Gouverneur Bancorp (GOVB) 10-Q 2024 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

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 No. 000-56605

GOUVERNEUR BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland (Statement or Other Jurisdiction of Incorporation or Organization)	37-2102925 (I.R.S. Employer Identification No.)
42 Church Street, Gouverneur, New York (Address of Principal Executive Offices)	13642 (Zip Code)

(315) 287-2600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer  ☐
Non-accelerated filer	☒	Smaller reporting company  ☒
		Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No ☒

The number of shares outstanding of the issuer’s common stock, as of August 9, 2024:  1,107,134 shares.

GOUVERNEUR BANCORP, INC.

Table of Contents

		Page No.
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Statements of Financial Condition at June 30, 2024 and September 30, 2023	3
	Consolidated Statements of Earnings for the Three and Nine Months Ended June 30, 2024 and 2023	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended June 30, 2024 and 2023	5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended June 30, 2024 and 2023	6
	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2024 and 2023	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	57
PART II.	OTHER INFORMATION	58
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
SIGNATURES		60

2

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements - Unaudited

GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share and per share data)

	June 30,		September 30,
	2024		2023
	(unaudited)
Assets:
Cash and due from banks	$	4,081	$	9,306
Interest-bearing deposits in bank		2,198		1,101
Total cash and cash equivalents		6,279		10,407
Time Deposits in other financial institutions		248		484
Securities available-for-sale, at fair value		43,744		46,624
Loans receivable, net of allowance for credit losses: June 30, 2024: $1,060 and September 30, 2023: $623
net of discount at June 30, 2024: $863 and September 30, 2023: $992		123,114		125,427
Investments in restricted stock, at cost		1,041		1,471
Bank owned life insurance		7,097		6,984
Premises and equipment, net		2,978		3,073
Foreclosed real estate, net		—		101
Core deposit intangible		1,768		2,080
Goodwill		4,237		4,237
Accrued interest receivable and other assets		4,557		4,997
Total assets	$	195,063	$	205,885
Liabilities:
Deposits:
Non-interest-bearing demand	$	18,204	$	25,052
NOW and money market		47,552		42,625
Savings and club		54,698		66,570
Time certificates		32,991		24,531
Total deposits		153,445		158,778
Advances from the Federal Home Loan Bank		4,980		13,990
Advanced payments from borrowers for taxes and insurance		1,187		443
Accrued interest payable and other liabilities		3,748		7,566
Total liabilities		163,360		180,777
Shareholders' Equity:
Preferred stock, $.01 par value: June 30, 2024: 25,000,000 shares authorized; none issued
September 30, 2023: 1,000,000 shares authorized; none issued		—		—
Common stock, $.01 par value: June 30, 2024: 75,000,000 shares authorized; 1,107,134 shares issued
September 30, 2023: 9,000,000 shares authorized; 2,031,377 shares issued		11		24
Additional paid-in capital		6,487		5,035
Unearned common stock held by employee stock ownership plan
(unallocated shares June 30, 2024: 53,989: September 30, 2023: 0)		(540)		—
Retained earnings		28,277		28,242
Accumulated other comprehensive loss		(2,532)		(4,123)
Treasury Stock, at cost, (shares June 30, 2024: 0: September 30, 2023: 352,231)		—		(4,070)
Total shareholders' equity		31,703		25,108
Total liabilities and shareholders' equity	$	195,063	$	205,885

See accompanying notes to consolidated financial statements.

3

GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data) (Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Interest income:
Loans, net	$	1,660	$	1,529	$	4,890	$	4,498
Net swap income on loan hedge		—		—		—		41
Securities-taxable		327		366		1,032		1,058
Securities-non-taxable		146		120		442		396
Other short-term investments		11		18		53		72
Total interest income		2,144		2,033		6,417		6,065
Interest expense:
Deposits		321		138		856		230
Net swap income on deposit hedge		—		—		—		(46)
Borrowings – short term and long term		98		125		304		178
Net swap income on borrowing hedge		(32)		(76)		(112)		(76)
Total interest expense		387		187		1,048		286
Net interest income		1,757		1,846		5,369		5,779
Provision for credit losses
Loans		—		30		68		92
Unfunded commitments		—		—		2		—
Net interest income after provision for credit losses		1,757		1,816		5,299		5,687
Non-interest income (loss):
Service charges		80		79		241		248
Realized gain (loss) on sales of securities – AFS		13		—		13		(661)
Realized gain on swaps unwound		—		—		75		654
Earnings on investment in life insurance		38		35		114		106
Earnings on deferred fees plan		3		8		48		49
Unrealized gain (loss) on swap agreements		(27)		40		(208)		(783)
Earnings on secondary market programs		9		10		30		31
Other non-interest income		69		103		215		260
Total non-interest income (loss), net		185		275		528		(96)
Non-interest expenses:
Salaries and employee benefits		876		911		2,620		2,587
Directors fees		94		71		269		214
Earnings on deferred fees plan		3		8		48		49
Building, occupancy and equipment		222		237		719		749
Data processing		118		115		344		342
Postage and supplies		29		37		100		118
Professional fees		174		131		516		357
Intangibles and deposit premium amortization		104		115		312		344
Foreclosed assets, net		(21)		(14)		(12)		18
Other non-interest expense		165		236		548		677
Total non-interest expenses, net		1,764		1,847		5,464		5,455
Income before income tax (benefit) expense		178		244		363		136
Income tax (benefit) expense		(5)		12		(40)		(96)
Net income	$	183	$	232	$	403	$	232
Earnings per common share – basic	$	0.17	$	0.11	$	0.38	$	0.11
Earnings per common share – diluted	$	0.17	$	0.11	$	0.38	$	0.11

See accompanying notes to consolidated financial statements.

4

GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data) (Unaudited)

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net Income	$	183	$	232	$	403	$	232
Other comprehensive income (loss) net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) arising during period		(282)		(580)		1,943		1,497
Deferred tax expense (benefit)		(59)		(122)		408		314
Unrealized holding gain (loss), net of deferred taxes		(223)		(458)		1,535		1,183
Post-retirement benefit		10		178		71		271
Deferred tax expense		2		37		15		57
Post-retirement benefit, net of deferred taxes		8		141		56		214
Total other comprehensive income (loss)		(215)		(317)		1,591		1,397
Total comprehensive income (loss)	$	(32)	$	(85)	$	1,994	$	1,629

See accompanying notes to consolidated financial statements.

5

GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended June 30, 2024 and 2023

(In thousands, except share and per share data) (Unaudited)

					Unearned						Accumulated
			Additional		Common						Other		Total
	Common		Paid-in		Stock		Retained		Treasury		Comprehensive		Shareholder’s
	Stock		Capital		held by ESOP		Earnings		Stock		Income (Loss)		Equity
Balance at March 31, 2023 (unaudited)	$	24	$	5,035	$	—	$	27,924	$	(4,070)	$	(2,574)	$	26,339
Comprehensive loss:
Net income		—		—		—		232		—		—		232
Net pension and postretirement benefit, net of taxes		—		—		—		—		—		141		141
Change in unrealized losses on securities available-for-sale, net of tax effects		—		—		—		—		—		(458)		(458)
Total comprehensive loss														(85)
Balance at June 30, 2023 (unaudited)	$	24	$	5,035	$	—	$	28,156	$	(4,070)	$	(2,891)	$	26,254
Balance at March 31, 2024 (unaudited)	$	11	$	6,487	$	(540)	$	28,094	$	—	$	(2,317)	$	31,735
Comprehensive loss:
Net income		—		—		—		183		—		—		183
Net pension and postretirement benefit, net of taxes		—		—		—		—		—		8		8
Change in unrealized losses on securities available-for-sale, net of tax effects		—		—		—		—		—		(223)		(223)
Total comprehensive loss														(32)
Balance at June 30, 2024 (unaudited)	$	11	$	6,487	$	(540)	$	28,277	$	—	$	(2,532)	$	31,703

See accompanying notes to consolidated financial statements.

6

GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Nine Months Ended June 30, 2024 and 2023

(In thousands, except share and per share data) (Unaudited)

					Unearned						Accumulated
			Additional		Common						Other		Total
	Common		Paid-in		Stock		Retained		Treasury		Comprehensive		Shareholder’s
	Stock		Capital		held by ESOP		Earnings		Stock		Income (Loss)		Equity
Balance at September 30, 2022	$	24	$	5,035	$	—	$	28,128	$	(4,070)	$	(4,288)	$	24,829
Comprehensive income:
Net income		—		—		—		232		—		—		232
Net pension and postretirement benefit, net of taxes		—		—		—		—		—		214		214
Change in unrealized losses on securities available-for-sale, net of reclassification adjustment and tax effects		—		—		—		—		—		1,183		1,183
Total comprehensive income														1,629
Cash dividends declared, $0.10 per share		—		—		—		(204)		—		—		(204)
Balance at June 30, 2023 (unaudited)	$	24	$	5,035	$	—	$	28,156	$	(4,070)	$	(2,891)	$	26,254
Balance at September 30, 2023	$	24	$	5,035	$	—	$	28,242	$	(4,070)	$	(4,123)	$	25,108
Comprehensive income:
Net income		—		—		—		403		—		—		403
Net pension and postretirement benefit, net of taxes		—		—		—		—		—		56		56
Change in unrealized gain (losses) on securities available-for-sale, net of reclassification adjustment and tax effects		—		—		—		—		—		1,535		1,535
Total comprehensive income														1,994
Net proceeds from stock offering and holding company conversion		—		4,932		—		—		—		—		4,932
Common stock issued in stock offering (1,107,134 shares)		11		(11)		—		—		—		—		—
Cancellation of common stock (2,031,377 shares)		(20)		20		—		—		—		—		—
Cancellation of treasury stock (352,231 shares)		(4)		(4,066)		—		—		4,070		—		—
Purchase of ESOP shares (57,845 shares)		—		578		(578)		—		—		—		—
ESOP shares committed to be released (3,856 shares)		—		(1)		38		—		—		—		37
Adoption of ASU 2016-13 Current Expected Credit Losses		—		—		—		(368)		—		—		(368)
Balance at June 30, 2024 (unaudited)	$	11	$	6,487	$	(540)	$	28,277	$	—	$	(2,532)	$	31,703

See accompanying notes to consolidated financial statements.

7

GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	Nine Months Ended
	June 30,
	2024		2023
Cash flows from operating activities:
Net Income	$	403	$	232
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Provision for credit losses		70		92
Net amortization of deferred fees on loans		57		72
Net amortization of securities premiums and discounts		(488)		(528)
Depreciation		175		166
Net realized (gains) losses on securities available for sale ("AFS")		(13)		661
Net amortization of core deposits intangible		312		347
Net realized losses on disposal of premises and equipment		14		—
Loss on subsequent write-downs of foreclosed assets		—		23
Net realized gains on sale of foreclosed assets		(17)		(20)
ESOP committed to be released		37		—
Earnings on investment in bank owned life insurance		(114)		(106)
Decrease in accrued interest receivable and other assets		17		735
Decrease in accrued interest payable and other liabilities		(3,746)		(334)
Net cash (used in) provided by operating activities		(3,293)		1,340
Cash flows from investing activities:
Securities available for sale:
Proceeds from sales of securities (AFS)		722		4,988
Proceeds from maturities and principal reductions of securities (AFS)		7,104		4,609
Purchases of securities (AFS)		(2,266)		(5,827)
(Purchases) redemptions of FHLB stock		430		(498)
Net decrease (increase) in loans receivable		1,845		(305)
Additions to premises and equipment		(94)		(148)
Proceeds from the sale of foreclosed assets		91		130
Net cash provided by investing activities		7,832		2,949
Cash flows from financing activities:
Net decrease in deposits		(5,333)		(23,332)
Net increase (decrease) in short-term borrowings		(9,010)		11,990
Advance payments by borrowers for property taxes and insurance, net		744		643
Net stock offering proceeds		4,932		—
Cash dividends paid to common stock shareholders		—		(204)
Net cash used in financing activities		(8,667)		(10,903)
Net decrease in cash and cash equivalents		(4,128)		(6,614)
Cash and cash equivalents – Beginning of Period		10,407		14,344
Cash and cash equivalents – End of Period	$	6,279	$	7,730
Supplemental disclosures:
Cash paid during the period for interest	$	1,089	$	268
Loans receivable transferred to foreclosed assets during the period		—		234
Write-downs on foreclosed assets through the allowance for credit losses on loans		(27)		(44)

See accompanying notes to consolidated financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1:  BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Gouverneur Bancorp, Inc. (“Bancorp”) and Gouverneur Savings and Loan Association (the “Bank”), the wholly owned and only direct subsidiary of  Bancorp, and GS&L Municipal Bank, the wholly owned and only subsidiary of the Bank, (collectively referred to as the “Company”) as of June 30, 2024 (unaudited) and September 30, 2023 and for the three and nine-month periods ended June 30, 2024 and 2023 (unaudited). These consolidated financial statements were prepared in accordance with instructions for Form 10-Q 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.

Bancorp is a Maryland corporation that was incorporated in June 2023 to be the successor to Gouverneur Bancorp, Inc., a federally chartered corporation (the “Mid-Tier Holding Company”), upon completion of the second-step conversion of the Bank from the two-tier mutual holding company structure to the stock holding company structure.  Cambray Mutual Holding Company (“Cambray”) was the former mutual holding company for the Mid-Tier Holding Company prior to the completion of the second-step conversion.  In conjunction with the second-step conversion, each of Cambray Mutual Holding Company and the Mid-Tier Holding Company merged out of existence and now cease to exist.  The second-step conversion was completed on October 31, 2023, at which time the Company sold, for gross proceeds of $7.2 million, a total of 723,068 shares of common stock at $10.00 per share, including 57,845 shares sold to the Bank’s employee stock ownership plan.  As part of the second-step conversion, each of the existing outstanding shares of Mid-Tier Holding Company common stock owned by persons other than Cambray Mutual Holding Company was converted into 0.5334 shares of Bancorp common stock.  As a result of the second-step conversion, all share information has been subsequently revised to reflect the 0.5334 exchange ratio, unless otherwise noted.

On September 16, 2022, the Bank completed its acquisition of Citizens Bank of Cape Vincent (“CBCV”), Cape Vincent, New York, a commercial bank with full-service offices in the villages of Cape Vincent, Chaumont and LaFargeville.  At the effective time of the acquisition, CBCV was merged with and into Gouverneur Savings and Loan Association and each CBCV stockholder became entitled to receive $1,056.11 in cash for each share of CBCV common stock that they held at the effective time of the merger.

In conjunction with the acquisition of CBCV in September 2022, the Bank formed the limited purpose GS&L Municipal Bank in order to continue to hold CBCV’s roughly $24,187,000 in municipal deposits and continue to compete for such deposits in the future. GS&L Municipal Bank is a limited purpose commercial bank that is a wholly owned subsidiary of the Bank and operates under the same regulatory and operating framework as the Bank. The formation of GS&L Municipal Bank included an initial $2.5 million contribution from the Bank. GS&L Municipal Bank is a New York chartered limited purpose commercial bank organized to solicit municipal deposits from local government entities such as towns, cities, school districts, fire districts and other municipalities. The Bank views GS&L Municipal Bank as a source of low cost and stable source of funds that will further the Bank’s commitment to the communities in which the Bank operates.

On April 19, 2024, the Bank filed an application with the Office of the Comptroller of the Currency (the “OCC”) to convert from a New York chartered stock savings and loan association to a national banking association.  In connection with the charter conversion application, the Company will also file an application with the Federal Reserve Bank of New York to convert from a savings and loan holding company to a bank holding company.  The charter conversion remains subject to regulatory approval by the OCC and the Federal Reserve, and no timeline has been established for the completion of the conversion.  If the charter conversion is ultimately approved by the OCC and the Federal Reserve, the Company currently intends to file an application to merge GS&L Municipal Bank with and into the Bank following the completion of the charter conversion.

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 nine-month periods ended June 30, 2024 and 2023.  The results of operations for the three and nine-month periods ended

9

June 30, 2024 are not necessarily indicative of the results which may be expected for an entire fiscal year or any other period.

The data in the consolidated statements of financial condition for September 30, 2023 was derived from the Company’s audited consolidated financial statements as of and for the year ended September 30, 2023.  That data, along with the interim financial information presented in the consolidated statements of financial condition, earnings, comprehensive income (loss), shareholders’ equity and cash flows should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended September 30, 2023, including the notes thereto.  Certain amounts for the three-month and nine-month periods ended June 30, 2023 were reclassified to conform to the presentation of June 30, 2024.

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of Bancorp and its wholly-owned subsidiary, the Bank, and the Bank’s wholly owned subsidiary, GS&L Municipal Bank.

At June 30, 2024, GS&L Municipal Bank held $24.8 million of the Bank’s $43.7 million investment securities portfolio and $17.4 million of the Bank’s deposits.

All significant intercompany accounts and transactions have been eliminated in consolidation.  

Use of Estimates in Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses. In connection with the determination of the estimated credit losses, management obtains independent appraisals for significant properties.

The Company’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Company has a diversified portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local economic conditions. While management uses available information to recognize losses on loans and foreclosed assets, further reductions in the carrying amounts of loans and foreclosed assets may be necessary, based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans and foreclosed assets. Such agencies may require the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed assets may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

Recent Accounting Pronouncements

The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in Note 2 of the audited financial statements and notes for the year ended September 30, 2023 and

10

are contained in the Company’s Annual Report on Form 10-K for the year ended September 30, 2023. There have been no significant changes to the application of significant accounting policies since September 30, 2023, except for the following:

“ASU 2016-13”

On October 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL required an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses.

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require that credit losses be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not that the Company will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective October 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $436,000, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $29,000, which is recorded within Other Liabilities on the accompanying statements of financial condition. The Company recorded a net decrease to retained earnings of $368,000 as of October 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after October 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

The Company adopted ASC 326 using the prospective transition approach for purchased credit deteriorated (“PCD”) assets that were previously classified as PCI under ASC 310-30. The Company did not have any PCD assets that were previously classified as purchased credit impaired. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on PCD assets was not deemed material.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to October 1, 2023. As of June 30, 2024, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale securities was not deemed material.

“ASU 2019-12”

On October 1, 2023, the Company adopted ASU 2019-12, Income Taxes Topic 740. This update simplifies and improves accounting for income taxes by eliminating certain exceptions to the general rules and clarifying or amending other current guidance. The scope of FASB ASC Subtopic 740-10, Income Taxes -Overall, has been amended to require that, if a franchise (or similar tax) is partially based on income, (1) deferred tax assets and liabilities should be recognized and accounted for pursuant to FASB ASC 740, as should the amount of current tax expense that is based on income, and (2) any incremental amount incurred should be recorded as a non-income-based tax. Note that under the amended guidance, the effect of potentially paying a non-income-based tax in future years need not be considered in evaluating the realizability of deferred tax assets. The amendments in this ASU were effective for the Company for the fiscal year beginning October 1, 2023 and there was no impact to the consolidated financial statements.

“ASU 2020-04”

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this update provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions

11

affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments (1) apply to contract modifications that replace a reference rate affected by reference rate reform, (2) provide exceptions to existing guidance related to changes to the critical terms of a hedging relationship due to reference rate reform, (3) provide optional expedients for fair value hedging relationships, cash flow hedging relationships, and net investment hedging relationships, and (4) provide a onetime election to sell, transfer, or both sell and transfer, debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The amendments for contract modifications can be elected to be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020. The amendments for existing hedging relationships can be elected to be applied as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform to clarify that all derivative instruments affected by changes to the interest rates used for discounting, margining or contract price alignment are in scope of Topic 848. ASU 2021-01 expands the scope of ASU 2020-04 by allowing an entity to apply the optional expedients, by stating that a change to the interest rate used for margining, discounting or contract price alignment for a derivative is not considered to be a change to the critical terms of the hedging relationship that requires dedesignation. The Company has signed an amended agreement with Federal Home Loan Bank of New York for the transition to SOFR which began July 1, 2023.

The following table illustrates the impact on the allowance for credit losses from adoption of ASC 326 on October 1, 2023:

	October 1, 2023		September 30, 2023
	As Reported Under		Pre-ASC 326		Impact of ASC
(dollars in thousands)	ASC 326		Adoption September		326 Adoption
Assets:
Held to maturity securities, at amortized cost	$	—	$	—	$	—
Allowance for credit losses on held to maturity securities:
Mortgaged-backed securities	$	—	$	—	$	—
Loans, at amortized cost
Allowance for credit losses on loans:
Residential mortgages	$	779	$	527	$	252
Secondary market mortgages		14		14		—
Commercial mortgages		160		55		105
Commercial loans - secured		31		4		27
Commercial loans - unsecured		—		2		(2)
Consumer loans		75		21		54
Allowance for credit losses on loans	$	1,059	$	623	$	436
Liabilities:
Allowance for credit losses for unfunded commitments	$	29	$	—	$	29

Allowance for Credit Losses – Available for Sale Securities

For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.

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If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less that the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as provision for (benefit from) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At June 30, 2024, there was no allowance for credit loss related to the available for sale securities portfolio.  

Accrued interest receivable on available for sale debt securities totaled $215,000 at June 30, 2024 and was excluded from the estimate of credit losses.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $393,000 at June 30, 2024 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses on loans is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance for credit losses on loans represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses on loans is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

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The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a discounted cash flow and remaining life methodology. The segments using a discounted cash flow methodology are as follows:

Real Estate Residential

- 1-4 family residential construction loans

- Other construction loans and all land development and other land loans

- Revolving, open-end loans secured by 1-4 family residential properties and extended under lines of credit

- Secured by first liens

- Secured by junior liens

Real Estate Commercial

- Commercial and industrial loans – commercial mortgage

- Loans secured by owner-occupied, nonfarm nonresidential properties

- Loans secured by other nonfarm nonresidential properties

- Loans secured by multifamily (5 or more) properties

Commercial Secured

- Loans to finance agricultural production and other loans to farmers

- Commercial and industrial loans

- Obligations (other than securities and leases) of states and political subdivisions in the US

Commercial Unsecured

- Commercial and industrial loans – unsecured

- Unsecured other loans

Consumer

- Other revolving credit plans

- Automobile loans

- Other consumer loans

The discounted cash flow method calculates the expected cash flows to be received over the life of each individual loan in a pool.

The segments using a remaining life methodology are as follows:

Commercial Unsecured

- Other loans (commercial overdraft loans)

Consumer

- Other loans (consumer overdraft loans)

The remaining life methodology uses average annual charge-off rates and the remaining life of the loan to estimate the allowance for credit losses. The average annual charge-off rate is applied to the amortization adjusted remaining life of the loan to determine the unadjusted lifetime historical charge-off rate.

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Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, asset quality and portfolio trends, loan review and audit results, loan portfolio growth, industry concentrations, trends in underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting dated unadjusted for selling costs as appropriate.    

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off—balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s statements of earnings. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated statements of financial condition.

Revenue Recognition

The majority of the Company’s revenue stream is generated from interest income on loans which are outside the scope of “Revenue from Contracts with Customers” (Topic 606). 

  

The Company’s sources of income that fall within the scope of Topic 606 include service charges on deposits, interchange fees and gains and losses on sales of other real estate, all of which are presented as components of noninterest income on the accompanying statements of earnings. Below is a summary of the revenue streams that fall within the scope of Topic 606.  

Service charges on deposits, ATM, and interchange fees – Fees from these services are either transaction-based, for which the performance obligations are satisfied when the individual transaction is processed, or set periodic service charges, for which the performance obligations are satisfied over the period the service is provided. Transaction-based fees are recognized as revenue at a point in time when the transaction is processed, and periodic service charges are recognized as revenue over a period of time equivalent to the service period.  

Gains and losses on sales of foreclosed assets – The Company records a gain or loss from the sale of foreclosed assets when control of the property transfers to the buyer, which generally occurs at the time of the executed deed. When the Company finances the sale of foreclosed assets to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. 

NOTE 3:  EARNINGS PER COMMON SHARE

Basic earnings per common share represent income available to common shareholders divided by the weighted average number of common shares outstanding during the period.  Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Unallocated common shares held by the ESOP are not included in the

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weighted-average number of common shares outstanding for purposes of calculating basic earnings per common share until they are committed to be released.

The table below sets forth the computation of basic and diluted earnings per common share for the three and nine-month periods ended June 30, 2024 and 2023 (In thousands, except per share data) (unaudited).

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
Basic earnings per share:	2024		2023		2024		2023
Net income	$	183	$	232	$	403	$	232
Weighted average common shares outstanding used to calculate
basic and diluted earnings per common share		1,053		2,031		1,052		2,031
Basic and diluted earnings per common share	$	0.17	$	0.11	$	0.38	$	0.11

There were no dilutive or antidilutive shares at June 30, 2024 or 2023.

NOTE 4:  COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss), 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 and post-retirement benefits.

The following table shows the components of accumulated other comprehensive loss at June 30, 2024 (unaudited) and September 30, 2023:

	June 30,		September 30,
	2024		2023
	(In thousands)
Accumulated Other Comprehensive Loss by Component
Unrealized Loss for Other Postretirement Obligations	$	(255)	$	(326)
Tax Effect		54		69
Net Unrealized Loss for Other Postretirement Obligations		(201)		(257)
Unrealized Loss on Available-for-Sale Securities, net		(2,951)		(4,890)
Tax Effect		620		1,024
Net Unrealized Loss on Available-for-Sale Securities		(2,331)		(3,866)
Total Accumulated Other Comprehensive Loss	$	(2,532)	$	(4,123)

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NOTE 5:  INVESTMENT SECURITIES

The amortized cost of debt securities and their approximate fair value at June 30, 2024 (unaudited) is represented in the table below:

			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for Credit		Fair
	Cost		Gains		Losses		Losses		Value
AVAILABLE FOR SALE
U.S. Government Treasuries	$	2,329	$	—	$	(51)	$	—	$	2,278
U.S. Government Agencies		9,917		—		(165)		—		9,752
Mortgaged-Backed Securities		8,777		2		(520)		—		8,259
Municipal Securities		23,585		18		(2,225)		—		21,378
SBA Securities		2,087		11		(21)		—		2,077
	$	46,695	$	31	$	(2,982)	$	—	$	43,744

The amortized cost of debt securities and their approximate fair value at September 30, 2023 is represented in the table below.

			Gross		Gross		Allowance
	Amortized		Unrealized		Unrealized		for Credit		Fair
	Cost		Gains		Losses		Losses		Value
AVAILABLE FOR SALE
U.S. Government Treasuries	$	3,766	$	—	$	(86)	$	—	$	3,680
U.S. Government Agencies		12,025		—		(363)		—		11,662
Mortgaged-Backed Securities		8,726		1		(812)		—		7,915
Municipal Securities		24,571		2		(3,578)		—		20,995
SBA Securities		2,426		—		(54)		—		2,372
	$	51,514	$	3	$	(4,893)	$	—	$	46,624

The amortized cost and fair value of debt securities, by contractual maturity, at June 30, 2024 (unaudited) is as shown below. Expected maturities will differ from contractual maturities call or prepay obligations with or without call or prepayment penalties.

	Debt Securities
	Available-for-Sale
	Amortized
	Cost		Fair Value
		(In Thousands)
Due Within One Year	$	4,016	$	4,006
Due After One Year Through Five Years		11,134		10,984
Due After Five Years Through Ten Years		6,868		6,522
Due After Ten Years		13,813		11,896
		35,831		33,408
Mortgage-Backed & SBA Securities with no set maturity		10,864		10,336
	$	46,695	$	43,744

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The amortized cost and fair value of debt securities, by contractual maturity, at September 30, 2023 is as shown below.

	Debt Securities
	Available-for-Sale
	Amortized
	Cost		Fair Value
	(In Thousands)
Due Within One Year	$	6,585	$	6,548
Due After One Year Through Five Years		13,789		13,474
Due After Five Years Through Ten Years		4,437		4,127
Due After Ten Years		15,551		12,188
		40,362		36,337
Mortgage-Backed & SBA Securities with no set maturity		11,152		10,287
	$	51,514	$	46,624

The realized gains and losses from the sale of available-for-sale investments for the three and nine-month periods ending June 30, 2024 and 2023 (unaudited) is as shown in the table below:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
	(unaudited)
	(In Thousands)
Proceeds	$	722	$	—	$	722	$	4,988
Cost		(709)		—		(709)		(5,649)
Net Realized Gains (Losses)	$	13	$	—	$	13	$	(661)
Gross Realized Gains	$	13	$	—	$	13	$	—
Gross Realized Losses		—		—		—		(661)
Net Realized Gains (Losses)	$	13	$	—	$	13	$	(661)

Information pertaining to securities with gross unrealized losses at June 30, 2024 (unaudited), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than Twelve months				Over Twelve Months				Total
	Gross				Gross				Gross
	Unrealized				Unrealized				Unrealized
	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
	(In Thousands)
June 30, 2024
Securities Available-for-Sale:
US Treasuries & Agencies	$	4	$	203	$	212	$	11,826	$	216	$	12,029
Mortgage-backed & SBA Securities		12		767		529		7,862		541		8,629
Municipal Securities		75		6,228		2,150		10,179		2,225		16,407
	$	91	$	7,198	$	2,891	$	29,867	$	2,982	$	37,065

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Information pertaining to securities with gross unrealized losses at September 30, 2023 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less than Twelve months				Over Twelve Months				Total
	Gross				Gross				Gross
	Unrealized				Unrealized				Unrealized
	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
	(In Thousands)
September 30, 2023
Securities Available-for-Sale:
US Treasuries & Agencies	$	368	$	9,143	$	81	$	6,199	$	449	$	15,342
Mortgage-backed & SBA Securities		852		9,899		14		340		866		10,239
Municipal Securities		480		11,357		3,098		8,061		3,578		19,418
	$	1,700	$	30,399	$	3,193	$	14,600	$	4,893	$	44,999

In management’s opinion, the unrealized losses primarily reflect changes in interest rates subsequent to the acquisition of specific securities. The Company had 34 and 106 securities in an unrealized loss position of less than twelve months at June 30, 2024 and September 30, 2023, respectively, which included 7 and 74 securities acquired from Citizens Bank of Cape Vincent in September 2022, and 114 and 76 securities in an unrealized loss position of 12 months or more at June 30, 2024 and September 30, 2023, respectively. Because the unrealized losses are primarily due to current interest rate levels relative to the Company’s cost and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell these investments before recovery of its amortized cost, which may be at maturity, the Company does not consider the unrealized losses to be credit losses at June 30, 2024, and the Company does not consider these investments to be other-than temporarily impaired at September 30, 2023.

NOTE 6: LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The components of loans receivable at June 30, 2024 (unaudited) are as shown in the table below:

	As of June 30, 2024
	Total Loans
	(unaudited)
	(In Thousands)
Real Estate Mortgages
Residential	$	101,912
Commercial		11,297
Construction		2,399
Home Equity		1,564
Other Loans:
Commercial Non-Mortgage		1,874
Automobile		2,451
Passbook		428
Consumer		2,684
Total Loans		124,609
Net Deferred Loan Costs		428
Net Discounts on Acquired Loans		(863)
Allowance for Credit Losses		(1,060)
Loans Receivable, Net	$	123,114

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The components of loans receivable at September 30, 2023 are as shown in the table below:

	Year Ended September 30,
	2023
	Originated		Acquired		Total Loans
	(In Thousands)
Real Estate Mortgages:
Residential	$	74,918	$	27,333	$	102,251
Commercial		7,647		3,843		11,490
Construction		2,265		—		2,265
Home Equity		2,552		411		2,963
Other Loans:
Commercial Non-Mortgage		1,046		455		1,501
Automobile		2,793		234		3,027
Passbook		43		224		267
Consumer		2,175		666		2,841
Total Loans		93,439		33,166		126,605
Net Deferred Loan Costs		437		—		437
Net Discounts on Acquired Loans		—		(992)		(992)
Allowance for Loan Losses		(623)		—		(623)
Loans Receivable, Net	$	93,253	$	32,174	$	125,427

The outstanding principal balance and the related carrying amount of the Company’s loans acquired in the Citizens Bank of Cape Vincent acquisition were as shown in the table below at June 30, 2024 (unaudited) and September 30, 2023:

	June 30, 2024		September 30, 2023
	(unaudited)
	(in thousands)
Acquired Credit Impaired Loans
Outstanding Principal Balance	$	—	$	—
Carrying Amount	$	—	$	—
Acquired Non-Credit Impaired Loans
Outstanding Principal Balance	$	29,732	$	33,166
Carrying Amount	$	28,869	$	32,174
Total Acquired Loans
Outstanding Principal Balance	$	29,732	$	33,166
Carrying Amount	$	28,869	$	32,174

The Company had not acquired any loans with deteriorated credit quality as of June 30, 2024 and September 30, 2023. The Company did acquire a commercial secured performing loan which has been classified as substandard to ensure proper oversight and monitoring of the credit. The credit has performed in accordance with its modified terms for over two years. This loan was restructured in September 2023. Proceeds paid off current principal and interest due in the amount of $505,000. The borrower retained the same interest rate of 6.00% and received a 5-year callable note with 25-year amortization in exchange for extra real estate collateral. A $108,000 second position commercial mortgage was placed on the guarantor’s primary residence behind the Bank’s first position residential mortgage. The restructuring enhances the Bank’s loan-to-value position while providing the borrower with a lower payment than the original contractual terms. The capitalization of interest, interest rate below market terms, and extension of the maturity date were concessions made to the borrower in exchange for additional collateral. Interest income on a restructured loan is accrued once the borrower demonstrates the ability to pay under the restructured terms for sustained period of repayment performance, which is generally six consecutive months. The loan was removed from non-accrual status during the third quarter of fiscal year 2024. This loan has a fair value adjustment as a result of purchase price accounting of $81,000 at June 30, 2024.

The Company sells first mortgage loans to third parties in the ordinary course of business, principally to the FHLB, a large purchaser of loans. These serviced loans are not included in the balances of the accompanying statements of financial

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condition, but the Company continues to collect the principal and interest payments for a servicing fee. At June 30, 2024 and September 30, 2023, the total outstanding principal balance on serviced loans was $11.8 million and $12.4 million, respectively.  Citizens Bank of Cape Vincent did not sell residential mortgage loans to third parties.

The tables below present, by portfolio segment, the changes in the allowance for credit losses and the recorded investment in loans for the three and nine-months ended June 30, 2024 and 2023 (unaudited) and the year ended September 30, 2023.

Allowance for credit losses and recorded investment in loans for the three months ended June 30, 2024 was as follows:

	Real Estate		Real Estate		Commercial		Commercial
	Residential		Commercial		Secured		Unsecured		Consumer		Total
	(In Thousands)
Allowance for Credit Losses:
Beginning Balance	$	802	$	150	$	32	$	—	$	78	$	1,062
Charge-offs		—		—		—		—		(2)		(2)
Recoveries		—		—		—		—		—		—
Transfer		(6)		2		8		—		(4)		—
Provisions		—		—		—		—		—		—
Ending Balance	$	796	$	152	$	40	$	—	$	72	$	1,060
Ending Balance: Individually
Evaluated	$	—	$	—	$	—	$	—	$	—	$	—
Ending Balance: Collectively
Evaluated	$	796	$	152	$	40	$	—	$	72	$	1,060
Loans Receivable:
Ending Balance	$	105,875	$	11,297	$	1,862	$	12	$	5,563	$	124,609
Ending Balance: Individually
Evaluated	$	—	$	711	$	—	$	—	$	—	$	711
Ending Balance: Collectively
Evaluated	$	105,875	$	10,586	$	1,862	$	12	$	5,563	$	123,898

Allowance for credit losses and recorded investment in loans for the nine months ended June 30, 2024 was as follows:

	Real Estate		Real Estate		Commercial		Commercial
	Residential		Commercial		Secured		Unsecured		Consumer		Total
					(In Thousands)		(Unaudited)
Allowance for Credit Losses:
Beginning Balance	$	541	$	55	$	4	$	2	$	21	$	623
Charge-offs		(63)		—		—		—		(10)		(73)
Recoveries		1		—		—		—		5		6
Transfer		(3)		(8)		9		—		2		—
Provisions		68		—		—		—		—		68
Adoption of new accounting standard		252		105		27		(2)		54		436
Ending Balance	$	796	$	152	$	40	$	—	$	72	$	1,060
Ending Balance: Individually
Evaluated	$	—	$	—	$	—	$	—	$	—	$	—
Ending Balance: Collectively
Evaluated	$	796	$	152	$	40	$	—	$	72	$	1,060

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Allowance for loan losses and recorded investment in loans for the three months ended June 30, 2023 was as follows:

	Real Estate		Real Estate		Commercial		Commercial
	Residential		Commercial		Secured		Unsecured		Consumer		Total
	(In Thousands)
Allowance for Credit Losses:
Beginning Balance	$	598	$	55	$	4	$	1	$	17	$	675
Charge-offs		(106)		—		—		(1)		(3)		(110)
Recoveries		1		—		—		—		2		3
Transfer		(6)		—		—		1		5		—
Provisions		30		—		—		—		—		30
Ending Balance	$	517	$	55	$	4	$	1	$	21	$	598
Ending Balance: Individually
Evaluated	$	—	$	—	$	—	$	—	$	—	$	—
Ending Balance: Collectively
Evaluated	$	517	$	55	$	4	$	1	$	21	$	598

Allowance for loan losses and recorded investment in loans for the nine months ended June 30, 2023 was as follows:

	Real Estate		Real Estate		Commercial		Commercial
	Residential		Commercial		Secured		Unsecured		Consumer		Total
	(In Thousands)
Allowance for Credit Losses:
Beginning Balance	$	548	$	55	$	4	$	1	$	13	$	621
Charge-offs		(106)		—		—		(1)		(12)		(119)
Recoveries		1		—		—		—		3		4
Transfer		(18)		—		—		1		17		—
Provisions		92		—		—		—		—		92
Ending Balance	$	517	$	55	$	4	$	1	$	21	$	598
Ending Balance: Individually
Evaluated	$	—	$	—	$	—	$	—	$	—	$	—
Ending Balance: Collectively
Evaluated	$	517	$	55	$	4	$	1	$	21	$	598

Allowance for loan losses and recorded investment in loans for the year ended September 30, 2023 was as follows:

	Real Estate		Real Estate		Commercial		Commercial
	Residential		Commercial		Secured		Unsecured		Consumer		Total
	(In Thousands)
Loans Receivable:
Ending Balance	$	107,479	$	11,490	$	1,501	$	—	$	6,135	$	126,605
Less: Acquired Loans		27,744		3,843		455		—		1,124		33,166
Ending Balance: Individually
Evaluated	$	—	$	298	$	—	$	—	$	—	$	298
Ending Balance: Collectively
Evaluated	$	79,735	$	7,349	$	1,046	$	—	$	5,011	$	93,141

The following table presents performing and nonperforming real estate loans based on payment activity as of June 30, 2024 and September 30, 2023. Real estate loans include residential and commercial mortgages, construction loans and home equity loans. Payment activity is reviewed by management on a quarterly basis to determine how loans are performing. Loans are considered to be nonperforming when the number of days delinquent is greater than 89 days. The loan may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally twelve consecutive months of current payments with no past due occurrences.

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Prior to October 1, 2023, nonperforming loans also include certain loans that have been modified in troubled debt restructuring (“TDR”) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs were classified as nonperforming at the time of restructure and would only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six consecutive months. Performing and nonperforming real estate loans as of June 30, 2024 and September 30, 2023 were as follows:

	As of June 30,		As of September 30,
	2024		2023
	(unaudited)
	(In Thousands)
Performing	$	116,643	$	118,269
Nonperforming		529		700
Total	$	117,172	$	118,969

Credit quality indicators as of June 30, 2024 and September 30, 2023 are as follows:

Internally assigned grade as a subsection of the “Pass” (ratings 1 – 4) credit risk profile:

1 — Good

Loans in this category are to an individual or a well-established business in excellent financial condition with strong liquidity and a history of consistently high levels of earnings and cash flow and debt service capacity. Supported by high quality financial statements (including recent statements and sufficient historical fiscal statements), borrower has excellent repayment history and possesses a documented source of repayment. Industry conditions are favorable and business borrower’s management is well qualified with sufficient debt.  Borrower and/or key personnel exhibit unquestionable character. Good loans may be characterized by high quality liquid collateral and very strong personal guarantors.

2 — Satisfactory

Loans in this category are to borrowers with many of the same qualities as a good loan, however, certain characteristics are not as strong (i.e. cyclical nature of earnings, lower quality financial statements, less liquid collateral, less favorable industry trends, etc.). Borrower still has good credit, will exhibit financial strength, excellent repayment history, and good present and future earnings potential. The primary source of repayment is readily apparent with strong secondary sources of repayment available. Management is capable, with sufficient depth, and character of borrower is well established.

3 — Acceptable

Loans in this category are to borrowers of average strength with acceptable financial condition (businesses fall within acceptable tolerances of other similar companies represented in the RMA annual statement studies), with satisfactory record of earnings and sufficient historical and projected cash flow to service the debt. Business borrower’s management is capable and reliable. Borrower has satisfactory repayment history, and primary and secondary sources of repayment can be clearly identified. Acceptable loans may exhibit some deficiency or vulnerability to changing economic or industry conditions.

4 — Watch

Loans in this category have a chance of resulting in a loss. Characteristics of this level of assets include, but are not limited to; the borrower has only a fair credit rating with minimal recent credit problems, cash flow is currently adequate to meet the required debt repayments, but will not be sufficient in the event of significant adverse developments, borrower has limited access to alternative sources of finance, possibly at unfavorable terms, some management weaknesses exist, collateral, generally required, is sufficient to make likely the recovery of the value of the loan in the event of default, but

23

liquidating the collateral may be difficult or expensive. In addition, the guarantor would achieve this credit rating if it borrowed individually from the Bank.

5 — Special Mention

Loans in this category are usually made to well-established businesses with local operations. Special Mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The special mention category is not to be used as a means of avoiding a clear decision to classify a loan or pass it without criticism. Neither should it include loans listed merely “for the record” when uncertainties and complexities, perhaps coupled with large size, create some reservations about the loan. If weaknesses or evidence of imprudent handling cannot be identified, inclusion of such loans in Special Mention is not justified. Special mention loans have characteristics which corrective management action would remedy. Loans in this category should remain for a relatively short period of time.

6 — Substandard

Loans classified as substandard are inadequately protected by the current sound net worth or paying capacity of the borrower or the collateral pledged, if any. Loans in this category have well-defined weaknesses that jeopardize the repayment. Loans which might be included in the category have potential for problems due to weakening economic or market conditions. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans may include loans which are likely to require liquidation of collateral to effect repayment, and other loans where the character or ability to repay has become suspect. Loss potential, while existing in the aggregate amount of the substandard assets, does not have to exist in individual assets classified as substandard.

7 — Doubtful

Loans classified as doubtful have all the weaknesses in those classified as substandard with the added characteristics that the weaknesses make collection or liquidation in full on the basis of current existing facts, conditions, and value highly questionable and improbable. Although possibility of loss is extremely high, classification of these loans as loss has been deferred to specific pending factors or events, which may strengthen the loan value (i.e., possibility of additional collateral, injection of capital, collateral liquidation, debt structure, economic recovery, etc.).

8 — Loss

Loans classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The information for each of the credit quality indicators is updated on a quarterly basis in conjunction with the determination of the adequacy of the allowance for credit losses.

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Credit risk profile for loans receivable held in portfolio by internally assigned grade as of June 30, 2024:

	Pass		Special Mention		Substandard		Doubtful		Total
	(unaudited)
	(In Thousands)
Mortgage Loans on Real Estate
Residential, One to Four Family	$	104,311	$	—	$	—	$	—	$	104,311
Home Equity		1,564		—		—		—		1,564
Commercial		10,432		154		711		—		11,297
Total Mortgage Loans on Real Estate		116,307		154		711		—		117,172
Commercial		1,855		19		—		—		1,874
Consumer		5,563		—		—		—		5,563
Total Loans	$	123,725	$	173	$	711	$	—	$	124,609

Credit risk profile for originated loans held in portfolio by internally assigned grade as of September 30, 2023:

	Pass		Special Mention		Substandard		Doubtful		Total
	(In Thousands)
Mortgage Loans on Real Estate
Residential, One to Four Family	$	77,183	$	—	$	—	$	—	$	77,183
Home Equity		2,552		—		—		—		2,552
Commercial		7,349		—		298		—		7,647
Total Mortgage Loans on Real Estate		87,084		—		298		—		87,382
Commercial		1,046		—		—		—		1,046
Consumer		5,011		—		—		—		5,011
Total Loans	$	93,141	$	—	$	298	$	—	$	93,439

Credit risk profile for acquired loans by internally assigned grade as of September 30, 2023:

	Pass		Special Mention		Substandard		Doubtful		Total
	(In Thousands)
Mortgage Loans on Real Estate
Residential, One to Four Family	$	27,333	$	—	$	—	$	—	$	27,333
Home Equity		411		—		—		—		411
Commercial		3,231		210		402		—		3,843
Total Mortgage Loans on Real Estate		30,975		210		402		—		31,587
Commercial		423		32		—		—		455
Consumer		1,124		—		—		—		1,124
Total Loans	$	32,522	$	242	$	402	$	—	$	33,166

Aging Analysis of Past Due Financing Receivables by Class

Following are tables which include an aging analysis of the recorded investment of past due financing receivables as of June 30, 2024 and September 30, 2023. Also included are loans that are greater than 89 days past due as to interest and principal still accruing, because they are (1) well secured and in the process of collection or (2) real estate loans or loans exempt under regulatory rules from being classified as nonaccruals.

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An aged analysis of past due financing receivables by class of financing receivable for loans held in portfolio as of June 30, 2024 are as follows:

					90 Days or						Total		90 Days or
	30 – 59 Days		60 – 89 Days		Greater		Total				Financing		Greater and
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		Still accruing
	(In Thousands)
Residential Mortgage	$	1,113	$	366	$	253	$	1,732	$	104,143	$	105,875	$	—
Commercial Mortgage		29		67		—		96		11,201		11,297		—
Commercial		—		16		—		16		1,858		1,874		—
Consumer		59		1		9		69		5,494		5,563		—
Total Loans	$	1,201	$	450	$	262	$	1,913	$	122,696	$	124,609	$	—

An aged analysis of past due financing receivables by class of financing receivable for originated loans held in portfolio and loans held for sale as of September 30, 2023, are as follows:

													90 Days or
					Greater						Total		Greater
	30 – 59 Days		60 – 89 Days		90 Days or		Total				Financing		and Still
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		accruing
	(In Thousands)
Residential Mortgage	$	810	$	5	$	138	$	953	$	78,782	$	79,735	$	—
Commercial Mortgage		—		—		66		66		7,581		7,647		—
Commercial		—		—		—		—		1,046		1,046		—
Consumer		84		11		—		95		4,916		5,011		—
Total Originated Loans	$	894	$	16	$	204	$	1,114	$	92,325	$	93,439	$	—

An aged analysis of past due financing receivables by class of financing receivable for acquired loans as of September 30, 2023, are as follows:

													90 Days or
					Greater						Total		Greater
	30 – 59 Days		60 – 89 Days		90 Days or		Total				Financing		and Still
	Past Due		Past Due		Past Due		Past Due		Current		Receivable		accruing
	(In Thousands)
Residential Mortgage	$	33	$	—	$	62	$	95	$	27,649	$	27,744	$	—
Commercial Mortgage		—		—		—		—		3,843		3,843		—
Commercial		—		—		—		—		455		455		—
Consumer		—		—		—		—		1,124		1,124		—
Total Acquired Loans	$	33	$	—	$	62	$	95	$	33,071	$	33,166	$	—

Modifications Made to Borrowers Experiencing Financial Difficulty

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.

There were no loans made to borrowers experiencing financial difficulty during the three and nine months ended June 30, 2024.

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Impaired Loans

There were no recorded investment balances for impaired financing receivables at September 30, 2023.

Troubled Debt Restructurings (“TDR”)

There were two new loans modified as TDR during the fiscal year ended September 30, 2023. The Company acquired a commercial secured performing loan which has been classified as substandard to ensure proper oversight and monitoring of the credit. The credit has performed in accordance with its modified terms for over two years.  This loan was restructured in the fourth quarter of fiscal 2023. Proceeds paid off current principal and interest due in the amount of $505,000. The borrower retained the same interest rate of 6.00% and received a 5-year callable note with 25-year amortization in exchange for extra real estate collateral. A $108,000 second position commercial mortgage was placed on the guarantor’s primary residence behind the Bank’s first position residential mortgage. The other loan modified as a TDR during fiscal year 2023 was a one-to-four-family adjustable-rate residential loan with a pre-modified balance of $11,000 and a 7.25% interest rate. Proceeds paid off current principal, taxes and closing costs when this loan modified into a fixed-rate one-to-four-family residential loan with a balance of $16,000 and a 6.50% interest rate. The maturity date of September 2023 was extended to October 2028 under the new terms. There were no TDRs in payment default that were previously classified as a TDR in the previous twelve months. At September 30, 2023 there were no commitments to lend additional funds to any borrower whose loan terms had been modified in a troubled debt restructuring.

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Vintage Analysis

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of June 30, 2024:

	Term Loans by Fiscal Year of Origination
(in thousands)	2024		2023		2022		2021		2020		Prior		Revolving		Total
Real Estate - Residential
Pass	$	5,544	$	11,476	$	15,327	$	17,522	$	9,294	$	45,148	$	1,564	$	105,875
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Real Estate - Residential	$	5,544	$	11,476	$	15,327	$	17,522	$	9,294	$	45,148	$	1,564	$	105,875
Current period gross write-offs	$	63	$	—	$	—	$	—	$	—	$	—	$	—	$	63
Real Estate - Commercial
Pass	$	814	$	2,089	$	723	$	2,315	$	1,894	$	2,597	$	—	$	10,432
Special Mention		—		—		—		—		—		154		—		154
Substandard		—		450		—		194		67		—		—		711
Doubtful		—		—		—		—		—		—		—		—
Total Real Estate - Commercial	$	814	$	2,539	$	723	$	2,509	$	1,961	$	2,751	$	—	$	11,297
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial - Secured
Pass	$	597	$	410	$	64	$	184	$	318	$	270	$	—	$	1,843
Special Mention		—		—		—		—		—		19		—		19
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Commercial - Secured	$	597	$	410	$	64	$	184	$	318	$	289	$	—	$	1,862
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial - Unsecured
Pass	$	1	$	—	$	—	$	—	$	—	$	11	$	—	$	12
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Commercial - Unsecured	$	1	$	—	$	—	$	—	$	—	$	11	$	—	$	12
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer
Pass	$	1,468	$	1,956	$	1,014	$	581	$	276	$	268	$	—	$	5,563
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total Consumer	$	1,468	$	1,956	$	1,014	$	581	$	276	$	268	$	—	$	5,563
Current period gross write-offs	$	10	$	—	$	—	$	—	$	—	$	—	$	—	$	10

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Nonaccrual Loans

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated:

	CECL						Incurred Loss
	June 30, 2024						September 30, 2023
	Nonaccrual loans		Nonaccrual loans		Total Nonaccrual
(in thousands)	with No Allowance		with an Allowance		Loans		Nonaccrual Loans
Real Estate - Residential	$	—	$	492	$	492	$	153
Real Estate - Commercial		—		—		—		468
Commercial - Secured		—		—		—		—
Commercial - Unsecured		—		—		—		—
Consumer		—		9		9		9
Total Loans	$	—	$	501	$	501	$	630

The Company recognized no interest income on nonaccrual loans during the three and nine months ended June 30, 2024 or 2023.

The following table represents the accrued interest receivable written off by reversing interest income during the nine months ended June 30, 2024:

	For the Nine Months
	Ended June 30, 2024
	(in thousands)
Real Estate - Residential	$	20
Real Estate - Commercial		—
Commercial - Secured		—
Commercial - Unsecured		—
Consumer		1
Total Loans	$	21

NOTE 7: GOODWILL AND INTANGIBLE ASSETS

The goodwill and intangible assets arising from the acquisition of Citizens Bank of Cape Vincent is accounted for in accordance with the accounting guidance in FASB ASC Topic 350 for Intangibles — Goodwill and Other. The Company recorded goodwill of $4.2 million and core deposit intangibles of $2.5 million in connection with the acquisition. As of June 30, 2024 (unaudited) and September 30, 2023, intangible assets consisted of $1.8 million and $2.1 million, respectively, of core deposit intangibles, which are amortized over an estimated useful life of ten years.

The Company performs its annual impairment evaluation on September 30 or more frequently if events and circumstances indicate that the fair value is less than its carrying value.

29

Goodwill and core deposit intangibles at June 30, 2024 (unaudited) and September 30, 2023 are summarized as follows:

	Nine Months Ended June 30,						Year ended September 30,
	2024						2023
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
	(In Thousands)
Goodwill	$	4,237	$	—	$	4,237	$	4,237	$	—	$	4,237
Core Deposit Intangible		2,542		774		1,768		2,542		462		2,080
	$	6,779	$	774	$	6,005	$	6,779	$	462	$	6,317

No impairments of goodwill were recognized for the fiscal year ended September 30, 2023. Amortization expense for other intangible assets was $312,000 and $462,000 for the nine months ending June 30, 2024 and the fiscal year ended September 30, 2023, respectively, as well as the estimated aggregate amortization expense for each of the five succeeding fiscal years as summarized below:

Fiscal Year Ended
September 30,
(in thousands)
2024	$	416
2025		370
2026		323
2027		277
2028		231
	$	1,617

NOTE 8: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET CREDIT RISK

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and to sell loans. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on- balance sheet instruments.

A summary of financial instrument commitments at June 30, 2024 (unaudited) and September 30, 2023 is shown below.

	June 30,		September 30,
	2024		2023
	(unaudited)
	(in thousands)
Commitments to Grant Loans	$	1,854	$	1,089
Unfunded Commitments Under Lines of Credit	$	5,080	$	6,022

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer and generally consists of real estate.

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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 had four standby letters of credit totaling $176,000 with no amounts outstanding as of June 30, 2024 and September 30, 2023.

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.

Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be canceled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans, and are discussed within this note. The allowance for credit losses for unfunded loan commitments of $31,000 at June 30, 2024 is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended June 30, 2024.

	Total Allowance for Credit
	Losses - Unfunded
(in thousands)	Commitments
Balance, March 31, 2024	$	31
Provision for unfunded commitments		—
Balance, June 30, 2024	$	31

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the nine months ended June 30, 2024.

	Total Allowance for Credit
	Losses - Unfunded
(in thousands)	Commitments
Balance, September 30, 2023	$	—
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13		29
Provision for unfunded commitments		2
Balance, June 30, 2024	$	31

NOTE 9: REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can trigger certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance sheet items as

31

calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

U.S. Basel III Capital Rules

In July 2013, the Federal Reserve Board approved final rules (the “U.S. Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations and implementing the Basel Committee on Banking Supervision’s December 2010 framework for strengthening international capital standards. The U.S. Basel III Capital Rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions.

The minimum regulatory capital requirements established by the U.S. Basel III Capital Rules became effective for the Bank on January 1, 2016 and become fully phased in on January 1, 2019. The U.S. Basel III Capital Rules require the Bank to:

● Meet a minimum Common Equity Tier 1 Capital ratio of 4.50% of risk-weighted assets and a minimum Tier 1 Capital of 6.00% of risk-weighted assets;

● Continue to require a minimum Total Capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 Leverage Capital ratio of 4.00% of average assets;

● Maintain a “capital conservation buffer” of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments; and

● Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses. Certain non-qualifying capital instruments, including cumulative preferred stock and TruPS, will be excluded as a component of Tier 1 capital for institutions of the Company’s size.

The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expand the risk- weightings for assets and off-balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off- balance sheet exposures, resulting in higher risk weights for a variety of asset categories.

The capital conservation buffer at June 30, 2024 and September 30, 2023 is 2.50%. The Bank exceeded these “well-capitalized” and “capital conservation buffer” ratios for all periods presented.

As of June 30, 2024 and September 30, 2023, the Bank’s capital levels meet the fully phased-in minimum capital requirements, including the new capital conservation buffers, as prescribed in the U.S. Basel III Capital Rules.

As of June 30, 2024 and September 30, 2023, the most recent notification from Federal Deposit Insurance Corporation (“FDIC”) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since the most recent notification that management believes have changed the Bank’s prompt corrective action category.

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There are no comparable minimum capital requirements that apply to the Company as a savings and loan holding company. The Bank’s actual and required capital amounts and ratios are presented in the table below:

										Minimum to be Well
										Capitalized Under Prompt
					Minimum Capital					Corrective Action
	Actual				Requirement					Provisions
	Amount ($)		Ratio (%)		Amount ($)			Ratio (%)		Amount ($)			Ratio (%)
	(In Thousands)
As of June 30, 2024 (unaudited)
Total Capital (to Risk-Weighted Assets)	$	26,492	24.0	≥	$	8,832	≥	8.0	≥	$	11,040	≥	10.0
Tier 1 Capital (to Risk-Weighted Assets)		25,402	23.0	≥		6,624	≥	6.0	≥		8,832	≥	8.0
Tier 1 Common Equity (to Risk-Weighted Assets)		25,402	23.0	≥		4,968	≥	4.5	≥		7,176	≥	6.5
Tier 1 Leverage Ratio (to Adjusted Total Assets)		25,402	13.1	≥		7,759	≥	4.0	≥		9,699	≥	5.0
Capital Conservation Buffer on Tier 1 Common Equity		26,492	16.0	≥		7,727	≥	7.0	≥		N/A	≥	N/A
As of September 30, 2023
Total Capital (to Risk-Weighted Assets)	$	21,906	19.4	≥	$	9,020	≥	8.0	≥	$	11,275	≥	10.0
Tier 1 Capital (to Risk-Weighted Assets)		21,283	18.9	≥		6,765	≥	6.0	≥		9,019	≥	8.0
Tier 1 Common Equity (to Risk-Weighted Assets)		21,283	18.9	≥		5,074	≥	4.5	≥		7,329	≥	6.5
Tier 1 Leverage Ratio (to Adjusted Total Assets)		21,283	10.6	≥		8,022	≥	4.0	≥		10,027	≥	5.0
Capital Conservation Buffer on Tier 1 Common Equity		21,906	11.4	≥		7,892	≥	7.0	≥		N/A	≥	N/A

GS&L Municipal Bank’s actual and required capital amounts and ratios are as follows:

										Minimum to be Well
										Capitalized Under Prompt
					Minimum Capital					Corrective Action
	Actual				Requirement					Provisions
	Amount ($)		Ratio (%)		Amount ($)			Ratio (%)		Amount ($)			Ratio (%)
	(In Thousands)
As of June 30, 2024 (unaudited)
Total Capital (to Risk-Weighted Assets)	$	13,674	152.6	≥	$	717	≥	8.0	≥	$	896	≥	10.0
Tier 1 Capital (to Risk-Weighted Assets)		13,674	152.6	≥		538	≥	6.0	≥		717	≥	8.0
Tier 1 Common Equity (to Risk-Weighted Assets)		13,674	152.6	≥		403	≥	4.5	≥		583	≥	6.5
Tier 1 Leverage Ratio (to Adjusted Total Assets)		13,674	46.2	≥		1,183	≥	4.0	≥		1,479	≥	5.0
Capital Conservation Buffer on Tier 1 Common Equity		13,674	144.6	≥		627	≥	7.0	≥		N/A	≥	N/A
As of September 30, 2023
Total Capital (to Risk-Weighted Assets)	$	13,053	245.8	≥	$	425	≥	8.0	≥	$	531	≥	10.0
Tier 1 Capital (to Risk-Weighted Assets)		13,053	245.8	≥		319	≥	6.0	≥		425	≥	8.0
Tier 1 Common Equity (to Risk-Weighted Assets)		13,053	245.8	≥		239	≥	4.5	≥		345	≥	6.5
Tier 1 Leverage Ratio (to Adjusted Total Assets)		13,053	37.4	≥		1,394	≥	4.0	≥		1,743	≥	5.0
Capital Conservation Buffer on Tier 1 Common Equity		13,053	237.8	≥		372	≥	7.0	≥		N/A	≥	N/A

NOTE 10: RETAINED EARNINGS

Cambray Mutual Holding Company (“Cambray”) received full dividends paid by the Company on shares owned in fiscal year 2023. The total cumulative dividends waived by Cambray was $6,384,000 as of September 30, 2023. The dividends waived by Cambray were considered a restriction on the retained earnings of the Company.

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NOTE 11: INTEREST RATE DERIVATIVES

Derivative instruments are entered into primarily as a risk management tool of the Company. The Company has entered into several interest rate swap agreements whereby it pays a fixed rate and receives a variable rate on a notional amount. The Company enters into these arrangements to hedge the cost of certain borrowings and to increase the interest rate sensitivity of certain assets. Financial derivatives are recorded at fair value as other assets or liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as a part of a hedging relationship. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are currently recognized in current year earnings. Amounts recognized in earnings as noninterest income (expense) for the three months ended June 30, 2024 and 2023 were $(27,000) and $40,000, respectively. Amounts recognized in earnings as noninterest expense for the nine months ended June 30, 2024 and 2023 were $208,000 and $783,000, respectively. The gain/loss is the result of the swaps market value fluctuations with long-term bond rates and projected short-term rates. See Note 12 for further discussion on the fair value of the interest rate derivative.

On December 9, 2022, the Company unwound two off-balance sheet swaps, with $6.0 million in notional value, for a realized gain of approximately $343,000. On December 14, 2022, the Company sold four investments totaling $2.0 million for a total loss of approximately $342,000, which closely matched the realized gain on the unwound swaps, and $2.0 million was reinvested into two new securities.

On February 14, 2023, the Company unwound two off-balance sheet swaps, with $5.0 million in notional value, for a realized gain of approximately $310,000. On February 14, 2023, the Company sold ten underperforming investments totaling $3.65 million for a total loss of approximately $318,000, which closely matched the realized gain on the unwound swaps, and $3.09 million was reinvested into three new securities.

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.

Information about interest rate swap agreements at June 30, 2024 (unaudited) and September 30, 2023 is as shown on the following table:

			Weighted				Estimated
			Average Rate		Weighted		Fair Value
	Notional		Contract		Average Rate		(Liability)
	Amount		Pay Rate		Received Rate		Asset
	(In Thousands)						(In Thousands)
June 30, 2024 (unaudited)
Interest Rate Swaps on Mortgage Loans	$	—	—	%	—	%	$	—
Interest Rate Swaps on FHLB Borrowings and Bank Deposits	$	3,000	1.56	%	5.59	%	$	41
September 30, 2023
Interest Rate Swaps on Mortgage Loans	$	—	—	%	—	%	$	—
Interest Rate Swaps on FHLB Borrowings and Bank Deposits	$	5,500	2.04	%	5.35	%	$	250

The following table is a summary of the fair value of outstanding derivatives and their presentation in the consolidated statements of financial condition as of June 30, 2024 (unaudited) and September 30, 2023:

	As of June 30,		As of September 30,
	2024		2023
	(unaudited)
	(In Thousands)
Fair Value Hedge – Interest Rate Swap
Accrued Interest Receivable and Other Assets	$	41	$	250

34

The notional amount of interest rate swap agreements entered into, that were outstanding at June 30, 2024 (unaudited) and September 30, 2023, mature as follows for the years ended September 30:

	June 30,		September 30,
	2024		2023
	(unaudited)
	(In Thousands)
2024	$	—	$	—
2025		3,000		4,500
2026		—		1,000
	$	3,000	$	5,500

NOTE 12: FAIR VALUE MEASUREMENTS

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC 820, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value, a reasonable point within the range, is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

● Level 1 — Valuation is based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

● Level 2 — Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

● Level 3 — Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

35

The types of instruments valued based on quoted market prices in active markets include most U.S. government and agency securities, liquid mortgage products, active listed equities and most money market securities. Such instruments are generally classified within Level 1 or Level 2 of the fair value hierarchy. As required by this guidance, the Company does not adjust the quoted price for such instruments.

The types of instruments valued based on quoted prices in markets that are not active, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency include most investment- grade and high-yield corporate bonds, less liquid mortgage products, less liquid equities, state, municipal and provincial obligations, and certain physical commodities. Such instruments are generally classified within Level 2 of the fair value hierarchy.

The Company utilizes interest rate swap agreements based on the Secured Overnight Financing Rate (SOFR). The Company generally determines the fair value of its interest rate swap agreements using externally developed pricing models based on market observable inputs and therefore classifies such valuations as Level 2.

Level 3 is for positions that are not traded in active markets or are subject to transfer restrictions. Valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.

Individually evaluated loans are evaluated and valued at the time the loan is identified as not having risk characteristics common with other loans within its pool. In these instances, impairment is measured on a case-by-case basis.  The fair value of the loan is determined using either present value of the expected future cash flows discounted at the loan’s effective interest rate or, for collateral dependent loans, the fair value of the collateral less the selling, administrative costs, and other expenses necessary to liquidate the collateral. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable. Market value is measured based on the value of the collateral securing these loans and is classified at a Level 3 in the fair value hierarchy.  The value of business equipment, inventory and accounts receivable collateral is based on the net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation and/or management’s expertise and knowledge of the client’s business. Individually evaluated loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified previously.

Foreclosed properties are adjusted to fair value upon transfer of the loans to foreclosed properties. Subsequently, foreclosed properties are carried at the lower of carrying value or fair value. The estimated fair value for foreclosed properties included in Level 3 is determined by independent market-based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If fair value of the collateral deteriorates subsequent to initial recognition, the Company records the foreclosed properties as a nonrecurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods.

36

The following table presents the assets required to be measured and reported on a recurring basis on the Company’s Consolidated Statements of Financial Condition at their fair value as of June 30, 2024 (unaudited) and September 30, 2023 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			Quoted Prices in
			Active Markets
			for Identical		Significant Other		Significant
	Total		Assets/Liabilities		Observable		Unobservable
	Fair Value		(Level 1 )		Inputs (Level 2)		Inputs (Level 3)
	(In Thousands)
June 30, 2024 (unaudited)
U.S. Government Treasuries	$	2,278	$	—	$	2,278	$	—
U.S. Government Agencies		9,752		—		9,752		—
Mortgaged-Backed Securities		8,259		—		8,259		—
Municipal Securities		21,378		—		21,378		—
SBA Securities		2,077		—		2,077		—
Available-for-Sale Securities	$	43,744	$	—	$	43,744	$	—
Interest Rate Swap Derivative	$	41	$	—	$	41	$	—
September 30, 2023
U.S. Government Treasuries	$	3,680	$	—	$	3,680	$	—
U.S. Government Agencies		11,662		—		11,662		—
Mortgaged-Backed Securities		7,915		—		7,915		—
Municipal Securities		20,995		—		20,995		—
SBA Securities		2,372		—		2,372		—
Available-for-Sale Securities	$	46,624	$	—	$	46,624	$	—
Interest Rate Swap Derivative	$	250	$	—	$	250	$	—

Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets and liabilities to be assessed for impairment or recorded at the lower of cost or fair value.

Fair values of assets and liabilities measured on a nonrecurring basis at June 30, 2024 (unaudited) and September 30, 2023  are shown in the following table:

			Quoted Prices in
			Active Markets
			for Identical		Significant Other		Significant
	Total		Assets/Liabilities		Observable		Unobservable
	Fair Value		(Level 1 )		Inputs (Level 2)		Inputs (Level 3)
	(In Thousands)
June 30, 2024 (unaudited)
Foreclosed Real Estate, Net	$	—	$	—	$	—	$	—
September 30, 2023
Foreclosed Real Estate, Net	$	101	$	—	$	—	$	101

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The table below presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value at June 30, 2024 (unaudited) and at September 30, 2023.

	Valuation Techniques	Unobservable Inputs	Weighted Average Range
Individually Evaluated Loans	Appraisal of Collateral	Appraisal Adjustments	25% - 25% (25%)
	(Sales Approach)	Costs to Sell	6% - 10% (8%)
	Discounted Cash Flow
Foreclosed Assets	Appraisal of Collateral	Appraisal Adjustments	25% - 25% (25%)
	(Sales Approach)	Costs to Sell	6% - 10% (8%)

Accounting guidance requires disclosures of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate their fair values. Certain financial instruments and all non-financial instruments are excluded from the scope of the guidance.

The estimated fair values of financial instruments at June 30, 2024 (unaudited) and at September 30, 2023 are as follows:

	June 30, 2024
	Carrying Value		Fair Value
	(unaudited)
	(In Thousands)
Financial Assets
Cash and due from banks	$	4,081	$	4,081
Interest bearing deposits with banks		2,198		2,198
Time deposits in other financial institutions		248		248
Available for sale debt securities		43,744		43,744
Portfolio loans, net of deferred fees and allowance for credit losses		123,114		106,269
Investment in restricted stock		1,041		1,041
Accrued interest receivable		642		642
Interest rate swap derivative		41		41
Financial Liabilities
Deposits	$	153,445	$	116,125
Accrued interest payable		16		16

	September 30, 2023
	Carrying Value		Fair Value
	(In Thousands)
Financial Assets
Cash and due from banks	$	9,306	$	9,306
Interest bearing deposits with banks		1,101		1,101
Time deposits in other financial institutions		484		484
Available for sale debt securities		46,624		46,624
Acquired loans		32,174		32,174
Portfolio loans, net of deferred fees and allowance for credit losses		93,253		69,608
Investment in restricted stock		1,471		1,471
Accrued interest receivable		630		630
Interest rate swap derivative		250		250
Financial Liabilities
Deposits	$	158,778	$	119,212
Accrued interest payable		67		67

The methods and assumptions that were used to estimate the fair value of financial assets and financial liabilities that are measured at fair value on a recurring and non-recurring basis have been previously disclosed. A description of the valuation

38

methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below:

Cash and due from banks — Due to their short-term nature, the carrying amount of cash and due from banks approximates fair value and is categorized in Level 1 of the fair value hierarchy.

Interest bearing deposits with banks — Due to their short-term nature, the carrying amount of interest- bearing deposits in other financial institutions approximates fair value and is categorized in Level 1 of the fair value hierarchy.

Time deposits in other financial institutions — Fair values are calculated based on market prices of similar securities and, therefore, are classified as Level 2 within the valuation hierarchy.

Available for sale securities — For those available for sale debt securities where quoted prices are unavailable, fair values are calculated based on market prices of similar securities and, therefore, are classified as Level 2 within the valuation hierarchy.

Loans receivable — The fair value loans is estimated by discounting future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and is categorized in Level 3 of the fair value hierarchy. Acquired loans (impaired and non-impaired) are initially recorded at their acquisition-date fair values using Level 3 inputs. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected life time losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments.

Investments in restricted stock — No secondary market exists for FHLB or Atlantic Community Bankers Bank stock. The stock is bought and sold at par and management believes the carrying amount approximates fair value and is categorized in Level 2 of the fair value hierarchy.

Accrued interest receivable — Due to their short-term nature, the carrying amount approximates fair value and is categorized in Level 1 of the fair value hierarchy.

Deposits — Fair value of deposits with no stated maturity, such as demand deposits, savings, and money market accounts, is estimated using discounted cash flows applying short-term interest rates currently offered on FHLB advances. Fair value of fixed rate time deposits is estimated using discounted cash flows applying interest rates currently offered on similar time deposits. Deposits are categorized in Level 2 of the fair value hierarchy.

Accrued interest payable — Due to their short-term nature, the carrying amount approximates fair value and is categorized in Level 1 of the fair value hierarchy.

Interest Rate Swap Derivative — Fair values are calculated based on market prices of similar securities and, therefore, are classified as Level 2 within the valuation hierarchy.

NOTE 13: LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

The leases in which the Company is the lessee include real estate property for a branch office facility under a noncancelable operating lease arrangement, whose maturity date was November 2023, at which point, it automatically renewed for a three-year term. The Bank also leases a postage machine which will expire in June 2025 and a copier which will expire in June 2026 both of which are under the terms of operating lease agreements.

All of the Company’s leases are classified as operating leases. Topic 842 requires the Company to recognize a right-of-use (“ROU”) asset and corresponding lease liability included in other assets and other liabilities, respectively, on the Company’s consolidated statements of financial condition.

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The Company’s real estate lease agreements include an option to renew at the Company’s discretion, which is included in the maturity schedule below. Future maturities of operating lease liabilities with initial or remaining terms of one year or more as of June 30, 2024 are as follows (in thousands):

	(unaudited)
2024	$	6
2025		21
2026		14
2027		13
2028		13
	$	67

Operating lease expense for the branch office amounted to $12,000 for the nine months ended June 30, 2024. Operating lease expense for the equipment was approximately $5,000 for the nine months ended June 30, 2024. The following tables present information about the Company’s leases as of and for the three and nine months ended June 30, 2024 (in thousands):

Operating lease right of use assets	$	49
Operating lease liability	$	49
Weighted average remaining lease term, in years:		3.86
For the three months ended June 30, 2024:
Operating lease expense:	$	6
Short-term lease expense:		—
Total lease expense:	$	6
Cash paid for amounts included in measurement of lease liabilities:	$	6
For the nine months ended June 30, 2024:
Operating lease expense:	$	17
Short-term lease expense:		—
Total lease expense:	$	17
Cash paid for amounts included in measurement of lease liabilities:	$	17

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NOTE 14: PARENT COMPANY FINANCIAL INFORMATION

Gouverneur Bancorp, Inc.
CONDENSED STATEMENTS OF FINANCIAL CONDITION PARENT COMPANY ONLY
As of June 30, 2024 (unaudited) and September 30, 2023
	June 30, 2024		September 30, 2023
	(unaudited)
	(In Thousands, Except Share and Per Share Amounts)
Assets
Cash and Cash Equivalents:
Cash and due from banks	$	2,418	$	19
Interest bearing deposits with banks		103		4,575
Total Cash and Cash Equivalents		2,521		4,594
ESOP loan receivable		522		—
Accrued interest receivable and other assets		115		11
Investment in subsidiary		29,276		23,865
Total Assets	$	32,434	$	28,470
Liabilities and Stockholders' Equity
Accrued interest payable and other liabilities	$	731	$	3,362
Total Liabilities		731		3,362
Stockholders' Equity
Preferred stock, $.01 par value: June 30, 2024: 25,000,000 shares authorized; none issued
September 30, 2023: 1,000,000 shares authorized; none issued		—		—
Common stock, $.01 par value: June 30, 2024: 75,000,000 shares authorized; 1,107,134 shares issued
September 30, 2023: 9,000,000 shares authorized; 2,031,377 shares issued		11		24
Additional paid-in capital		6,487		5,035
Retained earnings		28,277		28,242
Treasury Stock, at cost, (shares June 30, 2024: 0: September 30, 2023: 352,231)		—		(4,070)
Accumulated other comprehensive loss		(2,532)		(4,123)
Unearned common stock held by employee stock ownership plan		(540)		—
Total Stockholders' Equity		31,703		25,108
Total Liabilities and Stockholders' Equity	$	32,434	$	28,470

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Gouverneur Bancorp, Inc.
CONDENSED STATEMENTS OF EARNINGS - PARENT COMPANY ONLY
For the Three and Nine Months Ended June 30, 2024 and 2023 (unaudited)
	Three Months Ended June 30,				Nine Months Ended June 30,
	2024		2023		2024		2023
	(unaudited)
	(In Thousands, except per share data)
Interest Income:
Loans receivable, including fees	$	—	$	—	$	8	$	—
Total Interest Income		—		—		8		—
Net Interest Income		—		—		8		—
Non-interest Income:
Dividend Income		—		—		—		204
Earnings on deferred fees plan		1		—		12		—
Earnings from subsidiaries		244		249		629		295
Total Non-interest Income		245		249		641		499
Non-interest Expenses:
Directors' fees		21		—		57		—
Earnings on deferred fees plan		1		—		12		—
Professional fees		25		1		88		9
Other non-interest expenses		15		17		89		55
Total Non-interest Expenses		62		18		246		64
Income before Income Tax Expense		183		231		403		435
Income Tax Expense		—		—		—		—
Net Income	$	183	$	231	$	403	$	435
Basic and Diluted Earnings Per Share	$	0.17	$	0.11	$	0.38	$	0.21

42

Gouverneur Bancorp, Inc.
CONDENSED STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY
	Nine Months Ended June 30,
	2024		2023
	(unaudited)
	(In Thousands)
Cash Flows from Operating Activities:
Net income	$	403	$	435
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Equity in undistributed net earnings of subsidiaries		(629)		(295)
ESOP shares committed to be released		37		—
Change in accrued interest receivable and other assets		(3,663)		468
Change in accrued interest payable and other liabilities		(2,631)		(451)
Net Cash (Used in) Provided by Operating Activities		(6,483)		157
Cash Flows from Investing Activities:
ESOP loan issued		(578)		—
Net decrease in loans receivable		56		—
Net Cash Used in Investing Activities		(522)		—
Cash Flows from Financing Activities:
Net stock offering proceeds		4,932		—
Cash dividends paid		—		(204)
Net Cash Provided by (Used in) Financing Activities		4,932		(204)
Net Decrease in Cash and Cash Equivalents		(2,073)		(47)
Cash and Cash Equivalents - Beginning of Period		4,594		107
Cash and Cash Equivalents - End of Period	$	2,521	$	60

43

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Statements contained in this report that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future.

The Company cautions readers of this report that a number of important factors could cause the Company’s actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to: (i) general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise; (ii) changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; (iii) our ability to access cost-effective funding; (iv) fluctuations in real estate values and both residential and commercial real estate market conditions; (v) demand for loans and deposits in our market area; (vi) deposit outflows and our ability to successfully manage liquidity; (vii) our ability to implement and change our business strategies; (viii) competition among depository and other financial institutions; (ix) inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations or prepayments on loans we have made and make; (x) adverse changes in the securities or secondary mortgage markets; (xi) changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements and insurance premiums; (xii) changes in the quality or composition of our loan or investment portfolios; (xiii) technological changes that may be more difficult or expensive than expected; (xiv) the inability of third-party providers to perform as expected; (xv) our ability to manage market risk, credit risk and operational risk in the current economic environment; (xvi) our ability to enter new markets successfully and to capitalize on growth opportunities; (xvii) our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire, including those recently acquired from Citizens Bank of Cape Vincent, and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; (xviii) our ability to receive all required regulatory approvals necessary for the Bank to convert from a New York chartered stock savings and loan association to a national banking association, and for the currently contemplated subsequent merger of GS&L Municipal Bank with and into the Bank; (xix) changes in consumer spending, borrowing and savings habits; (xx)  changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; (xxi) our ability to attract and retain key employees; and (xxii) changes in financial condition, results of operations or future prospects of issuers of securities that we own.

Critical Accounting Policies

We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider these accounting policies to be our critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

44

Allowance for Credit Losses

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, 2024 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.

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 $529,000 as of June 30, 2024 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.

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 loan losses consists of amounts applicable to: (1) the commercial portfolio; (2) the real estate portfolio; and (3) the consumer portfolio.

Management monitors differences between estimated and actual credit losses. This monitoring process includes periodic assessments by senior management of loan portfolios and the models used to estimate the expected credit losses in those portfolios. Additions to the allowance for credit losses are made by changes to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the allowance for loan losses. Recoveries of previously charged off amounts are credited to the allowance for credit losses.

Specific Allowances for Identified Problem Loans

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.

General Valuation Allowance on the Remainder of the Loan Portfolio

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

45

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.

Although we believe that we use the best information available to establish the allowance for credit losses, future adjustments to the allowance for credit losses may be necessary and any material increase in the allowance for credit losses may adversely affect our financial condition and results of operations.

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.

Fair Value Measurements

We follow the guidance of FASB ASC 820, Fair Value Measurements and Disclosures. This guidance permits entities to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Under this guidance, fair value measurements are not adjusted for transaction costs. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Goodwill

Goodwill represents the excess cost of the acquisition of Citizens Bank of Cape Vincent over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. When calculating goodwill in accordance with FASB ASC 805-30-55-3, we evaluate whether the fair value of equity of the acquired company is a more reliable measure than the fair value of the equity interests transferred. We consider the assumptions required to calculate the fair value of equity of an acquired company using discounted cash flow models (income approach) and/or change of control premium models (market approach) which are generally based on a higher level of market participant inputs and therefore a lower level of subjectivity when compared to the assumptions required to calculate the fair value of equity interests transferred under a fair value pricing model. As a result, we consider the calculation of the fair value of the equity of an acquired company to be more reliable than the calculation of the fair value of the equity interests transferred. Goodwill is assessed at least annually for impairment and any such impairment will be recognized in the period identified. Goodwill is not amortized but is evaluated annually for impairment.

Comparison of Financial Condition at June 30, 2024 and September 30, 2023

Total assets decreased by $10.8 million, or 5.26%, to $195.1 million at June 30, 2024 from $205.9 million at September 30, 2023. The decrease in assets was primarily due to decreases in acquired loans of $3.4 million and cash and due from banks of $5.2 million, partially offset by an increase in originated loans of $1.4 million and an increase in interest bearing deposits with banks of $1.1 million.

Cash and cash equivalents decreased by $4.1 million, or 39.67%, to $6.3 million at June 30, 2024 from $10.4 million at September 30, 2023. The decrease in cash and cash equivalents can be primarily attributed to a repayment of Federal Home Loan Bank borrowings of $9.0 million and a decrease in deposits of $5.4 million, partially offset by a decrease in securities available for sale of $2.9 million due to principal maturities.

Loans receivable, net of the allowance for credit losses, decreased by $2.3 million, or 1.84%, to $123.1 million at June 30, 2024 from $125.4 million at September 30, 2023. The decrease in loans receivable, net of the allowance for credit losses, was primarily due to a decrease in net loans acquired from Citizens Bank of Cape Vincent of $3.4 million and the transition

46

adjustment of the adoption of CECL, which resulted in an increase in the allowance for credit losses on loans of $436,000, partially offset by an increase in newly originated loans of $1.4 million.

Securities available for sale decreased by $2.9 million, or 6.18%, to $43.7 million at June 30, 2024 from $46.6 million at September 30, 2023. The decrease was primarily due to principal paydowns and maturities, partially offset by an increase in the market value on the portfolio.

The Bank held no foreclosed real estate at June 30, 2024, down from $101,000 at September 30, 2023 due to the write-down and sale of two foreclosed properties.

Total deposits decreased by $5.4 million, or 3.36%, to $153.4 million at June 30, 2024 from $158.8 million at September 30, 2023. The decrease in deposits can primarily be attributed to a $13.9 million decrease in non-maturing deposits, due to seasonal fluctuations with municipal deposits, partially offset by an $8.5 million increase in time deposits. The increase in time deposits can primarily be attributed to an increase in offering rates as market and competitor rates have increased. 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 $32.5 million at June 30, 2024 and $42.3 million at September 30, 2023. Municipal deposits held at GS&L Municipal Bank accounted for approximately $15.2 million and $17.5 million of the uninsured deposits at June 30, 2024 and September 30, 2023, respectively. At June 30, 2024, we had $56.7 million in available liquidity with the Federal Home Loan Bank of New York and $6.3 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.

Federal Home Loan Bank advances decreased to $4.9 million at June 30, 2024 from $14.0 million at September 30, 2023. The decrease in advances was primarily due to principal maturities and increase in the Bank’s internal accounts from the net stock offering proceeds.

Shareholders’ equity increased by $6.6 million, or 26.27%, to $31.7 million at June 30, 2024 from $25.1 million at September 30, 2023. The increase in shareholders’ equity was primarily a result of the completion of the second-step conversion on October 31, 2023, at which time the Company sold, for gross proceeds of $7.2 million, a total of 723,068 shares of common stock at $10.00 per share, including 57,845 shares sold to the Bank’s employee stock ownership plan. There was also a $1.5 million increase to the market value adjustment on the securities portfolio included in the accumulated other comprehensive income component.

Results of Operations for the Three Months Ended June 30, 2024 and 2023

Financial Highlights

Net income for the three months ended June 30, 2024 was $183,000 compared to $232,000 for the three months ended June 30, 2023. Net income for the three months ended June 30, 2024 was lower than the three months ended June 30, 2023 primarily due to an increase in total interest expense and a $67,000 decrease in the unrealized loss on interest rate swap agreements as of June 30, 2024. The Company also recognized $13,000 in realized gains on sales of securities for the three months ended June 30, 2024. Interest expense for the three months ended June 30, 2024 was $387,000 compared to $187,000 for the three months ended June 30, 2023, primarily due to a $183,000 increase in interest expense on deposits.

Net Interest Income

Net interest income totaled $1.8 million for the three months ended June 30, 2024 and also for the three months ended June 30, 2023. Net interest income for the three months ended June 30, 2024 decreased by $89,000, or 4.81%, primarily due to an increase in deposit interest expense of $183,000 and a decrease in interest income on the swap agreements hedged against borrowings of $44,000, partially offset by an increase in interest income on loans of $131,000 and a decrease in borrowing interest expense of $27,000.

47

Interest income increased by $111,000, or 5.49%, for the three months ended June 30, 2024 due to an increase in market rates resulting in higher interest rates on loan originations and loan repricing.

Interest expense increased by $200,000, or 107.19%, due to the increase in interest expense on deposits and decrease in income earned on swap agreements hedged against certain borrowings offset by a decrease in Federal Home Loan Bank borrowing interest expense.

Net interest margin decreased by 10 basis points, to 4.03% compared to 4.13% for the three months ended June 30, 2024 driven primarily by an increase in interest bearing liability costs resulting from the increase in market rates over the prior year.

Provision for Credit Losses

Management recorded no credit loss provisions for the three months ended June 30, 2024 and loan loss provisions of $30,000 on loans for the three months ended June 30, 2023. Based on a review of the loans that were in the loan portfolio at June 30, 2024, 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.

Non-performing loans were $529,000 and $700,000 at June 30, 2024 and September 30, 2023, respectively. At June 30, 2024, non-performing loans consisted primarily of residential mortgage loans. Non-performing loans included troubled debt restructurings of $435,000 at September 30, 2023.  

Non-Interest Income

The following table sets forth a summary of non-interest income for the periods indicated:

	Three Months Ended June 30,				Change
	2024		2023		Amount		Percent
	(Dollars in thousands)
	(unaudited)
Service charges	$	80	$	79	$	1	1.27	%
Realized gain on sales of securities - AFS		13		—		13	100.00	%
Earnings on investment in life insurance		38		35		3	8.57	%
Earnings on deferred fees plan		3		8		(5)	62.50	%
Unrealized gain (loss) on swap agreement		(27)		40		(67)	167.50	%
Earnings on secondary market programs		9		10		(1)	10.00	%
Other non-interest income		69		103		(34)	33.01	%
Total non-interest income, net	$	185	$	275		(90)

The decrease in total non-interest income was primarily due to the increase 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 $27,000 at June 30, 2024 compared to an unrealized gain of $40,000 at June 30, 2023. For the three months ended June 30, 2024, the Company sold three investments for a gain of $13,000.

48

Non-Interest Expense

The following table sets forth an analysis of non-interest expense for the periods indicated:

	Three Months Ended June 30,				Change
	2024		2023		Amount		Percent
	(Dollars in thousands)
	(unaudited)
Salaries and employee benefits	$	876	$	911	$	(35)	3.84	%
Directors fees		94		71		23	32.39	%
Earnings on deferred fees plan		3		8		(5)	62.50	%
Building, occupancy and equipment		222		237		(15)	6.33	%
Data processing		118		115		3	2.61	%
Postage and supplies		29		37		(8)	21.62	%
Professional fees		174		131		43	32.82	%
Foreclosed assets, net		(21)		(14)		(7)	50.00	%
Intangibles & deposit premium expense		104		115		(11)	9.57	%
Other non-interest expense		165		236		(71)	30.08	%
Total non-interest expense	$	1,764	$	1,847	$	(83)

The decrease in total noninterest expense included a $71,000 decrease in other non-interest expenses for the three months ended June 30, 2024 compared to the three months ended June 30, 2024. There was a $43,000 increase in professional fees for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, due to ongoing professional services resulting from the Bank’s second step conversion, which was completed during the first quarter of fiscal year 2024, and expenses related to the Company’s operations as a public company.

Income Taxes

The Company recorded income tax benefit of $5,000 for the three months ended June 30, 2024 and income tax expense of $12,000 for the three months ended June 30, 2023. The decrease in income taxes resulted from a decrease in pre-tax book income and a change in interest income in tax exempt securities. The Company’s effective income tax rates were (2.81)% and 4.92% for the three months ended June 30, 2024 and 2023, respectively.

Results of Operations for the Nine Months Ended June 30, 2024 and 2023

Financial Highlights

Net income for the nine months ended June 30, 2024 was $403,000 compared to $232,000 for the nine months ended June 30, 2023. Net income for the nine months ended June 30, 2024 was higher than the nine months ended June 30, 2023 primarily due to a $575,000 increase in the unrealized loss on interest rate swap agreements as of June 30, 2024. The Company also recognized $661,000 in realized losses on sales of securities which closely matched the realized gain of $654,000 on swaps unwound for the nine months ended June 30, 2023. Interest expense for the nine months ended June 30, 2024 was $1.0 million compared to $286,000 for the nine months ended June 30, 2023. Interest expense was higher for the nine months ended June 30, 2024 primarily due to a $672,000 increase in interest expense on deposits.

Net Interest Income

Net interest income totaled $5.4 million for the nine months ended June 30, 2024, as compared to $5.8 million for the nine months ended June 30, 2023. The decrease in net interest income of $410,000, or 7.09%, was primarily due to an increase in deposit interest expense of $672,000 and an increase in borrowing interest expense of $126,000, partially offset by an increase in interest income on loans of $392,000 and $36,000 of income earned on the swap agreements hedged against borrowings.

49

Interest income increased by $352,000, or 5.80%, for the nine months ended June 30, 2024 due to an increase in market rates resulting in higher interest rates on loan originations and loan repricing.

Interest expense increased by $762,000, or 266.43%, due to the increase in interest expense on deposits and Federal Home Loan Bank borrowings offset by the income earned on swap agreements hedged against certain borrowings.

Net interest margin decreased by 23 basis points, to 4.03% compared to 4.26% for the nine months ended June 30, 2024 driven primarily by an increase in interest bearing liability costs resulting from the increase in market rates over the prior year.

Provision for Credit Losses

Management recorded loan loss provisions of $68,000 on loans and $2,000 on unfunded commitments and $92,000 on loans for the nine months ended June 30, 2024 and 2023, respectively. Based on a review of the loans that were in the loan portfolio at June 30, 2024, 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.

Non-Interest Income (Loss)

The following table sets forth a summary of non-interest income (loss) for the periods indicated:

	Nine Months Ended June 30,				Change
	2024		2023		Amount		Percent
	(Dollars in thousands)
Service charges	$	241	$	248	$	(7)	2.82	%
Realized gain (loss) on sales of securities - AFS		13		(661)		674	101.97	%
Realized gain on swap unwound		75		654		(579)	88.53	%
Earnings on investment in bank owned life insurance		114		106		8	7.55	%
Earnings on deferred fees plan		48		49		(1)	2.04	%
Unrealized loss on swap agreements		(208)		(783)		575	73.44	%
Earnings on secondary market programs		30		31		(1)	4.17	%
Other non-interest income		215		260		(45)	17.31	%
Total non-interest income (loss)	$	528	$	(96)	$	624

The increase in total non-interest income (loss) was primarily due to the reduction 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 $208,000 at June 30, 2024 compared to an unrealized loss of $783,000 at June 30, 2023. For the nine months ended June 30, 2023, the Company unwound four off-balance sheet swaps for a realized gain of $661,000 and sold fourteen investments for a loss of $654,000.

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Non-Interest Expense

The following table sets forth an analysis of non-interest expense for the periods indicated:

	Nine Months Ended June 30,				Change
	2024		2023		Amount		Percent
	(Dollars in thousands)
Salaries and employee benefits	$	2,620	$	2,587	$	33	1.28	%
Directors fees		269		214		55	25.70	%
Earnings on deferred fees plan		48		49		(1)	2.04	%
Occupancy expense		719		749		(30)	4.01	%
Data processing		344		342		2	0.58	%
Postage and supplies		100		118		(18)	15.25	%
Professional fees		516		357		159	44.54	%
Foreclosed assets, net		(12)		18		(30)	166.67	%
Intangibles & deposit premium expense		312		344		(32)	9.30	%
Other non-interest expense		548		677		(129)	19.05	%
Total non-interest expense	$	5,464	$	5,455	$	9

The increase in total non-interest expense included a $159,000 increase in professional fees for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023, due to professional services resulting from the Bank’s second step conversion, which was completed during the first quarter of fiscal year 2024, and expenses related to the Company’s operations as a public company. Other non-interest expense decreased $129,000 for the nine months ended June 30, 2024, as compared to the nine months ended June 30, 2023, due to a reduction in one-time expenses related to the acquisition of CBCV and second step conversion.

Income Taxes

The Company recorded income tax benefit of $40,000 for the nine months ended June 30, 2024 and income tax benefit of $96,000 for the nine months ended June 30, 2023. The decrease in income tax benefit resulted from an increase in pre-tax book income and a change in interest income in tax exempt securities. The Company’s effective income tax rates were (11.02)% and (70.59)% for the nine months ended June 30, 2024 and 2023, respectively.

Asset Quality

Non-performing loans were $529,000 and $700,000 at June 30, 2024 and September 30, 2023, respectively. At June 30, 2024, non-performing loans consisted primarily of residential mortgage loans. Non-performing loans included troubled debt restructurings of $435,000 at September 30, 2023.

From time to time, as part of our loss mitigation strategy, we may renegotiate the loan terms based on the economic or legal reasons related to the borrower’s financial difficulties. There were no loans modified to borrowers experiencing financial difficulty during the nine months ended June 30, 2024. Loans modified to borrowers experiencing financial difficulty may be considered to be non-performing and, if so, are placed on non-accrual, except for those that have established a sufficient performance history (generally a minimum of six consecutive months of performance) under the terms of the restructured loan.

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Average Balances and Yields

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 $428,000 and $523,000 for the three and nine months ended June 30, 2024 and 2023, respectively.  

	For the Three Months Ended June 30,
	2024						2023
	Average						Average
	Outstanding				Average		Outstanding				Average
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	(Dollars in thousands)
	(unaudited)
Interest-earning assets(1):
Loans	$	123,313	$	1,660	5.41	%	$	124,557	$	1,529	4.92	%
Securities		51,073		473	3.72	%		53,088		486	3.67	%
Other short term investments		825		11	5.36	%		1,553		18	4.65	%
Total interest-earning assets		175,211		2,144	4.92	%		179,198		2,033	4.55	%
Noninterest-earning assets		21,771						25,869
Total assets	$	196,982					$	205,067
Interest-bearing liabilities(1):
Regular savings and club deposits		56,591		18	0.13	%		72,627		22	0.12	%
Money market and NOW deposits(2)		48,399		18	0.15	%		50,062		38	0.30	%
Certificates of deposit		30,956		285	3.70	%		21,291		78	1.47	%
Total interest-bearing deposits		135,946		321	0.95	%		143,980		138	0.38	%
Federal Home Loan Bank advances and other borrowings(3)		7,133		66	3.72	%		9,721		49	2.02	%
Total interest-bearing liabilities		143,079		387	1.09	%		153,701		187	0.49	%
Noninterest-bearing demand deposits		22,226						23,913
Other noninterest-bearing liabilities		137						1,258
Total liabilities		165,442						178,872
Total shareholders’ equity		31,540						26,195
Total liabilities and shareholders’ equity	$	196,982					$	205,067
Net interest income			$	1,757					$	1,846
Net interest rate spread(4)					3.83	%					4.06	%
Net interest-earning assets(5)	$	32,132					$	25,497
Net interest margin(6)					4.03	%					4.13	%
Average interest-earning assets to interest-bearing liabilities					1.22	x					1.17	x

(1) The following table provides a reconciliation of the impact of swap agreements in the table above with respect to the following items:

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	For the Three Months Ended June 30,
	2024		2023
	(Dollars in thousands)
Interest on loans, net of deferred fees	$	1,660	$	1,529
Interest on loans, excluding impact of swap agreements	$	1,660	$	1,529
Interest on money market and NOW deposit accounts	$	18	$	38
Impact of swap agreements		—		30
Interest on deposits, excluding impact of swap agreements	$	18	$	8
Interest on borrowings	$	66	$	49
Impact of swap agreements		(32)		(76)
Interest on borrowings, excluding impact of swap agreements	$	98	$	125

(2) Interest on money market and NOW deposit accounts includes net interest on swap agreements hedged against deposits.

(3) Interest on Federal Home Loan Bank advances includes net interest on swap agreements hedged against borrowing.

(4) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6) Net interest margin represents net interest income divided by average total interest-earning assets.

	For the Nine Months Ended June 30,
	2024						2023
	Average						Average
	Outstanding				Average		Outstanding				Average
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
		(Dollars in thousands)
Interest-earning assets(1):
Loans	$	124,300	$	4,890	5.25	%	$	124,603	$	4,539	4.87	%
Securities		52,423		1,474	3.76	%		54,529		1,454	3.57	%
Other short term investments		1,298		53	5.45	%		2,291		72	4.20	%
Total interest-earning assets		178,021		6,417	4.81	%		181,423		6,065	4.47	%
Noninterest-earning assets		24,260						24,526
Total assets	$	202,281					$	205,949
Interest-bearing liabilities(1):
Regular savings and club deposits		62,692		58	0.12	%		79,550		70	0.12	%
Money market and NOW deposits(2)		48,428		63	0.17	%		52,094		(27)	(0.07)	%
Certificates of deposit		29,285		735	3.35	%		20,600		141	0.92	%
Total interest-bearing deposits		140,405		856	0.81	%		152,244		184	0.16	%
Federal Home Loan Bank advances and other borrowings(3)		7,372		192	3.48	%		4,751		102	2.87	%
Total interest-bearing liabilities		147,777		1,048	0.95	%		156,995		286	0.24	%
Noninterest-bearing demand deposits		24,163						22,293
Other noninterest-bearing liabilities		214						997
Total liabilities		172,154						180,285
Total shareholders’ equity		30,127						25,664
Total liabilities and shareholders’ equity	$	202,281					$	205,949
Net interest income			$	5,369					$	5,779
Net interest rate spread(4)					3.86	%					4.23	%
Net interest-earning assets(5)	$	30,244					$	24,428
Net interest margin(6)					4.03	%					4.26	%
Average interest-earning assets to interest-bearing liabilities					1.20	x					1.16	x

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________________________________________

(1)The following table provides a reconciliation of the impact of swap agreements in the table above with respect to the following items:

	For the Nine Months Ended June 30,
	2024		2023
		(Dollars in thousands)
Interest on loans, net of deferred fees	$	4,890	$	4,539
Impact of swap agreements		—		41
Interest on loans, excluding impact of swap agreements	$	4,890	$	4,498
Interest on money market and NOW deposit accounts	$	63	$	(27)
Impact of swap agreements		—		(46)
Interest on deposits, excluding impact of swap agreements		63	$	19
Interest on borrowings	$	192	$	102
Impact of swap agreements		(112)		(76)
Interest on borrowings, excluding impact of swap agreements	$	304	$	178

(2) Interest on money market and NOW deposit accounts includes net interest on swap agreements hedged against deposits.

(3) Interest on Federal Home Loan Bank advances includes net interest on swap agreements hedged against borrowing.

(4) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6) Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

	Three Months Ended June 30, 2024			Nine Months Ended June 30, 2024
	Compared to			Compared to
	Three Months Ended June 30, 2023			Nine Months Ended June 30, 2023
	Increase (Decrease) Due to		Total Increase	Increase (Decrease) Due to		Total Increase
	Volume	Rate	(Decrease)	Volume	Rate	(Decrease)
	(In thousands)			(In thousands)
Interest-earning assets:
Loans	(15)	146	131	(4)	355	351
Securities	(19)	6	(13)	(35)	55	20
Other short term investments	(9)	2	(7)	(28)	9	(19)
Total interest-earning assets	(43)	154	111	(67)	419	352
Interest-bearing liabilities:
Regular savings and club deposits	(6)	2	(4)	(12)	—	(12)
Money market and NOW deposits	(1)	(19)	(20)	2	88	90
Certificates of deposit	48	159	207	82	512	594
Total deposits	41	142	183	72	600	672
Federal Home Loan Bank advances and other borrowings	—	17	17	5	85	90
Total interest-bearing liabilities	41	159	200	77	685	762
			—			—
Change in net interest income	(84)	(5)	(89)	(144)	(266)	(410)

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Liquidity and Capital Resources

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, 2024, there were $4.9 million in outstanding advances from the Federal Home Loan Bank, and we had the ability to borrow $56.7 million. Additionally, at June 30, 2024, 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, 2024, there were no outstanding balances under any of these additional credit facilities.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. Our most liquid assets are cash and cash equivalents and available-for-sale investment securities. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities; investing activities and financing activities. Net cash (used in) provided by operating activities was $(3.3) million and $1.3 million for the nine months ended June 30, 2024 and 2023, 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 $7.8 million and $2.9 million for the nine months ended June 30, 2024 and 2023. Net cash used in financing activities, consisting primarily of activity in deposit accounts and Federal Home Loan Bank advances, was $8.7 million for the nine months ended June 30, 2024 and was $10.9 million for the nine months ended June 30, 2023.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. We have no material commitments for capital expenditures as of June 30, 2024. Our current strategy is to increase core deposits and utilize FHLB advances and brokered deposits to fund loan growth. We did not have any brokered deposits as of June 30, 2024 or September 30, 2023.

Bancorp 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, 2024 and September 30, 2023, Bancorp (on an unconsolidated basis) had liquid assets of $2.5 million and $4.6 million, respectively.

At June 30, 2024 and September 30, 2023, the Bank exceeded all of its regulatory capital requirements. Management is not aware of any conditions or events that would change the Bank’s categorization as well-capitalized.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk is defined as the exposure to current and future earnings and capital that arises from adverse movements in interest rates. Depending on a bank’s asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer-term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.

Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk), from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics (basis risk), and from interest rate related options embedded in our assets and liabilities (option risk).

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Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The results at June 30, 2024 indicate the level of risk within the parameters of our model. Our management believes that the June 30, 2024 results indicate a profile that reflects interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value.

Economic value of equity, or “EVE,” is an economic concept that gauges the impact of interest rate changes on fair market values of assets, liabilities, and equity. EVE captures the change in economic value of the Bank even though that change may not be reflected in our accounting books and records. EVE shows management the “capital at risk” of the Bank based on the underlying values of all components of the balance sheet. As at measure of interest rate risk, it is separate and distinct from earnings at risk. EVE is a measure of long-term interest rate risk, and earnings at risk is a measure of short-term interest rate risk.

The table below sets forth, as of June 30, 2024, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

At June 30, 2024
Change in Interest Rates	Net Interest Income	Year 1 Change
(basis points)(1)	Year 1 Forecast	from Level
	(Dollars in thousands)
+400	6,688	(339)
+300	6,755	(272)
+200	6,842	(185)
+100	6,926	(101)
Level	7,027	—
-100	7,029	2
-200	6,906	(121)
-300	6,745	(282)
-400	6,581	(446)

(1) Assumes an immediate uniform change in interest rates at all maturities.

The tables below set forth, as of June 30, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

At June 30, 2024
Change in Interest	Estimated	Estimated Increase (Decrease) in			EVE as a Percentage of Present
Rates (basis points)(1)	EVE(2)	EVE			Value of Assets(3)
							Increase
					EVE		(Decrease)
		Amount	Percent		Ratio(4)		(basis points)
		(Dollars in thousands)
+400	36,243	(16,102)	(30.76)	%	24.45	%	(4.89)	%
+300	39,991	(12,354)	(23.60)	%	25.81	%	(3.53)	%
+200	43,253	(9,092)	(17.37)	%	26.78	%	(2.56)	%
+100	46,701	(5,644)	(10.78)	%	27.70	%	(1.64)	%
—	52,345	—	—		29.34	%	—
-100	57,493	5,148	9.83	%	30.46	%	1.12	%
-200	58,940	6,595	12.60	%	30.01	%	0.67	%
-300	57,780	5,435	10.38	%	28.58	%	(0.76)	%
-400	55,876	3,531	6.75	%	26.84	%	(2.50)	%

(1) Assumes an immediate uniform change in interest rates at all maturities.

(2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3) Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4) EVE ratio represents EVE divided by the present value of assets.

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ITEM 4.CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure (1) that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms; and (2) that they are alerted in a timely manner about material information relating to the Company required to be filed in its periodic Securities and Exchange Commission filings.

During the quarter ended June 30, 2024, there were no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

The Company is involved in various legal actions and claims, from time to time, arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.

ITEM 1A.RISK FACTORS

For information regarding the Company’s risk factors, refer to the “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended September 30, 2023, filed with the Securities and Exchange Commission on December 26, 2023. Except for the risk factors set forth below, as of June 30, 2024, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

Regulatory approvals related to our pending application for the Bank’s conversion to a national banking association charter, and our current subsequent plan to apply for the merger of GS&L Municipal Bank with and into the Bank following the completion of the charter conversion transaction, may not be approved, may take longer to receive than expected or may impose burdensome conditions that are not presently anticipated, which could impose additional costs and/or delay or prevent the completion of the proposed charter conversion and/or the proposed bank merger.

On April 19, 2024, the Bank filed an application with the OCC to convert from a New York chartered stock savings and loan association to a national banking association.  In connection with the charter conversion application, the Company will also file an application with the Federal Reserve Bank of New York to convert from a savings and loan holding company to a bank holding company. The charter conversion remains subject to regulatory approval by the OCC and the Federal Reserve, and no timeline has been established for the completion of the charter conversion transaction.  If the charter conversion is ultimately approved by the OCC and the Federal Reserve, the Company currently intends to file an application to merge GS&L Municipal Bank with and into the Bank following the completion of the charter conversion.

There can be no assurance as to whether the regulatory approvals will be received, or the timing of the approvals, with respect to the proposed charter conversion transaction and/or the proposed bank merger.  In addition, governmental entities may impose conditions on the completion of the charter conversion and/or the bank merger or require changes to the terms of the proposed charter conversion and/or the proposed bank merger. Any such conditions or changes could have the effect of delaying completion of the proposed charter conversion and/or the proposed bank merger or imposing additional costs on or limiting the revenues of the Company following the completion of the charter conversion and/or the bank merger transactions, any of which might have a material adverse effect on the Company following the completion of the charter conversion and/or the bank merger.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

During the fiscal quarter ended June 30, 2024, none of our directors or officers informed us of the adoption of or termination of a “Rule 10b5-1 trading agreement” or non-Rule 10b5-1 trading agreement, as those terms are defined in Item 408 of Regulation S-K.

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ITEM 6.EXHIBITS

Exhibit No.	Description
3.1	Articles of Incorporation of Gouverneur Bancorp, Inc. (Incorporated by reference to Exhibit 3.1 to Gouverneur Bancorp, Inc.’s Registration Statement on Form S-1 (Registration No. 333-272548)
3.2	Bylaws of Gouverneur Bancorp, Inc. (Incorporated by reference to Exhibit 3.2 to Gouverneur Bancorp, Inc.’s Registration Statement on Form S-1 (Registration No. 333-272548)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Gouverneur Bancorp, Inc.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Gouverneur Bancorp, Inc.
32.0	Certification of Chief Executive Officer and Chief Financial Officer of Gouverneur Bancorp, Inc. Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.0	The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended June 30, 2024, inline formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104.0	Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GOUVERNEUR BANCORP, INC.
Date:	August 9, 2024	By:	/s/ Robert W. Barlow
			Robert W. Barlow
			President and Chief Executive Officer
			(Principal Executive Officer)
Date:	August 9, 2024	By:	/s/ James D. Campanaro
			James D. Campanaro
			Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

60