Gouverneur Bancorp Announces Fiscal 2020 First Quarter Results

GOUVERNEUR, N.Y., Jan. 23, 2020 (GLOBE NEWSWIRE) -- Gouverneur Bancorp, Inc. (OTC Pink: GOVB) (the “Company”) holding company for Gouverneur Savings and Loan Association (the “Bank”), today announced the results for the first quarter of fiscal year 2020 ended December 31, 2019.

To supplement our financial information, which is prepared and presented in accordance with generally accepted accounting principles in the United States of America (“GAAP”), we used the following non-GAAP financial measures: Adjusted Other Operating Income, Adjusted Earnings Before Income Tax (AEBIT), Adjusted Income Tax, and Adjusted Net Income.  This financial information is not intended to be considered as a substitute for the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures as a tool in financial and operational decision making and evaluating period-to-period comparisons.  We believe that these non-GAAP financial measures provide important supplemental information regarding our performance by excluding from other operating income the non-cash measurement of the unrealized gains or losses in market value on swap agreements held with FHLBNY, which fluctuates monthly and may not be indicative of our recurring operating results. 

Company management and investors benefit from these non-GAAP financial reports when assessing current performance and while planning, forecasting, and analyzing future periods.  These non-GAAP financial measures also assist with management’s comparisons to historical performance.  The non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they help investors analyze the health of our business.

In light of a number of limitations related to the use of these non-GAAP financial measures, we provide specific information regarding the GAAP amounts excluded from the non-GAAP financial measures and evaluate these non-GAAP financial measures together with their relevant financial measures in accordance with GAAP.

Certain non-GAAP financial metrics related to adjustments to total liabilities and shareholder’s equity resulting from the exclusion of the non-cash measurement of the unrealized gains or losses in market value on swap agreements held with FHLBNY have been omitted from this release as they are immaterially different from their relevant GAAP financial metrics as disclosed herein.

For more information on these non-GAAP financial measures, please see and “Reconciliation of Non-GAAP Income” and “Definitions of Non-GAAP Measures” included later in this release.

Financial and Operational Metrics
	For the Quarter Ending
	12/31/19				12/31/18
Statement of Earnings	(In Thousands)
Interest Income	$	1,317			$	1,421
Interest Expense		137				137
Net Interest Income		1,180				1,284
Provision for Loan Loss		-				10
Net Interest Income After Provision for Loan Loss		1,180				1,274
Other Operating Income (Expense)		604				(410	)
Other Operating Expense		1,336				1,049
Income (Loss) Before Income Tax		448				(185	)
Income Tax (Benefit)		69				(65	)
Net Income (Loss)	$	379			$	(120	)
Adjusted Statement of Earnings
Interest Income	$	1,317			$	1,421
Interest Expense		137				137
Net Interest Income		1,180				1,284
Provision for Loan Loss		-				10
Net Interest Income After Provision for Loan Loss		1,180				1,274
Other Operating Income (Expense)		604				(410	)
Deduct: Unrealized gain (loss) on swap agreement		327				(517	)
Adjusted Other Operating Income (1)		277				107
Other Operating Expense		1,336				1,049
Adjusted Earnings Before Income Tax (1) (“AEBIT”)		121				332
Income Tax (Benefit)		69				(65	)
Deduct: change in EBIT tax calc. per income adj.		(68	)			109
Adjusted Income Tax(1)		1				44
Adjusted Net Income (1)	$	120			$	288

(1) “Adjusted Other Operating Income”, “Adjusted Earnings Before Income Tax”, “Adjusted Income Tax”, and “Adjusted Net Income” are non-GAAP measures.  See “Definitions of Non-GAAP Measures” and “Reconciliation of Non-GAAP Measures” sections herein for an explanation and reconciliation of non-GAAP measures used throughout this release.

Reconciliation to Non-GAAP Net Income
(in thousands)
				For the Quarter Ending:
				12/31/19				12/31/18
Net Income (Loss)				$	379			$	(120	)
(Addback) Deduct: Unrealized gain (loss) on swap agreement					327				(517	)
Addback (Deduct): Change in EBIT tax calc. per income adj.					68				(109	)
Adjusted Net Income				$	120			$	288

Net income for the first quarter of fiscal year 2020 was $379,000 or $0.17 per diluted share, compared to $(120,000), or $(0.06) per diluted share, in the first quarter of fiscal year 2019.  The earnings resulted in an annualized return on average assets (net income divided by average assets), (“ROA”) and annualized return on average equity (net income divided by average equity), (“ROE”) increase from September 2019 of -0.36% and -1.55%, respectively, to 1.20%, and 5.09%, respectively

Adjusted net income for the quarter ended December 31, 2019 decreased 58.33% to $120,000 or $0.06 per diluted share, compared to $288,000, or $0.13 per diluted share, in the quarter ending December 31, 2018.  The adjusted earnings resulted in an annualized ROA of 0.38%, a decrease from 0.74% at 2019 fiscal year end while the ROE decreased from 3.19% to 1.61% for the same period.

Interest income on loans decreased $54,000, or 4.34%, from $1,243,000 for the quarter ended December 31, 2018, to $1,189,000 for the quarter ended December 31, 2019.  Total interest income decreased $104,000, or 7.32%, from $1.42 million to $1.32 million during that time.

Interest expense on deposits increased $4,000, from $75,000 at December 31, 2018 to $79,000 at December 31, 2019. Interest expense incurred on borrowings from the Federal Home Loan Bank, $62,000 at the end December 2018, decreased $4,000, to $58,000 at the end of December 2019, resulting in a total interest expense of $137,000 for each period.

Interest spread, the difference between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities, was 4.05% at December 31, 2019 and 4.18% at December 31, 2018.

Other operating income increased from -$410,000 to $604,000 due to an increase in the earnings on the deferred fees plan and unrealized gain on the swap market value, while other operating expense increased $287,000 over the same period, primarily due to expenses related to the deferred fees plan and foreclosed assets.

Adjusted other operating income, for the quarter ended December 31, 2019, which excludes the non-cash unrealized gain (loss) on the market value of swap agreements, increased $170,000 compared to the quarter ended December 31, 2018 once again primarily due to the increase in earnings on the deferred fees plan.

Total assets decreased by $369,000, or 0.29%, from $125.27 million at September 30, 2019 to $125.64 million at December 31, 2019.  Asset composition includes non-performing assets of 1.72% of total assets, an increase from the September 2019 figure of 1.54%, while securities available for sale decreased by $0.44 million, or 2.59%, from $17.06 million to $16.62 million over the same period.

Net loans remained constant at $90.70 million.  The Bank made no provision for loan losses in this first quarter of fiscal 2020, a decrease from the $10,000 provision made in the same period of the 2019 fiscal year. Non-performing assets were $2.16 million at December 31, 2019, compared to $1.93 million at September 30, 2019.  The allowance for loan losses was $682,000 or 0.75% of total loans outstanding at December 31, 2019 as compared to $637,000 or 0.70% at September 30, 2019.  Foreclosed real estate was $334,000 and $498,000 at December 31, 2019 and September 30, 2019, respectively.

Deposits decreased $1.21 million, or 1.53%, to $78.07 million at December 31, 2019 from $79.28 million at September 30, 2019. The Bank currently holds no brokered deposits. Advances from the FHLB increased $0.9 million, from $10.0 million to $10.9 million over the same period.

Shareholders’ equity was $29.76 million at December 31, 2019, representing an increase of 1.05% from the September 30, 2019 balance of $29.45 million.  The Company’s book value was $13.70 per common share based on 2,383,608 shares issued and 2,172,908 shares outstanding at December 31, 2019 versus $13.53 per common share based on an equal number of shares issued and 2,176,908 shares outstanding on September 30, 2019. 

Non-GAAP Financial Measures

The Company has numerous interest rate swap agreements (“swaps”) with Federal Home Loan Bank of New York (“FHLBNY”) as a means to hedge the cost of certain borrowings and to increase the interest rate sensitivity of certain assets. Activity in Fiscal year 2019 resulted in an unrealized loss on the fair market value of these swaps due to a decline in longer term U.S. Treasury bond rates. The accounting for changes in the fair market value of these swaps (unrealized gains or losses) was recognized in earnings as other operating income or loss. This decline was considered temporary.  The Company has both the intent and ability to hold these swaps to maturity regardless of the changes in market condition, liquidity needs or changes in general economic conditions.

During the first quarter of Fiscal year 2020, the market value of the swaps rebounded, resulting in an unrealized gain in market value of $327,000 for the quarter.  Management feels that by eliminating these fluctuations in market value from the GAAP statements, it is able to provide a more accurate picture of Company’s financial and operational results.

While the swaps market value will fluctuate with long term bond rates and projected short-term rates, the Company continues to mitigate its interest rate risk and benefit from a positive net inflow of interest income earned on the swap agreements. 

Definitions of Non-GAAP Measures

Adjusted Other Operating Income   We define Adjusted Other Operating Income as total non-interest earnings excluding certain items that may not be indicative of our recurring business operating results. Adjusted other operating income excludes from other non-interest income the non-cash measurement of the unrealized gains or losses in market value on swap agreements.

Adjusted Earnings Before Income Tax We define AEBIT as net income (loss) before income tax, excluding certain items that may not be indicative of our recurring business operating results.  AEBIT excludes from total earnings before income tax the non-cash measurement of the unrealized gains or losses in market value on swap agreements.

We have included AEBIT because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those related to operating expenses. Accordingly, we believe that AEBIT provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.  In addition, it provides a useful measure for period-to-period comparisons of our business as it removes the effect of certain non-cash items with variable unrealized gains and losses.  AEBIT is not meant as a substitute for the related financial information prepared in accordance with GAAP. 

Adjusted Income Tax We define Adjusted Income Tax as the income tax calculated from the adjusted earnings before income tax.

Adjusted Net Income We define Adjusted Net Income as net income less certain items that may not be indicative of our recurring business operating results.  Adjusted Net Income excludes the non-cash measurement of the unrealized gains or losses in market value on swap agreements held with FHLBNY and the subsequent recalculation of associated income tax. Adjusted Net Income should be considered a supplement, and not a substitute for, net income prepared in accordance with GAAP.

Forward-Looking Statements

The Company, headquartered in Gouverneur, New York, is the holding company for Gouverneur Savings and Loan Association.  Founded in 1892, the Bank is a New York State chartered savings and loan association offering a variety of banking products and services to individuals and businesses in its primary market area of St. Lawrence, Lewis and Jefferson Counties in New York State.

Statements in this news release contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs of management as well as assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. These risks and uncertainties include among others, the impact of changes in market interest rates and general economic conditions, changes in government regulations, changes in accounting principles and the quality or composition of the loan and investment portfolios. Therefore, actual future results may differ significantly from results discussed in the forward-looking statements. 

For more information, contact Charles C. Van Vleet Jr., President and Chief Executive Officer at [phone].