FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ___________________
Commission file number 000-24761
GOUVERNEUR BANCORP, INC.
(Exact name of registrant as specified in its charter)
UNITED STATES 04-3429966
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
42 Church Street, Gouverneur, New York 13642
(Address of principal executive offices)
Registrant's telephone number, including area code: (315) 287-2600
Indicate by check mark whether the registrant has filed all documents
and 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 [ X ] No [ ]
As of July 31, 1999 there were 2,384,040 shares outstanding.
<PAGE>
GOUVERNEUR BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements - Unaudited
Consolidated Statements of Financial Condition at June
30, 1999 and September 30, 1998 2
Consolidated Statements of Income for the three and nine
month periods ended June 30, 1999 and 1998 3
Consolidated Statement of Shareholders' Equity and
Comprehensive Income for the nine months ended June 30,
1999 4
Consolidated Statements of Cash Flows for the nine
months ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8-18
Item 3. Quantitative and Qualitative Disclosure About Market Risk 18-19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 20
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements presented in this Form 10-Q beginning on the
following page reflect the consolidated financial condition and results of
operations of the Gouverneur Bancorp, Inc. ("We" or the "Company") and its
subsidiary Gouverneur Savings and Loan Association (the "Bank") for periods on
and after March 23, 1999. Financial statements presented for periods before
March 23, 1999 are for the Bank.
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<PAGE>
<TABLE>
<CAPTION>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data) (Unaudited)
JUNE 30, SEPTEMBER 30,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,221 $ 1,179
Interest-bearing deposits with other financial institutions 959 3,255
Securities available for sale, at fair value 14,349 10,546
Securities held to maturity, fair value of
$6,438 in 1999 and $7,787 in 1998 6,474 7,717
Loans, net of deferred fees 43,263 35,691
Allowance for loan losses (576) (484)
------------ ------------
Loans, net 42,687 35,207
Bank premises and equipment, net 271 288
Federal Home Loan Bank stock, at cost 386 379
Accrued interest receivable 420 346
Real estate owned 169 51
Other assets 32 369
------------ ------------
Total assets $ 66,968 $ 59,337
============ ============
LIABILITIES
Deposits: Non-interest bearing $ 238 $ 210
Interest bearing 44,814 46,172
------------ ------------
Total deposits 45,052 46,382
Advance payments by borrowers for property taxes
and insurance 236 105
Borrowings 4,340 --
Other liabilities 1,421 1,382
------------ ------------
Total liabilities 51,049 47,869
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value per share;
authorized 1,000,000 shares, issued: none -- --
Common stock, $.01 par value per share;
authorized 9,000,000 shares, issued: 2,384,040 shares 24 --
Additional paid in capital 4,555 --
Retained earnings 11,317 10,929
Accumulated other comprehensive income 452 539
Unallocated shares of Employee Stock Ownership Plan
(ESOP) 85,825 shares in 1999 (429) --
------------ ------------
Total shareholders' equity 15,919 11,468
------------ ------------
Total liabilities & shareholders' equity $ 66,968 $ 59,337
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
INTEREST INCOME 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Loans $ 959 $ 813 $ 2,659 $ 2,434
Securities 262 256 813 739
Other short-term investments 1 21 46 59
----------- ----------- ----------- -----------
Total interest income 1,222 1,090 3,518 3,232
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 465 477 1,468 1,412
Borrowings 17 1 21 2
----------- ----------- ----------- -----------
Total interest expense 482 478 1,489 1,414
----------- ----------- ----------- -----------
Net interest income 740 612 2,029 1,818
Provision for loan losses 56 40 100 125
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 684 572 1,929 1,693
Non-interest income:
Service charges 16 13 48 37
Net loss on sale of securities (11) -- (8) --
Other 54 32 126 92
----------- ----------- ----------- -----------
Total non-interest income 59 45 166 129
Non-interest expenses:
Salaries and employee benefits 209 168 600 480
Directors fees 19 17 54 47
Building, occupancy and equipment 64 42 177 131
Data processing 24 20 70 61
Postage and supplies 22 19 63 57
Professional fees 13 10 47 33
Deposit insurance premium 7 7 20 21
Real estate owned 27 49 74 100
Other 95 79 219 173
----------- ----------- ----------- -----------
Total non-interest expenses 480 411 1,324 1,103
Income before income taxes 263 206 771 719
Income taxes 91 73 283 281
----------- ----------- ----------- -----------
NET INCOME $ 172 $ 133 $ 488 $ 438
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE (See Note 3) 0.07 N/A 0.08 N/A
Weighted average shares outstanding 2,298,215 N/A 2,298,215 N/A
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(In thousands, except share data) (Unaudited)
Accumulated
Additional Other Unallocated
Common Paid-in Retained Comprehensive ESOP
Stock Capital Earnings Income Shares Total
----- ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1998 $ - $ - $ 10,929 $539 $ - $11,468
Net proceeds from issuance
of 1,072,818 shares of common stock 11 4,568 4,579
Common stock acquired by
ESOP (85,825 shares) (429) (429)
Initial capital contribution
and issuance of shares to Cambray MHC
(1,311,222 shares) 13 (13) (100) (100)
Comprehensive Income:
Change in net unrealized gain
(Loss) on available-for-sale
securities, net of tax (87) (87)
Net Income 488 488
-------
Total Comprehensive Income 401
----- ------ ------- ---- ----- -------
Balances at June 30, 1999 $ 24 $4,555 $11,317 $452 ($429) $15,919
===== ====== ======= ==== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data) (Unaudited)
NINE MONTHS ENDED
JUNE 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 488 $ 438
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 50 43
Increase in accrued interest receivable (74) (21)
Provision for loan losses 100 125
Net loss on sale of securities 8 --
Net (gain) loss on sale of real estate owned (12) 20
Net amortization (accretion) of premiums/discounts (48) 4
Decrease in other liabilities 97 (74)
Decrease in other assets 337 (25)
------------ ------------
Net cash provided by operating activities 946 510
------------ ------------
INVESTING ACTIVITIES
Net (increase) decrease in loans (7,731) (443)
Proceeds from sales of securities available-for-sale 504 405
Proceeds from maturities and principal reductions of
securities available-for-sale 5,502 1,331
Purchases of securities available-for-sale (10,031) (3,357)
Purchases of securities held-to-maturity (680) (1,717)
Proceeds from maturities and principal reductions of
securities held-to-maturity 2,040 2,631
Proceeds from sale of real estate owned 45 127
Additions to premises and equipment (33) (59)
(Purchase) of FHLB stock (7) (4)
------------ ------------
Net cash (used) provided by investing activities (10,391) 1,086
------------ ------------
FINANCING ACTIVITIES
Net decrease in deposits (1,330) (147)
Net increase in advance payments by
borrowers for property taxes and insurance 131 165
Net proceeds from short-term borrowings 4,340 --
Net proceeds from issuance of common stock 4,579 --
Purchase of shares of common stock by ESOP (429) --
Initial capital contribution to Cambray MHC (100) --
------------ ------------
Net cash provided (used) by financing activities 7,191 18
------------ ------------
Net (decrease) increase in cash and
cash equivalents (2,254) 558
Cash and cash equivalents at beginning of period 4,434 2,486
------------ ------------
Cash and cash equivalents at end of period $ 2,180 $ 1,928
============ ============
Supplemental disclosure of cash flow information
Non-cash investing activities:
Additions to real estate owned 151 91
Cash paid during the period for:
Interest 1,485 1,414
Income taxes 472 --
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
Gouverneur Bancorp, Inc. (the Company) operates as a savings and loan
holding company. Its only subsidiary is Gouverneur Savings and Loan
Association (the Bank). The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, the Bank.
All material intercompany accounts and transactions have been
eliminated in the consolidation.
2. BASIS OF PRESENTATION
The consolidated financial statements included herein reflect all
adjustments which are, in the opinion of management, of a normal
recurring nature and necessary to present fairly the Company's
financial position as of June 30, 1999 and September 30, 1998, and
results of operations for the three and nine month periods ended June
30, 1999 and 1998. The statement of shareholders' equity and
comprehensive income is for the nine months ended June 30, 1999 and the
statements of cash flows are for the nine months ended June 30, 1999
and 1998.
3. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income available
to common shareholders by the weighted average number of shares
outstanding during the period. Prior to the mutual holding company
reorganization of the Bank, which occurred on March 23, 1999, earnings
per share are not applicable as neither the Company nor the Bank had
shares outstanding. Earnings per share reflects earnings from March 23,
1999, to the end of the reporting period based upon the weighted
average number of shares outstanding for the period. The income
included in the computation is based on the actual results of
operations only for the post-conversion period. Unallocated shares held
by the Company's ESOP are not included in the weighted average number
of shares outstanding.
4. IMPACT OF NEW ACCOUNTING STANDARDS
On October 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME. This statement establishes standards for
reporting and display of comprehensive income and its components. At
the Company, comprehensive income represents net income plus other
comprehensive income, which consists of the net change in unrealized
gains or losses on securities available for sale for the period.
Accumulated other comprehensive income represents the net unrealized
gains or losses on securities available for sale as of the balance
sheet dates, net of the related tax effect. Prior year consolidated
financial statements have been reclassified to conform to the
requirements of SFAS 130.
A summary of the components of other comprehensive (loss) income for
the three- and nine-month periods ended June 30, 1999 and 1998 follows:
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<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Unrealized holding (losses) gains $ (141) $ (22) $ (92) $ 106
arising during the period net of tax
(pre-tax amount of $(235), $(37),
$(153) and $64)
Reclassification adjustment for losses 7 - 5 -
--------- -------- -------- --------
realized in net income during the
period, net tax (pre-tax amount $11,
$ -, $8 and $ -)
Other comprehensive (loss) income $ (134) $ (22) $ (87) $ 106
========= ======== ======== =======
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
We were formally chartered by the Office of Thrift Supervision (the
"OTS") on March 23, 1999. On that date, the Bank completed a mutual holding
company reorganization so that it became our wholly owned subsidiary. We then
sold 45% of our common stock (1,072,818 shares) to the public for $5.00 per
share and issued 55% of our common stock (1,311,222 shares) to Cambray Mutual
Holding Company ("Cambray MHC") without any cash payment. Cambray MHC is a
mutual holding company also chartered by the OTS. As part of the reorganization,
the Bank contributed $100,000 to Cambray MHC as its initial capital. We received
$4.6 million of net proceeds from the sale of our stock. We used one-half of the
net proceeds to acquire all the Bank's common stock.
OTS regulations require that Cambray MHC own a majority of our
outstanding stock. In order to dispose of that stock, OTS regulations require,
in most instances, that the depositors of the Bank must approve the transaction
in which the sale will occur, and then the shares must first be offered to those
depositors.
The Bank has been and continues to be a community oriented financial
institution offering a variety of financial services. The Bank attracts deposits
from the general public and uses those deposits, together with other funds, to
make loans and other investments. Most of the loans are one to four family
residential mortgages. The Bank also makes consumer (including home equity lines
of credit), commercial, and multi-family real estate and other loans. Most of
the loans are in the Bank's primary market area, which is southern St. Lawrence
and northern Jefferson and Lewis counties in New York State. The Bank's deposit
accounts are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC"), and the Bank is subject to
regulation by the FDIC and the OTS.
Our profitability depends, to a large extent, on our net interest
income, which is the difference between the interest we receive on our interest
earning assets, such as loans and investments, and the interest we pay on
interest bearing liabilities. Other categories of expenses generally include the
provision for loan losses, salaries and employee benefits costs, net expenses on
real estate owned and various other categories of operational expenses. External
factors, such as general economic and competitive conditions, particularly
changes in interest rates, government policies and actions of regulatory
authorities, can have a substantial effect on profitability.
ANALYSIS OF NET INTEREST INCOME
Net interest income, the Bank's primary income source, depends
principally upon (i) the amount of interest-earning assets that the Bank can
maintain based upon its funding sources; (ii) the relative amounts of
interest-earning assets versus interest-bearing liabilities; and (iii) the
difference between the yields earned on those assets and the rates paid on those
liabilities. Non-performing loans adversely affect net interest income because
they must still be funded by interest-bearing liabilities, but they do not
provide interest income. Furthermore, when the Bank designates an asset as
non-performing, all interest which has been accrued but not actually received is
deducted from current period income, further reducing net interest income.
-8-
<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following tables present, for the periods indicated, the average
interest-earning assets and average interest-bearing liabilities by principal
categories, the interest income or expense for each category, and the resultant
average yields earned or rates paid. No tax equivalent adjustments were made.
All average balances are daily average balances. Non-interest-bearing checking
accounts are included in the tables as a component of non-interest-bearing
liabilities.
<TABLE>
<CAPTION>
For the Nine Months Ended June 30,
----------------------------------------------------------------------
1999 1998
---------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (6) Balance Interest Cost (6)
------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans (1)..................................... $ 38,071 $ 2,659 9.34% $ 34,864 $ 2,434 9.34%
Securities (2)................................ 18,323 813 5.93% 15,838 739 6.24%
Other short-term investments.................. 1,674 46 3.67% 1,608 59 4.91%
----------- --------- -------- ------
Total interest-earning assets............ 58,068 3,518 8.10% 52,310 3,232 8.26%
Non-interest-earning assets................... 3,048 2,895
----------- --------
Total assets............................. $ 61,116 $ 55,205
=========== ========
Savings and club accounts (3)................. $ 16,952 436 3.44% $ 14,934 385 3.45%
Time certificates............................. 23,556 948 5.38% 22,716 948 5.58%
NOW and money market accounts................. 5,909 84 1.90% 5,547 81 1.95%
Borrowings.................................... 701 21 4.01% - - -%
----------- --------- -------- ------
Total interest-bearing liabilities....... 47,118 1,489 4.23% 43,197 1,414 4.38%
Non-interest-bearing liabilities.............. 1,496 1,095
----------- --------
Total liabilities........................ 48,614 44,292
Equity........................................ 12,502 10,913
----------- --------
Total liabilities and equity............. $ 61,116 $ 55,205
=========== ========
Net interest income/spread (4)................ $ 2,029 3.87% $1,818 3.88%
========= ==== ====== ====
Net earning assets/net interest margin (5).... $ 10,950 4.67% $ 9,113 4.65%
=========== ==== ======== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities.. 1.23x 1.21x
===== =====
NOTES APPEAR ON FOLLOWING PAGE.
</TABLE>
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<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS (CONTINUED)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
---------------------------------- -------------------------------
1999 1998
---------------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (6) Balance Interest Cost (6)
------- -------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1)..................................... $ 40,580 959 9.48% $ 34,677 $ 813 9.40%
Securities (2)................................ 19,394 262 5.42% 16,652 256 6.17%
Other short-term investments.................. 1,135 1 0.35% 1,645 21 5.12%
-------- ------- -------- ------
Total interest-earning assets............ 61,109 1,222 8.02% 52,974 1,090 8.25%
Non-interest-earning assets................... 1,509 2,533
-------- --------
Total assets............................. $ 62,618 $ 55,507
======== ========
Savings and club accounts (3)................. $ 15,910 135 3.40% $ 14,785 130 3.53%
Time certificates............................. 23,223 300 5.18% 22,736 320 5.65%
NOW and money market accounts................. 6,173 30 1.95% 5,567 28 2.02%
Borrowings.................................... 1,785 17 3.82% - - -
-------- ------- -------- ------
Total interest-bearing liabilities....... 47,091 482 4.11% 43,088 478 4.45%
Non-interest-bearing liabilities.............. 1,515 1,433
-------- --------
Total liabilities........................ 48,606 44,521
Equity........................................ 14,012 10,986
-------- --------
Total liabilities and equity............. $ 62,618 $ 55,507
======== ========
Net interest income/spread (4)................ $ 740 3.91% $ 612 3.80%
===== ==== ====== ====
Net earning assets/net interest margin (5).... $ 14,018 4.86% $ 9,886 4.63%
======== ==== ======== ====
Ratio of average interest-earning assets
To average interest-bearing liabilities...... 1.30x 1.23x
===== =====
</TABLE>
(1) Shown net of the allowance for loan losses. Average loan balances include
non-accrual loans. Interest is recognized on non-accrual loans only as and
when received.
(2) Securities are included at amortized cost, with net unrealized gains or
losses on securities available for sale included as a component of
non-earning assets. Securities include Federal Home Loan Bank of New York
stock.
(3) Includes advance payments by borrowers for taxes and insurance (mortgage
escrow deposits).
(4) The spread represents the difference between the weighted average yield on
interest-earning assets and the weighted average cost of interest-bearing
liabilities.
(5) The net interest margin, also known as the net yield on average
interest-earning assets, represents net interest income as a percentage of
average interest-earning assets.
(6) Yields and related ratios for the three and nine month periods have been
annualized when appropriate.
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<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
One method of analyzing net interest income is to consider how changes
in average balances and average rates from one period to the next affect net
interest income. The following table shows changes in the dollar amount of
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It shows the amount of the change in
interest income or expense caused by either changes in outstanding balances
(volume) or changes in interest rates. The effect of a change in volume is
measured by applying the average rate during the first period to the volume
change between the two periods. The effect of changes in rate is measured by
applying the change in rate between the two periods to the average volume during
the first period. Changes attributable to both rate and volume, which cannot be
segregated, have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 vs. 1998 1999 vs. 1998
------------- -------------
Increase (Decrease) Due To: Increase (Decrease) Due To:
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans $ 225 $ -- $ 225 $ 139 $ 7 $ 146
Securities 112 (38) 74 39 (33) 6
Other short-term investments 2 (15) (13) (5) (15) (20)
----- ----- ----- ----- ----- -----
Total interest-earning assets 339 (53) 286 173 (41) 132
===== ===== ===== ===== ===== =====
INTEREST-BEARING LIABILITIES:
Savings and club accounts 51 -- 51 10 (5) 5
Time certificates 23 (23) -- 7 (27) (20)
NOW and money market accounts 4 (1) 3 3 (1) 2
Borrowings 21 -- 21 17 -- 17
----- ----- ----- ----- ----- -----
Total interest-bearing liabilities 99 (24) 75 37 (33) 4
===== ===== ===== ===== ===== =====
Net change in net interest income $ 240 $ (29) $ 211 $ 136 $ (8) $ 128
===== ===== ===== ===== ===== =====
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND SEPTEMBER 30, 1998.
Our total assets increased $7.7 million from $59.3 million at September
30, 1998 to $67.0 million at June 30, 1999. The principal reasons were the sale
of 45% of our common stock as part of the mutual holding company reorganization
of the Bank and the adoption of a leveraging strategy in which we borrowed funds
and invested them in interest-earning assets, principally securities. At
September 30, 1998, we held $3.54 million of stock subscriptions for our stock
offering, including $1.97 million of funds paid by subscribers and $1.57 million
in withdrawal authorizations from existing accounts. From November 1998 through
February 1999, part of these subscriptions were canceled and we refunded the
related payments. By the end of March, 1999, we received additional stock
subscriptions and we completed the stock sale. We received net new funds of
approximately $4.2 million, after
-11-
<PAGE>
deducting expenses and our $429,000 loan to our Employee Stock Ownership Plan.
The Employee Stock Ownership Plan used the loan to buy 8% of the stock we sold.
As a result of our leveraging strategy, we increased borrowings from
zero at September 30, 1998 to $4.3 million at June 30, 1999. Our borrowings are
short-term borrowings from the Federal Home Loan Bank of New York which we have
reinvested principally in adjustable-rate mortgage-backed securities. We have
borrowed funds in order to improve the leveraging of our balance sheet.
Borrowings have been available to us at acceptable rates, allowing us to avoid
repricing of our deposit offerings to increase our levels of deposits
significantly. We classified the securities which we acquired as part of the
leveraging strategy as available for sale.
During the nine months from September 30, 1998 through June 30, 1999,
we actively pursued an increase in our loan portfolio because loans generally
have higher yields than securities investments. Due to our efforts, we were able
to increase our loans, net, by $7.6 million, deploying the capital raised in our
reorganization. If we had not had the stock offering and had not borrowed funds,
our level of securities and other short term investments would have declined
dramatically because we would have used the proceeds of those investments to
fund the new loans. Furthermore, we would probably have been unable to support
the loan growth we attained without increasing our deposit pricing to attract
deposits which could then be used to fund loans.
During the first nine months of the fiscal year, we had a $1.3 million
decline in deposits, but during the quarter ended June 30, 1999, deposits
increased by $99,000. We believe that the decline since September 30, 1998, was
caused primarily by the use of deposits to purchase stock and the classification
of stock subscriptions received as deposits pending the completion of our
reorganization. We find the slight increase in deposits during the most recent
quarter to be encouraging, but it represents less than the total interest that
we paid on our deposits during the quarter. We are currently pursuing efforts to
attract additional deposits for additional leverage without dramatically
increasing our cost of deposits.
We increased our total capital by $4.5 million during the first nine
months of the fiscal year. This increase was caused almost entirely by $4.2
million of net stock sale proceeds, plus retained earnings of $388,000. During
the nine month period, we had total earnings of $488,000, but the Bank used
$100,000 to capitalize Cambray Mutual Holding Company, which owns 55% of our
stock, resulting in the net increase in retained earnings of $388,000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
1998.
GENERAL. Our net income for the three months ended June 30, 1999 was
$172,000, an increase of $39,000, or 29.3%, over our net income for the same
period last year. The primary reason for the increase in net income was an
increase in net interest income caused by our increase in capital, which
provided funds for investment so we could increase total interest-earning assets
without a corresponding interest cost. The quarter ended June 30, 1999, was our
first full quarter as a public company and thus was the first quarter during
which we had the earning power of our new capital for the entire quarter. The
increase in capital and the related increase in our total assets combined to
increase net interest income by $128,000. However, increases in our provision
for loan losses due to the increase in our loan portfolio, and increases in
non-interest expenses, primarily salaries and employee benefits expense, offset
a portion of the increase in net interest income.
INTEREST INCOME. Interest income increased $132,000, or 12.1%, from the
three months ended June 30, 1998 to the three months ended June 30, 1999. We
generated the increase entirely as a result of efforts to increase our level of
interest-earning assets. Average interest-earning assets increased from $53.0
million for the 1998 quarter to $61.1 million for the 1999 quarter. We were able
to generate this increase through the active solicitation of loans and the
hiring of additional loan origination staff. The resulting $5.9 million increase
in the average balance of loans would
-12-
<PAGE>
have been accompanied by a decrease in the average balance of other
interest-earning assets if our total sources of funds had remained level.
However, we invested stock subscriptions and borrowed funds, to the extent they
exceeded acceptable loan opportunities, in securities. Therefore, the average
balance of securities investments, and the interest earned on them, also
increased.
The average interest rate we earned on our interest-earning assets was
23 basis points (0.23%) lower in this year's quarter than last year, with the
average rate earned on loans increasing by 8 basis points and the average rate
earned on securities decreasing by 75 basis points. The average rate we earned
on loans increased for a number of reasons. We originated more commercial loans
and consumer loans, which tend to have higher rates and shorter terms to
maturity that the residential mortgage loans which make up the bulk of our loan
portfolio. In addition, we were able to originate a significant volume of
residential mortgages on vacation and other second homes. These loans generally
have higher rates because they do not qualify for most secondary market lenders
and hence the competition for the loans is less.
The decrease in the average rates earned on securities was caused in
part by the gradual turnover of our securities portfolio at lower interest rates
coupled with lower rates earned on adjustable-rate mortgage-backed securities
than on similar fixed-rate investments. We chose to invest the proceeds of our
borrowings principally in one-year adjustable-rate mortgage-backed securities to
obtain higher yields than available from government and agency securities while
avoiding the adverse effects on interest-rate sensitivity from investing in
long-term, fixed-rate mortgage-backed securities.
Overall, we estimate that the increase in the average volume of
interest-earning assets caused a $173,000 increase in interest income, while the
decrease in average interest rates earned resulted in a $41,000 decrease in
interest income.
INTEREST EXPENSE. Interest expense also increased $4,000 from the 1998
to the 1999 quarter. The interest cost resulting from an increase in the average
volume of interest bearing liabilities was substantially offset by a decline in
our cost of funds as the average rate we paid on certificates of deposit
declined by 47 basis points. The increase in the volume of interest-bearing
liabilities was a result of our borrowings and our efforts to increase deposits
and thus provide funds so we could grow our assets. We estimate that the
increase in the volume of interest-bearing liabilities caused a $37,000 increase
in interest expense while a decrease in our average cost of funds caused a
$33,000 decline in interest expense.
Please remember that we paid interest on stock subscriptions from the
day we received them until we completed the reorganization. Stock subscriptions
became part of our capital and ceased bearing interest only since March 23,
1999. Capital has no interest cost. In future periods, we anticipate that the
percentage of our earning assets that are funded by interest-bearing liabilities
should be lower than before the reorganization, until we are able to leverage
the new capital through additional growth.
NET INTEREST INCOME. The net effect of the increase in interest income
and the lower increase in interest expense was a $128,000 increase in net
interest income. This increase was the result of our new capital and our growth,
as well as an improvement in our interest rate spread, representing the
difference between the average rate we earned and the average rate we paid. Our
spread increased by 11 basis points from 3.80% for the 1998 quarter to 3.91% for
the 1999 quarter for a number of reasons. The percentage of our assets invested
in loans versus securities and other short term investments increased slightly
as we worked to deploy our new capital and find acceptable loan opportunities
with higher yields than securities investments. The average yield on our loans
increased as discussed above, although the average yield on our securities
portfolio declined due to market interest rate conditions. Although the decline
in the rate earned on securities caused our overall average yield on
interest-earning
-13-
<PAGE>
assets to decline by 23 basis points, the average cost of funds declined by an
even greater 34 basis points because of the 47 basis point decline in the cost
of certificates of deposit, which represent slightly more than one-half of our
total deposits. We ave continued to offer attractive rates on our deposit
products to maintain market share. Our deposit rates are generally higher than
the rates offered by the two other local commercial banks and comparable to or
at the high end of rates offered by thrift institutions throughout the region.
Our net interest margin (also known as the net yield on average
interest-earning assets) increased by 23 basis points, in part for the same
reasons as our increase in spread and in part because of our increase in average
capital from $11.0 million to $14.0 million. Average capital represented 22.9%
of average interest-earning assets for the quarter ended June 30, 1999, while it
represented 20.7% of average interest-earning assets for the same quarter in
1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses results from
our analysis of the adequacy of the allowance for loan losses. If we believe
that the allowance should be higher, then we increase it with a provision for
loan losses which is an expense on our income statement. Our analysis of the
adequacy of the allowance is always speculative, based upon the inherent risk of
loss in the current loan portfolio and our assessment of how future
circumstances will affect the ultimate realization of those losses. This
analysis considers, among other things, default rates and the level of losses
when our customers do not repay their loans. Estimates of future events, such as
future interest rates, the health of the local and national economy and the
effects of government policies, are also components of our analysis. If our
predictions are inaccurate, then increases in the allowance may be necessary in
future periods even if the level of our loan portfolio remains the same.
Furthermore, the Office of Thrift Supervision may disagree with our judgments
regarding the potential risks in our loan portfolio and could require us to
increase the allowance in the future.
For the three months ended June 30, 1999, we provided $56,000 for loan
losses, compared to $40,000 in the same quarter last year. We increased the
provision principally because of the increase in the size of our loan portfolio.
Our level of non-accruing loans (generally loans past due 90 days or more) was
$117,000 at June 30, 1999 compared to $284,000 at June 30, 1998. At June 30,
1999, our allowance was $576,000, or 1.33% of total loans, compared to $514,000
or 1.44% of total loans at June 30, 1998.
NON-INTEREST INCOME. Our non-interest income was $14,000 higher in the
1999 versus the 1998 quarter. The increase was principally the result of the
increased size of our institution, which generated more transaction fees. We
also implemented more rigorous policies regarding the collection and non-waiver
of account-related charges.
NON-INTEREST EXPENSES. Our non-interest expenses increased by $69,000
from the 1998 to the 1999 quarter. The primary reason for this increase was an
increase in staff to generate loan growth and support our increased size,
coupled with compensation expense for our Employee Stock Ownership Plan. These
were the primary reasons for a $41,000 increase in salaries and employee
benefits expense. By the end of the 1999 quarter, we had twenty full time and
one part time employees, compared to sixteen full time and two part time
employees at the end of June 1998. We believe that we have begun to reap the
benefits of the increase in the level of employees as the increase in loans
shows. However, we believe that our existing employee group can support
additional growth. We also believe that the reorganization itself caused a
temporary disruption in employee productivity as we allocated employees to tasks
necessary to complete the reorganization.
INCOME TAX EXPENSE. Our income tax expense increased by $18,000, or
24%, from the 1998 to the 1999 quarter. The increase was caused by the increase
in income before income tax.
-14-
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND
1998.
GENERAL. Our net income for the nine months ended June 30, 1999 was
$488,000, an increase of $50,000, or 11.4%, over our net income for the same
period last year. The primary reason for the increase in net income was the
increase in our size and our capital levels, as discussed above. Partially
offsetting these improvements were an increase in salaries and employee benefits
expense and an increase in other general operating expenses.
INTEREST INCOME. Interest income increased by $286,000, or 8.8%, from
the nine months ended June 30, 1998 to the nine months ended June 30, 1999. We
generated the increase through our efforts to increase our interest-earning
assets. Average interest-earning assets increased from $52.3 million for the
1998 period to $58.1 million for the 1999 period. The factors which enabled us
to generate the increase were the same as discussed above in the quarterly
comparison. Our $3.2 million increase in the average balance of loans between
the 1998 and the 1999 quarters was coupled with a $2.5 million increase in
securities investments. This was because our growth efforts generated a $3.9
million increase in average interest-bearing funding sources and a $1.6 million
increase in average capital, both of which provided funds for investment. The
average interest rate we earned on our interest-earning assets was 16 basis
points (0.16%) lower during the first nine months of this fiscal year than
during the same period last year. The reason for the decrease was a 31 basis
point decline in the yield on securities, while the yield on loan remained the
same between the periods.
Overall, we estimate that the increase in the average volume of
interest-earning assets caused a $338,000 increase in interest income, while the
decrease in interest rates resulted in a decrease in interest income by
approximately $53,000.
INTEREST EXPENSE. As in the case of interest income, interest expense
also increased from the 1998 to the 1999 periods due to an increase in the
average volume of interest-bearing liabilities as we sought funds to grow our
assets. However, for the reasons we explained above in the quarter to quarter
comparison, the increase in interest expense was only $75,000, compared to a
$286,000 increase in interest income. The average rate paid on deposits and
other liabilities declined by 15 basis points between the periods as generally
lower market interest rates allowed us to decrease our rates on certificates of
deposit. At the same time, our average capital increased $1.6 million, which
provided us with an increase in zero cost funding sources.
NET INTEREST INCOME. The net effect of the increase in interest income
and the lower increase in interest expense was a $210,000 increase in net
interest income. As discussed above, this increase was the result of growth,
partially offset by a one basis point reduction in our interest rate spread. Our
spread remained relatively constant because a 31 basis point reduction in the
yield on securities was offset by a 20 basis point reduction in the average rate
on certificates of deposit, while rates on other major categories remained
relatively constant.
PROVISION FOR LOAN LOSSES. For the nine months ended June 30, 1999, we
provided $100,000 for loan losses, compared to $125,000 in the same period last
year. We reduced the provision principally because our level of non-accruing
loans declined from $284,000 at June 30, 1998 to $117,000 at June 30, 1999. As a
result, we were able to maintain our allowance at the level which we believed to
be appropriate without an increase in our provision for loan losses, despite the
increase in our total loan portfolio.
NON-INTEREST INCOME. Our non-interest income increased by $37,000 from
the 1998 to the 1999 periods. The increase was the result of an increase in
account fees and other charges generally related to increased transaction volume
caused by our growth.
-15-
<PAGE>
NON-INTEREST EXPENSES. Our non-interest expenses increased by $221,000
from the 1998 to the 1999 periods. The primary reason for this increase was the
increase in staff discussed above, which was the primary cause of a $120,000
increase in salaries and employee benefits expense. Other categories of
non-interest expense also increased principally because of our efforts to
increase our size.
INCOME TAX EXPENSE. Our income tax expense increased by $2,000, or less
than 1%, from the 1998 to the 1999 periods. The increase was less than might
have otherwise been anticipated from a $52,000 increase in pre-tax income
because of a slight shift in our tax accruals and the resolution of
uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are deposits and proceeds from the
principal and interest payments on loans and securities. Maturities and
scheduled principal payments on loans and securities are predictable sources of
funds. We can also control the funds available from borrowings. However, general
economic conditions and interest rate conditions can cause increases or
decreases in deposit outflows and loan prepayments which can also affect the
level of funds we have available for investment.
In general, we manage our liquidity by maintaining a sufficient level
of short term investments so that funds are regularly available for investment
in loans when needed. During the nine months ended June 30, 1999, we reduced our
cash and cash equivalents by $2.3 million. The primary reason for the reduction
was that we invested available funds in loans and securities investments, so
that our net increases in those investments exceeded the cash we received from
our stock offering and our leverage borrowings net of deposit outflows. We
originated $14.7 million of new loans during the nine months ended June 30,
1999. However, loans, net, after payments, charge-offs and transfers to real
estate owned, increased by $7.5 million during the period.
Deposits decreased by $1.3 million during the nine months ended June
30, 1999. As we discussed above, we believe the decrease was primarily caused by
the use of deposits to purchase stock and by the cancellation of some stock
subscriptions which had been carried as deposits on September 30, 1998. In
addition to factors within our control, such as our deposit pricing strategies
and our marketing efforts, deposit flows are affected by the level of general
market interest rates, the availability of alternate investment opportunities,
general economic conditions, and other factors outside our control.
We monitor our liquidity regularly. Excess liquidity is invested in
overnight federal funds sold and other short term investments. If we need
additional funds, we can borrow those funds, although the cost of borrowing
money is normally higher than the average cost of deposits. As a member of the
Federal Home Loan Bank of New York, the Bank can arrange to borrow in excess of
$10 million, but to do so it must provide appropriate collateral and satisfy
other requirements for Federal Home Loan Bank borrowings. We have used borrowed
funds to help us leverage the capital we received from our stock sale, but we
have not needed borrowings to cover liquidity shortfalls. In addition to
borrowings, we believe that, if we need to do so, we can attract additional
deposits by increasing the rates we offer.
We had $1.7 million of outstanding commitments to make loans at June
30, 1999, along with $351,000 of unused home equity, commercial and overdraft
lines of credit. We anticipate that we will have enough funds to meet our
current loan commitments and to fund drawn downs on the lines of credit through
the normal turnover of our loan and securities portfolios and the re-investment
of short term investments in longer term assets when opportunities arise. At
June 30, 1999, we had $12.5 million of certificates of deposit which are
scheduled to mature in one year. We anticipate that we can retain substantially
all of those deposits if we need to do so to fund loans and other investments as
part of our efforts to grow and leverage our new capital.
-16-
<PAGE>
The OTS has minimum capital ratio requirements which apply to the Bank,
but there are no comparable minimum capital requirements that apply to us as a
savings and loan holding company. At June 30, 1999, the Bank exceeded all
regulatory capital requirements of the OTS applicable to it, with Tier I capital
of $13.7 million, or 20.5% of average assets and with total risk-based capital
of $14.1 million, or 43.6% of risk-weighted assets. The Bank also had tangible
capital of $13.7 million, or 20.5% of average tangible assets. The Bank was
classified as "well capitalized" at June 30, 1998 under OTS regulations.
OTS regulations require that the Bank maintain liquid assets equal to
4% of withdrawable accounts. This ratio is measured on a monthly average basis.
The Bank had a liquidity ratio of 39.7% for June 1999.
YEAR 2000 COMPLIANCE
Our progress on becoming Year 2000 compliant is continuing as
scheduled. Thus far, we have not identified any material risks in any of our own
systems and we have received reasonable assurances that our material outside
vendors will be able to continue to provide services to us. We have completed
all testing of the primary systems of our principal data processing provider and
all other secondary outside systems and no problems have been discovered. We
have also completed testing of all in house systems and the test results were
satisfactory. We have developed contingency plans to move to a manual system in
the event of an emergency. Although we would certainly rather not do so, we know
from our recent experience with a severe ice storm that shut down power in the
area that we can operate for at least five days using entirely manual systems.
We have also retested the contingency plans during the past few months.
In recent months, our emphasis has shifted away from reviewing our own
computer systems and the systems of our vendors (a task which is substantially
complete) towards addressing public perception of the safety of bank deposits
and other banking transactions. Media publicity regarding the possible
consequences of Year 2000 computer malfunctions could cause customer hysteria
resulting in substantial cash withdrawals during December 1999. While we will
position ourselves to increase available cash to address an anticipated increase
in withdrawals, we are also educating our customers regarding the safety of
their funds in order to minimize panic.
Although we are working to avoid the adverse effects of such panic, it
is substantially out of our control. Non-compliance by a local utility, for
example, may not only have an adverse direct effect on our ability to conduct
business, but may also create local panic which could affect our liquidity.
However, we anticipate that we will be able to satisfy customer demands for cash
if necessary through the use of our liquid assets and borrowing facilities.
FORWARD-LOOKING STATEMENTS
When we use words or phrases like "will probably result," "we expect,"
"will continue," "we anticipate," "estimate," "project," "should cause" or
similar expressions in this 10-Q or in any press releases, public announcements,
filings with the Securities and Exchange Commission or other disclosures, we are
making "forward-looking statements" as described in the Private Securities
Litigation Reform Act of 1995. In addition, certain information we will provide
in the future on a regular basis, such as analysis of the adequacy of our
allowance for loan losses or an analysis of the interest rate sensitivity of our
assets and liabilities, is always based on predictions of the future. From time
to time, we may also publish other forward-looking statements anticipated
financial performance, business prospects, and similar matters.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. We want you to know that a variety of
future events could cause our actual results and experience to differ materially
from what was anticipated in our forward-looking statements. Some of the risks
and uncertainties that may affect
-17-
<PAGE>
our operations, performance, development and results, the interest rate
sensitivity of our assets and liabilities, and the adequacy of our allowance for
loan losses, include:
o local, regional, national or global economic conditions which could
cause an increase in loan delinquencies, a decrease in property values,
or a change in the housing turnover rate;
o the failure of our customers or major suppliers to have computers and
other systems which are Year 2000 compliant;
o changes in market interest rates or changes in the speed at which
market interest rates change;
o changes in laws and regulations affecting us;
o changes in competition; and
o changes in consumer preferences.
Please do not rely unduly on any forward-looking statements, which are
valid only as of the date made. Many factors, including those described above,
could affect our financial performance and could cause our actual results or
circumstances for future periods to differ materially from what we anticipate or
project. We have no obligation to update any forward-looking statements to
reflect future events which occur after the statements are made.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
QUALITATIVE ANALYSIS. We try to avoid taking undue interest rate risk
while satisfying customer demand for loans. Substantially all of our residential
mortgage loans have fixed interest rates and terms of up to 25 years. Adjustable
residential mortgage loans are not in demand during the current low interest
rate conditions and they represent only a very small part of our residential
mortgage loan portfolio. Therefore, in a rising interest rate environment, we
expect that the yields on our residential mortgage loan portfolio will increase
relatively slowly, as loans are repaid and the payments are reinvested, while
our cost of funds will rise more rapidly. In order to reduce this risk, we have
adopted a multi-part strategy. First, we are working to originate higher levels
of automobile loans, home equity lines of credit, and commercial loans which
tend to have shorter terms or adjustable rates. Second, we have concentrated our
securities investments in short-term or adjustable-rate securities. U.S.
Treasury and federal agency securities are purchased with terms to maturity that
generally do not exceed two years. Most of our mortgage-backed securities have
adjustable rates or relatively short terms with balloon payments. We also try to
cushion our operations against interest rate fluctuations by preserving a loyal
customer base through paying above market rates on savings and club account
deposits during present periods of low interest rates. We believe this may cause
our customers to be less likely to shift their funds to high rate deposit
products as interest rates rise.
We have also considered the issue of interest rate risk in structuring
our leveraging strategy. Our borrowings are all short term, generally having
terms to maturity of thirty days. We have reinvested the borrowed funds in
one-year adjustable-rate mortgaged-backed securities because they have
satisfactory interest sensitivity characteristics. We might have been able to
obtain higher yields with fixed-rate mortgage-backed securities, but we
determined that the interest rate risks resulting from using short term
borrowings to fund such long term investments were inappropriate.
Interest rate pricing and interest rate risk strategy objectives are
implemented, in the first instance, by an internal committee which meets weekly
to review and assess deposit and loan pricing. The OTS prepares a quarterly
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<PAGE>
interest-rate sensitivity report for the Bank based upon its asset and liability
profile which seeks to estimate the effect of interest rate changes on the net
value of the Bank's assets and liabilities. This report is reviewed with the
Board of the Bank quarterly
QUANTITATIVE ANALYSIS. The OTS report seeks to estimate how changes in
interest rates will affect the Bank's "net portfolio value." Net portfolio
value, or "NPV," akin to net worth, represents the net present value of the
Bank's cash flow from assets, liabilities and off balance sheet items. Each
calendar quarter, the OTS calculates the Bank's estimated NPV and the estimated
effect on NPV of instantaneous and permanent 1% to 4% (100 to 400 basis point)
increases and decreases in market interest rates. The calculations are based
upon the OTS's assumptions regarding loan prepayments rates, deposit turnover
and other factors affecting the repricing of assets and liabilities. The OTS
does not include in its analysis any assets held by Gouverneur Bancorp, Inc.
which are not owned by the Bank.
The following table presents the Bank's estimated NPV at March 31,
1999, and the estimated effect on NPV of the specified interest rate changes, as
calculated by the OTS. At March 31, 1999, the portfolio value of the Bank's
assets as estimated by the OTS was $64.8 million. The March 31, 1999 report is
the most recent OTS report that the Bank has received.
<TABLE>
<CAPTION>
Hypothetical Change in Estimated Estimated Change in Estimated Percentage
Interest Rate Net Portfolio Value Net Portfolio Value Change in NPV(1)
------------- ------------------- ------------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+3.00% $ 14,205 -$2,097 -13%
+2.00% 15,112 -1,190 -7%
+1.00% 15,844 - 459 -3%
0.00% 16,302 - -
-1.00% 16,986 +684 +4%
-2.00% 17,635 +1,332 +8%
-3.00% $ 18,444 $2,141 +13%
</TABLE>
(1) Calculated as the amount of estimated change in NPV divided by the estimated
current NPV.
The above table indicates that in a rising interest rate environment,
the Bank's net portfolio value should decrease, while net portfolio value should
increase in a declining interest rate environment. These changes in net
portfolio value should be accompanied by a decline in net income during periods
of rising interest rates and an increase in net income during periods of
declining interest rates. However, these expected changes in net income may not
occur for many reasons including, among others, the possibility that we may
decide not to reduce the rates we offer on our deposits when interest rates
decline in order to retain and increase our deposit base.
We have begun the process of investing the new capital we received in
the Reorganization in loans. Loans, if they have fixed rates and long terms to
maturity, have the effect of increasing our exposure to increases in market
interest rates. Therefore, we are seeking to increase our commercial and
consumer loans because, in addition to higher yields, they tend to have shorter
terms or adjustable interest rates.
There are shortcomings in the methodology used by the OTS to calculate
changes in NPV. In order to estimate changes in NPV, the OTS makes assumptions
about repayment and turnover rates which may not turn out to be correct. The NPV
table assumes that the composition of the Bank's interest sensitive assets and
liabilities existing at the beginning of a period remain constant over the
period being measured. So, for example, the NPV analysis assumes that the ratio
of adjustable versus fixed-rate loans or short-term loans versus long-term loans
remains the same and that interest rates will change equally for both long term
and short term assets. Therefore, although the OTS NPV analysis provides the
Board of the Bank with an indication of the Bank's interest rate risk exposure,
it does not provide a precise forecast of the effect of changes in market
interest rates on net interest income.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company and the Bank are
subject to legal actions which involve claims for monetary relief. Management,
based on advice of counsel, does not believe that any currently known legal
actions, individually or in the aggregate, will have a material effect on its
consolidated financial condition or results of operation.
Item 2. Changes in Securities and Use of Proceeds
None during the quarter ended June 30, 1999. See Part II, Item 2 of
report on Firm 10-Q for the quarter ended March 31, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3.1) Federal Stock Charter of Gouverneur Bancorp, Inc. as
formally issued by the Office of Thrift Supervision
on March 23, 1999 (incorporated by reference to
Exhibit 3.1 to the pre-effective amendment no. 1 to
Gouverneur Bancorp, Inc.'s registration statement on
Form S-1 filed on August 5, 1998 (File No.
333-57845)).
(3.2) Bylaws of Gouverneur Bancorp, Inc. (incorporated by
reference to Exhibit 3.2 to the pre-effective
amendment no. 1 to Gouverneur Bancorp, Inc.'s
registration statement on Form S-1 filed on August
5, 1998 (File No. 333-57845)).
(27) Financial Data Schedule (included only in EDGAR
filings).
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Gouverneur Bancorp, Inc.
Date: August 13, 1999 By: /s/ Richard F. Bennett
--------------------------------
President and Chief Executive
Officer (principal financial officer
and officer duly authorized to sign
on behalf of the registrant)
-20-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.1 Federal Stock Charter of Gouverneur Bancorp, Inc. as
formally issued by the Office of Thrift Supervision on March 23,
1999 (incorporated by reference to Exhibit 3.1 to the pre-
effective amendment no. 1 to Gouverneur Bancorp, Inc.'s
registration statement on Form S-1 filed on August 5, 1998 (File
No. 333-57845))
3.2 Bylaws of Gouverneur Bancorp, Inc. (incorporated by
reference to Exhibit 3.2 to the pre-effective amendment no. 1 to
Gouverneur Bancorp, Inc.'s registration statement on Form S-1
filed on August 5, 1998 (File No. 333-57845))
27 Financial Data Schedule (included only in EDGAR filings)
-21-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements for the nine months ending June 30, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,221
<INT-BEARING-DEPOSITS> 959
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,349
<INVESTMENTS-CARRYING> 6,474
<INVESTMENTS-MARKET> 6,434
<LOANS> 42,687
<ALLOWANCE> 576
<TOTAL-ASSETS> 66,968
<DEPOSITS> 45,052
<SHORT-TERM> 4,340
<LIABILITIES-OTHER> 1,657
<LONG-TERM> 0
0
0
<COMMON> 24
<OTHER-SE> 15,895
<TOTAL-LIABILITIES-AND-EQUITY> 66,968
<INTEREST-LOAN> 2,659
<INTEREST-INVEST> 813
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 3,518
<INTEREST-DEPOSIT> 1,468
<INTEREST-EXPENSE> 1,489
<INTEREST-INCOME-NET> 2,029
<LOAN-LOSSES> 100
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 1,324
<INCOME-PRETAX> 771
<INCOME-PRE-EXTRAORDINARY> 771
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488
<EPS-BASIC> .08
<EPS-DILUTED> .08
<YIELD-ACTUAL> 4.67
<LOANS-NON> 117
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 484
<CHARGE-OFFS> 37
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 576
<ALLOWANCE-DOMESTIC> 576
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
