, in the aggregate principal amount of $30.0 million, carried net of issuance costs of $499,000 amortized over a period of 60 months. These notes are callable on September 15, 2026. At March 31, 2023, there were $29.7 million of these Subordinated Note Purchases Agreements outstanding, net of issuance costs.

At March 31, 2023, there were no other long-term borrowings and therefore no scheduled maturities of long-term borrowings.

EQUITY

Shareholders’ equity increased to $178.7 million at March 31, 2023 from $157.7 million at June 30, 2022, resulting primarily from net income of $24.3 million, partially offset by dividends declared and paid of $1.6 million and an increase in accumulated other comprehensive loss of $1.7 million. Unrealized loss on available for sale securities increased at March 31, 2023 compared to June 30, 2022, but decreased compared to December 31, 2022 as the yields on bonds improved during the three months ended March 31, 2023.

The Federal Reserve raised their target benchmark interest rate in 2022 and 2023, resulting in subsequent prime lending rate increases of 475 basis points, and a significant increase in market rates between March 2022 and March 2023. If market interest rates continue to rise, the fair value of the fixed income bond portfolio will decrease, resulting in additional unrealized losses, and depending on the extent of the rise in interest rates, the increase in unrealized losses could be significant. The non-credit portion of unrealized losses are recorded to Accumulated Other Comprehensive Income, a component of Shareholders' Equity. A significant increase in market rates may have a negative impact on book value per share. The Company's bond portfolio is expected to mature at par and therefore the unrealized losses in the portfolio that result from higher market interest rates will decrease as the bonds become closer to maturity. However, if the Company were required to sell investment securities with an unrealized loss for any reason, including liquidity needs, the unrealized loss would become realized and reduce both net income for the reported period and regulatory capital, which as currently reported, excludes unrealized losses on investment securities.

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 400,000 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 three and nine months ending March 31, 2023, the Company did not repurchase any shares.

Index

Selected Equity Data:
	March 31, 2023			June 30, 2022
Shareholders’ equity to total assets, at end of period		6.55	%		6.13	%
Book value per share¹	$	10.49		$	9.26
Closing market price of common stock	$	22.68		$	22.65

	For the nine months ended March 31,
		2023		2022
Average shareholders’ equity to average assets		6.48	%	6.71	%
Dividend payout ratio¹		14.69	%	15.73	%
Actual dividends paid to net income²		6.76	%	7.21	%

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 June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022, September 30, 2022, December 31, 2022, and March 31, 2023. Dividends declared during the three months ended March 31, 2021 and June 30, 2022 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.

Comparison of Operating Results for the Three and Nine Months Ended March 31, 2023 and 2022

Average Balance Sheet

The following table sets forth certain information relating to the Company for the three and nine months ended March 31, 2023 and 2022. 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.

Index

	Three months ended March 31,
	2023									2022
(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	$	1,400,351			$	15,676		4.48	%	$	1,155,078			$	11,236		3.89	%
Securities non-taxable		671,917				3,836		2.28			639,863				2,372		1.48
Securitiestaxable		405,648				2,091		2.06			452,832				1,652		1.46
Interest-bearing bank balances and federal funds		21,126				277		5.24			87,115				33		0.15
FHLB stock		3,760				53		5.64			1,131				12		4.24
Total interest-earning assets		2,502,802				21,933		3.51	%		2,336,019				15,305		2.62	%
Cash and due from banks		14,566									16,303
Allowance for loan losses		(21,572	)								(21,731	)
Other noninterest-earning assets		96,057									84,785
Total assets	$	2,591,853								$	2,415,376

Interest-Bearing Liabilities:
Savings and money market deposits	$	458,036			$	233		0.20	%	$	476,543			$	169		0.14	%
NOW deposits		1,614,497				5,058		1.25			1,484,872				512		0.14
Certificates of deposit		51,308				268		2.09			34,803				67		0.77
Borrowings		103,373				1,148		4.44			50,122				470		3.75
Total interest-bearing liabilities		2,227,214				6,707		1.20	%		2,046,340				1,218		0.24	%
Noninterest-bearing deposits		165,208									184,229
Other noninterest-bearing liabilities		25,485									25,949
Shareholders' equity		173,946									158,858
Total liabilities and equity	$	2,591,853								$	2,415,376

Net interest income					$	15,226								$	14,087
Net interest rate spread								2.31	%								2.38	%
Net earnings assets	$	275,588								$	289,679
Net interest margin								2.43	%								2.41	%
Average interest-earning assets to average interest-bearing liabilities		112.37	%								114.16	%

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

Taxable-equivalent net interest income and net interest margin	For the three months ended March 31,
(Dollars in thousands)	2023			2022
Net interest income (GAAP)	$	15,226		$	14,087
Tax-equivalent adjustment⁽¹⁾		1,400			865
Net interest income (fully taxable-equivalent)	$	16,626		$	14,952

Average interest-earning assets	$	2,502,802		$	2,336,019
Net interest margin (fully taxable-equivalent)		2.66	%		2.56	%

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 4.44% for New York State income taxes for the periods ended March 31, 2023 and 2022, respectively.

Index

	Nine months ended March 31,
	2023									2022
(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	$	1,360,446			$	43,859		4.30	%	$	1,128,553			$	35,293		4.17	%
Securities non-taxable		684,541				10,417		2.03			612,262				6,716		1.46
Securitiestaxable		415,768				6,209		1.99			414,942				4,569		1.47
Interest-bearing bank balances and federal funds		15,892				473		3.97			96,044				114		0.16
FHLB stock		3,272				143		5.83			1,112				37		4.44
Total interest-earning assets		2,479,919				61,101		3.29	%		2,252,913				46,729		2.77	%
Cash and due from banks		13,077									13,633
Allowance for loan losses		(22,334	)								(20,796	)
Other noninterest-earning assets		93,941									79,900
Total assets	$	2,564,603								$	2,325,650

Interest-Bearing Liabilities:
Savings and money market deposits	$	478,274			$	642		0.18	%	$	456,871			$	575		0.17	%
NOW deposits		1,565,536				9,846		0.84			1,426,483				1,652		0.15
Certificates of deposit		61,194				819		1.78			34,784				218		0.84
Borrowings		93,112				2,811		4.03			42,393				1,345		4.23
Total interest-bearing liabilities		2,198,116				14,118		0.86	%		1,960,531				3,790		0.26	%
Noninterest-bearing deposits		175,009									185,358
Other noninterest-bearing liabilities		25,253									23,633
Shareholders' equity		166,225									156,128
Total liabilities and equity	$	2,564,603								$	2,325,650

Net interest income					$	46,983								$	42,939
Net interest rate spread								2.43	%								2.51	%
Net earnings assets	$	281,803								$	292,382
Net interest margin								2.53	%								2.54	%
Average interest-earning assets to average interest-bearing liabilities		112.82	%								114.91	%

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

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

Taxable-equivalent net interest income and net interest margin	For the nine months ended March 31,
(Dollars in thousands)	2023			2022
Net interest income (GAAP)	$	46,983		$	42,939
Tax-equivalent adjustment⁽¹⁾		3,808			2,440
Net interest income (fully taxable-equivalent)	$	50,791		$	45,379

Average interest-earning assets	$	2,479,919		$	2,252,913
Net interest margin (fully taxable-equivalent)		2.73	%		2.69	%

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 the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to:

(i)

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

(ii)

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

(iii)

The net change.

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

	Three Months Ended March 31,								Nine Months Ended March 31,
	2023 versus 2022								2023 versus 2022
	Increase/(Decrease)						Total		Increase/(Decrease)						Total
(Dollars in thousands)	Due To						Increase/		Due To						Increase/
	Volume			Rate			(Decrease)		Volume			Rate			(Decrease)

Interest Earning Assets:
Loans receivable, net¹	$	2,590		$	1,850		$	4,440	$	7,438		$	1,128		$	8,566
Securities non-taxable		124			1,340			1,464		859			2,842			3,701
Securities taxable		(186	)		625			439		9			1,631			1,640
Interest-bearing bank balances and federal funds		(43	)		287			244		(174	)		533			359
FHLB stock		36			5			41		91			15			106
Total interest-earning assets		2,521			4,107			6,628		8,223			6,149			14,372

Interest-Bearing Liabilities:
Savings and money market deposits		(7	)		71			64		30			37			67
NOW deposits		50			4,496			4,546		170			8,024			8,194
Certificates of deposit		44			157			201		243			358			601
Borrowings		578			100			678		1,533			(67	)		1,466
Total interest-bearing liabilities		665			4,824			5,489		1,976			8,352			10,328
Net change in net interest income	$	1,856		$	(717	)	$	1,139	$	6,247		$	(2,203	)	$	4,044

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

GENERAL

Return on average assets and return on average equity are common methods of measuring operating results. Annualized return on average assets increased to 1.25% for the three months and increased to 1.26% for the nine months ended March 31, 2023 as compared to 1.19% for the three months and 1.21% for the nine months ended March 31, 2022. Annualized return on average equity increased to 18.61% for the three months and increased to 19.51% for the nine months ended March 31, 2023 as compared to 18.10% for the three months and 18.09% for the nine months ended March 31, 2022. The increase in return on average assets for the three and nine months ended March 31, 2023 and increase in return on average equity for the three and nine months ended March 31, 2023 was primarily the result of net income outpacing growth in the balance sheet. Net income amounted to $8.1 million and $7.2 million for the three months ended March 31, 2023 and 2022, respectively, an increase of $900,000, or 12.6%, and amounted to $24.3 million and $21.2 million for the nine months ended March 31, 2023 and 2022, respectively, an increase of $3.1 million, or 14.9%. Average assets increased $176.5 million, or 7.3%, to $2.6 billion for the three months ended March 31, 2023 as compared to $2.4 billion for the three months ended March 31, 2022. Average equity increased $15.1 million, or 9.5%, to $173.9 million for the three months ended March 31, 2023 as compared to $158.9 million for the three months ended March 31, 2022. Average assets increased $239.0 million, or 10.3%, to $2.6 billion for the nine months ended March 31, 2023 as compared to $2.3 billion for the nine months ended March 31, 2022. Average equity increased $10.1 million, or 6.5%, to $166.2 million for the nine months ended March 31, 2023 as compared to $156.1 million for the nine months ended March 31, 2022.

Index

INTEREST INCOME

Interest income amounted to $21.9 million for the three months ended March 31, 2023 as compared to $15.3 million for the three months ended March 31, 2022, an increase of $6.6 million, or 43.3%. Interest income amounted to $61.1 million for the nine months ended March 31, 2023 as compared to $46.7 million for the nine months ended March 31, 2022, an increase of $14.4 million, or 30.8%. The increase in average balances on loans and securities had the greatest impact on interest income. The rates earned on securities also increased during the comparative periods contributing to higher interest income.

Average loan balances increased $245.3 million and $231.9 million and the yield on loans increased 59 and 13 basis points when comparing the three and nine months ended March 31, 2023 and 2022, respectively. The increase in yield on loans for the nine months ended March 31, 2023 was partially offset due to the fee income recognized on Paycheck Protection Program (“PPP”) loans for the nine months ended March 31, 2022. Excluding the PPP loan fees, loan yields increased 46 basis points when comparing the nine months ended March 31, 2023 and 2022. Average securities decreased $15.1 million and increased $73.1 million and the yield on such securities increased 24 and 55 basis points when comparing the three and nine months ended March 31, 2023 and 2022, respectively. Average interest-bearing bank balances and federal funds decreased $66.0 million and $80.2 million and the yield increased 509 and 381 basis points when comparing the three and nine months ended March 31, 2023 and 2022, respectively.

INTEREST EXPENSE

Interest expense amounted to $6.7 million for the three months ended March 31, 2023 as compared to $1.2 million for the three months ended March 31, 2022, an increase of $5.5 million, or 450.7%. Interest expense amounted to $14.1 million for the nine months ended March 31, 2023 as compared to $3.8 million for the nine months ended March 31, 2022, an increase of $10.3 million or 272.5%. The increase in average cost of NOW deposits and certificates of deposit had the greatest impact on interest expense during the three and nine months ended March 31, 2023.

The cost of NOW deposits increased 111 and 69 basis points, the cost of certificates of deposit increased 132 and 94 basis points, and the cost of savings and money market deposits increased 6 and 1 basis points when comparing the three and nine months ended March 31, 2023 and 2022, respectively. The increase in the cost of interest-bearing liabilities was also due to growth in the average balance of interest-bearing liabilities of $180.9 million and $237.6 million, most notably due to an increase in NOW deposits of $129.6 million and $139.1 million, an increase in average borrowings of $53.3 million and $50.7 million, and an increase in average certificates of deposits of $16.5 million and $26.4 million, when comparing the three and nine months ended March 31, 2023 and 2022, respectively. Yields on interest-earning assets and costs of interest-bearing deposits increased for the three and nine months ended March 31, 2023, as the Federal Reserve Board raised interest rates throughout the calendar year 2022 and in the first quarter of calendar year 2023.

NET INTEREST INCOME

Net interest income increased $1.1 million to $15.2 million for the three months ended March 31, 2023 from $14.1 million for the three months ended March 31, 2022. Net interest income increased $4.1 million to $47.0 million for the nine months ended March 31, 2023 from $42.9 million for the nine months ended March 31, 2022. The increase in net interest income was the result of growth in the average balance of interest-earning assets, which increased $166.8 million and $227.0 million when comparing the three and nine months ended March 31, 2023 and 2022, respectively, and increases in interest rates on interest-earning assets, which increased 89 and 52 basis points when comparing the three and nine months ended March 31, 2023 and 2022, respectively. The increase in net interest income was offset by increases in the average balance of interest-bearing liabilities, which increased $180.9 million and $237.6 million when comparing the three and nine months ended March 31, 2023 and 2022, respectively, and increases in rates paid on interest-bearing liabilities, which increased 96 and 60 basis points when comparing the three and nine months ended March 31, 2023 and 2022, respectively.

Net interest rate spread and margin both decreased when comparing the nine months ended March 31, 2023 and 2022. Net interest rate spread decreased 7 and 8 basis points to 2.31% and 2.43% for the three and nine months ended March 31, 2023 compared to 2.38% and 2.51% for the three and nine months ended March 31, 2022, respectively. Net interest margin increased 2 basis points to 2.43%, for the three months ended March 31, 2023 compared to 2.41% for the three months ended March 31, 2022. Net interest margin decreased 1 basis point to 2.53% for the nine months ended March 31, 2023 compared to 2.54% for the nine months ended March 31, 2022. The decrease during the current quarter was due to the higher interest rate environment, which resulted in higher rates paid on deposits, resulting in higher interest expense. This was partially offset by increases in interest income on loans and securities, as they reprice at higher yields and the interest rates earned on new balances were higher than the historic low levels.

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 2.66% and 2.56% for the three months ended March 31, 2023 and 2022, respectively, and was 2.73% and 2.69% for the nine months ended March 31, 2023 and 2022, 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. 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 Board has taken a number of measures in an attempt to slow inflation. The Federal Reserve Board changed its Monetary Policy to raise rates in recent quarters. The rise in the federal funds rate has and is expected to continue to have a positive impact to the Company’s interest spread and margin as the rates on new loans and securities purchased are at higher rates than in the prior year, however given how quickly the rate rise has been, it has not allowed the Company to reprice assets as quickly as deposits.

PROVISION FOR LOAN LOSSES

Provision for loan losses amounted to a benefit of $944,000 and a charge of $163,000 for the three months ended March 31, 2023 and 2022, respectively, and amounted to a benefit of $1.2 million and a charge of $2.4 million for the nine months ended March 31, 2023 and 2022, respectively. The benefit for the three and nine months ended March 31, 2023 was due to a decrease in the balance and reserve percentage on loans adversely classified, as loans were upgraded due to improvements in credit quality and loans were paid off during the quarter. This was partially offset by the growth in gross loans and increases in qualitative factors in the current quarter related to the economic environment as inflation continues to be high and the impact that higher interest rates have on borrowers. Loans classified as substandard or special mention totaled $36.6 million at March 31, 2023 and $52.1 million at June 30, 2022, a decrease of $15.5 million. Reserves on loans classified as substandard or special mention totaled $4.8 million at March 31, 2023 compared to $9.6 million at June 30, 2022, a decrease of $4.8 million. There were no loans classified as doubtful or loss at March 31, 2023 or June 30, 2022. Allowance for loan losses to total loans receivable was 1.50% at March 31, 2023 compared to 1.82% at June 30, 2022.

Net charge-offs amounted to $190,000 and $108,000 for the three months ended March 31, 2023 and 2022, respectively, an increase of $82,000. Net charge-offs totaled $407,000 and $360,000 for the nine months ended March 31, 2023 and 2022, respectively. There were no significant charge offs in any loan segment during the three and nine months ended March 31, 2023.

Nonperforming loans amounted to $4.7 million and $6.3 million at March 31, 2023 and June 30, 2022, respectively. The decrease in nonperforming loans during the period was primarily due to $1.3 million in loan repayments, $134,000 in loans returning to performing status, and $508,000 in charge-offs or transfers to foreclosed, partially offset by $293,000 of loans placed into nonperforming status. At March 31, 2023 nonperforming assets were 0.19% of total assets compared to 0.25% at June 30, 2022. Nonperforming loans were 0.34% and 0.51% of net loans at March 31, 2023 and June 30, 2022, respectively.

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:	2023		2022		Amount			Percent			2023			2022		Amount			Percent
Service charges on deposit accounts	$	1,132	$	1,052	$	80			7.60	%	$	3,583		$	3,279	$	304			9.27	%
Debit card fees		1,082		1,024		58			5.66			3,362			3,214		148			4.60
Investment services		213		216		(3	)		(1.39	)		591			707		(116	)		(16.41	)
E-commerce fees		26		23		3			13.04			81			83		(2	)		(2.41	)
Bank-owned life insurance		340		323		17			5.26			1,020			939		81			8.63
Net loss on available-for-sale securities		-		-		-			-			(251	)		-		(251	)		(100.00	)
Other operating income		266		267		(1	)		(0.37	)		666			850		(184	)		(21.65	)
Total noninterest income	$	3,059	$	2,905	$	154			5.30	%	$	9,052		$	9,072	$	(20	)		(0.22	)%

Noninterest income increased $154,000, or 5.3%, to $3.1 million for the three months ended March 31, 2023 compared to $2.9 million for the three months ended March 31, 2022. Noninterest income decreased $20,000, or 0.2%, to $9.1 million for the nine months ended March 31, 2023 compared to $9.1 million for the nine months ended March 31, 2022. The decrease for the nine month period was primarily due to a decrease in investment service income and a net loss on sale of available for sale securities. This was partially offset by an increase in debit card fees and service charges on deposit accounts resulting from continued growth in the number of checking accounts with debit cards and the number of deposit accounts, and the income from bank owned life insurance.

Index

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:	2023		2022		Amount			Percent			2023		2022		Amount			Percent
Salaries and employee benefits	$	6,193	$	5,332	$	861			16.15	%	$	17,070	$	15,103	$	1,967			13.02	%
Occupancy expense		617		549		68			12.39			1,654		1,627		27			1.66
Equipment and furniture expense		150		186		(36	)		(19.35	)		529		573		(44	)		(7.68	)
Service and data processing fees		674		649		25			3.85			2,040		1,937		103			5.32
Computer software, supplies and support		407		356		51			14.33			1,157		1,128		29			2.57
Advertising and promotion		115		146		(31	)		(21.23	)		336		345		(9	)		(2.61	)
FDIC insurance premiums		191		225		(34	)		(15.11	)		638		646		(8	)		(1.24	)
Legal and professional fees		507		258		249			96.51			2,655		1,075		1,580			146.98
Other		1,002		613		389			63.46			2,525		2,178		347			15.93
Total noninterest expense	$	9,856	$	8,314	$	1,542			18.55	%	$	28,604	$	24,612	$	3,992			16.22	%

Noninterest expense increased $1.5 million, or 18.5%, to $9.9 million for the three months ended March 31, 2023 compared to $8.3 million for the three months ended March 31, 2022. Noninterest expense increased $4.0 million, or 16.2%, to $28.6 million for the nine months ended March 31, 2023, compared to $24.6 million for the nine months ended March 31, 2022. The increase during the three and nine months ended March 31, 2023 was primarily due to increases in salaries and employee benefits expense due to new positions created during the period to support the Company’s growth. Other noninterest expense increased for the three and nine months ended March 31, 2023 due to the Bank of Greene County donating $300,000 to the Bank of Greene County Charitable Foundation during the three months ended March 31, 2023. The increase during the nine months ended March 31, 2023 was also due to a non-recurring litigation reserve expense of $1.2 million.

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 13.7% and 15.0% for the three and nine months ended March 31, 2023, respectively, and 15.6% and 15.2% for the three and nine months ended March 31, 2022, 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. The decrease in the current quarter’s effective tax rate was the result of an increase in tax-exempt income proportional to total income.

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. The Company’s most significant form of market risk is interest rate risk since the majority of the Company’s assets and liabilities are sensitive to changes in interest rates. The Company’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, Atlantic Central Bankers Bank and two other financial institutions, 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. At March 31, 2023, the Company had $178.3 million in cash and cash equivalents, representing 6.5% of total assets, and had $281.8 million available in unused lines of credit.

On March 12, 2023, in response to liquidity concerns in the banking system, the Federal Deposit Insurance Corporation, Federal Reserve and U.S. Department of Treasury, collaboratively approved certain actions with a stated intention to reduce stress across the financial system, support financial stability and minimize any impact on business, households, taxpayers, and the broader economy. Among other actions, the Federal Reserve Board has created a new Bank Term Funding Program (BTFP) to make additional funding available to eligible depository institutions to help assure institutions can meet the needs of their depositors. Eligible institutions may obtain liquidity against a wide range of collateral. BTFP advances can be requested through at least March 11, 2024. The Company has not requested funding through the BTFP as of March 31, 2023, but has an established relationship with the Federal Reserve to take advantage of this program.

In efforts to enhance strong levels of liquidity and to fund strong loan demand, the Bank and Commercial Bank (the “Banks”) accept brokered certificates of deposits, generally in denominations of less than $250 thousand, from national brokerage networks, including IntraFi. Additionally, the Banks participate in the CDARS and the ICS products, which provides for reciprocal (“two-way”) transactions among banks facilitated by IntraFi for the purpose of maximizing FDIC insurance. The Banks are also able to obtain (“one-way”) CDARS and ICS brokered deposits. The Bank and Commercial Bank had no outstanding one-way or two-way, ICS or CDARS transactions with IntraFi as of March 31, 2023.

Index

The Bank and Commercial Bank can place and obtain brokered deposits from a national brokerage network and IntraFi up to 10% of total deposits form each broker based on policy. The Bank has available funds from a national brokerage network in the amount of $247.2 million, which there was $74.6 million outstanding at March 31, 2023. The Banks also have available funds from the IntraFi one-way CDARS and ICS deposits in the amount of $247.2 million, which there was zero outstanding at March 31, 2023. The brokered deposits increased the Company’s overall liquidity and cash position in response to the current turmoil in the banking sector.

At March 31, 2023, liquidity measures were as follows:

Cash equivalents/(deposits plus short term borrowings)	7.21	%
(Cash equivalents plus unpledged securities)/(deposits plus short term borrowings)	9.10	%
(Cash equivalents plus unpledged securities plus additional borrowing capacity)/(deposits plus short term borrowings)	20.51	%

The Company’s unfunded loan commitments and unused lines of credit are as follows at March 31, 2023:

(In thousands)
Unfunded loan commitments	$	96,111
Unused lines of credit		92,108
Standby letters of credit		889
Total commitments	$	189,108

The Company anticipates that it will have sufficient funds available to meet current loan commitments based on the level of cash and cash equivalents as well as the available-for-sale investment portfolio and borrowing capacity. The Company also anticipates it will have sufficient liquidity to support the seasonal decline in deposits, typically experienced at the Commercial Bank, through the fourth quarter of fiscal 2023 and into the first quarter of fiscal 2024.

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 in which 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, 2023 or June 30, 2022. 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. There was no credit exposure associated with risk participations-in as of March 31, 2023 and June 30, 2022 due to the recent rise in interest rate. The RPAs participations-ins are spread out over four financial institution counterparties and terms range between 5 to 14 years.

Index

The Bank of Greene County and its wholly-owned subsidiary, Greene County Commercial Bank, met all applicable regulatory capital requirements at March 31, 2023 and June 30, 2022.

											To Be Well
						For Capital					Capitalized Under
						Adequacy					Prompt Corrective					Capital Conservation
(Dollars in thousands)	Actual					Purposes					Action Provisions					Buffer
The Bank of Greene County	Amount		Ratio			Amount		Ratio			Amount		Ratio			Actual			Required
As of March 31, 2023:

Total risk-based capital	$	247,757		16.3	%	$	121,500		8.0	%	$	151,875		10.0	%		8.31	%		2.50	%
Tier 1 risk-based capital		228,746		15.1			91,125		6.0			121,500		8.0			9.06			2.50
Common equity tier 1 capital		228,746		15.1			68,344		4.5			98,719		6.5			10.56			2.50
Tier 1 leverage ratio		228,746		8.7			104,675		4.0			130,844		5.0			4.74			2.50

As of June 30, 2022:

Total risk-based capital	$	221,236		16.0	%	$	110,294		8.0	%	$	137,867		10.0	%		8.05	%		2.50	%
Tier 1 risk-based capital		203,935		14.8			82,720		6.0			110,294		8.0			8.79			2.50
Common equity tier 1 capital		203,935		14.8			62,040		4.5			89,614		6.5			10.29			2.50
Tier 1 leverage ratio		203,935		8.1			100,193		4.0			125,242		5.0			4.14			2.50

Greene County Commercial Bank
As of March 31, 2023:

Total risk-based capital	$	103,753	43.0	%	$	19,326	8.0	%	$	24,157	10.0	%	34.95	%	2.50	%
Tier 1 risk-based capital		103,753	43.0			14,494	6.0			19,326	8.0		36.95		2.50
Common equity tier 1 capital		103,753	43.0			10,871	4.5			15,702	6.5		38.45		2.50
Tier 1 leverage ratio		103,753	9.1			45,853	4.0			57,316	5.0		5.05		2.50

As of June 30, 2022:

Total risk-based capital	$	94,408	41.5	%	$	18,195	8.0	%	$	22,744	10.0	%	33.51	%	2.50	%
Tier 1 risk-based capital		94,408	41.5			13,646	6.0			18,195	8.0		35.51		2.50
Common equity tier 1 capital		94,408	41.5			10,235	4.5			14,783	6.5		37.01		2.50
Tier 1 leverage ratio		94,408	8.1			46,874	4.0			58,593	5.0		4.06		2.50

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

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 400,000 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, 2023.

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

	3.1	Greene County Bancorp, Inc. Stock Holding Company Charter as amended on January 19, 2023 (filed as Exhibit 3.1 to Registrant’s Form 10-Q, filed on February 10, 2023 and incorporated herein by reference).
	31.1	Certification of Chief Executive Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
	31.2	Certification of Chief Financial Officer, adopted pursuant to Rule 13a-14(a)/15d-14(a)
	32.1	Statement of Chief Executive Officer, furnished pursuant to U.S.C. Section 1350
	32.2	Statement of Chief Financial Officer, furnished pursuant to U.S.C. Section 1350
	101	The following materials from Greene County Bancorp, Inc. Form 10-Q for the quarter ended March 31, 2023, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements, (detail tagged).
	104	Cover Page Integrative Data File (formatted in iXBRL and included in exhibit 101).

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 11, 2023

By: /s/ Donald E. Gibson

Donald E. Gibson
President and Chief Executive Officer

Date: May 11, 2023

By: /s/ Michelle M. Plummer

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

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