Gouverneur Bancorp Announces Fiscal 2020 Second Quarter and Six Months Results

GOUVERNEUR, N.Y., April 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 second quarter of fiscal year 2020 ended March 31, 2020.

A Note to our Shareholders: Serving the needs of our communities has always been Gouverneur Savings & Loan Association’s #1 mission.  In these uncertain and troubling times, we continue that mission by offering our neighbors and customers relief through our GS&L COVID-19 Assistance Program. Our staff is working diligently with customers to design a solution to meet their specific needs.   The Bank has also partnered with NYBDC to offer SBA loans to those small business customers that are struggling financially due to the Coronavirus shut-downs.

While the Bank fully expects to experience a decrease in loan principal and interest payments and service fees over the next quarter, management is confident that its current liquidity and capital position is strong enough to rebound from any negative budgetary pressure resulting from the COVID-19 pandemic.

To supplement our second quarter 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									For the Six Months Ending
	03/31/20					03/31/19				03/31/20				03/31/19
Statement of Earnings	(In Thousands)									(In Thousands)
Interest Income	$	1,277				$	1,428			$	2,594			$	2,849
Interest Expense		134					138				271				275
Net Interest Income		1,143					1,290				2,323				2,574
Provision for Loan Loss		35					10				35				20
Net Interest Income After Provision for Loan Loss		1,108					1,280				2,288				2,554
Other Operating Income (Loss)		(1,371		)			(28	)			(767	)			(438	)
Other Operating Expense		1,054					1,309				2,390				2,358
Income (Loss) Before Income Tax		(1,317		)			(57	)			(869	)			(242	)
Income Tax (Benefit)		(301		)			(38	)			(232	)			(103	)
Net Income (Loss)	$	(1,016		)		$	(19	)		$	(637	)		$	(139	)
Adjusted Statement of Earnings
Interest Income	$	1,277				$	1,428			$	2,594			$	2,849
Interest Expense		134					138				271				275
Net Interest Income		1,143					1,290				2,323				2,574
Provision for Loan Loss		35					10				35				20
Net Interest Income After Provision for Loan Loss		1,108					1,280				2,288				2,554
Other Operating Income (Expense)		(1,371		)			(28	)			(767	)			(438	)
Deduct: Unrealized gain (loss) on swap agreement		(1,354		)			(321	)			(1,027	)			(838	)
Adjusted Other Operating Income (Loss) (1)		(17		)			293				260				400
Other Operating Expense		1,054					1,309				2,390				2,358
Adjusted Earnings Before Income Tax (1)		37					264				158				596
Income Tax (Benefit)		(301		)			(38	)			(232	)			(103	)
Deduct: change in EBIT tax calculation per income adjustment		284					67				216				176
Adjusted Income Tax (Benefit)(1)		(17		)			29				(16	)			73
Adjusted Net Income (1)	$	54				$	235			$	174			$	523
(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:								For the Six Months Ending:
								03/31/20				03/31/19				03/31/20				03/31/19
Net Income (Loss)							$	(1,016	)		$	(19	)		$	(637	)		$	(139	)
(Addback) Deduct: Unrealized gain (loss) on swap agreement								(1,354	)			(321	)			(1,027	)			(838	)
Addback (Deduct): Change in EBIT tax calc. per income adj.								(284	)			(67	)			(216	)			(176	)
Adjusted Net Income							$	54			$	235			$	174			$	523

Net income: for year to date fiscal year 2020, after a $35,000 provision for loan loss, the Company reported a net loss of $(637,000), or $(0.30) per diluted share, compared to $(139,000), or $(0.06) per diluted share, in the first half 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”) decrease from the March 2019 figure of -0.22% and -0.93%, respectively, to -1.02%, and  -4.40%, respectively.

Adjusted net income for the six months ending March 31, 2020 decreased 66.73% to $174,000 or $0.08 per diluted share, compared to $523,000, or $0.24 per diluted share, for the six months ending March 31, 2019.  The adjusted earnings resulted in an annualized ROA of 0.28%, a decrease from 0.82% at March 2019 fiscal year to date while the ROE decreased from 3.50% to 1.20% for the same period.

Net interest spread, the difference between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities, was 4.05% at March 31, 2020 and 4.29% at March 31, 2019.

Total assets decreased by $565,000, or 0.45%, from $125.27 million at September 30, 2019 to $124.70 million at March 31, 2020.  Securities available for sale decreased by $2.38 million, or 13.92%, with the maturity of $3.0 million in Treasury Bills, from $17.07 million to $14.69 million over the same period.  Net loans decreased by $1.08 million from September 2019 to March 2020.  The Bank made a $35,000 provision for loan loss the first six months of fiscal 2020, an increase from the $20,000 provision made in the same period of the 2019 fiscal year.

Deposits increased $1.39 million, or 1.75%, to $80.67 million at March 31, 2020 from $79.28 million at September 30, 2019. Advances from the FHLB remained constant at $10.0 million over these periods.

Shareholders’ equity was $26.89 million at March 31, 2020, representing a decrease of 8.70% from the September 30, 2019 balance of $29.45 million, as the Company embarked on its $2 million stock buyback program in November 2019.  The Company’s book value was $13.17 per common share based on 2,383,608 shares issued and 2,041,508 shares outstanding at March 31, 2020.  On March 31, 2020, the Company paid a semi-annual cash dividend of $0.17 per share to all shareholders of record on March 16, 2020.

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 2020 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. However, the second quarter saw a steep $1.35 million decline in market value as the world dealt with the COVID-19 pandemic and bond prices plummeted. This is thought to be a temporary condition and the values will appreciate once again prior to maturity.  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 through the 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].