Gouverneur Bancorp, Inc./MD/

Previous wording

We consider the allowance for credit losses to be a critical accounting policy. Note 2 to the Company’s Consolidated Financial Statements for the three and nine months ended June 30, 2025 discusses significant accounting policies, including the allowance for credit losses and the adoption of ASC 326, which changes the methodology under which management calculates its reserve for loans and investment securities, now referred to as the allowance for credit losses. Please refer to Note 2 to the Company’s Consolidated Financial Statements for detail regarding the Company’s adoption of ASU 206-13:Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and the allowance for credit losses. Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation.

Current wording

We consider the allowance for credit losses to be a critical accounting policy. Note 2 to the Company’s Consolidated Financial Statements for the three months ended December 31, 2025 discusses significant accounting policies, including the allowance for credit losses in accordance with ASC 326, which changes the methodology under which management calculates its reserve for loans and investment securities, now referred to as the allowance for credit losses. Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation.

Previous wording

Our financial results are affected by the changes in and the level of the allowance for credit losses. This process involves our analysis of complex internal and external variables, and it requires that we exercise judgement to estimate an appropriate allowance for credit losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizeable loan losses in any particular period. For example, changes in the financial condition of individual borrowers, economic conditions, or the condition of various markets in which collateral may be sold could require us to significantly decrease or increase the level of the allowance for credit losses. Such an adjustment could materially affect net income as a result of the change in provision for credit losses. We also have approximately $0.7 million as of June 30, 2025 in non-performing assets consisting of non-performing loans. We continue to assess the collectability of these loans and update our appraisals on these loans as appropriate.

Current wording

Our financial results are affected by the changes in and the level of the allowance for credit losses. This process involves our analysis of complex internal and external variables, and it requires that we exercise judgement to estimate an appropriate allowance for credit losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizeable loan losses in any particular period. For example, changes in the financial condition of individual borrowers, economic conditions, or the condition of various markets in which collateral may be sold could require us to significantly decrease or increase the level of the allowance for credit losses. Such an adjustment could materially affect net income as a result of the change in provision for credit losses. We also have approximately $1.1 million as of December 31, 2025 in non-performing assets consisting primarily of $975 thousand non-performing real estate loans. We continue to assess the collectability of these loans and update our appraisals on these loans as appropriate.

Previous wording

To determine the total allowance for credit losses, management estimates the reserves needed for each segment of the portfolio, including loans analyzed individually and loans analyzed on a pooled basis. The allowance for credit losses consists of amounts applicable to: (1) the commercial portfolio; (2) the real estate portfolio; and (3) the consumer portfolio.

Current wording

To determine the total allowance for credit losses, management estimates the reserves needed for each segment of the portfolio, including loans collectively evaluated and loans individually evaulated. The allowance for credit losses consists of amounts applicable to: (1) the commercial portfolio; (2) the real estate portfolio; and (3) the consumer portfolio.

Previous wording

We establish a general allowance for loans that share common risk characteristics to recognize the expected lifetime credit losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and using historical experience, current conditions, and reasonable and supportable forecasts to estimate the expected lifetime credit losses inherent. The allowance may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular

Current wording

We establish a general allowance for loans that share common risk characteristics to recognize the expected lifetime credit losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. This general valuation allowance is determined by segregating the loans by loan category and using historical experience, current conditions, and reasonable and supportable forecasts to estimate the expected lifetime credit losses inherent in each loan portfolio. The allowance may be adjusted for significant factors that, in management’s judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary market area, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The applied loss factors are re-evaluated quarterly to ensure their relevance in the current real estate environment.

Previous wording

We establish a specific allowance when loans are determined to not share common risk characteristics with pooled loans. Loss is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated selling expenses. Factors in identifying a specific problem loan include: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.

Current wording

We establish a specific allowance when loans are determined to not share common risk characteristics with pooled loans. The allowance is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated selling expenses. Factors in identifying a specific problem loan include but are not limited to: (1) the strength of the customer’s personal or business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s effort to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid property taxes applicable to the property serving as collateral on the mortgage.

Previous wording

Furthermore, while we believe we have established our allowance for credit losses in conformity with accounting principles generally accepted in the United States of America, as an integral part of their examination process, regulators will periodically review our allowance for credit losses. The regulators may have judgments different than management’s, and we may determine to increase our allowance as a result of these regulatory reviews.

Current wording

Furthermore, while we believe we have established our allowance for credit losses in accordance with accounting principles generally accepted in the United States of America, as an integral part of their examination process, regulators will periodically review our allowance for credit losses. The regulators may have judgments different than management’s, and we may determine to increase our allowance for credit loss as a result of these regulatory reviews.

Previous wording

Total assets decreased by $0.6 million, or 0.27%, to $196.7 million at June 30, 2025 from $197.3 million at September 30, 2024. The decrease in assets was primarily due to a decrease in securities available for sale of $3.6 million resulting from principal paydowns and maturities along with a decrease in market value from fluctuations in market rates, partially offset by an increase in loans receivable, net of $1.7 million and cash and cash equivalents of $0.8 million.

Current wording

Total assets increased by $3.4 million, or 1.69%, to $201.9 million at December 31, 2025 from $198.5 million at September 30, 2025. The increase in assets was primarily due to an increase in net loans receivable, net of $1.6 million and an increase in securities available for sale of $1.9 million resulting from an increase in market value from fluctuations in market rates and purchases, partially offset by a decrease in bank-owned life insurance resulting from the receipt of $566 thousand of death benefit proceeds.

Previous wording

Cash and cash equivalents increased by $0.8 million, or 13.11%, to $7.2 million at June 30, 2025 from $6.4 million at September 30, 2024. The increase in cash and cash equivalents can be primarily attributed to an increase in principal maturities from securities available for sale of $3.9 million and an increase in escrow deposits of $0.8 million, partially offset by an increase in loans receivable, net of $1.7 million and purchases of securities available for sale of $1.2 million.

Current wording

Cash and cash equivalents increased by $0.1 million, or 1.07%, to $4.7 million at December 31, 2025 from $4.6 million at September 30, 2025. The increase in cash and cash equivalents can be primarily attributed to an increase in deposits of $3.7 million and the receipt of bank-owned life insurance death proceeds of $0.6 million, partially offset by an increase in loans receivable, net of $1.6 million and purchases of securities available for sale of $1.4 million for municipal deposit collateral requirements.

Previous wording

Loans receivable, net of the allowance for credit losses, increased by $1.6 million, or 1.35%, to $125.9 million at June 30, 2025 from $124.3 million at September 30, 2024. The increase in loans receivable, net of the allowance for credit losses, was primarily due to an increase in originated loans by $3.4 million, partially offset by a decrease in total acquired loans of $1.7 million due to loan repayments.

Current wording

Loans receivable, net of the allowance for credit losses, increased by $1.6 million, or 1.24%, to $133.1 million at December 31, 2025 from $131.5 million at September 30, 2025. The increase in loans receivable, net of the allowance for credit losses, was primarily due to an increase in originated loans by $2.3 million, partially offset by a decrease in total acquired loans of $0.7 million due to loan repayments.

Previous wording

Securities available for sale decreased by $3.6 million, or 8.05%, to $41.7 million at June 30, 2025 from $45.3 million at September 30, 2024. The decrease was primarily due to principal paydowns and maturities along with a decrease in the market value on the portfolio, partially offset by reinvested principal proceeds. The unrealized loss on securities available for sale included in other comprehensive loss was $2.5 million at June 30, 2025, compared to $1.4 million at September 30, 2024, primarily due to fluctuations in market rates impacting the fair value of the investment portfolio.

Current wording

Securities available for sale increased by $1.9 million, or 4.56%, to $42.8 million at December 31, 2025 from $40.9 million at September 30, 2025. The increase was primarily due to reinvested proceeds for municipal deposit collateral requirements along with an increase in the market value on the portfolio. The unrealized loss on securities available for sale included in other comprehensive loss was $1.6 million at December 31, 2025, compared to $1.9 million at September 30, 2025, primarily due to fluctuations in market rates impacting the fair value of the investment portfolio.

Previous wording

Total deposits decreased by $0.5 million, or 0.31%, to $159.4 million at June 30, 2025 from $159.9 million at September 30, 2024. The decrease in deposits can primarily be attributed to a $2.0 million decrease in non-maturing deposits, partially offset by a $1.5 million increase in time deposits, reflecting consumer preference in the current interest rate environment. The overall decrease in deposits can be attributed to seasonal fluctuations with commercial deposits decreasing by $0.6 million during the period. Uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit, currently set at $250,000 per insured account, were approximately $35.3 million at June 30, 2025 and $37.2 million at September 30, 2024. Municipal deposits held at GS&L Municipal Bank accounted for approximately $20.9 million and $19.3 million of the uninsured deposits at June 30, 2025 and September 30, 2024, respectively. At June 30, 2025, we had $60.9 million in available liquidity with the Federal Home Loan Bank of New York and $7.2 million in cash and cash equivalents, which was sufficient to cover 100% of our uninsured and uncollateralized deposits. Municipal deposits held by GS&L Municipal Bank are fully collateralized by available for sale government and collateralized mortgage obligation securities.

Current wording

Total deposits increased by $3.7 million, or 2.42%, to $158.5 million at December 31, 2025 from $154.8 million at September 30, 2025. The increase in deposits can primarily be attributed to a $2.8 million increase in non-maturing deposits a $0.9 million increase in time deposits. The overall increase in deposits can be attributed to seasonal fluctuations with commercial and municipal deposits during the period. Uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit, currently set at $250,000 per insured account, were approximately $34.1 million at December 31, 2025 and $31.6 million at September 30, 2025. Municipal deposits held at GS&L Municipal Bank accounted for approximately $21.8 million and $18.0 million of the uninsured deposits at December 31, 2025 and September 30, 2025, respectively. At December 31, 2025, we had $58.2 million in available liquidity with the Federal Home Loan Bank of New York and $4.7 million in cash and cash equivalents, which was sufficient to cover 100% of our uninsured and uncollateralized deposits. Municipal deposits held by GS&L Municipal Bank are fully collateralized by available for sale government and collateralized mortgage obligation securities.

Previous wording

Shareholders’ equity decreased by $1.4 million, or 4.18%, to $31.4 million at June 30, 2025 from $32.8 million at September 30, 2024. The decrease in shareholders’ equity was primarily a result of a $1.1 million decrease to the market value adjustment on the securities portfolio included in the accumulated other comprehensive income component, and the repurchase of common stock of $0.6 million which was returned to authorized but unissued stock. The Company also declared dividends of $0.16 per share totaling $173,000 during the nine months ended June 30, 2025.

Current wording

Shareholders’ equity increased by $0.5 million, or 1.61%, to $32.6 million at December 31, 2025 from $32.1 million at September 30, 2025. The increase in shareholders’ equity was primarily a result of net income and a $0.3 million increase to the market value adjustment on the securities portfolio included in the accumulated other comprehensive income component, partially offset by the repurchase of common stock of $0.1 million which was returned to authorized but unissued stock. The Company also declared and paid dividends of $0.09 per share totaling $94,000 during the three months ended December 31, 2025.

Previous wording

Net income for the three months ended June 30, 2025 was $217,000, compared to $183,000 for the three months ended June 30, 2024. Net income for the three months ended June 30, 2025 was higher than the three months ended June 30, 2024 primarily due to a $65,000 increase in total non-interest income and a $53,000 increase in net interest income. The Company also recorded a $12,000 provision for credit losses for the three months ended June 30, 2025 compared to no provision for credit losses for the three months ended June 30, 2024. Interest expense for the three months ended June 30, 2025 was $360,000 compared to $387,000 for the three months ended June 30, 2024, primarily due to a $98,000 decrease in interest expense in Federal Home Loan Bank advances, partially offset by a $39,000 increase in interest expense on deposits.

Current wording

Net income for the three months ended December 31, 2025 was $287,000, compared to $160,000 for the three months ended December 31, 2024. Net income for the three months ended December 31, 2025 was higher than the three months ended December 31, 2024 primarily due to a $103,000 gain recognized from a bank-owned life insurance death benefit and a $64,000 increase in net interest income. The Company also recorded a $13,000 provision for credit losses for the three months ended December 31, 2025 compared to a $15,000 provision for credit losses for the three months ended December 31, 2024. Interest expense for the three months ended December 31, 2025 was $411,000 compared to $401,000 for the three months ended December 31, 2024, primarily due to a $63,000 increase in interest expense in Federal Home Loan Bank advances, partially offset by a $53,000 decrease in interest expense on deposits.

Previous wording

Net interest income totaled $1.8 million for the three months ended June 30, 2025 and also for the three months ended June 30, 2024. Net interest income for the three months ended June 30, 2025 increased by $53,000, or 3.02%, primarily due to an increase in interest income on loans of $60,000 and a decrease in borrowing interest expense of $98,000, partially offset by an increase in deposit interest expense of $39,000 and a decrease in interest income on the swap agreements hedged against borrowings of $32,000.

Current wording

Net interest income totaled $1.8 million for the three months ended December 31, 2025 and also for the three months ended December 31, 2024. Net interest income for the three months ended December 31, 2025 increased by $64,000, or 3.63%, primarily due to an increase in interest income on loans of $133,000 and a decrease in interest expense on deposits of $53,000, partially offset by an increase in interest expense in Federal Home Loan Bank advances of $63,000.

Previous wording

Interest income increased by $26,000, or 1.21%, for the three months ended June 30, 2025 due to an increase in loan income from an increase in market rates resulting in higher interest rates on loan originations and loan repricing, partially offset by a decrease in interest on taxable and non-taxable securities.

Current wording

Interest income increased by $74,000, or 3.42%, for the three months ended December 31, 2025 due to an increase in loan income from an increase in loan origination and loan repricing, partially offset by a decrease in interest on taxable securities.

Previous wording

Interest expense decreased by $27,000, or 6.98%, due to the decrease in Federal Home Loan Bank borrowing interest expense, partially offset by an increase in interest expense on deposits and decrease in income earned on swap agreements hedged against certain borrowings.

Current wording

Interest expense increased by $10,000, or 2.49%, due to the increase in Federal Home Loan Bank borrowing interest expense, partially offset by a decrease in interest expense on deposits.

Previous wording

Net interest margin increased by 12 basis points, to 4.15% compared to 4.03% for the three months ended June 30, 2025 driven primarily by an increase in net interest income and a slight decrease in interest earning assets.

Current wording

Net interest margin increased by 7 basis points, to 4.06% compared to 3.99% for the three months ended December 31, 2025 driven primarily by an increase in net interest income and a slight decrease in interest earning assets.

Previous wording

Management recorded credit loss provisions of $27,000 and $70,000 for the nine months ended June 30, 2025 and 2024, respectively. Based on a review of the loans that were in the loan portfolio at June 30, 2025, management believes that the allowance is maintained at a level that represents its best estimate of inherent credit losses in the loan portfolio that were both probable and reasonably estimable.

Current wording

Management recorded credit loss provisions of $13,000 and $15,000 for the three months ended December 31, 2025 and 2024, respectively. Based on a review of the loans that were in the loan portfolio at December 31, 2025, management believes that the allowance is maintained at a level that represents its best estimate of inherent credit losses in the loan portfolio that were both probable and reasonably estimable.

Previous wording

The increase in total non-interest income was primarily due to the decrease in the unrealized loss on swap agreements resulting from fluctuations with long-term bond rates and projected short-term rates. The unrealized loss on swap agreements was $9,000 at June 30, 2025 compared to an unrealized loss of $208,000 at June 30, 2024. On December 29, 2023, the Company unwound two off-balance sheet swaps, with $2.5 million in notional value, for a realized gain of approximately $75,000. On November 4, 2024, the Company’s last remaining off-balance sheet swap, $3.0 million in notional value, matured. Earnings on deferred fees plan decreased $18,000 compared to the same period last year, primarily due to fluctuations with market rates. Other non-interest income increased $73,000 for the nine months ended June 30, 2025 compared to the same period last year, primarily due to the recognition of additional income from a tax-related refund.

Current wording

The increase in total non-interest income for the three months ended December 31, 2025, was primarily due to a $103,000 gain recognized from a bank-owned life insurance death benefit. Earnings on deferred fees plan increased $29,000 for the three months ended December 31, 2025 compared to the same period last year, primarily due to fluctuations with market rates. Other non-interest income decreased $54,000 for the three months ended December 31, 2025 compared to the same period last year, primarily due to additional income from a tax-related refund recognized in the comparable period last year that did not recur this quarter.

Previous wording

The Company recorded an income tax expense of $51,000 for the three months ended June 30, 2025 and an income tax benefit of $5,000 for the three months ended June 30, 2024. The increase in income taxes resulted from an increase in pre-tax book income and a change in tax-exempt income. The Company’s effective income tax rates were 19.03% and (2.81)% for the three months ended June 30, 2025 and 2024, respectively. The increase in the effective income tax rate for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024, was primarily related to the increase in pre-tax book income and fluctuations in permanent tax differences.

Current wording

The Company recorded an income tax expense of $20,000 for the three months ended December 31, 2025 and an income tax benefit of $1,000 for the three months ended December 31, 2024. The increase in income taxes resulted from an increase in pre-tax book income and a change in tax-exempt income. The Company’s effective income tax rates were 6.51% and (0.63)% for the three months ended December 31, 2025 and 2024, respectively. The increase in the effective income tax rate for the three months ended December 31, 2025, as compared to the three months ended December 31, 2024, was primarily related to the increase in pre-tax book income and fluctuations in permanent tax differences.

Previous wording

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances only. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $456,000 and $428,000 for the three and nine months ended June 30, 2025 and 2024, respectively.

Current wording

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances only. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $495,000 and $440,000 for the three months ended December 31, 2025 and 2024, respectively.

Previous wording

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans and proceeds from sales and maturities of securities. We also rely on borrowings from the Federal Home Loan Bank as supplemental sources of funds. At June 30, 2025, there were no outstanding advances from the Federal Home Loan Bank, and we had the ability to borrow $60.9 million. Additionally, at June 30, 2025, we had a line of credit with the Federal Reserve Discount Window totaling $5.0 million and a second line of credit with Atlantic Community Bankers Bank totaling $4.0 million. At June 30, 2025, there were no outstanding balances under any of these additional credit facilities.

Current wording

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans and proceeds from sales and maturities of securities. We also rely on borrowings from the Federal Home Loan Bank as supplemental sources of funds. At December 31, 2025, there $5.0 million in outstanding advances from the Federal Home Loan Bank, and we had the ability to borrow an additional $58.2 million. Additionally, at December 31, 2025, we had a line of credit with the Federal Reserve Discount Window totaling $5.0 million and a second line of credit with Atlantic Community Bankers Bank totaling $4.0 million. At December 31, 2025, there were no outstanding balances under any of these additional credit facilities.

Previous wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Net cash provided by (used in) operating activities was $0.6 million and $(3.3) million for the nine months ended June 30, 2025 and 2024, respectively. Net cash provided by investing activities, which consists primarily of disbursements for loan originations and purchases and the purchase of securities available-for-sale, offset by principal collections on loans, proceeds from sales, maturities and principal payments received on securities available-for-sale, was $0.7 million and $7.8 million for the nine months ended June 30, 2025 and 2024, respectively. Net cash used in financing activities, consisting primarily of activity in deposit accounts and Federal Home Loan Bank advances, was $0.5 million for the nine months ended June 30, 2025 and was $8.7 million for the nine months ended June 30, 2024.

Current wording

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities and financing activities. Net cash provided by operating activities was $0.5 million and $0.3 million for the three months ended December 31, 2025 and 2024, respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and purchases and the purchase of securities available-for-sale, offset by principal

Previous wording

Gouverneur Bancorp, Inc. is a separate legal entity from the Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations and to fund repurchases of shares of common stock. Bancorp’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to Bancorp is governed by applicable bank regulations. At June 30, 2025 and September 30, 2024, Bancorp (on an unconsolidated basis) had liquid assets of $1.4 million and $2.4 million, respectively.

Current wording

Gouverneur Bancorp, Inc. is a separate legal entity from the Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations and to fund repurchases of shares of common stock. Bancorp’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to Bancorp is governed by applicable bank regulations. At December 31, 2025 and September 30, 2025, Bancorp (on an unconsolidated basis) had liquid assets of $1.1 million and $1.3 million, respectively.