UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 001-14910
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 DECEMBER 31, 1999 THERE WERE 2,276,759 SHARES OUTSTANDING.
<PAGE>
GOUVERNEUR BANCORP, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AT DECEMBER 31,
1999 AND AT SEPTEMBER 30, 1999
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND DECEMBER 31, 1998
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME FOR THREE MONTHS ENDED DECEMBER 31, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1999 AND 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
<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 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.
3
<PAGE>
<TABLE>
<CAPTION>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands) (Unaudited)
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ ------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 1,322 $ 1,564
Interest-bearing deposits with other financial institutions 1,548 1,926
Securities available-for-sale, at fair value 12,630 12,971
Securities held-to-maturity (fair value of
$5,552 at December 31, 1999 and $5,957 at
September 30, 1999) 5,637 6,019
Loans, net of deferred fees 49,697 46,791
Allowance for loan losses (660) (620)
------------ ------------
Loans, net 49,037 46,171
Premises and equipment, net 264 278
Federal Home Loan Bank stock, at cost 540 385
Accrued interest receivable 430 469
Real estate owned 204 169
Other assets 71 44
------------ ------------
Total assets $ 71,683 $ 69,996
============ ============
LIABILITIES
Deposits: Demand accounts $ 427 $ 184
Savings and club accounts 15,283 15,423
Time certificates 22,424 23,057
NOW and money market accounts 5,984 6,449
------------ ------------
Total interest-bearing deposits 44,118 45,113
Advance payments by borrowers for property taxes
and insurance 364 151
Other liabilities 843 1,303
Securities sold under agreements to repurchase 8,300 5,900
Other Borrowings 2,500 1,500
------------ ------------
Total liabilities 56,125 53,967
------------ ------------
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 24
Additional paid in capital 4,553 4,553
Retained earnings 11,619 11,470
Treasury Stock, 107,281 shares (543) --
Accumulated other comprehensive income 311 390
Unallocated shares of Employee Stock Ownership Plan
81,204 shares at 12/31/99 and 81,534 shares at 9/30/99 (406) (408)
------------ ------------
Total shareholders' equity 15,558 16,029
------------ ------------
Total liabilities and shareholders' equity $ 71,683 $ 69,996
============ ============
See accompanying notes to the consolidated financial statements.
</TABLE>
4
<PAGE>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------------
1999 1998
-------------- --------------
INTEREST INCOME
Loans $ 1,030 $ 833
Securities 271 280
Other short-term investments 21 29
-------------- --------------
Total interest income 1,322 1,142
INTEREST EXPENSE
Deposits 455 514
Borrowings 127 --
-------------- --------------
Total interest expense 582 514
-------------- --------------
Net interest income 740 628
Provision for loan losses 39 33
-------------- --------------
Net interest income after
provision for loan losses 701 595
NON-INTEREST INCOME
Service charges 22 16
Other 42 26
-------------- --------------
Total non-interest income 64 42
NON-INTEREST EXPENSES
Salaries and employee benefits 233 200
Directors fees 20 19
Building, occupancy and equipment 58 47
Data processing 27 23
Postage and supplies 31 18
Professional fees 50 20
Deposit insurance premium 7 6
Real estate owned 7 22
Other 87 69
-------------- --------------
Total non-interest expenses 520 424
Income before income tax expense 245 213
Income tax expense 96 85
-------------- --------------
$ 149 $ 128
============== ==============
BASIC EARNINGS PER SHARE (NOTE 3) 0.07 N/A
Weighted average shares outstanding 2,290,451 N/A
See accompanying notes to the consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(In thousands) (Unaudited)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID IN RETAINED COMPREHENSIVE TREASURY UNALLOCATED
STOCK CAPITAL EARNINGS INCOME STOCK ESOP TOTAL
------------ ------------- ------------ ------------------- ---------- ------------- ---------
Balance at
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
September 30, 1999 $ 24 $ 4,553 $ 11,470 $ 390 $ -- $ (408) $ 16,029
ESOP shares released or committed
to be released (330 shares) 2 2
Treasury shares purchased in stock
buy back (107,231 shares) (543) (543)
Comprehensive income:
Change in net unrealized gain
(loss) on securities available for
sale, net of tax (79) (79)
Net income 149 149
-------
Total comprehensive income 70
------------ ------------- ------------ ------------------- ---------- ------------ --------
Balance at December 31, 1999 $ 24 $ 4,553 $ 11,619 $ 311 $ (543)$ (406) $ 15,558
=========== ============= ============ =================== ========== ============ ========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASHFLOWS
(In thousands) (Unaudited)
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 149 $ 128
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 17 17
Increase in accrued interest receivable 39 16
Provision for loan losses 39 33
Net amortization (accretion) of premiums/discounts 14 1
Allocation of ESOP shares 2 --
Decrease in other liabilities (428) (495)
Increase in other assets (27) (85)
-------------- --------------
Net cash used by operating activities (195) (385)
-------------- --------------
INVESTING ACTIVITIES
Net increase in loans (2,940) (1,921)
Proceeds from maturities and principal reductions AFS 389 1,000
Purchases of securities AFS (172) (1,510)
Purchases of securities HTM -- (695)
Proceeds from maturities and principal reductions HTM 381 806
Additions of premises and equipment (3) (10)
Purchase of FHLB stock (155) --
-------------- --------------
Net cash used by investing activities (2,500) (2,330)
FINANCING ACTIVITIES
Net increase (decrease) in deposits (995) 724
Net increase in advance payments by borrowers
for property taxes and insurance 213 209
Net proceeds from short-term borrowing 3,400 --
Purchase of Treasury Stock shares (543) --
-------------- --------------
Net cash provided by financing activities 2,075 933
-------------- --------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C>
Net decrease in cash and cash equivalents (620) (1,782)
Cash and cash equivalents at beginning of period 3,490 4,434
-------------- --------------
Cash and cash equivalents at end of period $ 2,870 $ 2,652
============== ==============
Supplemental disclosure of cash flow information:
Non-cash investing activities:
Additions to real estate owned 35 52
Cash paid during the period for:
Interest 531 514
Income taxes 81 304
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
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 inter-company accounts and transactions have been
eliminated in this 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 condition and results of operations. The financial condition
is presented as of December 31, 1999 and September 30, 1999, and the
results of operations are for the three month periods ended December
31, 1999 and 1998. The statement of shareholders' equity and
comprehensive income is for the three months ended December 31, 1999
and the statements of cash flows are for the three months ended
December 31, 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 is not applicable as neither the Company nor the Bank had
shares outstanding. 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 and 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 related tax effect. Prior year consolidated
financial statements have been reclassified to conform to the
requirements of SFAS 130.
9
<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 the stock. We used one-half of the
net proceeds to acquire all the Bank's common stock. We subsequently applied for
permission to repurchase up to 107,281 shares of our common stock, representing
10% of the public shares outstanding. We received approval from the OTS on
November 10, 1999 and completed the purchase on December 22, 1999, at a price of
$5.00 per share plus commission.
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 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 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.
10
<PAGE>
AVERAGE BALANCES, INTEREST RATES AND YIELDS
The following table presents, 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 THREE MONTHS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998
---------------------------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (6) Balance Interest Cost (6)
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Loans (1) $ 47,565 $ 1,030 8.59% $ 36,119 $ 833 9.15%
Securities (2) 18,521 271 5.81% 18,437 280 6.03%
Other short-term investments 1,628 21 5.12% 2,380 29 4.83%
----------------------- ------------------------------------ ----
Total interest-earning assets 67,714 1,322 7.75% 56,936 1,142 7.96%
Non-interest-earning assets 3,000 3,250
----------- --------
Total assets $ 70,714 $ 60,186
=========== ========
Savings and club accounts (3) $ 15,567 $ 137 3.49% $ 17,472 $ 154 3.50%
Time certificates 22,447 288 5.09% 23,681 333 5.58%
Money market and NOW accounts 6,193 30 1.92% 5,764 27 1.86%
Borrowings 8,924 127 5.65% -- -- 0.00%
----------------------- ------------------------------------ ----
Total interest-bearing liabilities 53,131 582 4.35% 46,917 514 4.35%
Non-interest-bearing liabilities 1,511 1,716
----------- --------
Total liabilities 54,642 48,633
Equity 16,072 11,553
----------- --------
Total liabilities and equity $ 70,714 $ 60,186
=========== ========
Net interest income/spread (4) $ 740 3.40% $ 628 3.61%
======== ========== ======== ====
Net earning assets/net interest margin (5) $ 14,583 4.34% $ 10,019 4.38%
=========== ========== ======== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.27x 1.21x
======== ========
</TABLE>
11
NOTES APPEAR ON FOLLOWING PAGE.
<PAGE>
(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-month period have been annualized
when appropriate.
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
change due to rate.
Three Months Ended
December 31,
1999 vs. 1998
--------------------------------
Increase (Decrease) Due to:
(In Thousands) Volume Rate Total
-------- ------ -------
INTEREST-EARNING ASSETS:
Loans $ 251 $ (54) $ 197
Securities 1 (10) (9)
Other short-term investments (10) 2 (8)
------- ----- ------
Total interest-earning assets (62) 242 180
======= ===== ======
INTEREST-BEARING LIABILITIES:
Savings and club accounts (17) -- (17)
Time certificates (17) (28) (45)
NOW and money market accounts 2 1 3
Borrowings 127 - 127
------- ----- ------
Total interest-bearing liabilities 95 (27) 68
======= ===== ======
Net change in net interest income $ 147 $ (35) $ 112
======= ===== ======
12
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1999 AND SEPTEMBER 30, 1999.
During the three months from September 30, 1999 through December 31,
1999, we increased our loan portfolio by $2.9 million. This increase was mainly
due to an increase of $1.3 million in automobile loans, $1.1 million in real
estate loans and $0.3 million in commercial loans. Total assets increased $1.7
million from $70.0 million at September 30, 1999 to $71.7 million at December
31, 1999. Scheduled principal and interest payments from our mortgage-backed
securities and new borrowings of $3.4 million from the Federal Home Loan Bank
were used to fund the additional loans. Our borrowings stood at $10.8 million on
December 31, 1999. We experienced a decrease in deposits of approximately $1.0
million, or 2.2% during the quarter. We believe this decrease resulted from a
combination of factors. Some of the decrease can be attributed to normal run-off
during the holiday season. Additionally, we have experienced increased
competition for deposits as other financial institutions have offered special
rates on certificates of deposit. High yields on equity investments in the stock
markets has also made it more difficult for us to maintain our deposit levels.
Year 2000 concerns may have contributed to this decrease in deposits, but we do
not believe that this was a major factor. We will offer special CD programs in
future months to help bolster our deposits.
During the three months from September 30, 1999 through December 31,
1999, we continued to experience strong demand for our loan products and were
able to increase our loan portfolio and place available funds into loans, which
are higher yielding assets than securities. The increase of $2.9 million
represents a 6.2% increase in loans, while total assets increased by $1.7
million, or 2.4%.
Our shareholders' equity declined $471,000 during the quarter. The
decline was primarily caused buy our stock buyback program, which reduced
shareholders' equity by $543,000. We also had a $79,000 decline in other
comprehensive income because of a decline in the market value of our securities
portfolio due to rising interest rates. On the positive side, shareholders'
equity increased by our net income of $149,000 during the quarter. We are
considering requesting OTS permission for additional stock buybacks, which could
have the effect of reducing shareholders' equity but increasing book value per
share if our stock price remains at current levels, which is below per share
book value.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
AND 1998.
GENERAL. Our net income for the three months ended December 31, l999
was $149,000, an increase of $21,000, or 16.4%, 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 the increase in our loan portfolio
over the past year. Net interest income increased by $112,000. However,
increases in deferred fees expense associated with the increase in loans, and
increases in non-interest expenses, primarily professional fees, salaries and
employee benefits expense and income taxes, offset a portion of the increase in
net interest income.
INTEREST INCOME. Interest income increased $180,000, or 15.8%, from the
three months ended December 31, 1998 to the three months ended December 31,
1999. We generated the increase almost entirely as a result of increasing our
average level of interest-earning assets over the past twelve months from $56.9
million for the 1998 quarter to $67.7 million for the 1999 quarter. The increase
was composed of an $11.4 million increase in the average balance of loans, an
increase in the average balance in investment securities of $0.1 million and a
decrease of $0.7 million in other short-term investments. We accomplished this
increase in loans through the active solicitation of new loans and the hiring of
additional loan origination staff.
13
<PAGE>
The average interest rate we earned on our interest-earning assets was
21 basis points (0.21%.) lower in this year's quarter than last year, with the
average rate earned on loans decreasing by 56 basis points and the average rate
earned on securities decreasing by 22 basis points. The average rate we earned
on loans decreased for a couple of reasons. First, in response to our
competition, we offered mortgage loans in which the borrower did not pay closing
costs. These costs are amortized over the life of the mortgage, although the
mortgagee is responsible for the costs if the mortgage is paid off during the
initial five years. The amortization of these costs is reflected as a reduction
of loan interest income. Second, we are originating more variable rate
residential mortgages, which have a lower starting rate than fixed rate
mortgages. Finally, we have been originating more auto loans on new automobiles,
which have lower interest rates than loans on used autos.
Loans are our highest yielding asset category. The decline in loan
yields by 56 basis points had a substantial negative effect on our interest
income. However, we reduced this effect by increasing loans as a percentage of
total interest-earning assets.
The decrease in the average rates earned on securities was caused in
part by the addition of adjustable-rate mortgaged-backed securities to the
portfolio over the past year, which have a lower yield than fixed rate
securities. The one-year adjustable-rate mortgage-backed securities help reduce
the interest rate sensitivity effects of our long-term fixed-rate mortgage
portfolio.
Overall, we estimate that the increase in the average volume of
interest-earning assets caused a $242,000 increase in interest income, while the
decrease in average interest rates resulted in a $62,000 decrease in interest
income for a net increase of $180,000 in interest income.
INTEREST EXPENSE. Interest expense increased $68,000 in the first
quarter of 1999 versus 1998. We estimate that additional interest cost of
$95,000, resulted from an increase in the average volume of interest-bearing
liabilities while a $27,000 reduction in interest expense was caused by a
decrease in average rate we paid on certificates of deposit (CD's). The increase
in the volume of interest-bearing liabilities was a result of our borrowings to
provide funds so we could grow our assets. The average balance of
interest-bearing deposits was $2.7 million less in the 1999 quarter compared to
1998. This was caused in part by the decline in deposits and in part by the fact
that deposits during the 1998 quarter were higher because they included stock
subscriptions held pending completion of the Bank's reorganization.
Our average cost of funds was 4.35% for both quarters. Borrowings are
usually the highest cost of funds, so the increase in borrowings increased our
cost of funds. However, we decreased the average rate we paid on certificates of
deposit due to market interest rates. These two factors approximately offset
each other. In upcoming months, as we offer special certificate of deposit
programs to maintain deposit levels, our cost of funds may increase due to
higher rates we must offer in those programs.
NET INTEREST INCOME. The net effect of the increases in interest income
and interest expense was a $112,000 increase in net interest income. Despite
this increase, our interest rate spread (the difference between the average rate
we earn and the average rate we pay) decreased by 21 basis points (0.21%).
However, our net interest margin only decreased by 4 basis points to 4.34% in
1999, from 4.38% for the first quarter of 1998. Even though our spread decreased
by 21 basis points, we held the reduction in our net interest margin to 4 basis
points because we used an additional $4.5 million in average equity to grow our
interest-earning assets by $10.7 million, while our interest-bearing liabilities
only increased by $6.2 million.
The average yield on our loans and securities portfolio decreased as
discussed above. Although the decline in the rate earned on our interest-earning
assets declined by 21 basis points, the average cost of funds remained the same
at 4.35%. We continue 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, except when they offer special
CD promotions, and comparable to or at the high end of rates offered by thrift
institutions throughout the region.
14
<PAGE>
Average capital represented 23.7% of average interest-earning assets
for the quarter ended December 31, 1999, while it represented 20.3% of average
interest-earning assets for the same quarter in 1998. Our ratio of average
interest-earning assets to average interest-bearing liabilities increased from
1.21 times in 1998 to 1.27 times in 1999.
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 m the future.
For the three months ended December 31, 1999, we provided $39,000 for
loan losses, compared to $33,000 in the same quarter last year. We increased the
provision 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 $138,000 at
December 31, 1999 compared to $221,000 at September 30, 1999. At December 31,
1999, our allowance was $660,000, or 1.33% of total loans, compared to $620,000
or 1.33% of total loans at September 30, 1999. The $40,000 increase includes the
$39,000 provision and net recoveries of $1,000.
NON-INTEREST INCOME. Our non-interest income was $20,000 higher in the
1999 quarter versus the 1998 quarter. The increase was principally the result of
the increased size of our institution, which generated more transaction fees. We
have continued with our more rigorous policies regarding the collection and
non-waiver of account-related charges.
NON-INTEREST EXPENSES. Our non-interest expenses increased by $96,000
from the 1998 to the 1999 quarter. This increase was primarily due to additional
costs of $33,000 for salaries and benefits and a $30,000 increase in
professional fees for costs associated with the additional reporting
requirements of a public company. The balance of the increase was due to the
growth in the size of the Bank and includes expenses associated with the loan
production office opened in July 1999. At the end of the 1999, we had twenty-two
full-time and one part-time employees, compared to eighteen full time and one
part-time employees at the end of December 1998. We have begun to reap the
benefits of the increase in staff as shown by the increase in loans and net
income. We believe that our current staff level can support additional growth.
We also believe that the reorganization caused temporary increases in
professional fees expense which can be reduced by having our staff handle more
of the reporting requirements. This process has already started.
INCOME TAX EXPENSE. Our income tax expense increased by $11,000, or
11.9% comparing the first quarter of 1998 to the same quarter of 1999. The
increased expense was the result of higher net income before income tax of
$32,000, or 15.0%.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are deposits, borrowings from the Federal
Home Loan Bank, and proceeds from the principal and interest payments on loans
and securities. Scheduled maturities and 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 funds are regularly available for investment in
loans when needed. During the three months ended December 31, 1999, we reduced
our cash and cash equivalents by $620,000. We used this reduction, along with
new borrowings, to funds additional loans. We originated $5.3 million of new
loans during the three months ended December 31, 1999. However, loans, net,
after payments, charge-offs and transfers to real estate owned, increased by
$2.9 million during the period.
Deposits decreased by $1.0 million during the three months ended
December 31, 1999. As we discussed above, we believe the decrease was primarily
caused by run-off during the holiday season and competitive pressures from both
local banks and the stock markets. 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
$18 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 capital we received from our stock sale, but 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 $907,000 in outstanding commitments to make loans at December
31, 1999, along with $490,000 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 draws on the lines of credit through the
normal turnover of our loan and securities portfolios. At December 31, 1999, we
had $16.6 million of certificates of deposit 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.
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 December 31, 1999, the Bank exceeded all
regulatory capital requirements of the OTS applicable to it, with Tier I capital
of $13.9 million, or 19.5% of average assets and with risk-based capital of
$14.8 million, or 39.5% of risk-weighted assets. The Bank also had tangible
capital of $13.9 million, or 19.5% of average tangible assets. The Bank was
classified as "well capitalized" at December 31, 1999 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 basis. The Bank
had a liquidity ratio of 18.5% for December 31, 1999.
16
<PAGE>
YEAR 2000 COMPLIANCE
We did not encounter any material computer-related problems in the
transition into Year 2000.
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 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 that may affect 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 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
See discussion in our Annual Report on Form 10-K for the year ended
September 30, 1999. We do not believe that our exposure to interest rate
fluctuations has changed in a material way since September 30, 1999. We continue
to believe that an increase in market interest rates would have an adverse
effect on net income because the rates we pay on deposits and borrowings would
tend to adjust more quickly to market interest rates than the rates we earn on
loans and other investments.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of stockholders held on October 27, 1999, the
stockholders of Gouverneur Bancorp, Inc. approved two stock-based compensation
plans, a the Stock Option Plan and the Management Recognition Plan. The vote on
the two proposals was as follows:
Management
Stock Option Plan Recognition Plan
----------------- ----------------
In favor (Public shares) 545,734 543,469
In favor(Cambray Mutual Holding Company) 1,311,222 1,311,222
In favor (Total) 1,856,956 1,854,691
Against 222,283 222,423
Abstain 2,965 5,090
Broker Non-vote None None
18
<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 the advise 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 result of operation.
Item 2. Changes in Securities and Use of Proceeds
None during the quarter ended December 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 3.2
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)).
(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 in 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: February 3, 2000 By: /s/ RICHARD F. BENNETT
---------------------------------
Richard F. Bennett
President and Chief
Executive Officer
(principal executive officer
and officer duly authorized
to sign on behalf of the
registrant)
By: /s/ ROBERT TWYMAN
---------------------------------
Robert Twyman
Chief Financial Officer
19
<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 Data Schedule (included only in
EDGAR filings)
20
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for the three months ended December 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001063942
<NAME> GOUVERNEUR BANCORP, INC.
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0
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<NET-INCOME> 149
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