UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
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 small business issuer 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)
Issuer's telephone number (315) 287-2600
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
Outstanding at
Class August 2, 2005
----- --------------
Common Stock, par value $ .01 2,284,234
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
GOUVERNEUR BANCORP, INC.
FORM 10-QSB
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION Page
------------------------------ ----
Item 1. Financial Statements - Unaudited
Consolidated Statements of Financial Condition at June 30, 2005
and at September 30, 2004 3
Consolidated Statements of Income for the three and nine months
ended June 30, 2005 and 2004 4
Consolidated Statements of Shareholders' Equity for the nine
months ended June 30, 2005 and 2004 5
Consolidated Statements of Cash Flows for the nine months ended
June 30, 2005 and 2004 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 11
Item 3. Controls and Procedures 20
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 21
Item 6. Exhibits 21
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data) (Unaudited)
June 30, September 30,
2005 2004
------------ ------------
Assets:
Cash and due from banks $ 2,716 $ 1,817
Interest-bearing deposits in bank 564 898
------------ ------------
Total cash and cash equivalents 3,280 2,715
Securities available-for-sale 11,572 13,797
Securities held-to-maturity (fair value 2005: $188: 2004: $248) 186 251
Loans, held for sale 2,223 --
Loans receivable, net of allowance for loan losses: 2005 $839: 2004 $755 92,899 80,159
Investment in Federal Home Loan Bank stock, at cost 1,650 1,150
Investment in life insurance 3,681 3,582
Premises and equipment, net 1,574 1,493
Accrued interest receivable and other assets 1,064 1,022
------------ ------------
Total assets $ 118,129 $ 104,169
============ ============
Liabilities:
Deposits: Non-interest-bearing demand $ 1,849 $ 1,327
NOW and money market 12,199 10,710
Savings 20,178 20,038
Time 29,712 29,523
------------ ------------
Total deposits 63,938 61,598
Advances from the Federal Home Loan Bank 33,000 23,000
Other liabilities 2,613 1,621
------------ ------------
Total liabilities 99,551 86,219
------------ ------------
Shareholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued -- --
Common stock, $.01 par value, 9,000,000 shares authorized; 2,384,040
shares issued 24 24
Additional paid-in capital 4,707 4,642
Retained earnings 14,232 13,632
Treasury Stock, at cost, (shares 2005: 99,806: 2004 100,931) (505) (511)
Accumulated other comprehensive income 369 451
Unearned common stock held by Management Recognition Plan (51) (57)
Unallocated common stock held by Employee Stock Ownership Plan (198) (231)
------------ ------------
Total shareholders' equity 18,578 17,950
------------ ------------
Total liabilities and shareholders' equity $ 118,129 $ 104,169
============ ============
See accompanying notes to consolidated financial statements.
3
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- ------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Interest income:
----------------
Loans $ 1,500 $ 1,203 $ 4,296 $ 3,571
Securities-taxable 119 120 346 398
-non-taxable 12 9 36 24
Other short-term investments 9 4 24 11
---------- ---------- ---------- ----------
Total interest income 1,640 1,336 4,702 4,004
Interest expense:
-----------------
Deposits 285 251 814 753
Borrowings - short term 103 17 232 78
Borrowings - long term 171 137 509 382
---------- ---------- ---------- ----------
Total interest expense 559 405 1,555 1,213
---------- ---------- ---------- ----------
Net interest income 1,081 931 3,147 2,791
Provision for loan losses 30 35 100 85
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,051 896 3,047 2,706
Non-interest income:
--------------------
Service charges 52 47 143 130
Realized gain on sales of securities -- -- 96 80
Realized loss on sales of loans -- -- (17) --
Earnings on investment in life insurance 30 31 99 59
Other 34 26 108 86
---------- ---------- ---------- ----------
Total non-interest income 116 104 429 355
Non-interest expenses:
----------------------
Salaries and employee benefits 427 320 1,263 1,041
Directors fees 36 26 99 72
Occupancy and equipment 98 87 285 257
Data processing 34 34 104 99
Postage and supplies 29 22 80 67
Professional fees 54 34 158 115
Foreclosed assets, net 2 3 (7) 23
Other 97 90 333 309
---------- ---------- ---------- ----------
Total non-interest expenses 777 616 2,315 1,983
---------- ---------- ---------- ----------
Income before income tax expense 390 384 1,161 1,078
Income tax expense 144 145 425 409
---------- ---------- ---------- ----------
Net income $ 246 $ 239 $ 736 $ 669
========== ========== ========== ==========
Earnings per common share - basic $ 0.11 $ 0.11 $ 0.33 $ 0.30
Earnings per common share - diluted $ 0.11 $ 0.11 $ 0.33 $ 0.30
See accompanying notes to consolidated financial statements
4
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine months ended June 30, 2005
(In thousands, except share data) (Unaudited)
Accumulated Unearned Unallocated
Additional Other common common
Common paid-in Retained Comprehensive stock held stock held Treasury
Stock capital earnings Income by MRP by ESOP stock Total
-------- ---------- -------- ------------ ------------ ------------ -------- --------
Balance at
September 30, 2004 $ 24 $ 4,642 $ 13,632 $ 451 $ (57) $ (231) $ (511) $ 17,950
Comprehensive income:
Net income 736 736
Change in net
unrealized gain
on securities
available for
sale, net of
reclassification
adjustment and
tax effects (82) (82)
--------
Total comprehensive income 654
--------
Allocation of ESOP
(6,743 shares) 63 33 96
Amortization of MRP 6 6
Exercise of stock options
(1,125 shares) 2 6 8
Cash dividends declared
($0.14 per share) (136) (136)
-------- ---------- -------- ------------ ------------ ------------ -------- --------
Balance at June 30, 2005 $ 24 $ 4,707 $ 14,232 $ 369 $ (51) $ (198) $ (505) $ 18,578
======== ========== ======== ============ ============ ============ ======== ========
5
GOUVERNEUR BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine months ended June 30, 2004
(In thousands, except share data) (Unaudited)
Accumulated Unearned Unallocated
Additional Other common common
Common paid-in Retained Comprehensive stock held stock held Treasury
Stock capital earnings Income by MRP by ESOP stock Total
-------- ---------- -------- ------------ ------------ ------------ -------- --------
Balance at
September 30, 2003 $ 24 $ 4,577 $ 13,365 $ 487 $ (85) $ (274) $ (537) $ 17,557
Comprehensive income:
Net income 669 669
Change in net
unrealized gain
on securities
available for
sale, net of taxes (203) (203)
--------
Total comprehensive
income 466
--------
Allocation of ESOP
(6,258 shares) 46 32 78
Amortization of MRP 21 21
Exercise of stock options
(5,225 shares) 1 26 27
Cash dividends declared
($0.13 per share) (296) (296)
-------- ---------- -------- ------------ ------------ ------------ -------- --------
Balance at June 30, 2004 $ 24 $ 4,624 $ 13,738 $ 284 $ (64) $ (242) $ (511) $ 17,853
======== ========== ======== ============ ============ ============ ======== ========
See accompanying notes to consolidated financial statements
6
GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
Nine Months Ended
June 30,
------------------------
2005 2004
---------- ----------
Cash flows from operating activities:
Net Income $ 736 $ 669
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 100 85
Depreciation 90 92
Net amortization of securities premiums and discounts 18 52
Net realized gains on sales of securities (96) (80)
Net realized losses on sales of loans 17 --
Earnings on bank owned life insurance (99) (59)
Allocated and earned shares of ESOP and MRP 102 99
Net realized gain on sale of foreclosed assets (14) --
(Increase) decrease in accrued interest receivable and other assets (69) 72
Increase in accrued interest payable and other liabilities 1,046 9
---------- ----------
Net cash provided by operating activities 1,831 939
---------- ----------
Cash flows from investing activities:
Net increase in loans (16,400) (9,301)
Proceeds from sales of loans 1,241 --
Purchases of loans -- (609)
Proceeds from sales of securities AFS 211 7,080
Proceeds from maturities and principal reductions of securities AFS 1,974 4,452
Purchases of securities AFS (18) (7,903)
Proceeds from maturities and principal reductions of securities HTM 65 62
Proceeds from sales of foreclosed assets 120 --
Additions to premises and equipment (171) (23)
Proceeds from sale of premises and equipment -- 3
Purchase of Federal Home Loan Bank stock (500) (290)
Purchase of investment in life insurance -- (3,500)
---------- ----------
Net cash used in investing activities (13,478) (10,029)
---------- ----------
Cash flows from financing activities:
Net increase in deposits 2,340 2,100
Net proceeds from FHLB advances 10,000 5,800
Exercise of stock options 8 27
Cash dividends paid (136) (296)
---------- ----------
Net cash provided by financing activities 12,212 7,631
---------- ----------
Net decrease in cash and cash equivalents 565 (1,459)
Cash and cash equivalents at beginning of period 2,715 4,288
---------- ----------
Cash and cash equivalents at end of period $ 3,280 $ 2,829
========== ==========
Non-cash investing activities:
Additions to foreclosed assets $ 79 $ 137
Cash paid during the period for:
Interest 1,502 1,215
Income taxes 385 329
See accompanying notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements include the accounts of
Gouverneur Bancorp, Inc. (the "Company") and Gouverneur Savings and
Loan Association (the "Bank"), the wholly owned and only subsidiary of
the Company, as of June 30, 2005 and September 30, 2004 and for the
three and nine month periods ended June 30, 2005 and 2004. All material
intercompany accounts and transactions have been eliminated in this
consolidation. These statements were prepared in accordance with
instructions for Form 10-QSB and, therefore, do not include information
or footnotes necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with
generally accepted accounting principles in the United States of
America.
In the opinion of management, all adjustments, consisting of only
normal recurring adjustments or accruals, which are necessary for a
fair presentation of the consolidated financial statements have been
made at and for the three month and the nine month periods ended June
30, 2005 and 2004. The results of operations for the three month and
nine month periods ended June 30, 2005 are not necessarily indicative
of the results which may be expected for an entire fiscal year or other
interim periods.
The data in the consolidated statements of condition for September 30,
2004 was derived from the Company's annual report on Form 10-KSB. That
data, along with the interim financial information presented in the
consolidated statements of financial condition, income, shareholders'
equity and cash flows should be read in conjunction with the 2004
consolidated financial statements, including the notes thereto included
in the Company's 2004 Annual Report on Form 10-KSB.
2. Earnings Per Common 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. Unallocated shares held by the Company's
Employee Stock Ownership Plan ("ESOP") are not included in the weighted
average number of shares outstanding. Unearned shares held by the
Company's Management Recognition Plan ("MRP") are not included in the
weighted average number of outstanding shares. Diluted earnings per
share reflects additional common shares that would have been
outstanding if dilutive potential common shares had been issued (for
example, through the exercise of common stock options), as well as any
adjustment to income that would result from the assumed issuance.
8
Basic and diluted earnings per share for the three-month and nine month
periods ending June 30, 2005 and 2004 were computed as follows:
(In thousands, except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
Basic earnings per share: 2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income $ 246 $ 239 $ 736 $ 669
Weighted average common shares outstanding 2,230 2,217 2,227 2,212
---------- ---------- ---------- ----------
Basic earnings per share $ 0.11 $ 0.11 $ 0.33 $ 0.30
========== ========== ========== ==========
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
Diluted earnings per share: 2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income $ 246 $ 239 $ 736 $ 669
Weighted average common shares outstanding 2,230 2,217 2,227 2,212
Additional potentially dilutive securities from common
stock options (equivalent in common stock) 33 32 35 32
---------- ---------- ---------- ----------
Diluted weighted average common shares outstanding 2,263 2,249 2,262 2,244
---------- ---------- ---------- ----------
Diluted earnings per share $ 0.11 $ 0.11 $ 0.33 $ 0.30
========== ========== ========== ==========
3. Comprehensive Income
--------------------
Comprehensive income, presented in the consolidated statements of
shareholders' equity, consists of net income and the net change for the
period in after-tax unrealized gains or losses on securities available
for sale. Accumulated other comprehensive income in the consolidated
statements of financial condition represents the net unrealized gains
or losses on securities available for sale as of the reporting dates,
net of related tax effect.
A summary of the unrealized gains (losses) and reclassification
adjustments of securities available for sale and the related tax
effects for the three and nine month periods ended June 30, 2005 and
2004 is as follows (in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Unrealized holding gains (losses) arising
during the period $ 119 $ (382) $ (40) $ (258)
Reclassification adjustment for gains realized in
net income during period -- -- (96) (80)
---------- ---------- ---------- ----------
119 (382) (136) (338)
Tax effect (48) 153 54 135
---------- ---------- ---------- ----------
Other comprehensive income (loss), net of tax $ 71 $ (229) $ (82) $ (203)
========== ========== ========== ==========
9
4. Stock Option and Management Recognition Plans
---------------------------------------------
The Company has a Stock Option Plan ("SOP") and the MRP for directors,
officers and key employees. The Company accounts for stock options
granted under the SOP and MRP in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations. The Company provides
pro forma net income and pro forma earnings per share disclosures for
employee stock options grants as if the fair-value-based method defined
in Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation", had been applied. The fair
value of the shares awarded, under the MRP, measured as of the grant
date, is recognized as unearned compensation (a component of
shareholders' equity) and amortized to compensation expense over the
vesting period.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based compensation (in thousands,
except per share data):
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income, as reported $ 246 $ 239 $ 736 $ 669
Total stock-based compensation expense determined
under fair value method for all awards, net of taxes (5) (18) (8) (30)
Reclassification adjustment for gains realized in
Amounts included in determination of net income,
net of taxes 1 4 3 12
---------- ---------- ---------- ----------
Pro forma net income $ 242 $ 225 $ 731 $ 651
========== ========== ========== ==========
Earnings per share:
Basic - as reported $ 0.11 $ 0.11 $ 0.33 $ 0.30
Basic - pro forma 0.11 0.10 0.33 0.29
Diluted - as reported $ 0.11 $ 0.11 $ 0.33 $ 0.30
Diluted - pro forma 0.11 0.10 0.32 0.29
5. Commitments and Contingencies
-----------------------------
Outstanding letters of credit written are conditional commitments
issued by the Company to guarantee the performance by a customer to a
third party. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
conditional obligations as it does for on-balance sheet instruments.
The Company has one standby letter of credit in the amount of $7,500 as
of June 30, 2005.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending other loan commitments. The
Company requires collateral and personal guarantees supporting these
letters of credit as deemed necessary. Management believes that the
proceeds obtained through a liquidation of such collateral in the event
of a default, and the enforcement of personal guarantees would be
sufficient to cover the maximum potential amount of future payments
required under the corresponding guarantees.
10
6. Dividend Restrictions
---------------------
Cambray Mutual Holding Company ("Cambray MHC"), the Company's parent
mutual holding company, held 1,311,222 shares, or 57.4%, of the
Company's issued and outstanding common stock, and shareholders other
than Cambray MHC held 973,012 shares or 42.6% of such stock at June 30,
2005. Cambray MHC has filed a notice with the Office of Thrift
Supervision ("OTS") to waive its right to receive cash dividends during
the 2005 calendar year. The Company paid a cash dividend on March 31,
2005 to all public shareholders.
Cambray MHC waived receipt of several past dividends, paid by the
Company. The dividends waived are considered as a restriction on the
retained earnings of the Company. As of June 30, 2005 and September 30,
2004, the aggregate retained earnings restricted for cash dividends
waived were $931,000 and $747,000, respectively.
7. Recently Issued Accounting Standards
------------------------------------
In December 2004, the Financial Accounting Standards Board issued
Statement No. 123(R), "Share-Based Payment". Statement No. 123(R)
revised Statement No. 123, "Accounting for Stock-Based Compensation",
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and its related implementation guidance. Statement No.
123(R) will require compensation costs related to share-based payment
transactions to be recognized in the financial statements (with limited
exceptions). The amount of compensation cost will be measured based on
the grant-date fair value of the equity or liability instruments
issued. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award. The statement is
effective for the Company as of October 1, 2006. The Company is
evaluating the impact that the adoption will have on the consolidated
financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
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-QSB or in any press releases, public
announcements, filings with the Securities and Exchange Commission ("SEC") 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
addressing 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 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;
11
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.
Critical Accounting Policies
Note 2 to the consolidated financial statements of the Company (included
in Item 7 of the Annual Report on Form 10-KSB of the Company for the year ended
September 30, 2004) lists significant accounting policies used in development
and presentation of its financial statements. This discussion and analysis, the
significant accounting policies, and other financial statement disclosures
identify and address key variables and other qualitative and quantitative
factors that are necessary for an understanding and evaluation of the Company's
results of operations. The following accounting policy is the one identified by
management to be critical to the results of operations:
Allowance for Loan Losses. The allowance for loan losses is the estimated
amount considered adequate to cover credit losses inherent in the outstanding
loan portfolio at the balance sheet date. The allowance is established through
the provision of loan losses charged against income. In determining the
allowance for loan losses, management makes significant estimates and,
accordingly, has identified this policy as probably the most critical for the
Company.
Management performs a monthly evaluation of the adequacy of the allowance
for loan losses. Consideration is given to a variety of factors in establishing
this estimate, including, but not limited to, current economic conditions,
diversification of the loan portfolio, delinquency statistics, results of
internal loan reviews, borrowers' actual or perceived financial and managerial
strengths, the adequacy of the underlying collateral (if collateral dependent),
the present value of future cash flows and other relevant factors. This
evaluation is inherently subjective, as it requires material estimates that may
be susceptible to significant change, including the amounts and timing of future
cash flows expected to be received on impaired loans.
The analysis has two components, specific and general allocations.
Collateral values discounted for market conditions and selling costs are used to
establish specific allocations. The Bank's historical loan loss experience,
delinquency rates and general economic conditions are used to establish general
allocations for the remainder of the portfolio.
Management monitors the adequacy of the allowance for loan losses on an
ongoing basis and reports its adequacy assessment quarterly to the Board of
Directors, and the Audit Committee.
12
General
The Company conducts no income generating activities other than holding
the stock of the Bank and a loan to the ESOP used to purchase shares of Company
common stock for the participants. Consequently, the net income of the Company
is derived primarily from its investment in the Bank. The Bank's net income
depends, to a large extent, on its net interest income, which is the difference
between interest earned on its interest earning assets, such as loans and
investments, and the cost of funds, consisting of interest paid on interest
bearing liabilities, such as deposits and borrowings. The Bank's net income is
also affected by the provision for loan losses, as well as by the amount of
other income, including income from fees and service charges, net gains and
losses on sales of investments and operating expenses such as salaries and
employee benefits costs, net expenses on foreclosed real estate 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.
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 funds borrowed
from the Federal Home Loan Bank of New York ("FHLB"), to make loans and other
investments. Most of the loans are one to four family residential mortgages made
to residents in the Bank's primary market area, 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.
Recent Developments
We have committed to expand the Bank's facilities at our main office in
Gouverneur, to provide contiguous office space and improved drive-up services.
We are evaluating several alternative designs, with a view towards completing
the project efficiently and with minimal disruption to Bank operations and
customer service. Based upon our estimate of the time it will take for us to
select the best design, we believe that construction will probably not begin
until the spring of 2006.
Comparison of Financial Condition at June 30, 2005 and September 30, 2004.
During the nine months from September 30, 2004 through June 30, 2005,
total assets increased $13.9 million, or 13.34%, from $104.2 million to $118.1
million. Net loans increased by $14.9 million, or 18.58%, from $80.2 million to
$95.1 million during the same period. The increase in loans resulted from
increases of $10.7 million in residential real estate loans, $4.0 million in
commercial real estate loans, including a $2.5 million USDA loan we originated,
90% of which is shown as held for sale on the Consolidated Statements of
Financial Condition, and $1.0 million in other consumer loans, including $0.4
million in car loans, combined with a decrease of $0.8 million in other
commercial loans. The decrease in other commercial loans was the result of the
sale of the fixed rate portion of the United States Department of Agriculture
("USDA") guaranteed loans totaling $1.3 million during this fiscal year. The
balance of USDA guaranteed loans was $1.6 million at June 30, 2005.
FHLB borrowings, consisting of advances and security repurchase
obligations, increased by $10.0 million, from $23.0 million at September 30,
2004 to $33.0 million at June 30, 2005. These funds, along with the proceeds
from the sale of the USDA loans mentioned previously, a $2.3 million reduction
in the securities portfolio from maturities and principal repayments and an
increase in deposits of $2.3 million provided the funds for the additional
growth in loans and the purchase of $0.5 million in FHLB stock required for the
additional borrowing. The increase of $10.0 million in borrowings is consistent
with management's strategy to fund loans when our deposit base is not sufficient
alone. However, the balance of our borrowings may reach a level where management
will no longer use borrowings to fund loan growth. In that case, it will be
necessary to either reduce the growth of the loan portfolio or increase deposits
to a level to support the loan growth. We have implemented a program to increase
deposits to provide a source of funding to help meet the increased loan demand.
13
The two new offices in Alexandria Bay and Clayton continue to generate strong
loan demand resulting in the growth of the loan portfolio.
As mentioned earlier, deposits increased $2.3 million, or 3.7%, from $61.6
million to $63.9 million during the past nine months. Balances for non-interest
checking, savings, NOW and money market accounts and time deposits increased
$0.5 million, $0.1 million, $1.5 million and $0.2 million respectively.
Shareholders' equity increased by $628,000 during the first nine months of
this fiscal year, as net income of $736,000 combined with increases of $102,000
from the allocation of ESOP and MRP shares and $8,000 from the issuance of
treasury stock, more than offset the payment of a cash dividend of $136,000 to
our shareholders and a decrease of $82,000 in the fair value, net of taxes, in
the available-for-sale securities portfolio. Treasury stock was used to supply
1,125 shares needed in December 2004 when one director exercised some of his
vested stock options.
At June 30, 2005, non-performing assets were 0.35% of total assets, down
from 0.42% at September 30, 2004. Non-performing loans decreased from 0.47% of
total loans to 0.43% over the same period. A summary of the Company's
non-performing assets and related ratios follows (dollars in thousands):
June 30, September 30,
Non-performing assets 2005 2004
--------------------- ---------- ----------
Non-accrual loans
-----------------
Residential mortgages
and home equity loans $ 55 $ 247
Commercial mortgages 79 --
Consumer other 65 5
---------- ----------
199 252
Restructured commercial mortgage 207 104
Restructured commercial other -- 24
---------- ----------
Total non-performing loans 406 380
Foreclosed real estate 26 53
Other repossessed assets 9 9
---------- ----------
Total non-performing assets $ 441 $ 442
========== ==========
Non-performing loans to total loans 0.43% 0.47%
Non-performing assets to
total assets 0.35% 0.42%
The Company had no loans more than 90 days delinquent and accruing at June
30, 2005 or September 30, 2004.
All three residential mortgages totaling $55,000 in non-accrual loans are
in foreclosure. Loans for three borrowers totaling $79,000, including two
borrowers in bankruptcy proceedings, make up the commercial mortgages in
non-accrual, while two borrowers in bankruptcy proceedings have five loans
totaling $65,000 in the consumer other non-accrual category. One borrower
comprised the restructured commercial mortgage category total of $207,000.
14
Management believes that these non-performing loans are adequately secured
by collateral. Further, management is not aware of any factors common to these
loans, which caused their non-performance or any developments that suggest an
upward trend in delinquencies. Accordingly, while we will continue to monitor
asset quality, management has determined that an $84,000 increase in the loan
loss allowance is appropriate for the increase in the size of the loan portfolio
for the nine months ended June 30, 2005. Since most of our growth is in
residential mortgages, which have a lower degree of risk than consumer and
commercial loans we believe that the $84,000 increase in the allowance is
justified.
Comparison of Results of Operations for the Three Months Ended June 30, 2005 and
2004.
General. Our net income for the three months ended June 30, 2005 was
$246,000, an increase of $7,000, or 2.9%, from last year's net income of
$239,000 for the same period. The increase in net income was the result of the
combination of the following factors:
1. net interest income increased by $150,000 as interest income
increased $304,000, mainly due to the growth in loans, and interest
expense increased $154,000,
2. non-interest income grew by $12,000 over last year's period,
3. the provision for loan losses decreased by $5,000 for the third
quarter of this fiscal year versus last fiscal year,
4. non-interest expense increased by $161,000 in the three month period
this year compared to last year's period and
5. income taxes decreased $1,000.
Basic and diluted earnings per share were $0.11 for this year's quarter
versus $0.11 for both measures in last year's quarter.
Interest Income. Interest income increased $304,000, or 22.75%, from
$1,336,000 for the three months ended June 30, 2004 to $1,640,000 for the three
months ended June 30, 2005. An increase of 27 basis points (0.27%) in the
average interest rate earned on our interest-earning assets resulted in an
increase of $21,000 in interest income, while a $15.7 million increase in the
average balance of interest-earning assets resulted in an increase of $283,000
in interest income.
Interest income on loans increased by $297,000, or 24.69%. The yield on
loans was 6.63% for the three month periods ending June 30, 2004 and 2005
resulting in no change in interest income due to rates, while an increase of
$18.0 million in the average balance of loans from $72.7 million to $90.7
million resulted in an increase of $297,000 in interest income.
Interest income on securities and other short-term investments increased
by $7,000, or 5.26% for the quarter ended June 30, 2005 versus the quarter ended
June 30, 2004. An increase in the yields on our securities portfolio of 42 basis
points, or 0.42% from 3.65% in last year's quarter to 4.07% in this year's
quarter resulted in an increase of $14,000 in interest income while a decrease
of $1.2 million in the average balance of securities over the same period
reduced interest income by $12,000. A 203 basis point, or 2.03% increase in the
average interest rate earned on other short-term investments increased interest
income by $7,000, while a decrease of $1.0 million in the average balance of
other short-term investments decreased interest income by $2,000.
Interest Expense. Interest expense increased $154,000, or 38.02%, in the
third quarter of fiscal 2005 versus fiscal 2004. An increase of 34 basis points
(0.34%) in the average rate we paid on interest-bearing liabilities from 2.11%
last year to 2.45% this year resulted in an increase of $32,000 in interest
expense, while an increase of $14.5 million from $77.0 million to $91.5 million
in the average balance of interest-bearing liabilities resulted in a $122,000
increase in interest expense.
15
Interest expense remained the same on savings and club accounts as an
increase in the average rate paid of 2 basis points, (0.02%) from 1.03% in last
year's quarter to 1.05% in this year's quarter increased interest expense by
$1,000, while a decrease of $0.4 million in the average balance from $20.6
million last year to $20.2 million this year decreased interest expense by
$1,000. Interest expense increased on NOW and money accounts, time deposits and
borrowed funds by $14,000, $20,000 and $120,000, respectively. The average rate
we paid on NOW and money market accounts increased by 41 basis points, or 0.41%,
resulting in a $12,000 increase in interest expense, while an increase of $1.3
million in the average balance of NOW and money market accounts resulted in a
$2,000 increase in interest expense. An increase of 19 basis points, or 0.19%,
in the average rate we paid on time deposits increased interest expense by
$14,000, while an increase in the average balance of time deposits of $0.8
million resulted in an increase of $6,000 in interest expense. The cost of our
borrowed funds increased by 12 basis points, or 0.12%, resulting in an increase
of $5,000 in interest expense, while an increase in the average balance of
borrowed funds of $12.7 million resulted in an increase of $115,000 in interest
expense.
Net Interest Income. Our net interest income increased by $150,000 for the
three month period ending June 30, 2005 as compared to the three month period
ending June 30, 2004, as interest income increased by $304,000 and interest
expense increased by $154,000, as described above.
Our interest rate spread (the difference between the average rate we earn
and the average rate we pay) decreased by 7 basis points, or 0.07%, from 3.89%
in last year's quarter to 3.82% in this year's quarter. Also, net interest
margin decreased by 5 basis points to 4.13% in the third fiscal quarter of 2005,
down from 4.18% for the fiscal third quarter of 2004.
Average capital represented 17.5% of average interest-earning assets for
the quarter ended June 30, 2005, while it represented 20.0% of average
interest-earning assets for the same quarter last year. The decrease in the
capital ratio, which reflects an increase in leverage, reflects that our growth
in interest-earning assets from the last fiscal year has been greater than our
equity growth for the same period. Our ratio of average interest-earning assets
to average interest-bearing liabilities decreased from 1.16 times in 2004 to
1.15 times in 2005.
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 charge to provision
for loan losses, which is an expense on our income statement. In determining the
appropriate provision for loan losses, management considers the level of and
trend in non-performing loans, the level of and trend in net loan charge-offs,
the dollar amount and mix of the loan portfolio, as well as general economic
conditions and real estate trends in the Company's market area, which can impact
the inherent risk of loss in the Company's portfolio. Furthermore, the OTS may
disagree with our judgments regarding the risks in our loan portfolio and could
require us to increase the allowance in the future.
For the three months ended June 30, 2005, we provided $30,000 for loan
losses, compared to $35,000 in the same quarter last year. At June 30, 2005, the
ratio of our loan loss allowance to total loans was 0.88% as compared to 0.96%
on June 30, 2004. On March 31, 2005, the allowance was $810,000, or 0.91% of
total loans, and we determined at the end of the third quarter that the
appropriate level for the allowance was $839,000. We had charge-offs during the
quarter of $7,000 and recoveries of $6,000, so a $30,000 provision was necessary
to reach the desired level for the allowance.
Our level of non-accruing loans, loans 90 days and still accruing and
restructured loans was $406,000, or 0.43% of total loans at June 30, 2005
compared to $435,000, or 0.49% of total loans at March 31, 2005. The decrease of
the ratio of the loan loss allowance to total loans from 0.91% at March 31, 2005
to 0.87% at June 30, 2005 is justified by the fact that 71.8% of the growth in
the loan portfolio was in residential mortgages.
Non-interest Income. Our non-interest income was $12,000 higher in the
2005 quarter versus the 2004 quarter. Service charges and other income increased
by $5,000 and $8,000 in the third quarter of this year as compared to last
year's quarter.
16
Non-interest Expenses. Our non-interest expenses increased by $161,000
from the 2004 fiscal quarter to this year's quarter. This increase was primarily
due to increased costs of $107,000 for salaries and employee benefits, $10,000
in directors fees, $11,000 in building, occupancy and equipment and $20,000 in
other professional fees. The increase in salaries and employee benefits expense
resulted from performance increases to our employees, the hiring of a commercial
loan officer and an assistant treasurer and increased costs in health care
benefits. Directors fees have increased as the result of increases in meeting
fees, the first since fiscal 2000, and an increase in the number of loan
committee meetings. The increase in professional fees represents additional
costs for both our independent public accountants and internal audit firm, as
well as increased legal costs for various matters. Some of this increase is the
result of working to conform to the requirements of the Sarbanes-Oxley Act of
2002, Section 404 ("SOX 404").
Beginning on September 30, 2006, the Company will be required to comply
with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires the
management of public companies to assess and report on the effectiveness of
their internal controls over financial reporting. Based upon information we have
received from our independent auditors and the experience of companies who,
because of their market capitalization, have been required to comply with
Section 404 earlier than we, we anticipate that our internal and external audit
and related fees will increase as we put in place the systems, policies and
procedures necessary to comply with Section 404. While we cannot quantify the
compliance costs at this time, we expect that such costs will materially and
permanently increase our non-interest expense.
In December 2004, the SEC announced its establishment of the Securities
and Exchange Commission Advisory Committee on Smaller Public Companies, to
assist the SEC in evaluating the current securities regulatory system relating
to smaller public companies, including the rules relating to internal control
reporting. On April 13, 2005, the SEC conducted a public roundtable discussion
in which investors, officers of major American corporations, attorneys
representing public companies, finance professionals and others discussed
Section 404 compliance issues, including compliance costs. However, the SEC has
not taken or announced that it will take any steps to reduce such costs and it
is not known at this time whether it will ever take such action.
At June 30, 2005 we had thirty-three full-time and one part-time employees
compared to June 30, 2004 when we had thirty-one full-time and three part-time
employees.
Income tax expense. Our income tax expense decreased by $1,000, or 0.7%,
comparing the third quarter of fiscal 2005 to the same quarter of fiscal 2004.
Comparison of Results of Operations for the Nine Months Ended June 30, 2005 and
2004.
General. Our net income for the nine months ended June 30, 2005 was
$736,000, an increase of $67,000 from last year's $669,000, or 10.0%. The
following operating results combined to produce the increase:
1. net interest income increased by $356,000 as interest income
increased and interest expense decreased,
2. provision for loan losses increased by $15,000,
3. non-interest income improved by $74,000,
4. non-interest expenses increased $332,000 and
5. income taxes increased by $16,000 as a result of the increase in
pre-tax income.
Basic earnings per common share and diluted earnings per common share were
each $0.33 for the first nine months of this fiscal year and $0.30 for the first
nine months of last fiscal year.
17
Interest Income. Interest income increased by $698,000, or 17.43%, from
$4,004,000 for the nine months ended June 30, 2004 to $4,702,000 for the nine
months ended June 30, 2005. Average interest-earning assets increased $14.4
million from $87.8 million for the first nine months of fiscal year 2005 to
$102.2 million for the same period this year. The increase was the result of a
$17.0 million increase in the average balance of loans from $70.3 million in
fiscal 2005 to $87.3 million in fiscal 2005, partially offset by decreases in
securities and other investments of $2.6 million from $17.5 million last year to
$14.9 million this year.
The average interest rate we earned on our interest-earning assets was 6
basis points (0.06%) higher in the first nine months this year than last year as
the average rate rose from 6.09% last year to 6.15% this year. The average rate
earned on loans fell 21 basis points (0.21%) from 6.79% last year to 6.58% this
year, while the average rate earned on securities increased by 17 basis points,
or 0.17%, from 3.62% last year to 3.79% this year, and the average rate on other
short-term investments, primarily FHLB deposits, increased by 150 basis points
(1.50%) from 0.78% to 2.28%.
The decrease in the average interest rate earned on loans resulted in a
decrease of $48,000 in interest income, while the increase in average loan
balance increased interest income by $773,000, resulting in a $725,000 increase
in interest income for the loan portfolio.
For securities and other short-term investments, an increase in interest
rates earned resulted in an increase in interest income of $24,000, while a
decrease in the average balances decreased interest income by $51,000 resulting
in a net decrease of $27,000 in interest income.
Overall, the changes in the average interest rates reduced interest income
by $24,000, while the increase in the volume of interest-earning assets produced
a $722,000 increase in interest income, for a net increase of $698,000 in
interest income.
Interest Expense. Interest expense increased by $342,000 from $1,213,000
for the first nine months of 2004 to $1,555,000 for the first nine months of
2005 mainly the result of an increase in average interest-bearing liabilities.
An increase of 15 basis points (0.15%) in the average rate we paid on
interest-bearing liabilities from 2.18% in 2004 to 2.33% in 2005 increased
interest expense by $19,000, while an increase in the average balance of
interest-bearing liabilities of $14.8 million, from $74.4 million at June 30,
2004 to $89.2 million at June 30, 2005, resulted in additional interest expense
of $323,000.
Interest expense increased on savings and club accounts, NOW and money
market accounts, time deposits and borrowings by $1,000, $34,000, $26,000 and
$281,000, respectively, for the nine months ending June 30, 2005 versus the nine
months ending June 30, 2004. These increases were comprised of the following
components:
1. the average rate we paid on savings and club accounts increased by 1
basis points (0.01%) from 1.03% to 1.04%, resulting in an increase
of $1,000 in interest expense, while an increase of $0.1 million in
the average balance of these accounts, from $19.9 million to $20.0
million, resulted in no change in interest expense,
2. the average rate we paid on NOW and money market accounts increased
by 27 basis points (0.27%) from 0.64% to 0.91%, resulting in an
increase of $22,000 in interest expense, while an increase of $2.1
million, from $9.6 million to $11.7 million in the average balance
of these accounts increased interest expense by $12,000, and
3. the average interest rate on time deposits increased 3 basis points
(0.03%) from 2.59% to 2.62%, resulting in a $7,000 increase in
interest expense, while a $1.0 million increase in the average
balance of time deposits, from $28.5 million to $29.5 million,
increased interest expense by $19,000.
18
4. A decrease of 21 basis points (0.21%), from 3.75% to 3.54% on the
average rate we paid on borrowed funds decreased interest expense by
$11,000, while an increase of $11.6 million in the average amount of
those borrowings, from $16.4 million to $28.0 million, increased
interest expense by $292,000 and resulted in a net increase of
$281,000.
Net Interest Income. The net effect of the increases in interest income
and interest expense was a $356,000 increase in net interest income from the
first nine months of the 2004 fiscal year to the first nine months of the 2005
fiscal year. Our interest rate spread (the difference between the average rate
we earn and the average rate we pay) decreased by 9 basis points (0.09%) from
3.91% last year to 3.82% this year. Net interest margin decreased by 13 basis
points to 4.12%, for the first nine months of fiscal 2005, down from 4.25% for
the first nine months of fiscal 2004.
Average capital represented 17.8% of average interest-earning assets for
the nine months ended June 30, 2005, while it represented 20.2% of average
interest-earning assets for the same period in 2004. Our ratio of average
interest-earning assets to average interest-bearing liabilities decreased from
1.18 times in 2005 to 1.15 times in 2004.
Provision for Loan Losses. Year to date, we had charge-offs of $84,000 and
recoveries of $68,000. We provided $100,000 for loan losses for the first nine
months this fiscal year as compared to $85,000 for the first nine months of the
past fiscal year. At June 30, 2005 and 2004 the ratio of our loan loss allowance
to total loans was 0.87% and 0.96%, respectively. As disclosed in the comparison
of financial condition discussion, our level of non-accruing loans, loans 90
days and still accruing and restructured loans was $406,000, or 0.43% of total
loans at June 30, 2005 compared to $380,000, or 0.47% of total loans at
September 30, 2004. Management feels that these loans are adequately secured and
do not require any adjustment to the allowance for loan losses.
Non-interest Income. Our non-interest income was $74,000 higher for the
first nine months of this year versus the same period last year. The increase
was the result of increases of $40,000 in earnings on investment life insurance,
$16,000 in realized gains on sales of securities, $13,000 in service charges and
$22,000 in other non-interest income, offset in part by a $17,000 loss on sales
of loans.
Non-interest Expense. Non-interest expenses increased by $332,000 for the
first nine months of fiscal 2005 compared to fiscal 2004. Increases in salaries
& benefits, directors fees, occupancy and equipment cost, postage and supplies,
professional fees and other non-interest expense of $222,000, $17,000, $28,000,
$13,000, $43,000 and $ 24,000 respectively, partially offset by a decrease of
$30,000 in the cost of foreclosed assets accounted for most of the increase. The
increase in salaries and benefits is the result of three factors; first,
performance increases in salaries for our employees; second, last year's hiring
of a commercial loan officer and an assistant treasurer; and third, increased
costs in health care benefits. Directors fees have increased as the result of
increases in meeting fees, the first since fiscal 2000, and an increase in the
number of loan committee meetings. The increase in professional fees represents
additional costs for both our independent public accountants and internal audit
firm. Some of this increase is the result of working to conform to the
requirements of SOX 404.
Income tax expense. Our income tax expense year-to-date increased by
$16,000, or 3.9%, from $409,000 last year to $425,000 this year. The increased
expense was the result of higher income before income tax of $83,000, or 7.7%,
from $1,078,000 for the first nine months last fiscal year to $1,161,000 for the
first nine months of this fiscal year. Our effective tax rate was 36.6% for the
nine months ended June 30, 2005 compared to 37.9% for the same period in 2004.
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 to a certain extent. However, general economic
19
conditions and interest rate conditions can cause increases or decreases in
deposit outflows and loan pre-payments, 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 readily available for investment in loans
when needed. During the nine months ended June 30, 2005, we increased our cash
and cash equivalents by $565,000. We have originated $31.3 million of new loans.
However, loans, net, after payments, charge-offs and transfers to foreclosed
real estate, increased by $16.4 million over this period.
Deposits increased by $2.3 million during the nine months ended June 30,
2005. 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 increased our borrowings by $10.0 million during this same period.
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 an additional
$13.5 million against our one to four family first mortgage portfolio. 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 measure liquidity on a monthly basis and want to maintain a liquidity
ratio of between 5% and 15%. At June 30, 2005, the ratio was 8.10% as compared
to 8.15% on June 30, 2004.
Off Balance Sheet Arrangements
The Company's financial statements do not reflect off-balance sheet
arrangements that are made in the normal course of business. These off-balance
sheet arrangements consist of unfunded loans.
We had $3.5 million in outstanding commitments to make loans at June 30,
2005, along with $3.9 million of unused home equity, commercial and overdraft
lines of credit. We also have a commitment to sell the $2.2 million guaranteed
portion of a USDA guaranteed loan we originated. We are awaiting final USDA
approval for the sale. We anticipate that we will have enough liquid funds to
meet our current loan commitments, purchase commitments and to fund draws on the
lines of credit through the normal turnover of our loan and securities
portfolios. At June 30, 2005, we had $18.6 million of time certificates
scheduled to mature within 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 capital.
Capital Resources
The OTS has minimum capital ratio requirements applying to the Bank, but
there are no comparable minimum capital requirements that apply to the Company
as a savings and loan holding company. At June 30, 2005, the Bank exceeded all
regulatory capital requirements of the OTS applicable to it, with Tier I capital
of $18.0 million, or 15.3% of average assets and with total risk-based capital
of $18.8 million, or 27.6% of risk-weighted assets. The Bank also had tangible
capital of $18.0 million, or 15.3% of average tangible assets. The Bank was
classified as "well capitalized" at June 30, 2005 under OTS regulations.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The term "disclosure
controls and procedures" is defined in Rule 13a-14(c) of the Securities Exchange
Act of 1934, or (the "Exchange Act"). This term refers to the controls and
20
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under the Exchange Act is
recorded, processed, summarized and reported within required time periods. Our
Chief Executive Officer and our Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of June 30, 2005, and
they have concluded as of that date, our disclosure controls and procedures were
effective at ensuring that required information will be disclosed on a timely
basis in our reports filed under the Exchange Act.
(b) Changes in Internal Controls. There were no significant changes to our
internal controls or in the other factors that could significantly affect our
internal controls during the quarter ended June 30, 2005, including any
corrective actions with regard to significant deficiencies and material
weakness.
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 advice of counsel, does not believe that any currently known legal actions,
individually or in the aggregate, will have a material effect on the Company's
consolidated financial condition or results of operations.
Item 6. Exhibits
31.1 Certification of Principal Executive Officer pursuant
to Rule 13a - 14(a)/15d - 14(a)
31.2 Certification of Principal Financial Officer pursuant
to Rule 13a - 14(a)/15d - 14(a)
32.1 Certification of Principal Executive Officer pursuant
to Section 1350
32.2 Certification of Principal Financial Officer pursuant
to Section 1350
21
SIGNATURES
In accordance with 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 thereunto duly authorized.
Gouverneur Bancorp, Inc.
Date: August 5, 2005 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 J. TWYMAN
------------------------------------------
Robert J. Twyman
Vice President and Chief Financial Officer
(principal financial officer duly
authorized to sign on behalf of the
registrant)
22