Executive Summary / Key Takeaways

• Community-Centric Stability: Gouverneur Bancorp, Inc. (GOVB) operates as a deeply entrenched community bank in upstate New York, leveraging strong local ties and a strategic acquisition (Citizens Bank of Cape Vincent, GSL Municipal Bank) to secure stable, low-cost municipal deposits and drive consistent loan growth.
• Resilient Financial Performance: The company demonstrated improved net income for both the three and nine months ended June 30, 2025, driven by enhanced net interest income from loan repricing and reduced borrowing costs, alongside a significant decrease in unrealized losses on swap agreements.
• Prudent Capital Management: GOVB maintains a "well-capitalized" status, exceeding regulatory requirements, and actively manages shareholder returns through semi-annual dividends and ongoing stock repurchase programs.
• Competitive Headwinds & Differentiators: Operating in a landscape with larger regional banks and emerging fintechs, GOVB differentiates through personalized service and local market expertise, though its smaller scale and conventional technological approach present challenges against more digitally advanced rivals.
• Outlook Focused on Core Growth: With no specific quantitative guidance, management's strategy centers on increasing core deposits and funding organic loan growth, while prudently managing interest rate and credit risks in a dynamic economic environment.

A Community Banking Cornerstone's Evolving Strategy

Gouverneur Bancorp, Inc. (GOVB) stands as a testament to community banking, serving the financial needs of individuals and businesses across upstate New York. Its core business revolves around traditional banking services: attracting deposits and originating a diversified portfolio of loans, including residential and commercial mortgages, construction, home equity, and various commercial and consumer loans. The company's journey has been marked by strategic evolution, notably its incorporation in June 2023 as a Maryland corporation, succeeding a federally chartered entity through a second-step conversion completed in October 2023. This restructuring raised $7.2 million in gross proceeds from the sale of 723,068 common shares, providing a fresh capital base for its operations.

A significant strategic move was the September 2022 acquisition of Citizens Bank of Cape Vincent (CBCV), which expanded GOVB's footprint and led to the formation of GSL Municipal Bank. This limited-purpose commercial bank is specifically designed to solicit municipal deposits, which management views as a "source of low cost and stable source of funds that will further the Banks commitment to the communities in which the Bank operates." This initiative underscores GOVB's strategy to deepen its local market penetration and secure a stable funding base.

In the broader banking landscape, GOVB operates amidst formidable competitors. Larger regional players like Community Bank System, Inc. , NBT Bancorp Inc. , KeyCorp , and M&T Bank Corporation (MTB) offer a wider array of services and possess greater scale. GOVB's competitive advantage does not stem from proprietary technological differentiation, as the company's filings do not detail unique, advanced technologies or significant R&D initiatives beyond standard data processing. Instead, its strength lies in its deep community ties, personalized service, and efficient localized operations. While competitors like CBU and NBTB have broader networks and potentially more advanced digital platforms, GOVB's long-standing presence and tailored approach foster strong customer loyalty, particularly in its rural New York markets. This local expertise allows GOVB to maintain a moderate market presence, though its growth trajectory may lag behind rivals with more aggressive expansion strategies and greater investment in digital innovation.

Strategic Evolution and Operational Focus

GOVB's strategic initiatives are firmly rooted in enhancing its core banking model. The successful second-step conversion provided a solid foundation, enabling the company to pursue disciplined growth. Its loan portfolio, totaling $127.29 million at June 30, 2025, reflects a focus on real estate, with residential mortgages comprising the largest segment at $105.57 million. Notably, commercial non-mortgage loans saw a robust 32.39% increase to $2.44 million, and construction loans grew by 10.49% to $2.15 million since September 30, 2024. This growth in specific lending categories demonstrates targeted efforts to expand its earning assets.

On the funding side, the company's deposit strategy is critical. While total deposits slightly decreased by 0.31% to $159.41 million, there was a notable shift towards higher-cost time certificates, which increased by 4.06% to $37.75 million. This "reflecting consumer preference in the current interest rate environment," as management noted, highlights the need for adaptable deposit strategies. The GSL Municipal Bank plays a crucial role here, with municipal deposits accounting for $20.90 million of uninsured deposits at June 30, 2025, and being fully collateralized, providing a stable funding source.

Capital management is another key pillar. The company's Board authorized two stock repurchase programs, signaling a commitment to shareholder value. The first, authorized in December 2024, aimed to acquire up to 55,356 shares, followed by a second authorization in July 2025 for up to 52,778 shares. By June 30, 2025, GOVB had repurchased 2,728 shares at an average price of $12.59. Additionally, the company declared semi-annual cash dividends of $0.08 per share in November 2024 and May 2025, totaling $173,000 for the nine months ended June 30, 2025. These actions demonstrate a balanced approach to capital allocation, supporting both growth and shareholder returns.

Financial Performance: Resilience in a Dynamic Environment

GOVB's recent financial performance underscores its ability to generate steady returns despite market fluctuations. For the three months ended June 30, 2025, net income rose to $217,000, up from $183,000 in the prior year period. This improvement was primarily driven by a $53,000 increase in net interest income and a $65,000 increase in total non-interest income. Net interest income for the quarter reached $1.81 million, with the net interest margin expanding by 12 basis points to 4.15%. This margin expansion was largely due to higher interest income on loans, benefiting from rising market rates on originations and repricing, coupled with a decrease in borrowing interest expense.

Looking at the nine-month period ended June 30, 2025, net income increased to $495,000 from $403,000 year-over-year. While net interest income slightly decreased by $47,000 to $5.32 million, the net interest margin still improved by four basis points to 4.07%. The primary driver for the nine-month net income growth was a significant $199,000 decrease in unrealized losses on interest rate swap agreements, as the company's last remaining off-balance sheet swap matured in November 2024, and two others were unwound in December 2023 for a $75,000 realized gain.

Analyzing profitability ratios, GOVB's TTM Gross Profit Margin stands at 66.01%, Operating Profit Margin at 7.12%, and Net Profit Margin at 6.85%. While these figures are positive, they generally lag behind larger regional peers like Community Bank System, Inc. (CBU) (Gross Profit Margin 77%, Operating Profit Margin 25%, Net Profit Margin 19%) and NBT Bancorp Inc. (NBTB) (Gross Profit Margin 71%, Operating Profit Margin 23%, Net Profit Margin 18%). This suggests that GOVB's smaller scale may result in less efficiency compared to its more diversified competitors. However, its positive margins contrast sharply with KeyCorp (KEY), which reported negative operating and net profit margins for the TTM period, highlighting GOVB's operational stability.

Asset quality remains a focus, with non-performing loans decreasing to $545,000 at June 30, 2025, from $874,000 at September 30, 2024, primarily consisting of residential mortgage loans. Management recorded a modest $9,000 provision for credit losses on loans for the three months ended June 30, 2025, reflecting a stable credit environment. Liquidity is robust, with $60.90 million in available Federal Home Loan Bank (FHLB) liquidity and $7.20 million in cash and cash equivalents. The Bank consistently exceeds all regulatory capital requirements, maintaining a "well-capitalized" status, which provides a strong buffer against potential economic downturns.

Risk Profile and Mitigation

Investing in GOVB, like any financial institution, involves inherent risks. Interest rate risk is a significant concern, as fluctuations can impact net interest income and the economic value of equity (EVE). Management actively monitors this, noting that June 30, 2025, 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." While the company uses tools like interest rate swaps to manage this, the unrealized losses on available-for-sale securities, which increased to $2.50 million at June 30, 2025, from $1.40 million at September 30, 2024, underscore the sensitivity of its balance sheet to market rate changes.

Credit risk, particularly concerning the allowance for credit losses (ACL), remains a critical accounting policy. Management acknowledges that "material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses," and that "it is reasonably possible that the estimated credit losses on loans and foreclosed assets may change materially in the near term." Regulatory reviews also pose a risk, as agencies "may have judgments different than managements, and we may determine to increase our allowance as a result of these regulatory reviews."

Operational expenses have also seen an increase, with "other non-interest expense" rising due to costs associated with operating as a public company. Additionally, foreclosed asset expenses increased due to legal fees. Competition from larger, more technologically advanced banks and fintech companies could impact deposit flows and loan prepayments, potentially pressuring GOVB's margins and market share. However, the company's strategy to increase core deposits and leverage FHLB advances for loan growth aims to mitigate these funding challenges.

Outlook and Investment Thesis

Gouverneur Bancorp's investment thesis centers on its stability, community-focused model, and disciplined financial management. While the company has not provided specific quantitative forward-looking guidance, its strategic direction is clear: to foster organic loan growth, enhance its core deposit base, and maintain a strong capital position. The recent appointment of Stephen M. Jefferies as President and Chief Executive Officer, effective September 2, 2025, marks a new chapter, potentially bringing fresh perspectives to these strategic objectives.

GOVB's strength lies in its deep local market penetration and personalized service, which builds customer loyalty and provides a competitive moat against larger, more impersonal institutions. This allows the company to generate consistent, albeit modest, profitability and cash flow, as evidenced by its TTM Free Cash Flow Per Share of $0.83 and a P/E ratio of 22.72. The ongoing share repurchase programs and semi-annual dividends further demonstrate a commitment to returning value to shareholders.

Conclusion

Gouverneur Bancorp, Inc. (OTCQB:GOVB) presents itself as a stable, community-oriented banking institution with a clear strategy for sustained, prudent growth. Its recent financial performance, characterized by improved net income and net interest margin, reflects effective management of its loan portfolio and funding costs. While GOVB operates in a competitive environment and does not rely on proprietary technological differentiation, its deep local ties and commitment to personalized service provide a resilient foundation.

For discerning investors, GOVB offers a compelling narrative of a bank that understands its market, manages its risks diligently, and consistently returns value to shareholders. The company's well-capitalized status and strategic focus on core deposit growth position it to navigate future economic conditions, making it an attractive consideration for those seeking stability and steady returns within the regional banking sector.