Gouverneur Bancorp Announces Fiscal 2019 Results
To supplement our financial information, which is prepared and presented in accordance with generally accepted accounting principles in the United States of America, or GAAP, we used the following non-GAAP financial measures: Adjusted Other Operating Income, Adjusted Earnings Before Income Tax (AEBIT), Adjusted Income Tax, and Adjusted Net Income. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our recurring business operating results. The financial information excludes from other operating income, the non-cash measurement of the unrealized gains or losses in market value on swap agreements held with FHLBNY.We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to our historical performance. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.There are a number of limitations related to the use of non-GAAP financial measures. In light of these limitations, we provide specific information regarding the GAAP amounts excluded from these non-GAAP financial measures and evaluating these non-GAAP financial measures together with their relevant financial measures in accordance with GAAP.For more information on these non-GAAP financial measures, please see the section titled “Definitions of Non-GAAP Measures” and “Reconciliations of Non-GAAP Measures” included at the end of this release.Financial and Operational Metrics(1) “Adjusted Other Operating Income”, “Adjusted Earnings Before Income Tax”, Adjusted Income Tax”, and “Adjusted Net Income” are non-GAAP measures. See “Definitions of Non-GAAP Measures” and “Reconciliation of Non-GAAP Measures” sections herein for an explanation and reconciliation of non-GAAP measures used throughout this release.Total Revenue (net interest income plus other operating income) for fiscal year 2019 was $4.12 million, a decrease of $2.72 million over the 2018 fiscal year-end total of $6.84 million. The Bank remains well-capitalized with a core capital ratio of 22.33%, a decrease of 0.38% from 2018.Total Adjusted Revenue (net interest income plus adjusted other operating income) for fiscal year 2019 was $5.94 million, a decrease of $15,000 over the 2018 fiscal year-end total of $6.09 million.Net income for the fiscal year ended September 30, 2019 decreased 139.12% to $(464,000) or $(0.21) per diluted share, compared to $1.19 million, or $0.54 per diluted share, in fiscal 2018. The earnings resulted in a return on average assets of (0.36%), a decrease from 0.91% in fiscal 2018, while the return on average equity decreased to (1.55%) for the year ended September 30, 2019, from 3.97% for the year ended September 30, 2018. Adjusted net income for the fiscal year ended September 30, 2019 decreased 13.19% to $974,000 or $0.45 per diluted share, compared to $1.12 million, or $0.52 per diluted share, in fiscal 2018. The earnings resulted in a return on average assets of 0.74, a decrease from 0.86% in fiscal 2018, while the return on average equity decreased to 3.219% for the year ended September 30, 2019, from 3.76% for the year ended September 30, 2018. Interest income on loans decreased $94,000 in fiscal 2019, from $5.02 million at September 30, 2018 to $4.93 million at September 30, 2019. Total interest income decreased $102,000, or 1.78%, from $5.72 million to $5.62 million.Interest expense on deposits increased $41,000, from $268,000 at September 30, 2018 to $309,000 at September 30, 2019. Interest expense incurred on borrowings from the Federal Home Loan Bank, $248,000 at the end of fiscal 2018, increased $24,000, to $272,000 at the end of fiscal 2019, resulting in a total interest expense of $581,000.Interest spread, the difference between the rate earned on interest-earning assets and the rate paid on interest-bearing liabilities, was 4.21% in fiscal 2019 and 4.27% in fiscal 2018.Other operating income decreased $2.55 million from $1.63 million in fiscal year 2018 to ($922,000) in fiscal 2019. This includes the unrealized market value gain (loss) on swap agreements held with FHLBNY of ($1.82) million and $747,000 for 2019 and 2018, respectively.Adjusted other operating income increased $13,000, from $885,000 in fiscal year 2018 to $898,000 in fiscal 2019. The adjustment includes the exclusion of the unrealized market value gain (loss) on swap agreements held with FHLBNY.Total non-interest expense increased $84,000 from $4.71 million at the end of September 2018 to $4.79 million at the end of September 2019. Salary and employee benefits expense increased from the 2018 level due to staffing transitions and increased health insurance costs. Directors’ fees remained steady while data processing experienced a modest increase with a fee increase from the Bank’s core processor, COCC. Foreclosed assets decreased $5,000 while other operating expenses decreased $128,000. The components of non-interest expense are presented in the table below.
Net loans decreased $4.92 million, or 5.15%, from $95.63 million to $90.71 million over the same period. The Bank made a $70,000 provision for loan losses in fiscal 2019, a slight increase from the $65,000 provision made in the 2018 fiscal year. Non-performing assets were $2.12 million at September 30, 2019, compared to $2.01 million at September 30, 2018. Net charge-offs, currently $209,000, increased for the fiscal year ended September 30, 2019. The allowance for loan losses was $637,000 or 0.70of total loans outstanding at September 30, 2019 as compared to $776,000 or 0.81% at September 30, 2018.Deposits decreased $5.34 million, or 6.31%, to $79.28 million at September 30, 2019 from $84.62 million at September 30, 2018. The Bank currently holds no brokered deposits. Advances from the FHLB decreased $2.0 million, from $12.0 million to $10.0 million over the same period as the need for the Company to fund its loan portfolio with low-cost FHLB borrowings decreased.Total assets decreased by $6.56 million, or 4.98%, from $131.83 million at September 30, 2018 to $125.27 million at September 30, 2019. Asset composition includes non-performing assets of 1.69% of total assets, an increase from the 2018 figure of 1.53%. Shareholders’ equity was $29.45 million at September 30, 2019, representing a decrease of 1.74% from the September 30, 2018 balance of $29.98 million. The Company’s book value was $13.53 per common share based on 2,383,608 shares issued and 2,176,908 shares outstanding at September 30, 2019 versus $13.77 per common share based on 2,383,768 shares issue with an equal amount of shares outstanding on September 30, 2018. The Company paid cash dividends totaling $0.34 per share to all public holders of our stock, during the fiscal year ending September 30, 2019. Non-GAAP Financial MeasuresThe Company has numerous interest rate swap agreements (“swaps”) with Federal Home Loan Bank of New York (“FHLBNY”) as a means to hedge the cost of certain borrowings and to increase the interest rate sensitivity of certain assets. Activity in Fiscal year 2019 has resulted in an unrealized loss on the fair market value of these swaps due to a decline in longer term U.S. Treasury bond rates. The accounting for changes in the fair market value of these swaps (unrealized gains or losses) is currently recognized in earnings as other operating income. The decline in the fair value of the swaps is considered temporary. The Company has both the intent and ability to hold these swaps to maturity regardless of the changes in market condition, liquidity needs or changes in general economic conditions.While the swaps market value will fluctuate with long term bond rates and projected short term rates, the Company continues to mitigate its interest rate risk and benefit from a positive net inflow of interest income earned on the swap agreements. Definitions of Non-GAAP MeasuresAdjusted Other Operating Income We define Adjusted Other Operating Income as total non-interest earnings excluding certain items that may not be indicative of our recurring business operating results. Adjusted other operating income excludes from other non-interest income the non-cash measurement of the unrealized gains or losses in market value on swap agreements.Adjusted Earnings Before Income Tax We define AEBIT as net income (loss) before income tax, excluding certain items that may not be indicative of our recurring business operating results. AEBIT excludes from total earnings before income tax the non-cash measurement of the unrealized gains or losses in market value on swap agreements.We have included AEBIT because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those related to operating expenses. Accordingly, we believe that AEBIT provides useful information to investors and others in understanding and evaluation our operating results in the same manner as our management team and board of directors. In addition, it provides a useful measure for period-to-period comparisons of our business as it removes the effect of certain non-cash items with variable unrealized gains and losses. AEBIT is not meant as a substitute for the related financial information prepared in accordance with GAAP. Adjusted Income Tax We define Adjusted Income Tax as the income tax calculated from the adjusted earnings before income tax.Adjusted Net Income We define Adjusted Net Income as net income less certain items that may not be indicative of our recurring business operating results. Adjusted Net Income excludes the non-cash measurement of the unrealized gains or losses in market value on swap agreements held with FHLBNY and the subsequent recalculation of associated income tax. Adjusted Net Income should be considered a supplement, and not a substitute for, net income prepared in accordance with GAAP.Forward-Looking StatementsThe Company, which is headquartered in Gouverneur, New York, is the holding company for Gouverneur Savings and Loan Association. Founded in 1892, the Bank is a New York State chartered savings and loan association offering a variety of banking products and services to individuals and businesses in its primary market area in St. Lawrence, Lewis and Jefferson Counties in New York State.Statements in this news release contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs of management as well as assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. These risks and uncertainties include among others, the impact of changes in market interest rates and general economic conditions, changes in government regulations, changes in accounting principles and the quality or composition of the loan and investment portfolios. Therefore, actual future results may differ significantly from results discussed in the forward-looking statements. For more information, contact Charles C. Van Vleet Jr., President and Chief Executive Officer at (315) 287-2600.