Net interest income increased $916,000 to $10.9 million for the three months ended December 31, 2019 from $10.0 million for the three months ended December 31, 2018. Net interest income increased $1.1 million to $21.4 million for the six months ended December 31, 2019 from $19.7 million for the six months ended December 31, 2018. These increases in net interest income were primarily the result of growth in the average balance of interest-earning assets, with continued growth in loans and securities, funded primarily from growth in deposits. Average loan balances increased $91.4 million and $85.4 million while the yield on loans increased two basis points and six basis points when comparing the three and six months ended December 31, 2019 and 2018, respectively.   Average securities increased $123.3 million and $83.0 million and the yield on such securities decreased 22 basis points and nine basis points when comparing the three and six months ended December 31, 2019 and 2018. The increase in interest income was partially offset by an increase in interest expense primarily the result of increases in the rates paid on interest-bearing liabilities, most notably NOW deposit accounts.  The average balance of NOW deposits grew by $253.2 million and $221.1 million when comparing the three and six months ended December 31, 2019 and 2018.  The rate paid on these NOW accounts increased by 27 basis points and 33 basis points when comparing the three and six months ended December 31, 2019 and 2018. This growth in higher costing deposits was the result of promotions within the Company’s newer markets targeting new business, municipal and retail customers.

Net interest rate spread and margin both decreased when comparing the three and six months ended December 31, 2019 and 2018. Net interest rate spread decreased 38 basis points to 2.99% for the three months ended December 31, 2019 compared to 3.37% for the three months ended December 31, 2018. Net interest margin decreased 36 basis points to 3.11% for the three months ended December 31, 2019 compared to 3.47% for the three months ended December 31, 2018. Net interest rate spread and margin decreased 28 basis points and 26 basis points to 3.06% and 3.18%, respectively, for the six months ended December 31, 2019 compared to 3.34% and 3.44%, respectively, for the six months ended December 31, 2018.  Decreases in net interest spread and margin resulted primarily from the result of the higher cost of interest-bearing liabilities and lower yields on securities, partially offset by growth in average loan and securities balances.

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 3.29% and 3.65% for the three months ended December 31, 2019 and 2018, respectively, and was 3.36% and 3.61% for the six months ended December 31, 2019 and 2018, respectively.

Provision for loan losses amounted to $690,000 and $354,000 for the three months ended December 31, 2019 and 2018, respectively, and amounted to $1.2 million and $708,000 for the six months ended December 31, 2019 and 2018, respectively. This increase was due to the growth in gross loans as well as an increase in loans adversely classified.  Loans classified as substandard or special mention totaled $24.7 million at December 31, 2019 compared to $17.1 million at June 30, 2019, an increase of $7.6 million. Reserves on these loans totaled $1.9 million at December 31, 2019 compared to $1.5 million at June 30, 2019, an increase of $395,000. The increase in classified loans was primarily due to the downgrade of a construction loan to special mention during the six months ended December 31, 2019 as a result of project cost overruns and several delinquent payments. No loans were classified as doubtful or loss at December 31, 2019 or June 30, 2019. Allowance for loan losses to total loans receivable was 1.62% at December 31, 2019, and 1.65% at June 30, 2019.

Net charge-offs for the three months ended December 31, 2019 totaled $149,000 compared to a net recovery for the three months ended December 31, 2018 of $11,000.  Net charge-offs totaled $457,000 and $59,000 for the six months ended December 31, 2019 and 2018, respectively.  This increase in charge-off activity was primarily within the commercial loan and consumer loan portfolios. Commercial loan net charge-offs totaled $168,000 for the six months ended December 31, 2019 compared to a net recovery of $153,000 for the six months ended December 31, 2018. Consumer loan net charge-offs totaled $198,000 and $129,000 for the six months ended December 31, 2019 and 2018, respectively, an increase of $69,000.  The increase in the consumer loan portfolio is the result of an increase in charge-offs related to the deposit overdraft protection program, and is due to the significant growth in the number of checking accounts with overdraft protection as well as a recent increase in the amount of protection provided per account.

Nonperforming loans amounted to $3.4 million and $3.6 million at December 31, 2019 and June 30, 2019, respectively. Nonperforming assets were 0.25% and 0.29% of total assets, and nonperforming loans were 0.40% and 0.46% of net loans at December 31, 2019 and June 30, 2019, respectively.  Nonperforming assets to total assets were 0.31% and nonperforming loans to net loans were 0.48%, at December 31, 2018.

Noninterest expense increased $288,000 or 4.6%, to $6.5 million for the three months ended December 31, 2019 as compared to $6.2 million for the three months ended December 31, 2018. Noninterest expense increased $749,000, or 6.1%, to $13.0 million for the six months ended December 31, 2019, compared to $12.2 million for the six months ended December 31, 2018.  This increase, during the three and six months ended December 31, 2019, was primarily due to an increase in salaries and employee benefits expenses resulting from additional staffing for a new branch located in Kinderhook-Valatie, New York, which opened in July 2019. As the Company continues to grow, staffing was also increased within our lending department, customer service center and investment center. This increase was partially offset by a decrease in FDIC insurance premiums.  In January 2019, the FDIC provided notification to the Company that a credit in the amount of $177,000 was calculated for The Bank of Greene County, and a credit in the amount of $91,000 was calculated for Greene County Commercial Bank, based on a change in assessments under FDIC regulations resulting from the Deposit Insurance Fund Reserve Ratio reaching 1.36%.  The Deposit Insurance Fund reserve ratio was above 1.38% as of June 30, 2019 and September 30, 2019, and therefore, the FDIC offset regular deposit insurance assessments with credits on the September and December 2019 invoices.  The Company received credits totaling $120,000 and $228,000 during the three and six months ended December 31, 2019.  This credit was applied against FDIC insurance premiums expense.

Provision for income taxes directly reflects the expected tax associated with the pre-tax income generated for the given year and certain regulatory requirements.  The effective tax rate was 14.8% and 15.4% for the three and six months ended December 31, 2019, compared to 17.2% and 18.0% for the three and six months ended December 31, 2018.   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, 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.

Total assets of the Company were $1.4 billion at December 31, 2019 and $1.3 billion at June 30, 2019, an increase of $174.5 million, or 13.8%.

Securities available-for-sale and held-to-maturity increased $98.1 million, or 23.0%, to $525.0 million at December 31, 2019 as compared to $426.9 million at June 30, 2019.  Securities purchases totaled $184.3 million during the six months ended December 31, 2019 and consisted of $132.5 million of state and political subdivision securities and $41.0 million of mortgage-backed securities, $7.3 million of other securities, and $3.5 million of corporate securities.  Principal pay-downs and maturities during the six months amounted to $85.4 million, of which $18.0 million were mortgage-backed securities, $58.5 million were state and political subdivision securities, $8.3 million were U.S. government sponsored enterprises and $0.6 million were other securities.

Net loans receivable increased $65.4 million, or 8.3%, to $851.1 million at December 31, 2019 from $785.7 million at June 30, 2019.  The loan growth experienced during the six months consisted primarily of $20.3 million in commercial construction loans, $30.8 million in commercial real estate loans, $10.7 million in commercial loans, $2.1 million in residential mortgages, $1.2 million in multi-family mortgage loans and $1.2 million in residential construction and land loans.  This growth was partially offset by a $441,000 decrease in home equity loans, and $784,000 increase in allowance for loan losses. The continued strong loan growth is the result of our recent expansion within our Ulster, and Columbia County market areas, as well as through loan participations with other banks within the Capital and Hudson Valley Regions.

Deposits totaled $1.2 billion at December 31, 2019 and $1.1 billion at June 30, 2019, an increase of $124.1 million, or 11.1%. Noninterest-bearing deposits increased $2.6 million, or 2.4%, NOW deposits increased $123.1 million, or 19.0%, and savings deposits increased $2.3 million, or 1.1% when comparing December 31, 2019 and June 30, 2019.  These increases were offset by a decrease in money market deposits of $3.4 million, or 3.0%, and a decrease in certificates of deposits of $564,000, or 1.5%, when comparing December 31, 2019 and June 30, 2019. Deposits increased during the six months ended December 31, 2019 as a result of an increase in municipal deposits at Greene County Commercial Bank, primarily from tax collection, and new account relationships resulting from promotions in newer markets.

Borrowings for the Company amounted to $48.9 million in overnight borrowings and $12.6 million of term borrowings, with the Federal Home Loan Bank of New York, at December 31, 2019, compared to $8.0 million of overnight borrowings and $13.6 million of term borrowings, with the Federal Home Loan Bank of New York, at June 30, 2019.  The increase in overnight borrowings was the result of growth in interest-earning assets.

Shareholders’ equity increased to $120.5 million at December 31, 2019 from $112.4 million at June 30, 2019, resulting primarily from net income of $10.0 million and a decrease in other accumulated comprehensive loss of $385,000, partially offset by dividends declared and paid of $1.4 million. On September 17, 2019, the Board of Directors of the Company adopted a stock repurchase program.  Under the repurchase program, the Company may repurchase up to 200,000 shares of its common stock.  Repurchases will be made at management’s discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company’s financial performance.  At December 31, 2019, the Company had repurchased 1,400 shares.