President's Message

To Our Stockholders:

         On behalf of the Board of Directors, officers and employees of
Gouverneur Bancorp, Inc. and its subsidiary, Gouverneur Savings & Loan
Association, I am pleased to present to you our 2001 annual report.

         The 2001 fiscal year presented Gouverneur Savings & Loan Association
with several challenges. The most significant of these was the need to maintain
strong earnings, despite the fact that the Federal Reserve Board decreased
interest rates several times throughout the year beginning in January 2001.
Their actions, eight in all, totaled 3.5% in this report period, substantially
impacting the balance sheets and income statements of financial institutions.
Our results show that even though the rate decreases worked to reduce our net
interest margin, we were able to hold the decrease in our net interest income to
$1,000. We accomplished this by increasing the size of our average loan
portfolio by $4.4 million, or 8.6% and increasing the average balance of our
securities and short-term investments by $2.0 million, or 10.6%.

         The second challenge we faced was creating additional office space for
support staff at our Gouverneur location. We were able to purchase a building
near our Bank's main office, renovate it into offices and move the President,
Chief Financial Officer, Treasurer and staff accountant to this location. In
addition, we were able to link the new offices to our existing telephone and
computer systems. The move was completed on October 5th. This is a temporary
solution that will allow us time to study alternatives to expanding our current
facility.

         Our final challenge was to acquire a site in Alexandria Bay to locate a
full branch office. We accomplished this on September 25th when we purchased a
property on which we will build a three thousand square foot office building
next spring. We expect to begin construction of the branch in the spring and
anticipate its opening before the end of fiscal 2002. We have been very
successful with our loan production office in this community and expect to
generate even more business with a full service office.

         Our loan growth slowed during 2001 as we struggled to maintain our
interest margin during the falling rate environment. We emphasized our quality
service and the fact that we do not sell our mortgages, rather than offer the
lowest loan rates. Our efforts resulted in a 2.7 % increase in net loans for the
2001 fiscal year, from $54.3 million to $55.8 million, while the average rate on
our loans fell by only 14 basis points, from 8.74% last year to 8.60% this year.
We will continue to face the challenge of declining interest margins in the next
fiscal year.

         We will continue to search for mergers, acquisitions and de novo
branching opportunities that will help to grow our Bank, leverage our capital
and create value in our stock for our investors. As we grow and meet the
challenges of our changing industry, we assure you that Gouverneur Savings &
Loan Association will remain faithful to its mission as a community based
institution, serving the financial needs of the people in its North Country
markets, as it has since its founding more than a century ago. We believe that
prudent growth, along with the well-planned addition of new products and
services, will position the Bank and the Company to best serve all of our
stockholders, borrowers, depositors and employees.

         We look forward to continuing to grow our franchise and appreciate your
support over the years.

                                       /s/ RICHARD F. BENNETT
                                       --------------------------------
                                       Richard F. Bennett

                                       President and Chief Executive Officer
<PAGE>

                   SELECTED CONSOLIDATED FINANCIAL INFORMATION


Selected Financial Condition Data:

                                                 At September 30,
                                                 ----------------
                                   2001      2000      1999      1998      1997
                                   ----      ----      ----      ----      ----
                                              (Dollars in thousands)

Total Assets..................   $82,863   $74,900   $69,996   $59,337   $55,172
Loans receivable, net (1).....    56,434    54,960    46,791    35,691    33,253
Allowance for loan losses.....       655       663       620       484       403

Securities available-for-sale.    19,077    11,368    12,971    10,546     7,903
Securities held-to-maturity...     2,651     4,263     6,019     7,717     8,660
Cash and cash equivalents.....     2,852     3,388     3,490     4,434     2,486
Real estate owned.............       182        91       169        51       157
Other repossessed.............        38        20        --        --        --
Deposits......................    47,683    46,800    45,113    46,382    43,576
Borrowings....................    16,400    10,800     7,400        --        --
Total shareholders' equity....   $16,656   $15,989   $16,029   $11,468   $10,689
                                 =======   =======   =======   =======   =======


Selected Operations Data:

                                             Year Ended September 30,
                                             ------------------------
                                   2001      2000      1999      1998      1997
                                   ----      ----      ----      ----      ----
                                              (Dollars in thousands)

Interest income................  $ 5,955   $ 5,586   $ 4,815   $ 4,336   $ 4,275
Interest expense...............    2,951     2,581     2,019     1,907     1,896
                                 -------   -------   -------   -------   -------
   Net interest income.........    3,004     3,005     2,796     2,429     2,379
Provision for loan losses......       80       158       162       130       250
                                 -------   -------   -------   -------   -------
   Net interest income after
     provision for loan losses.    2,924     2,847     2,634     2,299     2,129
Non-interest income............      329       306       125       144       113
Non-interest expense...........    2,020     1,994     1,687     1,443     1,370
                                 -------   -------   -------   -------   -------
Income before income taxes.....    1,233     1,159     1,072     1,000       872
Income tax expense.............      467       434       431       380       335
                                 -------   -------   -------   -------   -------
Net Income.....................  $   766   $   725   $   641   $   620   $   537
                                 =======   =======   =======   =======   =======


Per Common Share:

                                             Year Ended September 30,
                                             ------------------------
                                   2001      2000      1999      1998      1997
                                   ----      ----      ----      ----      ----

Net Income
  Basic (2)....................  $  0.35   $  0.33   $  0.15      N/A       N/A
  Diluted (2)..................     0.35      0.32      0.15      N/A       N/A
Book Value.....................     7.32      7.02      6.72      N/A       N/A
Cash dividends declared........     0.16      0.11       N/A      N/A       N/A



                         Notes appear on following page.

                                        2
<PAGE>

Selected Financial Ratios and Other Data (2):

<TABLE>
<CAPTION>
                                                  At or for the Year Ended September 30,
                                                  --------------------------------------
                                               2001      2000      1999      1998      1997
                                               ----      ----      ----      ----      ----

Performance Ratios:

<S>                                          <C>       <C>       <C>       <C>       <C>
 Return on average assets (net income
   to average total assets)................     0.96%     1.00%     1.03%     1.12%     0.99%
 Return on average equity (net income
   to average equity)......................     4.69%     4.58%     4.84%     5.74%     5.36%
 Average interest-earning assets to
   average interest-bearing liabilities....   125.08%   126.57%   125.04%   121.99%   120.21%
 Net interest rate spread (4)..............     2.97%     3.31%     3.81%     3.82%     3.82%
 Net interest margin (5)...................     3.93%     4.29%     4.65%     4.61%     4.56%
 Net interest income after provision for
   loan losses to total other expenses.....     1.45x     1.43x     1.54x     1.59x     1.51x


Capital and Asset Quality Ratios:

 Average equity to average total assets....    20.55%    21.77%    21.27%    19.56%    18.41%
 Total equity to assets end of period......    20.10%    21.35%    22.90%    19.33%    19.37%
 Non-performing assets to total assets.....     0.79%     0.69%     0.56%     0.49%     1.31%
 Non-performing loans to total loans.......     0.78%     0.75%     0.47%     0.67%     1.60%
 Allowance for loan losses to total loans..     1.17%     1.21%     1.33%     1.35%     1.14%
 Allowance for loan losses to
   non-performing loans....................   149.89%   162.10%   280.54%   203.36%    71.33%


Other Data:

 Number of real estate loans outstanding       1,456     1,438     1,383     1,338     1,386
 Number of deposit accounts................    6,989     7,014     6,890     6,619     6,508
 Full service offices......................        1         1         1         1         1
</TABLE>

         (1)  Shown net of deferred fees and costs.
         (2)  Earnings per share for 1999 represent the net earnings of the
              Company for the period from March 23, 1999 (date of
              reorganization) to September 30, 1999.
         (3)  Capital and asset quality ratios are at end of period. All other
              ratios are based on average daily balances.
         (4)  The net interest rate 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.

                                        3
<PAGE>

Year 2001 Highlights For Our Bank

         In fiscal 2001, Gouverneur Bancorp, Inc. marked its second full year as
a public company. During the course of this year, our subsidiary, Gouverneur
Savings and Loan Association (the "Bank"), increased its assets by $8.0 million,
through new loan and investment growth, while remaining well capitalized, with
strong asset quality.

         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 mortgages secured by
one-to-four family residences. 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 Savings Association Insurance Fund of the FDIC insures the Bank's
deposit accounts, and the FDIC and the Office of Thrift Supervision both
regulate the Bank.

         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.

         Loans are our highest yielding asset category. We are faced with
increasing competition from other financial institutions, loan brokers, mortgage
bankers, insurance companies, brokerage firms and other companies that are
competing for a limited number of loan opportunities. In order to meet the
challenge of competition and increase our earning assets, we have:

         o    Continued to grow our loan portfolio by using our loan production
              office in Alexandria Bay to pursue new loan opportunities, and
         o    Continued to aggressively seek to originate commercial loans, both
              mortgage and non-mortgage, which increased by 26.4%.

         Overall during fiscal 2001, our deposits increased by $0.9 million, or
1.9%. The growth was in time certificates as a result of both new deposits and
shifting from regular savings accounts to time certificates. Both factors caused
increases in our interest expense on deposits. We expect that with the
anticipated opening of a full service branch in Alexandria Bay we will
experience greater growth in our deposits. We increased our borrowings by $5.6
million, or 51.9% during the past twelve months.

         Some of this year's deposit growth has undoubtedly come because the
securities markets have been in a state of flux. These market gyrations may
continue to create opportunities for new deposits. Individuals may choose to
invest their discretionary funds in bank deposits rather than equity securities.
We are investigating a new product that we can offer in conjunction with the
Federal Home Loan Bank called an Equity Linked CD. This product can be tied to a
market index, such as the S&P 500, allowing the investor to earn a market rate,
but with the security of FDIC insurance. We expect that this product could
attract additional deposits. If we are unable to attract the additional
deposits, we will continue to borrow funds from the Federal Home Loan Bank of
New York ("FHLBNY") in order to increase leverage and improve return on equity,
continue our growth and meet new loan demand.

         Although we believe that we have moved down the path we need to follow
to remain a successful and profitable institution, we know that much more needs
to be done. We continue to develop and implement strategies to grow our
franchise, seeking to expand our market share in our existing community and
reach out into adjoining communities. The following discussion of our financial
condition and results of operations shows the effects of our efforts in fiscal
2001.

                                        4
<PAGE>

         Introduction to Financial Information and Comparisons

         Our current financial statements combine the assets, liabilities,
income and expenses of Gouverneur Bancorp, Inc., with those of Gouverneur
Savings and Loan Association. Any discussion below about periods or dates before
March 23, 1999, when we completed the reorganization, includes information only
about the Bank. However, when we discuss past financial information, we refer to
assets, liabilities, income and expenses prior to March 23, 1999 as our own for
comparative purposes.

         Analysis of Net Interest Income

         Net interest income, our primary income source, depends principally
upon (i) the amount of interest-earning assets that we can maintain based upon
our 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 are funded by interest-bearing
liabilities, but they do not provide interest income. Furthermore, when we
designate an asset as non-performing, all interest that we have already accrued
but not actually received is deducted from current period income, further
reducing net interest income.


                                        5
<PAGE>

         Average Balances, Interest Rates and Yields

         The following table presents 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 Year Ended September 30,
                                                  ---------------------------------------------------------------------------------
                                                             2001                        2000                        1999
                                                  ---------------------------------------------------------------------------------
                                                                                  ($ in thousands)

                                                  Average            Yield/   Average            Yield/   Average            Yield/
                                                  Balance   Interest  Cost    Balance   Interest  Cost    Balance   Interest  Cost
                                                  -------   --------  ----    -------   --------  ----    -------   --------  ----

<S>                                               <C>       <C>       <C>     <C>       <C>       <C>     <C>       <C>       <C>
     Loans (1)                                    $55,089   $ 4,740   8.60%   $50,714   $ 4,432   8.74%   $39,643   $ 3,647   9.20%

     Securities (2)                                19,759     1,140   5.77%    17,473     1,053   6.03%    18,911     1,096   5.80%

     Other short-term investments                   1,536        75   4.88%     1,781       101   5.67%     1,547        72   4.65%
                                                  -------   -------           -------   -------           -------   -------
        Total interest-earning assets              76,384     5,955   7.80%    69,968     5,586   7.98%    60,101     4,815   8.01%

     Non-interest-earning assets                    3,058                       2,696                       2,154
                                                  -------                     -------                     -------
        Total assets                              $79,442                     $72,664                     $62,255
                                                  =======                     =======                     =======


     Savings and club accounts (3)                $14,277   $   470   3.29%   $15,308   $   532   3.48%   $16,661   $   569   3.42%

     Time certificates                             25,618     1,559   6.09%    22,971     1,250   5.44%    23,408     1,246   5.32%

     NOW and money market accounts                  6,575       145   2.21%     6,265       122   1.95%     6,069       116   1.91%

     Borrowings                                    14,599       777   5.32%    10,735       677   6.31%     1,917        88   4.59%
                                                  -------   -------           -------   -------           -------   -------
        Total interest-bearing liabilities         61,069     2,951   4.83%    55,279     2,581   4.67%    48,055     2,019   4.20%

     Non-interest-bearing liabilities               2,048                       1,569                         959
                                                  -------                     -------                     -------
        Total liabilities                          63,117                      56,848                      49,014

     Net worth                                     16,325                      15,816                      13,241
                                                  -------                     -------                     -------
        Total liabilities and net worth           $79,442                     $72,664                     $62,255
                                                  =======                     =======                     =======
     Net interest income/spread (4)                         $ 3,004   2.97%             $ 3,005   3.31%             $ 2,796   3.81%
                                                            =======   ====              =======   ====              =======   ====
     Net earning assets/net interest margin (5)   $15,315             3.93%   $14,689             4.29%   $12,046             4.65%
                                                  =======             ====    =======             ====    =======             ====
     Ratio of average interest earning assets
        to average interest-bearing liabilities                1.25x                       1.27x                       1.25x
                                                            =======                     =======                     =======


                                                  Notes appear on following page
</TABLE>

                                       6
<PAGE>

         (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 FHLBNY 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.


         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>
                                                         Year Ended September 30,
                                                         ------------------------
                                              2001 vs. 2000                    2000 vs. 1999
                                              -------------                    -------------
                                       Increase (Decrease) Due To:      Increase (Decrease) Due To:
                                      Volume      Rate       Total     Volume      Rate       Total
                                       -----      -----      -----      -----      -----      -----
                                                          (Dollars in thousands)
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>
     Interest-earning assets:
     Loans                             $ 379      $ (71)     $ 308      $ 975      $(190)     $ 785
     Securities                          134        (47)        87        (85)        42        (43)
     Other short-term investments        (13)       (13)       (26)        12         17         29
                                       -----      -----      -----      -----      -----      -----
       Total interest-earning assets     500       (131)       369        902       (131)       771
                                       =====      =====      =====      =====      =====      =====

     Interest-bearing liabilities:
     Savings and club accounts           (34)       (28)       (62)       (47)        10        (37)
     Time certificates                   152        157        309        (24)        28          4
     NOW and money market
       accounts                            6         17         23          4          2          6
     Borrowing                           218       (118)       100        545         44        589
                                       -----      -----      -----      -----      -----      -----
       Total interest-bearing
         liabilities                     342         28        370        478         84        562
                                       -----      -----      -----      -----      -----      -----

     Net change in net interest
       income                          $ 158      $(159)     $  (1)     $ 424      $(215)     $ 209
                                       =====      =====      =====      =====      =====      =====
</TABLE>


                                        7
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


         Comparison of Financial Condition at September 30, 2001 and 2000

         Our total assets were $82.9 million at September 30, 2001, which was
$8.0 million or 10.7% higher than our total assets of $74.9 million one year
earlier. Total assets increased as a result of increasing our investment
portfolio by $6.4 million and borrowing additional funds from FHLBNY to support
this growth, as part of our leveraging strategy. The loan portfolio only grew by
2.8% this past year after two years of double digit growth.

         Total net loans reached $55.8 million at September 30, 2001, an
increase of $1.5 million compared to $54.3 million one year ago. This increase
was the result of the continued growth of our loan production office in the
nearby community of Alexandria Bay. This was the second full year of operation
of that office which opened in July 1999.

         Our capital position was $667,000 more this year as a result of our net
income and the increase in market value of the available for sale investments.
Borrowed funds increased by $5.6 million from $10.8 million to $16.4 million at
September 30, 2001 as discussed above. Total deposits increased by $0.9 million
during the year with an increase of $1.3 million in time certificates. One of
the important challenges we face is the need to increase our sources of funds in
future years to improve leverage without increasing our cost of funds. To meet
this challenge, we have purchased property in Alexandria Bay on which we will
build a full service branch office to replace our loan production office. This
full branch operation will open a new market for our deposit products and offer
us an alternative to borrowing as we grow.

         We experienced an increase during the year in the total of other
interest-earning assets and other liquid assets, which includes cash and due
from banks, interest-bearing deposits with other banks, securities available for
sale and securities held to maturity. This increase, from $19.0 million to $24.6
million, or 29.5%, was the result of our leveraging strategy, in which we grow
our assets in relation to our capital by using borrowed funds from FHLBNY and
buying investment grade securities with a positive spread.

         We replaced short-term borrowed funds with callable advances to fund
our leveraging strategy. The advances increased our borrowing for leveraging
from $3.9 million at September 30, 2000 to $10.3 million at September 30, 2001
and helped our earnings by reducing our cost of borrowing. The callable advances
are structured as 10 year/ 1 year loans. This means that they can be called
after one year, or quarterly thereafter at the FHLB of New York's option. If the
advance is never called, we have borrowed the funds for ten years. If rates rise
and the advances are called, we will evaluate borrowing and select the best
option available at that time. At September 30, 2001, we continue to show a
positive spread on the leveraging strategy as the cost of the advances is less
than the income earned on the investments.

         Available-for-sale securities increased during the year by $7.7
million, while securities held-to-maturity decreased by $1.6 million. The
decline in the balance of the held-to-maturity portfolio resulted from scheduled
payments on those securities.

         Comparison of Operating Results for the Years Ended September 30, 2001
and 2000

         Net Income. Net income for the year ended September 30, 2001 was
$766,000 compared to net income of $725,000 the previous year. The $41,000 in
additional net income represents a 5.7% increase over fiscal 2000. The increase
is the result of our growth as our average earning assets increased by $6.4
million, or 9.2% over the past twelve months.

         Our average borrowings from securities sold under agreements to
repurchase and advances from FHLBNY, increased by $3.9 million, or 36.0% from
fiscal 2000. We are able to borrow funds and maintain a positive spread with the
funds that we lend (average borrowing rate equals 5.32% versus average loan rate
of 8.60%). However, that spread is much narrower than the spread between loans
and deposits (average cost of interest-bearing deposits of 4.68% versus average
loan rate of 8.60%). Therefore, since our growth is being funded by borrowed
funds, less of the additional interest income generated by our growth made it to
the bottom line.

                                        8
<PAGE>

         Our net interest income decreased by $1,000 despite the substantial
growth of interest earning assets between the two years. A decrease in the
provision for loan losses of $78,000 and a rise in other operating income of
$23,000 combined with the decrease in net interest income and an increase in
other operating expenses of $26,000 resulted in an increase of $74,000 in income
before income taxes. After an increase in income taxes of $33,000, net income
stood at $766,000, $41,000 more than a year ago.

         Interest Income. Interest income increased by $369,000 from $5.6
million in fiscal 2000 to $6.0 million in fiscal 2001. Overall, we estimate that
the increase in the average balance of interest-earning assets resulted in an
increase in interest income of approximately $500,000, while a decrease in
interest rates led to a $131,000 decrease in interest income. During 2001,
average interest-earning assets totaled $76.4 million, compared to $70.0 million
during fiscal 2000. The average balance of loans increased by $4.4 million,
mainly due to increases in residential and commercial mortgage loans, and
accounted for a $379,000 increase in interest income, while an increase of $2.0
million in the balances of securities and other short-term investments resulted
in a $121,000 gain in interest income. The increase in average loans between the
years was mainly due to increases in commercial mortgage loans.

         The positive effect of our larger size on interest income was reduced
by lower yields on our loan portfolio. The average yield on our loans declined
by 14 basis points, from 8.74% to 8.60%, while the average yield on our security
investments decreased by 26 basis points from 6.03% to 5.77%. The decline in
average yields on loans resulted from declining interest rate conditions in our
market over the past few years, combined with payoffs and pay-downs of loans
originated at higher interest rates in prior years. It also reflects the fact
that unlike adjustable rate loans, in a falling interest rate environment,
interest rates earned on fixed rate loans do not reprice in step with market
rates. Despite the fact that prime rate adjusted downward by 3.5% since January,
fixed rate mortgages fell only 50 basis points. This prevented a lot of
refinancing in our market area as rates were no lower than they were a couple of
years ago when refinancing was heavy. Therefore, the fixed rate mortgages
prevented the average yield from falling further. We have worked to reduce the
effect of the fixed rate loans by diversifying our loan portfolio towards
commercial mortgage loans and automobile loans that tend to have higher interest
rates and shorter terms than residential mortgage loans. Adjustable rate
securities in our investment portfolio re-priced at lower rates on their
anniversary dates while other securities matured or were called and replaced at
lower rates thereby decreasing the yield on securities. Overall, we estimate
that the decline in interest rates resulted in a $131,000 reduction in interest
income.

         Interest Expense. Interest expense increased by approximately $400,000
from $2.6 million in fiscal 2000 to $3.0 million in fiscal 2001. We estimate
that the increase in the average balance of interest-bearing liabilities
resulted in an increase of approximately $342,000 in interest expense, while an
increase in the average interest rate was responsible for a $28,000 increase in
interest expense. The increase in interest rates was attributable to rises in
the cost of time deposits, money market and NOW accounts, while borrowing costs
from FHLBNY decreased almost 1% from last year to help offset the increased cost
of time certificates.

         The average volume of interest-bearing liabilities increased by $5.8
million, or 10.5%, from $55.3 million to $61.1 million from fiscal 2000 to 2001.
This increase, which was the net result of increases in the average balance of
borrowed funds and deposits, provided funding to increase our loans and
investments.

         Our average cost of funds increased from 4.67% in 2000 to 4.83% in
2001. The rate on time certificates increased 65 basis points to 6.09% and rates
on money market and NOW accounts rose 26 basis points to 2.21% and together more
than offset decreases in savings and club and FHLBNY loan rates of 19 and 99
basis points respectively. The average rate we paid on certificates of deposit
increased due to the maturity of time deposits offered twelve to twenty-four
months ago primarily at higher rates within those periods. Our analysis of time
deposits indicates that the average rate will continue to fall over the next six
months as the higher rate deposits mature, unless rates increase suddenly over
the next few months.

         Net Interest Income. Our net interest income decreased by $1,000 in
fiscal 2001. The decrease was attributable to a $369,000 increase in interest
income, offset by an increase of $370,000 in interest expense as explained
above. The interest rate change is also reflected by a 34 basis point decline in
our spread, the difference between the average yield earned on our assets and
the average rate paid on our liabilities.

         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. In determining the

                                        9
<PAGE>

appropriate provision for loan losses, management considers the level of and
trend in non-performing loans, the level of and trend in net loan charge-offs,
the dollar amount and mix of the loan portfolio, as well as general economic
conditions and real estate trends in the Company's market area, which can impact
the inherent risk of loss in the Company's portfolio. Furthermore, the 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.

         We decreased our provision for loan losses from $158,000 in 2000 to
$80,000 in 2001. At year end, the ratio of our loan loss allowance to total
loans and non-performing loans was 1.17% and 149.9% respectively. Our allowance
at the beginning of the year was $663,000 and we determined at the end of the
year that the appropriate level for the allowance was $655,000. We had
charge-offs during the year of $135,000 and recoveries of $48,000, so an $80,000
provision was necessary to reach the desired level for the allowance.

         Non-interest income. Our non-interest income increased from $306,000 in
fiscal year 2000 to $329,000 in fiscal 2001. The gain(loss) on the sale of
securities increased by $30,000 and service charges rose $5,000 over last year,
while the other components of non-interest income, such as management fees,
declined by $12,000.

         Non-interest expenses. Our non-interest expenses remained at
approximately $2.0 million since they only increased by $26,000 from fiscal 2000
to fiscal 2001. Non-interest expense includes most categories of expense other
than interest we pay on deposits and borrowed funds and income tax expense. The
largest category of non-interest expenses is salaries and employee benefits
expense, followed by building, occupancy and equipment expense and professional
fees.

         The largest components of the increase in non-interest expenses were a
$57,000 growth in salaries and employee benefits expense from $957,000 to
$1,014,000, a $15,000 increase in postage and supplies, and a $14,000 increase
in building, occupancy and equipment costs. We have increased one full-time
equivalent employee, from 22 last year to 23 this year, as a result of adding an
additional part-time position and converting one part-time position to
full-time. The additional salary and employee benefits expense included the
additional employee, salary increases to existing employees covering both normal
merit raises and additional responsibilities, in some cases. These increases
were partially offset by reductions of $33,000 in professional fees and $30,000
in directors fees. The latter was the result of losses incurred on the
investment of deferred fees indexed to stock market results. We saw some savings
in professional fees in 2001 since our staff is handling more of the work. We
are now looking to increase our staff by two or three people to support
additional growth in the commercial loan area and provide secretarial help.
Also, we will need to hire additional personnel for our Alexandria Bay office
prior to opening the new office.

         Income Tax Expense. Our income tax expense increased from $434,000 in
fiscal 2000 to $467,000 in fiscal 2001, or 7.6%. The effective income tax rate
was 37.4% in 2000 and 37.9% in 2001 due to this increase.

         Liquidity and Capital Resources

         Our primary sources of funds are deposits, borrowings 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. However, general economic conditions and interest rate conditions can
cause increases or decreases in deposit outflows and loan pre-payments thereby
affecting the level of funds we have available for investment. Our level of
borrowed funds is generally at our own discretion, based upon our need for funds
and the cost of deposits as an alternative source of funds.

         In general, we manage our liquidity by maintaining a sufficient level
of short-term investments so that funds are normally available for investment in
loans when needed. During the year ended September 30, 2001, we reduced our cash
and cash equivalents by $536,000. The reduction was the net result of using new
borrowings and principal repayments on loans and investment securities to fund
the growth in loans. We originated $15.2 million of new loans during fiscal
2001. However, loans, net, after payments, charge-offs and transfers to real
estate owned, increased by $1.5 million during the period.

         Deposits increased by $1.7 million during fiscal 2001. We believe the
increase is attributable to increased rates we paid on certain time deposits. In
addition to factors within our control, such as our deposit pricing strategies
and our marketing efforts, deposit flows are affected by factors outside our
control, such as, the level of general market interest rates, the availability
of alternate investment opportunities and general economic conditions.

                                       10
<PAGE>

         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
$ 20.0 million, but to do so it must provide appropriate collateral and satisfy
other requirements for Federal Home Loan Bank borrowings. We have not needed to
use borrowings to fund unanticipated deposit outflows. However, we have used
borrowings in the last year to help us fund our loan growth. 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 $1.3 million of outstanding commitments to make loans at
September 30, 2001, along with $1.1 million of unused home equity, commercial
and overdraft lines of credit. During the upcoming year, we anticipate that loan
originations may exceed the amount of cash available from the net increase, if
any, in deposits, loan repayments and prepayments and the proceeds from the
maturity, payment or disposition of securities. If that occurs, we may obtain
additional funds to increase our loan portfolio through a variety of strategies,
including reducing securities investments as a percentage of total assets,
borrowing funds, or the use of wholesale or brokered deposits. At September 30,
2001, we had $22.6 million of certificates of deposit 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.

         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 September 30, 2001, the Bank substantially
exceeded all regulatory capital requirements of the OTS applicable to it, and
the OTS minimum capital requirements had no material adverse affect on the Bank.
The Bank was classified as "well capitalized" at September 30, 2001 under OTS
regulations.

         Prior to this year, OTS regulations required 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 8.9% for September
2001.

         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 annual report 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 provide, 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 about 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 we anticipate when we make our forward-looking statements. Some of the
risks and uncertainties that may affect our operations, performance, development
and results, the interest rate sensitivity of our assets and liabilities, and
the adequacy of our allowance for loan losses, include without limitation (i)
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; (ii) changes in market interest rates or changes in
the speed at which market interest rates change; (iii) changes in laws and
regulations affecting us; (iv) changes in competition; and (v) changes in
consumer preferences.

         Please do not rely unduly an any forward-looking statements, which are
valid only as of the date made. Many factors, including, but not limited to
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.

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<PAGE>

SHAREHOLDER INFORMATION
-----------------------
Corporate Offices
-----------------
Gouverneur Bancorp, Inc.
42 Church Street
Gouverneur, New York 13642
(315) 287-2600

Annual Meeting of Shareholders
------------------------------
The annual meeting of Gouverneur Bancorp, Inc. will be held February 19, 2002 at
the Clearview Restaurant, 1180A U.S. Highway 11, Gouverneur, New York 13642.

Annual Report on Form 10-K
--------------------------
For the 2001 fiscal year, Gouverneur Bancorp, Inc. will file an Annual Report on
Form 10-KSB with the Securities and Exchange Commission. The Form 10-KSB is
available on the World Wide Web as part of the SEC EDGAR database at
www.sec.gov.
Shareholders may also obtain a copy free of charge by writing to Gouverneur
Bancorp, Inc., 42 Church Street, Gouverneur, New York 13642, Attention:
Corporate Secretary.

Stock Transfer Agent & Registrar
--------------------------------
Shareholders wishing to change name, address or ownership of stock, or to report
lost certificates or to consolidate accounts should contact the Company's stock
registrar and transfer agent directly at:

Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948

Counsel
-------
Hinman Howard & Kattell, LLP
80 Exchange Street
Binghamton, New York 13902-5250

Independent Auditors
--------------------
Fust Charles Chambers LLP
5786 Widewaters Parkway
Syracuse, New York 13214

Market Information for Common Stock
-----------------------------------
The Common Stock of Gouverneur Bancorp, Inc. trades on the American Stock
Exchange under the symbol "GOV". At December 12, 2001, there were approximately
340 shareholders of record, not including the number of persons or entities
holding stock in nominee or street names through various brokers and banks.
Gouverneur Bancorp, Inc. common stock was issued at $5.00 per share in
connection with the Company's initial public offering completed on March 23,
1999. The following table shows the range of high and low sale prices for each
full quarterly period since the Company's common stock began trading on March
24, 1999.

                                                             Cash
                                                            Dividend
Quarter Ended                        High         Low       Declared
-------------                        ----         ---       --------
Fiscal 2001
-----------
September 30, 2001                  $ 7.750     $ 6.400      $ 0.09
June 30, 2001                       $ 7.350     $ 5.500      $ 0.00
March 31, 2001                      $ 5.900     $ 4.875      $ 0.07
December 31, 2000                   $ 5.500     $ 5.000      $ 0.00

Fiscal 2000
-----------
September 30, 2000                  $ 5.688     $ 4.125      $ 0.06
June 30, 2000                       $ 4.625     $ 4.000      $ 0.00
March 31, 2000                      $ 4.875     $ 4.063      $ 0.05
December 31, 1999                   $ 5.125     $ 4.375      $ 0.00

Fiscal 1999
-----------
September 30, 1999                  $ 5.000     $ 4.438      $ 0.00
June 30, 1999                       $ 5.000     $ 3.875      $ 0.00
March 31, 1999                      $ 5.500     $ 5.000      $ 0.00

DIRECTORS AND OFFICERS
Gouverneur Bancorp, Inc.

Board of Directors

Frank Langevin: Chairman of the Board, Retired contractor
Richard F. Bennett: President & Chief Executive Officer, Gouverneur Bancorp,
Inc.
Richard E. Jones: Principal, J&H Feed & Farm Store
Robert J. Leader: Principal, Case & Leader LLP, Attorneys at Law
Timothy J. Monroe: Veterinarian, President, Northland Veterinarian Hospital
Joseph C. Pistolesi: Owner, Clearview Motel and Restaurant
Larry A. Straw: Project Engineer, Cives, Inc., steel fabricator

Directors of Gouverneur Bancorp, Inc. also serve as Directors of Gouverneur
Savings & Loan Association

Officers
Richard F. Bennett: President & Chief Executive Officer
Charles VanVleet: Vice President & Secretary
Robert Twyman: Vice President & Chief Financial Officer
Kathleen McIntosh: Treasurer

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