Gouverneur Bancorp : Annual Report

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President's Message

To Our Shareholders:

On behalf of the Board of Directors, officers and employees of Gouverneur Bancorp, Inc. and its subsidiary, Gouverneur Savings and Loan Association, I present to you our 2021 annual report.

Following the temporary business disruptions of the COVID-19 outbreak early in the fiscal year, the Bank finished with a solid performance. In partnership with Pursuit (formally NYBDC), the Bank processed $814,000 in PPP loans in fiscal year 2021 to twenty-three small business customers that were struggling financially due to virus restrictions. There was a decrease in interest and fees during the first half of the fiscal year due to economic conditions caused by the pandemic, however there was an increase in loan applications and deposit accounts throughout the year. Gouverneur Savings & Loan Association remains dedicated to serving the needs of our communities as business slowly returns to normal.

To supplement our financial information, which is prepared and presented in accordance with generally accepted accounting principles in the United States of America, or GAAP, we included the following non-GAAP financial measures: Adjusted Non-interest Income, Adjusted Earnings Before Income Tax (AEBIT), Adjusted Income Tax (Benefit), and Adjusted Net Income. The presentation of this financial information is not intended to be considered as a substitution for the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring business operating results. The adjusted financial information excludes from non-interest income the non-cash measurement of the unrealized gains or losses in market value on swap agreements held with Federal Home Loan Bank of New York ("FHLBNY").

Total revenue (net interest income plus non-interest income) for fiscal year 2021 was $6.20 million, an increase of $1.90 million over the 2020 fiscal year-end total of $4.30 million. The Bank remains well-capitalized with a core capital ratio of 19.76%, an increase of 0.65% from 2020. Total Adjusted Revenue for fiscal year 2021 was $5.25 million, a decrease of $110,000 over the 2020 fiscal year-end total of $5.36 million.

Interest income on loans decreased $570,000 in fiscal 2021, from $4.69 million at September 30, 2020 to $4.12 million at September 30, 2021. Total interest income decreased $545,000, or 10.87%, from $5.01 million to $4.47 million. Interest expense on deposits increased $15,000, from $322,000 at September 30, 2020 to $337,000 at September 30, 2021. Interest expense incurred on borrowings from the Federal Home Loan Bank, $200,000 at the end of fiscal 2020, decreased $172,000, to $28,000 at the end of fiscal 2021, resulting in a total interest expense of $365,000. Interest spread, the difference between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities, was 3.54% in fiscal 2021 and 3.84% in fiscal 2020.

Non-interest income (loss) increased $2,284,000 from ($191,000) in fiscal year 2020 to $2,093,000 in fiscal 2021. This includes the unrealized market value gain (loss) on swap agreements held with FHLBNY of $943,000 and ($1.06) million for 2021 and 2020, respectively. The Bank continued its success with their secondary market mortgage program with FHLBNY. As loan volume increased, fee income increased $76,000 from $93,000 in fiscal year 2020 to $169,000 in fiscal 2021. Adjusted non-interest income increased $279,000, from $871,000 in fiscal year 2020 to $1,150,000 in fiscal 2021. The adjustment excludes the unrealized market value gain (loss) on swap agreements held with FHLBNY.

Net income (loss) for the fiscal year ended September 30, 2021 increased 380.05% to $1,067,000 or $0.53 per diluted share, compared to $(381,000), or $(0.18) per diluted share, in fiscal 2020. The earnings resulted in a return on average assets of 0.83%, an increase from (0.30)% in fiscal 2020, while the return on average equity increased to 3.93% for the year ended September 30, 2021, from (1.30%) for the year ended September 30, 2020.

Adjusted net income for the fiscal year ended September 30, 2021 decreased 29.69% to $322,000 or $0.16 per diluted share, compared to $458,000, or $0.22 per diluted share, in fiscal 2020. The earnings resulted in a return on average assets of 0.25%, a decrease from 0.35% in fiscal 2020, while the return on average equity decreased to 1.19% for the year ended September 30, 2021, from 1.57% for the year ended September 30, 2020.

In fiscal 2021 deposits increased $9.59 million, or 10.52%, to $100.75 million at September 30, 2021 from $91.16 million at September 30, 2020. The Bank currently holds no brokered deposits. Advances from the FHLB decreased $3.0 million with no current balance as the need for the Company to fund its loan portfolio with low-cost FHLB borrowings decreased.

Net loans decreased $530,000, or 0.61%, from $86.88 million at September 30, 2020 to $86.35 million at September 30, 2021. Non-performing assets represent 0.49% of total assets, a decrease from the 2020 figure of 1.01%.

Total assets increased $5.46 million, or 4.22%, from $129.27 million at September 30, 2020 to $134.73 million at September 30, 2021. Shareholders' equity was $27.21 million at September 30, 2021, representing an increase of 2.19% from the September 30, 2020 balance of $26.63 million. The Company's book value was $13.40 per common share based on 2,383,610 shares issued and 2,031,377 shares outstanding at September 30, 2021 versus $13.11 per common share based on 2,383,610 shares issued with 2,031,377 shares outstanding on September 30, 2020.

I extend my sincere appreciation to you, our shareholders, for your continued support of our endeavors, and I especially want to thank the Board of Directors and staff who have worked diligently with me to achieve our positive results. We look forward to our continued success.

Faye C. Waterman

President and Chief Executive Officer

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SELECTED CONSOLIDATED FINANCIAL INFORMATION
Selected Financial Condition Data:				At September 30,
	2021		2020		2019		2018		2017
					(In thousands)
Total Assets	$ 134,733	$	129,261	$	125,268	$	131,831	$	136,260
Loans (1)		86,767		87,507		91,342		96,405		100,540
Allowance for loan losses		620		631		637		776		886
Securities available-for-sale		24,614		20,455		17,066		15,622		18,028
Securities held-to-maturity		2		3		4		5		8
Deposits	100,754		91,157		79,284		84,621		83,674
Borrowings		-		3,000		10,000		12,000		16,750
Total shareholders' equity		27,213		26,629		29,452		29,975		29,840
Selected Operations Data:				For the years ended September 30,
	2021		2020		2019		2018		2017
				(In thousands, except per share data)
Interest income	$	4,467	$	5,012	$	5,623	$	5,725	$	6,010
Interest expense		365		522		581		516		579
Net interest income		4,102		4,490		5,042		5,209		5,431
Provision for loan losses		18		58		70		65		120
Net interest income after
provision for loan losses		4,084		4,432		4,972		5,144		5,311
Non-interest income (loss)		2,093		(191)		(922)		1,632		1,134
Non-interest expense		4,991		4,879		4,794		4,710		4,782
Income (loss) before inc. tax		1,186		(638)		(744)		2,066		1,663
Income tax (benefit)		119		(257)		(280)		880		337
Net income (loss)	$	1,067	$	(381)	$	(464)	$	1,186	$	1,326
Per Common Share:
Net Income (Loss) - Basic	$	0.53	$	(0.18)	$	(0.21)	$	0.52	$	0.60
- Diluted		0.53		(0.18)		(0.21)		0.52		0.60
Adjusted Net Income - Basic	$	0.16	$	0.22	$	0.45	$	0.32	$	0.56
- Diluted		0.16		0.22		0.45		0.32		0.56
Book value	$	13.40	$	13.11	$	13.53	$	13.77	$	13.71
Cash dividends declared		0.24		0.29		0.34		0.34		0.34
Dividend payout ratio *		45.28%		(161.11)%	(161.90)%		62.96%		56.67%
Adj. Dividend payout ratio *		150.00%		128.62%		75.99%		105.58%		24.36%

*Dividend payout ratio and adjusted dividend payout ratio are calculated by dividing cash dividends declared (per share) by basic (or adjusted) net income (loss) per share.

Notes appear on the following page.

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