FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

         For the quarterly period ended June 30, 1999

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from _______________ to ___________________

                        Commission file number 000-24761

                            GOUVERNEUR BANCORP, INC.
             (Exact name of registrant as specified in its charter)

               UNITED STATES                          04-3429966
      -------------------------------            -------------------
      (State or other jurisdiction of            (I.R.S. Employer
       incorporation or organization)            Identification No.)


                  42 Church Street, Gouverneur, New York 13642
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (315) 287-2600


         Indicate by check mark whether the  registrant  has filed all documents
and  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 [ X ] No [ ]

As of July 31, 1999 there were 2,384,040 shares outstanding.


<PAGE>

                            GOUVERNEUR BANCORP, INC.
                                    FORM 10-Q
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PART 1 - FINANCIAL INFORMATION

   Item 1.    Financial Statements - Unaudited

              Consolidated Statements of Financial Condition at June
              30, 1999 and September 30, 1998                                 2

              Consolidated Statements of Income for the three and nine
              month periods ended June 30, 1999 and 1998                      3

              Consolidated Statement of Shareholders' Equity and
              Comprehensive Income for the nine months ended June 30,
              1999                                                            4

              Consolidated Statements of Cash Flows for the nine
              months ended June 30, 1999 and 1998                             5

              Notes to Consolidated Financial Statements                    6-7

Item 2.       Management's Discussion and Analysis of Financial
              Condition and Results of Operations.                         8-18

Item 3.       Quantitative and Qualitative Disclosure About Market Risk   18-19

PART II - OTHER INFORMATION

Item 1.       Legal Proceedings                                              20

Item 2.       Changes in Securities and Use of Proceeds                      20

Item 6.       Exhibits and Reports on Form 8-K                               20


<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         The financial  statements  presented in this Form 10-Q beginning on the
following  page  reflect the  consolidated  financial  condition  and results of
operations of the  Gouverneur  Bancorp,  Inc.  ("We" or the  "Company")  and its
subsidiary  Gouverneur  Savings and Loan Association (the "Bank") for periods on
and after March 23, 1999.  Financial  statements  presented  for periods  before
March 23, 1999 are for the Bank.

                                       -1-

<PAGE>
<TABLE>
<CAPTION>

                          GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                       (In thousands, except share data) (Unaudited)

                                                                JUNE 30,      SEPTEMBER 30,
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
ASSETS
Cash and due from banks                                       $      1,221    $      1,179
Interest-bearing deposits with other financial institutions            959           3,255
Securities available for sale, at fair value                        14,349          10,546
Securities held to maturity, fair value of
  $6,438 in 1999 and $7,787 in 1998                                  6,474           7,717
Loans, net of deferred fees                                         43,263          35,691
Allowance for loan losses                                             (576)           (484)
                                                              ------------    ------------

Loans, net                                                          42,687          35,207

Bank premises and equipment, net                                       271             288
Federal Home Loan Bank stock, at cost                                  386             379
Accrued interest receivable                                            420             346
Real estate owned                                                      169              51
Other assets                                                            32             369
                                                              ------------    ------------

Total assets                                                  $     66,968    $     59,337
                                                              ============    ============

LIABILITIES

Deposits:  Non-interest bearing                               $        238    $        210
           Interest bearing                                         44,814          46,172
                                                              ------------    ------------

Total deposits                                                      45,052          46,382

Advance payments by borrowers for property taxes
  and insurance                                                        236             105
Borrowings                                                           4,340              --
Other liabilities                                                    1,421           1,382
                                                              ------------    ------------

Total liabilities                                                   51,049          47,869
                                                              ------------    ------------

SHAREHOLDERS' EQUITY

Preferred stock, $.01 par value per share;
 authorized 1,000,000 shares, issued: none                              --              --
Common stock, $.01 par value per share;
 authorized 9,000,000 shares, issued: 2,384,040 shares                  24              --
Additional paid in capital                                           4,555              --
Retained earnings                                                   11,317          10,929
Accumulated other comprehensive income                                 452             539
Unallocated shares of Employee Stock Ownership Plan
  (ESOP) 85,825 shares in 1999                                        (429)             --
                                                              ------------    ------------
Total shareholders' equity                                          15,919          11,468
                                                              ------------    ------------
Total liabilities & shareholders' equity                      $     66,968    $     59,337
                                                              ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                               -2-

<PAGE>
<TABLE>
<CAPTION>

                             GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF INCOME
                          (In thousands, except share data) (Unaudited)

                                             THREE MONTHS ENDED           NINE MONTHS ENDED
                                                  JUNE 30,                     JUNE 30,
                                         --------------------------   --------------------------
INTEREST INCOME                              1999          1998          1999           1998
                                         -----------    -----------   -----------    -----------
<S>                                      <C>            <C>           <C>            <C>
Loans                                    $       959    $       813   $     2,659    $     2,434
Securities                                       262            256           813            739
Other short-term investments                       1             21            46             59
                                         -----------    -----------   -----------    -----------

Total interest income                          1,222          1,090         3,518          3,232
                                         -----------    -----------   -----------    -----------

INTEREST EXPENSE

Deposits                                         465            477         1,468          1,412
Borrowings                                        17              1            21              2
                                         -----------    -----------   -----------    -----------

Total interest expense                           482            478         1,489          1,414
                                         -----------    -----------   -----------    -----------

Net interest income                              740            612         2,029          1,818
Provision for loan losses                         56             40           100            125
                                         -----------    -----------   -----------    -----------

Net interest income after
provision for loan losses                        684            572         1,929          1,693

Non-interest income:
  Service charges                                 16             13            48             37
  Net loss on sale of securities                 (11)            --            (8)            --
  Other                                           54             32           126             92
                                         -----------    -----------   -----------    -----------
    Total non-interest income                     59             45           166            129

Non-interest expenses:
     Salaries and employee benefits              209            168           600            480
  Directors fees                                  19             17            54             47
  Building, occupancy and equipment               64             42           177            131
  Data processing                                 24             20            70             61
  Postage and supplies                            22             19            63             57
  Professional fees                               13             10            47             33
  Deposit insurance premium                        7              7            20             21
  Real estate owned                               27             49            74            100
  Other                                           95             79           219            173
                                         -----------    -----------   -----------    -----------
Total non-interest expenses                      480            411         1,324          1,103

Income before income taxes                       263            206           771            719
Income taxes                                      91             73           283            281
                                         -----------    -----------   -----------    -----------

NET INCOME                               $       172    $       133   $       488    $       438
                                         ===========    ===========   ===========    ===========

BASIC EARNINGS PER SHARE (See Note 3)           0.07            N/A          0.08            N/A

Weighted average shares outstanding        2,298,215            N/A     2,298,215            N/A
</TABLE>

See accompanying notes to consolidated financial statements.

                                               -3-

<PAGE>
<TABLE>
<CAPTION>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                          AND COMPREHENSIVE INCOME
                  (In thousands, except share data) (Unaudited)


                                                                                     Accumulated
                                                     Additional                      Other                Unallocated
                                         Common       Paid-in         Retained       Comprehensive        ESOP
                                         Stock        Capital         Earnings       Income               Shares       Total
                                         -----        -------         --------       ------               ------       -----
<S>                                    <C>           <C>              <C>             <C>                  <C>       <C>
Balances at September 30, 1998         $   -         $    -           $ 10,929        $539                 $  -      $11,468

Net proceeds from issuance
 of 1,072,818 shares of common stock      11          4,568                                                            4,579
Common stock acquired by
    ESOP (85,825 shares)                                                                                   (429)        (429)
Initial capital contribution
 and issuance of shares to Cambray MHC
 (1,311,222 shares)                       13            (13)             (100)                                          (100)

Comprehensive Income:
 Change in net unrealized gain
 (Loss) on available-for-sale
 securities, net of tax                                                                (87)                              (87)

 Net Income                                                               488                                            488
                                                                                                                     -------
Total Comprehensive Income                                                                                               401
                                       -----         ------           -------         ----                -----      -------

Balances at June 30, 1999              $  24         $4,555           $11,317         $452                ($429)     $15,919
                                       =====         ======           =======         ====                =====      =======
</TABLE>

See accompanying notes to consolidated financial statements.

                                                             -4-

<PAGE>
<TABLE>
<CAPTION>
                              GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (In thousands, except share data) (Unaudited)

                                                                           NINE MONTHS ENDED
                                                                               JUNE 30,
                                                                      ----------------------------
                                                                          1999           1998
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
OPERATING ACTIVITIES

Net income                                                            $        488    $        438

Adjustments to reconcile net income to net cash
 provided by operating activities:
  Depreciation and amortization                                                 50              43
  Increase in accrued interest receivable                                      (74)            (21)
  Provision for loan losses                                                    100             125
  Net loss on sale of securities                                                 8              --
  Net (gain) loss on sale of real estate owned                                 (12)             20
  Net amortization (accretion) of premiums/discounts                           (48)              4
  Decrease in other liabilities                                                 97             (74)
  Decrease in other assets                                                     337             (25)
                                                                      ------------    ------------

         Net cash provided by operating activities                             946             510
                                                                      ------------    ------------

INVESTING ACTIVITIES

  Net (increase) decrease in loans                                          (7,731)           (443)
  Proceeds from sales of securities available-for-sale                         504             405
  Proceeds from maturities and principal reductions of
    securities available-for-sale                                            5,502           1,331
  Purchases of securities available-for-sale                               (10,031)         (3,357)
  Purchases of securities held-to-maturity                                    (680)         (1,717)
  Proceeds from maturities and principal reductions of
    securities held-to-maturity                                              2,040           2,631
  Proceeds from sale of real estate owned                                       45             127
  Additions to premises and equipment                                          (33)            (59)
  (Purchase) of FHLB stock                                                      (7)             (4)
                                                                      ------------    ------------


         Net cash (used) provided by investing activities                  (10,391)          1,086
                                                                      ------------    ------------

FINANCING ACTIVITIES

  Net decrease in deposits                                                  (1,330)           (147)
  Net increase in advance payments by
    borrowers for property taxes and insurance                                 131             165
  Net proceeds from short-term borrowings                                    4,340              --
  Net proceeds from issuance of common stock                                 4,579              --
  Purchase of shares of common stock by ESOP                                  (429)             --
  Initial capital contribution to Cambray MHC                                 (100)             --
                                                                      ------------    ------------

         Net cash provided (used) by financing activities                    7,191              18
                                                                      ------------    ------------

  Net (decrease) increase in cash and
    cash equivalents                                                        (2,254)            558
  Cash and cash equivalents at beginning of period                           4,434           2,486
                                                                      ------------    ------------

  Cash and cash equivalents at end of period                          $      2,180    $      1,928
                                                                      ============    ============

Supplemental disclosure of cash flow information

  Non-cash investing activities:
         Additions to real estate owned                                        151              91
  Cash paid during the period for:
         Interest                                                            1,485           1,414
         Income taxes                                                          472              --
</TABLE>

See accompanying notes to consolidated financial statements

                                                -5-
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.       BUSINESS

         Gouverneur  Bancorp,  Inc. (the Company) operates as a savings and loan
         holding  company.  Its only  subsidiary is Gouverneur  Savings and Loan
         Association (the Bank). The consolidated  financial  statements include
         the accounts of the Company and its wholly owned subsidiary,  the Bank.
         All  material   intercompany   accounts  and  transactions   have  been
         eliminated in the consolidation.


2.       BASIS OF PRESENTATION

         The  consolidated  financial  statements  included  herein  reflect all
         adjustments  which  are,  in the  opinion  of  management,  of a normal
         recurring   nature  and  necessary  to  present  fairly  the  Company's
         financial  position as of June 30, 1999 and  September  30,  1998,  and
         results of  operations  for the three and nine month periods ended June
         30,  1999  and  1998.  The  statement  of   shareholders'   equity  and
         comprehensive income is for the nine months ended June 30, 1999 and the
         statements  of cash flows are for the nine  months  ended June 30, 1999
         and 1998.

3.       EARNINGS PER SHARE

         Basic earnings per share is calculated by dividing net income available
         to  common  shareholders  by the  weighted  average  number  of  shares
         outstanding  during the  period.  Prior to the mutual  holding  company
         reorganization of the Bank, which occurred on March 23, 1999,  earnings
         per share are not  applicable  as neither  the Company nor the Bank had
         shares outstanding. Earnings per share reflects earnings from March 23,
         1999,  to the end of the  reporting  period  based  upon  the  weighted
         average  number  of  shares  outstanding  for the  period.  The  income
         included  in  the  computation  is  based  on  the  actual  results  of
         operations only for the post-conversion period. Unallocated shares held
         by the Company's  ESOP are not included in the weighted  average number
         of shares outstanding.

4.       IMPACT OF NEW ACCOUNTING STANDARDS

         On October 1, 1998, the Company  adopted the provisions of Statement of
         Financial    Accounting   Standards   ("SFAS")   No.   130,   REPORTING
         COMPREHENSIVE   INCOME.  This  statement   establishes   standards  for
         reporting and display of  comprehensive  income and its components.  At
         the  Company,  comprehensive  income  represents  net income plus other
         comprehensive  income,  which  consists of the net change in unrealized
         gains or  losses  on  securities  available  for  sale for the  period.
         Accumulated  other  comprehensive  income represents the net unrealized
         gains or  losses on  securities  available  for sale as of the  balance
         sheet  dates,  net of the related tax effect.  Prior year  consolidated
         financial   statements  have  been   reclassified  to  conform  to  the
         requirements of SFAS 130.

         A summary of the  components of other  comprehensive  (loss) income for
         the three- and nine-month periods ended June 30, 1999 and 1998 follows:


                                       -6-

<PAGE>
<TABLE>
<CAPTION>

                                                  Three months ended                 Nine months ended
                                                        June 30,                          June 30,
                                                 ---------------------             ---------------------
                                                   1999         1998                 1999         1998
                                                 ---------    --------             --------     --------

<S>                                              <C>          <C>                  <C>          <C>
Unrealized holding (losses) gains                $    (141)   $    (22)            $    (92)    $    106
arising during the period net of tax
(pre-tax amount of $(235), $(37),
$(153) and $64)
Reclassification adjustment for losses                   7           -                    5            -
                                                 ---------    --------             --------     --------
realized in net income during the
period, net tax (pre-tax amount $11,
$ -, $8 and $ -)

Other comprehensive (loss) income                $    (134)   $    (22)            $    (87)     $   106
                                                 =========    ========             ========      =======
</TABLE>

                                      -7-

<PAGE>

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

         We were  formally  chartered by the Office of Thrift  Supervision  (the
"OTS") on March 23,  1999.  On that date,  the Bank  completed a mutual  holding
company  reorganization so that it became our wholly owned  subsidiary.  We then
sold 45% of our  common  stock  (1,072,818  shares)  to the public for $5.00 per
share and issued 55% of our common stock  (1,311,222  shares) to Cambray  Mutual
Holding  Company  ("Cambray  MHC")  without any cash  payment.  Cambray MHC is a
mutual holding company also chartered by the OTS. As part of the reorganization,
the Bank contributed $100,000 to Cambray MHC as its initial capital. We received
$4.6 million of net proceeds from the sale of our stock. We used one-half of the
net proceeds to acquire all the Bank's common stock.

         OTS  regulations  require  that  Cambray  MHC  own a  majority  of  our
outstanding  stock. In order to dispose of that stock, OTS regulations  require,
in most instances,  that the depositors of the Bank must approve the transaction
in which the sale will occur, and then the shares must first be offered to those
depositors.

         The Bank has been and  continues to be a community  oriented  financial
institution offering a variety of financial services. The Bank attracts deposits
from the general public and uses those  deposits,  together with other funds, to
make  loans and  other  investments.  Most of the  loans are one to four  family
residential mortgages. The Bank also makes consumer (including home equity lines
of credit),  commercial,  and multi-family  real estate and other loans. Most of
the loans are in the Bank's primary market area,  which is southern St. Lawrence
and northern  Jefferson and Lewis counties in New York State. The Bank's deposit
accounts are insured by the Savings  Association  Insurance Fund ("SAIF") of the
Federal  Deposit  Insurance  Corporation  ("FDIC"),  and the Bank is  subject to
regulation by the FDIC and the OTS.

         Our  profitability  depends,  to a large  extent,  on our net  interest
income,  which is the difference between the interest we receive on our interest
earning  assets,  such as loans  and  investments,  and the  interest  we pay on
interest bearing liabilities. Other categories of expenses generally include the
provision for loan losses, salaries and employee benefits costs, net expenses on
real estate owned and various other categories of operational expenses. External
factors,  such as general  economic  and  competitive  conditions,  particularly
changes in  interest  rates,  government  policies  and  actions  of  regulatory
authorities, can have a substantial effect on profitability.

ANALYSIS OF NET INTEREST INCOME

         Net  interest  income,  the  Bank's  primary  income  source,   depends
principally  upon (i) the amount of  interest-earning  assets  that the Bank can
maintain  based  upon  its  funding  sources;   (ii)  the  relative  amounts  of
interest-earning  assets  versus  interest-bearing  liabilities;  and  (iii) the
difference between the yields earned on those assets and the rates paid on those
liabilities.  Non-performing  loans adversely affect net interest income because
they  must  still be  funded by  interest-bearing  liabilities,  but they do not
provide  interest  income.  Furthermore,  when the Bank  designates  an asset as
non-performing, all interest which has been accrued but not actually received is
deducted from current period income, further reducing net interest income.

                                       -8-

<PAGE>

AVERAGE BALANCES, INTEREST RATES AND YIELDS

         The following tables present,  for the periods  indicated,  the average
interest-earning  assets and average  interest-bearing  liabilities by principal
categories,  the interest income or expense for each category, and the resultant
average  yields earned or rates paid. No tax equivalent  adjustments  were made.
All average balances are daily average balances.  Non-interest-bearing  checking
accounts  are  included  in the tables as a  component  of  non-interest-bearing
liabilities.

<TABLE>
<CAPTION>
                                                                    For the Nine Months Ended June 30,
                                                    ----------------------------------------------------------------------
                                                                   1999                                 1998
                                                    ----------------------------------     -------------------------------

                                                                              Average                             Average
                                                    Average                   Yield/       Average                Yield/
                                                    Balance    Interest       Cost (6)     Balance     Interest   Cost (6)
                                                    -------    --------       --------     -------     --------   --------
                                                                         (Dollars in thousands)
<S>                                                <C>          <C>             <C>        <C>          <C>          <C>
Loans (1).....................................     $    38,071  $   2,659       9.34%      $ 34,864     $ 2,434      9.34%
Securities (2)................................          18,323        813       5.93%        15,838         739      6.24%
Other short-term investments..................           1,674         46       3.67%         1,608          59      4.91%
                                                   -----------  ---------                  --------      ------
     Total interest-earning assets............          58,068      3,518       8.10%        52,310       3,232      8.26%
Non-interest-earning assets...................           3,048                                2,895
                                                   -----------                             --------
     Total assets.............................     $    61,116                             $ 55,205
                                                   ===========                             ========

Savings and club accounts (3).................     $    16,952        436       3.44%      $ 14,934         385      3.45%
Time certificates.............................          23,556        948       5.38%        22,716         948      5.58%
NOW and money market accounts.................           5,909         84       1.90%         5,547          81      1.95%
Borrowings....................................             701         21       4.01%             -           -         -%
                                                   -----------  ---------                  --------      ------
     Total interest-bearing liabilities.......          47,118      1,489       4.23%        43,197       1,414      4.38%
Non-interest-bearing liabilities..............           1,496                                1,095
                                                   -----------                             --------
     Total liabilities........................          48,614                               44,292
Equity........................................          12,502                               10,913
                                                   -----------                             --------
     Total liabilities and equity.............     $    61,116                             $ 55,205
                                                   ===========                             ========
Net interest income/spread (4)................                  $   2,029       3.87%                    $1,818      3.88%
                                                                =========       ====                     ======      ====
Net earning assets/net interest margin (5)....     $    10,950                  4.67%      $  9,113                  4.65%
                                                   ===========                  ====       ========                  ====
Ratio of average interest-earning assets
     to average interest-bearing liabilities..                      1.23x                                 1.21x
                                                                    =====                                 =====

                                                                                   NOTES  APPEAR ON FOLLOWING PAGE.
</TABLE>
                                       -9-

<PAGE>

AVERAGE BALANCES, INTEREST RATES AND YIELDS (CONTINUED)
<TABLE>
<CAPTION>

                                                                    For the Three Months Ended June 30,
                                                    ----------------------------------     -------------------------------
                                                                   1999                                 1998
                                                    ----------------------------------     -------------------------------
                                                                              Average                             Average
                                                    Average                   Yield/       Average                Yield/
                                                    Balance    Interest       Cost (6)     Balance     Interest   Cost (6)
                                                    -------    --------       --------     -------     --------   --------
                                                                         (Dollars in thousands)
<S>   <C>                                           <C>             <C>       <C>          <C>           <C>         <C>
Loans (1).....................................      $ 40,580        959       9.48%        $ 34,677      $  813      9.40%
Securities (2)................................        19,394        262       5.42%          16,652         256      6.17%
Other short-term investments..................         1,135          1       0.35%           1,645          21      5.12%
                                                    --------    -------                    --------      ------
     Total interest-earning assets............        61,109      1,222       8.02%          52,974       1,090      8.25%
Non-interest-earning assets...................         1,509                                  2,533
                                                    --------                               --------
     Total assets.............................      $ 62,618                               $ 55,507
                                                    ========                               ========
Savings and club accounts (3).................      $ 15,910        135       3.40%        $ 14,785         130      3.53%
Time certificates.............................        23,223        300       5.18%          22,736         320      5.65%
NOW and money market accounts.................         6,173         30       1.95%           5,567          28      2.02%
Borrowings....................................         1,785         17       3.82%             -             -         -
                                                    --------    -------                    --------      ------
     Total interest-bearing liabilities.......        47,091        482       4.11%          43,088         478      4.45%
Non-interest-bearing liabilities..............         1,515                                  1,433
                                                    --------                               --------
     Total liabilities........................        48,606                                 44,521
Equity........................................        14,012                                 10,986
                                                    --------                               --------
     Total liabilities and equity.............      $ 62,618                               $ 55,507
                                                    ========                               ========
Net interest income/spread (4)................                    $ 740       3.91%                      $  612      3.80%
                                                                  =====       ====                       ======      ====
Net earning assets/net interest margin (5)....      $ 14,018                  4.86%        $  9,886                  4.63%
                                                    ========                  ====         ========                  ====
Ratio of average interest-earning assets
 To average interest-bearing liabilities......                    1.30x                                    1.23x
                                                                  =====                                    =====
</TABLE>

(1) Shown net of the  allowance for loan losses.  Average loan balances  include
    non-accrual  loans.  Interest is recognized on non-accrual loans only as and
    when received.
(2) Securities  are included at amortized  cost,  with net  unrealized  gains or
    losses  on  securities  available  for  sale  included  as  a  component  of
    non-earning  assets.  Securities  include Federal Home Loan Bank of New York
    stock.
(3) Includes  advance  payments by borrowers for taxes and  insurance  (mortgage
    escrow deposits).
(4) The spread  represents the difference  between the weighted average yield on
    interest-earning  assets and the weighted  average cost of  interest-bearing
    liabilities.
(5) The  net  interest   margin,   also  known  as  the  net  yield  on  average
    interest-earning  assets,  represents net interest income as a percentage of
    average interest-earning assets.
(6) Yields and  related  ratios for the three and nine month  periods  have been
    annualized when appropriate.

                                      -10-

<PAGE>

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

         One method of analyzing net interest  income is to consider how changes
in average  balances  and  average  rates from one period to the next affect net
interest  income.  The  following  table shows  changes in the dollar  amount of
interest income and interest  expense for major  components of  interest-earning
assets and  interest-bearing  liabilities.  It shows the amount of the change in
interest  income or expense  caused by either  changes in  outstanding  balances
(volume)  or  changes  in  interest  rates.  The effect of a change in volume is
measured by  applying  the  average  rate during the first  period to the volume
change  between  the two  periods.  The effect of changes in rate is measured by
applying the change in rate between the two periods to the average volume during
the first period.  Changes attributable to both rate and volume, which cannot be
segregated,  have been allocated proportionately to the change due to volume and
the change due to rate.

<TABLE>
<CAPTION>
                                        Nine Months Ended            Three Months Ended
                                            June 30,                      June 30,
                                   ---------------------------   ---------------------------
                                         1999 vs. 1998                 1999 vs. 1998
                                         -------------                 -------------
                                   Increase (Decrease) Due To:    Increase (Decrease) Due To:
                                    Volume    Rate     Total        Volume    Rate     Total
                                    ------    ----     -----        ------    ----     -----
                                                       (In thousands)
<S>                                  <C>     <C>      <C>           <C>      <C>      <C>
INTEREST-EARNING ASSETS:
Loans                                $ 225   $  --    $ 225         $ 139    $   7    $ 146
Securities                             112     (38)      74            39      (33)       6
Other short-term investments             2     (15)     (13)           (5)     (15)     (20)
                                     -----   -----    -----         -----    -----    -----
Total interest-earning assets          339     (53)     286           173      (41)     132
                                     =====   =====    =====         =====    =====    =====

INTEREST-BEARING LIABILITIES:
Savings and club accounts               51      --       51            10       (5)       5
Time certificates                       23     (23)      --             7      (27)     (20)
NOW and money market accounts            4      (1)       3             3       (1)       2
Borrowings                              21      --       21            17       --       17
                                     -----   -----    -----         -----    -----    -----
Total interest-bearing liabilities      99     (24)      75            37      (33)       4
                                     =====   =====    =====         =====    =====    =====

Net change in net interest income    $ 240   $ (29)   $ 211         $ 136    $  (8)   $ 128
                                     =====   =====    =====         =====    =====    =====
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND SEPTEMBER 30, 1998.

         Our total assets increased $7.7 million from $59.3 million at September
30, 1998 to $67.0 million at June 30, 1999. The principal  reasons were the sale
of 45% of our common stock as part of the mutual holding company  reorganization
of the Bank and the adoption of a leveraging strategy in which we borrowed funds
and  invested  them  in  interest-earning  assets,  principally  securities.  At
September 30, 1998, we held $3.54 million of stock  subscriptions  for our stock
offering, including $1.97 million of funds paid by subscribers and $1.57 million
in withdrawal  authorizations from existing accounts. From November 1998 through
February  1999,  part of these  subscriptions  were canceled and we refunded the
related  payments.  By the end of March,  1999,  we  received  additional  stock
subscriptions  and we  completed  the stock sale.  We received  net new funds of
approximately $4.2 million, after

                                      -11-
<PAGE>

deducting  expenses and our $429,000 loan to our Employee Stock  Ownership Plan.
The Employee Stock Ownership Plan used the loan to buy 8% of the stock we sold.

         As a result of our leveraging  strategy,  we increased  borrowings from
zero at September 30, 1998 to $4.3 million at June 30, 1999.  Our borrowings are
short-term  borrowings from the Federal Home Loan Bank of New York which we have
reinvested principally in adjustable-rate  mortgage-backed  securities.  We have
borrowed  funds  in  order to  improve  the  leveraging  of our  balance  sheet.
Borrowings have been available to us at acceptable  rates,  allowing us to avoid
repricing  of  our  deposit   offerings  to  increase  our  levels  of  deposits
significantly.  We classified  the  securities  which we acquired as part of the
leveraging strategy as available for sale.

         During the nine months from  September  30, 1998 through June 30, 1999,
we actively  pursued an increase in our loan portfolio  because loans  generally
have higher yields than securities investments. Due to our efforts, we were able
to increase our loans, net, by $7.6 million, deploying the capital raised in our
reorganization. If we had not had the stock offering and had not borrowed funds,
our level of  securities  and other short term  investments  would have declined
dramatically  because we would have used the  proceeds of those  investments  to
fund the new loans.  Furthermore,  we would probably have been unable to support
the loan growth we attained  without  increasing our deposit  pricing to attract
deposits which could then be used to fund loans.

         During the first nine months of the fiscal year,  we had a $1.3 million
decline in  deposits,  but  during the  quarter  ended June 30,  1999,  deposits
increased by $99,000.  We believe that the decline since September 30, 1998, was
caused primarily by the use of deposits to purchase stock and the classification
of stock  subscriptions  received as  deposits  pending  the  completion  of our
reorganization.  We find the slight  increase in deposits during the most recent
quarter to be  encouraging,  but it represents less than the total interest that
we paid on our deposits during the quarter. We are currently pursuing efforts to
attract  additional  deposits  for  additional  leverage  without   dramatically
increasing our cost of deposits.

         We increased  our total  capital by $4.5 million  during the first nine
months of the fiscal  year.  This  increase was caused  almost  entirely by $4.2
million of net stock sale proceeds,  plus retained earnings of $388,000.  During
the nine month  period,  we had total  earnings of  $488,000,  but the Bank used
$100,000 to capitalize  Cambray  Mutual Holding  Company,  which owns 55% of our
stock, resulting in the net increase in retained earnings of $388,000.

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
1998.

         GENERAL.  Our net income for the three  months  ended June 30, 1999 was
$172,000,  an increase of  $39,000,  or 29.3%,  over our net income for the same
period  last year.  The  primary  reason for the  increase  in net income was an
increase  in net  interest  income  caused by our  increase  in  capital,  which
provided funds for investment so we could increase total interest-earning assets
without a corresponding  interest cost. The quarter ended June 30, 1999, was our
first full  quarter as a public  company and thus was the first  quarter  during
which we had the earning  power of our new capital for the entire  quarter.  The
increase  in capital and the related  increase in our total  assets  combined to
increase net interest  income by $128,000.  However,  increases in our provision
for loan losses due to the  increase in our loan  portfolio,  and  increases  in
non-interest expenses,  primarily salaries and employee benefits expense, offset
a portion of the increase in net interest income.

         INTEREST INCOME. Interest income increased $132,000, or 12.1%, from the
three months  ended June 30, 1998 to the three  months  ended June 30, 1999.  We
generated the increase  entirely as a result of efforts to increase our level of
interest-earning  assets. Average  interest-earning  assets increased from $53.0
million for the 1998 quarter to $61.1 million for the 1999 quarter. We were able
to  generate  this  increase  through the active  solicitation  of loans and the
hiring of additional loan origination staff. The resulting $5.9 million increase
in the average balance of loans would

                                      -12-
<PAGE>

have  been   accompanied  by  a  decrease  in  the  average   balance  of  other
interest-earning  assets  if our total  sources  of funds  had  remained  level.
However,  we invested stock subscriptions and borrowed funds, to the extent they
exceeded acceptable loan opportunities,  in securities.  Therefore,  the average
balance  of  securities  investments,  and the  interest  earned  on them,  also
increased.

         The average interest rate we earned on our interest-earning  assets was
23 basis points  (0.23%) lower in this year's  quarter than last year,  with the
average rate earned on loans  increasing  by 8 basis points and the average rate
earned on securities  decreasing by 75 basis points.  The average rate we earned
on loans increased for a number of reasons.  We originated more commercial loans
and  consumer  loans,  which  tend to have  higher  rates and  shorter  terms to
maturity that the residential  mortgage loans which make up the bulk of our loan
portfolio.  In  addition,  we were able to  originate  a  significant  volume of
residential  mortgages on vacation and other second homes. These loans generally
have higher rates because they do not qualify for most secondary  market lenders
and hence the competition for the loans is less.

         The decrease in the average  rates earned on  securities  was caused in
part by the gradual turnover of our securities portfolio at lower interest rates
coupled with lower rates earned on  adjustable-rate  mortgage-backed  securities
than on similar fixed-rate  investments.  We chose to invest the proceeds of our
borrowings principally in one-year adjustable-rate mortgage-backed securities to
obtain higher yields than available from government and agency  securities while
avoiding the adverse  effects on  interest-rate  sensitivity  from  investing in
long-term, fixed-rate mortgage-backed securities.

         Overall,  we  estimate  that the  increase  in the  average  volume  of
interest-earning assets caused a $173,000 increase in interest income, while the
decrease in average  interest  rates  earned  resulted in a $41,000  decrease in
interest income.

         INTEREST EXPENSE.  Interest expense also increased $4,000 from the 1998
to the 1999 quarter. The interest cost resulting from an increase in the average
volume of interest bearing liabilities was substantially  offset by a decline in
our  cost of  funds  as the  average  rate we paid on  certificates  of  deposit
declined by 47 basis  points.  The  increase  in the volume of  interest-bearing
liabilities was a result of our borrowings and our efforts to increase  deposits
and thus  provide  funds  so we could  grow our  assets.  We  estimate  that the
increase in the volume of interest-bearing liabilities caused a $37,000 increase
in  interest  expense  while a decrease in our  average  cost of funds  caused a
$33,000 decline in interest expense.

         Please remember that we paid interest on stock  subscriptions  from the
day we received them until we completed the reorganization.  Stock subscriptions
became  part of our  capital and ceased  bearing  interest  only since March 23,
1999.  Capital has no interest cost. In future  periods,  we anticipate that the
percentage of our earning assets that are funded by interest-bearing liabilities
should be lower than  before the  reorganization,  until we are able to leverage
the new capital through additional growth.

         NET INTEREST INCOME.  The net effect of the increase in interest income
and the lower  increase  in  interest  expense  was a $128,000  increase  in net
interest income. This increase was the result of our new capital and our growth,
as  well  as an  improvement  in our  interest  rate  spread,  representing  the
difference  between the average rate we earned and the average rate we paid. Our
spread increased by 11 basis points from 3.80% for the 1998 quarter to 3.91% for
the 1999 quarter for a number of reasons.  The percentage of our assets invested
in loans versus securities and other short term investments  increased  slightly
as we worked to deploy our new capital and find  acceptable  loan  opportunities
with higher yields than securities  investments.  The average yield on our loans
increased  as discussed  above,  although  the average  yield on our  securities
portfolio declined due to market interest rate conditions.  Although the decline
in  the  rate  earned  on  securities   caused  our  overall  average  yield  on
interest-earning

                                      -13-
<PAGE>

assets to decline by 23 basis points,  the average cost of funds  declined by an
even greater 34 basis points  because of the 47 basis point  decline in the cost
of certificates of deposit,  which represent  slightly more than one-half of our
total  deposits.  We ave  continued  to offer  attractive  rates on our  deposit
products to maintain market share.  Our deposit rates are generally  higher than
the rates offered by the two other local  commercial  banks and comparable to or
at the high end of rates offered by thrift institutions throughout the region.

         Our net  interest  margin  (also  known  as the net  yield  on  average
interest-earning  assets)  increased  by 23 basis  points,  in part for the same
reasons as our increase in spread and in part because of our increase in average
capital from $11.0 million to $14.0 million.  Average capital  represented 22.9%
of average interest-earning assets for the quarter ended June 30, 1999, while it
represented  20.7% of average  interest-earning  assets for the same  quarter in
1998.

         PROVISION FOR LOAN LOSSES.  The provision for loan losses  results from
our analysis of the  adequacy of the  allowance  for loan losses.  If we believe
that the  allowance  should be higher,  then we increase it with a provision for
loan losses  which is an expense on our income  statement.  Our  analysis of the
adequacy of the allowance is always speculative, based upon the inherent risk of
loss  in  the  current  loan   portfolio  and  our   assessment  of  how  future
circumstances  will  affect  the  ultimate  realization  of those  losses.  This
analysis  considers,  among other things,  default rates and the level of losses
when our customers do not repay their loans. Estimates of future events, such as
future  interest  rates,  the health of the local and  national  economy and the
effects of government  policies,  are also  components  of our analysis.  If our
predictions are inaccurate,  then increases in the allowance may be necessary in
future  periods  even if the  level  of our loan  portfolio  remains  the  same.
Furthermore,  the Office of Thrift  Supervision  may disagree with our judgments
regarding  the  potential  risks in our loan  portfolio  and could require us to
increase the allowance in the future.

         For the three months ended June 30, 1999, we provided  $56,000 for loan
losses,  compared to $40,000 in the same  quarter last year.  We  increased  the
provision principally because of the increase in the size of our loan portfolio.
Our level of non-accruing  loans  (generally loans past due 90 days or more) was
$117,000 at June 30, 1999  compared  to $284,000 at June 30,  1998.  At June 30,
1999, our allowance was $576,000,  or 1.33% of total loans, compared to $514,000
or 1.44% of total loans at June 30, 1998.

         NON-INTEREST  INCOME. Our non-interest income was $14,000 higher in the
1999 versus the 1998  quarter.  The increase was  principally  the result of the
increased size of our  institution,  which generated more  transaction  fees. We
also implemented more rigorous policies  regarding the collection and non-waiver
of account-related charges.

         NON-INTEREST  EXPENSES.  Our non-interest expenses increased by $69,000
from the 1998 to the 1999 quarter.  The primary  reason for this increase was an
increase in staff to  generate  loan  growth and  support  our  increased  size,
coupled with  compensation  expense for our Employee Stock Ownership Plan. These
were the  primary  reasons  for a $41,000  increase  in  salaries  and  employee
benefits  expense.  By the end of the 1999 quarter,  we had twenty full time and
one part  time  employees,  compared  to  sixteen  full  time and two part  time
employees  at the end of June 1998.  We  believe  that we have begun to reap the
benefits of the  increase  in the level of  employees  as the  increase in loans
shows.  However,  we  believe  that our  existing  employee  group  can  support
additional  growth.  We also believe  that the  reorganization  itself  caused a
temporary disruption in employee productivity as we allocated employees to tasks
necessary to complete the reorganization.

         INCOME TAX EXPENSE.  Our income tax expense  increased  by $18,000,  or
24%, from the 1998 to the 1999 quarter.  The increase was caused by the increase
in income before income tax.


                                      -14-
<PAGE>

COMPARISON OF RESULTS OF OPERATIONS  FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND
1998.

         GENERAL.  Our net income for the nine  months  ended June 30,  1999 was
$488,000,  an increase of  $50,000,  or 11.4%,  over our net income for the same
period  last year.  The  primary  reason for the  increase in net income was the
increase in our size and our  capital  levels,  as  discussed  above.  Partially
offsetting these improvements were an increase in salaries and employee benefits
expense and an increase in other general operating expenses.

         INTEREST INCOME.  Interest income increased by $286,000,  or 8.8%, from
the nine months ended June 30, 1998 to the nine months  ended June 30, 1999.  We
generated  the  increase  through our efforts to increase  our  interest-earning
assets.  Average  interest-earning  assets  increased from $52.3 million for the
1998 period to $58.1  million for the 1999 period.  The factors which enabled us
to generate  the  increase  were the same as  discussed  above in the  quarterly
comparison.  Our $3.2 million  increase in the average  balance of loans between
the 1998 and the 1999  quarters  was  coupled  with a $2.5  million  increase in
securities  investments.  This was because our growth  efforts  generated a $3.9
million increase in average  interest-bearing funding sources and a $1.6 million
increase in average  capital,  both of which provided funds for investment.  The
average  interest  rate we earned on our  interest-earning  assets  was 16 basis
points  (0.16%)  lower  during the first nine  months of this  fiscal  year than
during the same period  last year.  The reason for the  decrease  was a 31 basis
point decline in the yield on  securities,  while the yield on loan remained the
same between the periods.

         Overall,  we  estimate  that the  increase  in the  average  volume  of
interest-earning assets caused a $338,000 increase in interest income, while the
decrease  in  interest  rates  resulted  in a  decrease  in  interest  income by
approximately $53,000.

         INTEREST EXPENSE.  As in the case of interest income,  interest expense
also  increased  from the 1998 to the 1999  periods  due to an  increase  in the
average  volume of  interest-bearing  liabilities as we sought funds to grow our
assets.  However,  for the reasons we explained  above in the quarter to quarter
comparison,  the increase in interest  expense was only  $75,000,  compared to a
$286,000  increase in interest  income.  The average  rate paid on deposits  and
other  liabilities  declined by 15 basis points between the periods as generally
lower market  interest rates allowed us to decrease our rates on certificates of
deposit.  At the same time, our average  capital  increased $1.6 million,  which
provided us with an increase in zero cost funding sources.

         NET INTEREST INCOME.  The net effect of the increase in interest income
and the lower  increase  in  interest  expense  was a $210,000  increase  in net
interest  income.  As discussed  above,  this increase was the result of growth,
partially offset by a one basis point reduction in our interest rate spread. Our
spread remained  relatively  constant  because a 31 basis point reduction in the
yield on securities was offset by a 20 basis point reduction in the average rate
on  certificates  of deposit,  while rates on other  major  categories  remained
relatively constant.

         PROVISION FOR LOAN LOSSES.  For the nine months ended June 30, 1999, we
provided $100,000 for loan losses,  compared to $125,000 in the same period last
year. We reduced the  provision  principally  because our level of  non-accruing
loans declined from $284,000 at June 30, 1998 to $117,000 at June 30, 1999. As a
result, we were able to maintain our allowance at the level which we believed to
be appropriate without an increase in our provision for loan losses, despite the
increase in our total loan portfolio.

         NON-INTEREST  INCOME. Our non-interest income increased by $37,000 from
the 1998 to the 1999  periods.  The  increase  was the result of an  increase in
account fees and other charges generally related to increased transaction volume
caused by our growth.

                                      -15-
<PAGE>

         NON-INTEREST  EXPENSES. Our non-interest expenses increased by $221,000
from the 1998 to the 1999 periods.  The primary reason for this increase was the
increase in staff  discussed  above,  which was the primary  cause of a $120,000
increase  in  salaries  and  employee  benefits  expense.  Other  categories  of
non-interest  expense  also  increased  principally  because  of our  efforts to
increase our size.

         INCOME TAX EXPENSE. Our income tax expense increased by $2,000, or less
than 1%, from the 1998 to the 1999  periods.  The  increase  was less than might
have  otherwise  been  anticipated  from a $52,000  increase  in pre-tax  income
because  of  a  slight  shift  in  our  tax  accruals  and  the   resolution  of
uncertainties.

LIQUIDITY AND CAPITAL RESOURCES

         Our  primary  sources  of funds  are  deposits  and  proceeds  from the
principal  and  interest  payments  on  loans  and  securities.  Maturities  and
scheduled  principal payments on loans and securities are predictable sources of
funds. We can also control the funds available from borrowings. However, general
economic  conditions  and  interest  rate  conditions  can  cause  increases  or
decreases  in deposit  outflows and loan  prepayments  which can also affect the
level of funds we have available for investment.

         In general,  we manage our liquidity by maintaining a sufficient  level
of short term  investments so that funds are regularly  available for investment
in loans when needed. During the nine months ended June 30, 1999, we reduced our
cash and cash equivalents by $2.3 million.  The primary reason for the reduction
was that we invested  available  funds in loans and securities  investments,  so
that our net increases in those  investments  exceeded the cash we received from
our stock  offering  and our leverage  borrowings  net of deposit  outflows.  We
originated  $14.7  million of new loans  during the nine  months  ended June 30,
1999.  However,  loans,  net, after payments,  charge-offs and transfers to real
estate owned, increased by $7.5 million during the period.

         Deposits  decreased by $1.3  million  during the nine months ended June
30, 1999. As we discussed above, we believe the decrease was primarily caused by
the use of  deposits  to purchase  stock and by the  cancellation  of some stock
subscriptions  which had been  carried as deposits on  September  30,  1998.  In
addition to factors within our control,  such as our deposit pricing  strategies
and our  marketing  efforts,  deposit flows are affected by the level of general
market interest rates, the availability of alternate  investment  opportunities,
general economic conditions, and other factors outside our control.

         We monitor our  liquidity  regularly.  Excess  liquidity is invested in
overnight  federal  funds  sold and other  short  term  investments.  If we need
additional  funds,  we can borrow  those  funds,  although the cost of borrowing
money is normally  higher than the average cost of deposits.  As a member of the
Federal Home Loan Bank of New York,  the Bank can arrange to borrow in excess of
$10 million,  but to do so it must provide  appropriate  collateral  and satisfy
other requirements for Federal Home Loan Bank borrowings.  We have used borrowed
funds to help us leverage  the capital we received  from our stock sale,  but we
have not  needed  borrowings  to cover  liquidity  shortfalls.  In  addition  to
borrowings,  we believe  that,  if we need to do so, we can  attract  additional
deposits by increasing the rates we offer.

         We had $1.7 million of  outstanding  commitments  to make loans at June
30, 1999,  along with $351,000 of unused home equity,  commercial  and overdraft
lines of  credit.  We  anticipate  that we will  have  enough  funds to meet our
current loan  commitments and to fund drawn downs on the lines of credit through
the normal turnover of our loan and securities  portfolios and the re-investment
of short term  investments in longer term assets when  opportunities  arise.  At
June 30,  1999,  we had $12.5  million  of  certificates  of  deposit  which are
scheduled to mature in one year. We anticipate that we can retain  substantially
all of those deposits if we need to do so to fund loans and other investments as
part of our efforts to grow and leverage our new capital.

                                      -16-

<PAGE>

         The OTS has minimum capital ratio requirements which apply to the Bank,
but there are no comparable  minimum capital  requirements that apply to us as a
savings and loan  holding  company.  At June 30,  1999,  the Bank  exceeded  all
regulatory capital requirements of the OTS applicable to it, with Tier I capital
of $13.7 million,  or 20.5% of average assets and with total risk-based  capital
of $14.1 million,  or 43.6% of risk-weighted  assets. The Bank also had tangible
capital of $13.7  million,  or 20.5% of average  tangible  assets.  The Bank was
classified as "well capitalized" at June 30, 1998 under OTS regulations.

         OTS  regulations  require that the Bank maintain liquid assets equal to
4% of withdrawable accounts.  This ratio is measured on a monthly average basis.
The Bank had a liquidity ratio of 39.7% for June 1999.

YEAR 2000 COMPLIANCE

         Our  progress  on  becoming  Year  2000   compliant  is  continuing  as
scheduled. Thus far, we have not identified any material risks in any of our own
systems and we have received  reasonable  assurances  that our material  outside
vendors  will be able to continue to provide  services to us. We have  completed
all testing of the primary systems of our principal data processing provider and
all other  secondary  outside systems and no problems have been  discovered.  We
have also  completed  testing of all in house  systems and the test results were
satisfactory.  We have developed contingency plans to move to a manual system in
the event of an emergency. Although we would certainly rather not do so, we know
from our recent  experience  with a severe ice storm that shut down power in the
area that we can operate for at least five days using entirely  manual  systems.
We have also retested the contingency plans during the past few months.

         In recent months,  our emphasis has shifted away from reviewing our own
computer  systems and the systems of our vendors (a task which is  substantially
complete)  towards  addressing  public perception of the safety of bank deposits
and  other  banking   transactions.   Media  publicity  regarding  the  possible
consequences of Year 2000 computer  malfunctions  could cause customer  hysteria
resulting in substantial  cash  withdrawals  during December 1999. While we will
position ourselves to increase available cash to address an anticipated increase
in  withdrawals,  we are also  educating our  customers  regarding the safety of
their funds in order to minimize panic.

         Although we are working to avoid the adverse  effects of such panic, it
is  substantially  out of our control.  Non-compliance  by a local utility,  for
example,  may not only have an adverse  direct  effect on our ability to conduct
business,  but may also create  local panic  which could  affect our  liquidity.
However, we anticipate that we will be able to satisfy customer demands for cash
if necessary through the use of our liquid assets and borrowing facilities.

FORWARD-LOOKING STATEMENTS

         When we use words or phrases like "will probably  result," "we expect,"
"will  continue,"  "we  anticipate,"  "estimate,"  "project,"  "should cause" or
similar expressions in this 10-Q or in any press releases, public announcements,
filings with the Securities and Exchange Commission or other disclosures, we are
making  "forward-looking  statements"  as  described  in the Private  Securities
Litigation Reform Act of 1995. In addition,  certain information we will provide
in the  future on a regular  basis,  such as  analysis  of the  adequacy  of our
allowance for loan losses or an analysis of the interest rate sensitivity of our
assets and liabilities,  is always based on predictions of the future. From time
to time,  we may  also  publish  other  forward-looking  statements  anticipated
financial performance, business prospects, and similar matters.

         The Private  Securities  Litigation  Reform Act of 1995 provides a safe
harbor  for  forward-looking  statements.  We want you to know that a variety of
future events could cause our actual results and experience to differ materially
from what was anticipated in our forward-looking  statements.  Some of the risks
and uncertainties that may affect

                                      -17-
<PAGE>

our  operations,  performance,   development  and  results,  the  interest  rate
sensitivity of our assets and liabilities, and the adequacy of our allowance for
loan losses, include:

o        local,  regional,  national or global economic  conditions  which could
         cause an increase in loan delinquencies, a decrease in property values,
         or a change in the housing turnover rate;

o        the failure of our customers or major  suppliers to have  computers and
         other systems which are Year 2000 compliant;

o        changes  in  market  interest  rates or  changes  in the speed at which
         market interest rates change;

o        changes in laws and regulations affecting us;

o        changes in competition; and

o        changes in consumer preferences.

         Please do not rely unduly on any forward-looking statements,  which are
valid only as of the date made. Many factors,  including those described  above,
could affect our  financial  performance  and could cause our actual  results or
circumstances for future periods to differ materially from what we anticipate or
project.  We have no  obligation  to update any  forward-looking  statements  to
reflect future events which occur after the statements are made.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         QUALITATIVE  ANALYSIS.  We try to avoid taking undue interest rate risk
while satisfying customer demand for loans. Substantially all of our residential
mortgage loans have fixed interest rates and terms of up to 25 years. Adjustable
residential  mortgage  loans are not in demand  during the current low  interest
rate  conditions and they  represent  only a very small part of our  residential
mortgage loan portfolio.  Therefore,  in a rising interest rate environment,  we
expect that the yields on our residential  mortgage loan portfolio will increase
relatively  slowly,  as loans are repaid and the payments are reinvested,  while
our cost of funds will rise more rapidly.  In order to reduce this risk, we have
adopted a multi-part strategy.  First, we are working to originate higher levels
of automobile  loans,  home equity lines of credit,  and commercial  loans which
tend to have shorter terms or adjustable rates. Second, we have concentrated our
securities  investments  in  short-term  or  adjustable-rate   securities.  U.S.
Treasury and federal agency securities are purchased with terms to maturity that
generally do not exceed two years. Most of our  mortgage-backed  securities have
adjustable rates or relatively short terms with balloon payments. We also try to
cushion our operations  against interest rate fluctuations by preserving a loyal
customer  base  through  paying  above  market rates on savings and club account
deposits during present periods of low interest rates. We believe this may cause
our  customers  to be less  likely to shift  their  funds to high  rate  deposit
products as interest rates rise.

         We have also  considered the issue of interest rate risk in structuring
our leveraging  strategy.  Our borrowings are all short term,  generally  having
terms to maturity of thirty  days.  We have  reinvested  the  borrowed  funds in
one-year   adjustable-rate   mortgaged-backed   securities   because  they  have
satisfactory  interest sensitivity  characteristics.  We might have been able to
obtain  higher  yields  with  fixed-rate  mortgage-backed   securities,  but  we
determined  that the  interest  rate  risks  resulting  from  using  short  term
borrowings to fund such long term investments were inappropriate.

         Interest rate pricing and interest rate risk  strategy  objectives  are
implemented,  in the first instance, by an internal committee which meets weekly
to review and assess deposit and loan pricing. The OTS prepares a quarterly

                                      -18-
<PAGE>

interest-rate sensitivity report for the Bank based upon its asset and liability
profile  which seeks to estimate the effect of interest  rate changes on the net
value of the Bank's  assets and  liabilities.  This report is reviewed  with the
Board of the Bank quarterly

         QUANTITATIVE  ANALYSIS. The OTS report seeks to estimate how changes in
interest  rates will affect the Bank's  "net  portfolio  value."  Net  portfolio
value,  or "NPV," akin to net worth,  represents  the net  present  value of the
Bank's cash flow from assets,  liabilities  and off balance  sheet  items.  Each
calendar quarter,  the OTS calculates the Bank's estimated NPV and the estimated
effect on NPV of  instantaneous  and permanent 1% to 4% (100 to 400 basis point)
increases and decreases in market interest  rates.  The  calculations  are based
upon the OTS's assumptions  regarding loan prepayments  rates,  deposit turnover
and other factors  affecting the  repricing of assets and  liabilities.  The OTS
does not include in its analysis  any assets held by  Gouverneur  Bancorp,  Inc.
which are not owned by the Bank.

         The  following  table  presents the Bank's  estimated  NPV at March 31,
1999, and the estimated effect on NPV of the specified interest rate changes, as
calculated  by the OTS. At March 31,  1999,  the  portfolio  value of the Bank's
assets as estimated by the OTS was $64.8  million.  The March 31, 1999 report is
the most recent OTS report that the Bank has received.

<TABLE>
<CAPTION>
    Hypothetical Change in             Estimated               Estimated Change in      Estimated Percentage
        Interest Rate             Net Portfolio Value          Net Portfolio Value        Change in NPV(1)
        -------------             -------------------          -------------------        ----------------
                                               (Dollars in thousands)

<S>       <C>                            <C>                          <C>                   <C>
         +3.00%                          $ 14,205                    -$2,097               -13%
         +2.00%                            15,112                     -1,190                -7%
         +1.00%                            15,844                      - 459                -3%
          0.00%                            16,302                          -                 -
         -1.00%                            16,986                       +684                +4%
         -2.00%                            17,635                     +1,332                +8%
         -3.00%                          $ 18,444                     $2,141               +13%
</TABLE>

(1) Calculated as the amount of estimated change in NPV divided by the estimated
    current NPV.

         The above table indicates that in a rising  interest rate  environment,
the Bank's net portfolio value should decrease, while net portfolio value should
increase  in a  declining  interest  rate  environment.  These  changes  in  net
portfolio  value should be accompanied by a decline in net income during periods
of rising  interest  rates and an  increase  in net  income  during  periods  of
declining interest rates. However,  these expected changes in net income may not
occur for many reasons  including,  among others,  the  possibility  that we may
decide  not to reduce the rates we offer on our  deposits  when  interest  rates
decline in order to retain and increase our deposit base.

         We have begun the process of  investing  the new capital we received in
the  Reorganization in loans.  Loans, if they have fixed rates and long terms to
maturity,  have the effect of  increasing  our  exposure to  increases in market
interest  rates.  Therefore,  we are  seeking to  increase  our  commercial  and
consumer loans because,  in addition to higher yields, they tend to have shorter
terms or adjustable interest rates.

         There are  shortcomings in the methodology used by the OTS to calculate
changes in NPV. In order to estimate  changes in NPV, the OTS makes  assumptions
about repayment and turnover rates which may not turn out to be correct. The NPV
table assumes that the composition of the Bank's interest  sensitive  assets and
liabilities  existing at the  beginning  of a period  remain  constant  over the
period being measured.  So, for example, the NPV analysis assumes that the ratio
of adjustable versus fixed-rate loans or short-term loans versus long-term loans
remains the same and that interest  rates will change equally for both long term
and short term assets.  Therefore,  although  the OTS NPV analysis  provides the
Board of the Bank with an indication of the Bank's  interest rate risk exposure,
it does not  provide a precise  forecast  of the  effect  of  changes  in market
interest rates on net interest income.

                                      -19-

<PAGE>

                           PART II - OTHER INFORMATION

         Item 1.  Legal Proceedings

         In the  ordinary  course  of  business,  the  Company  and the Bank are
subject to legal actions which involve claims for monetary  relief.  Management,
based on advice of counsel,  does not  believe  that any  currently  known legal
actions,  individually  or in the aggregate,  will have a material effect on its
consolidated financial condition or results of operation.

         Item 2.  Changes in Securities and Use of Proceeds

         None during the  quarter  ended June 30,  1999.  See Part II, Item 2 of
report on Firm 10-Q for the quarter ended March 31, 1999.

         Item 6.  Exhibits and Reports on Form 8-K

                  (a) Exhibits

                      (3.1) Federal Stock Charter of Gouverneur Bancorp, Inc. as
                            formally issued by the Office of Thrift  Supervision
                            on March 23,  1999  (incorporated  by  reference  to
                            Exhibit 3.1 to the pre-effective  amendment no. 1 to
                            Gouverneur Bancorp, Inc.'s registration statement on
                            Form  S-1  filed  on   August  5,  1998   (File  No.
                            333-57845)).

                      (3.2) Bylaws of Gouverneur Bancorp, Inc.  (incorporated by
                            reference  to  Exhibit  3.2  to  the   pre-effective
                            amendment  no.  1  to  Gouverneur  Bancorp,   Inc.'s
                            registration  statement  on Form S-1 filed on August
                            5, 1998 (File No. 333-57845)).

                      (27)  Financial  Data  Schedule  (included  only in  EDGAR
                            filings).

                  (b) Reports on Form 8-K

                   No reports on Form 8-K have been filed during the quarter for
                   which this report is filed.

                                   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 duly authorized.

                                            Gouverneur Bancorp, Inc.


         Date: August 13, 1999              By: /s/ Richard F. Bennett
                                                --------------------------------
                                            President   and   Chief    Executive
                                            Officer (principal financial officer
                                            and officer duly  authorized to sign
                                            on behalf of the registrant)


                                      -20-

<PAGE>



                                  EXHIBIT INDEX

         Exhibit
         Number         Description
         ------         -----------

         3.1            Federal  Stock Charter of  Gouverneur  Bancorp,  Inc. as
               formally issued by the Office of Thrift  Supervision on March 23,
               1999  (incorporated  by  reference  to  Exhibit  3.1 to the  pre-
               effective   amendment  no.  1  to  Gouverneur   Bancorp,   Inc.'s
               registration  statement on Form S-1 filed on August 5, 1998 (File
               No. 333-57845))

         3.2            Bylaws of  Gouverneur  Bancorp,  Inc.  (incorporated  by
               reference to Exhibit 3.2 to the pre-effective  amendment no. 1 to
               Gouverneur  Bancorp,  Inc.'s  registration  statement on Form S-1
               filed on August 5, 1998 (File No. 333-57845))

         27             Financial Data Schedule (included only in EDGAR filings)


                                      -21-