UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                  For the fiscal year ended September 30, 2003

                        Commission file number 001-14910

                            GOUVERNEUR BANCORP, INC.
           -----------------------------------------------------------
           (Name of small business issuer as specified in its charter)

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

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

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

           Securities Registered Pursuant to Section 12(b) of the Act:

                     Common Stock, par value $0.01 per share

           Securities Registered Pursuant to Section 12(g) of the Act:

                                      None

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ].

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

Gouverneur Bancorp, Inc.'s revenues for the fiscal year ended September 30, 2003
were $5,573,000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the final closing price of
such stock on December 12, 2003, was approximately $8,395,000. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)

As of December 12, 2003, there were 2,277,884 issued and outstanding shares of
the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part II of Form 10-KSB - Annual Report to Stockholders for the fiscal year ended
September 30, 2003. Part III of Form 10-KSB - Portions of Proxy Statement for
2004 Annual Meeting of Stockholders.

Transitional Small Business Disclosure Format. YES [ ]. NO [X].
<PAGE>

                                     PART I

Item 1.  Description of Business

General

     Gouverneur Bancorp, Inc. ("We" or the "Company") is a corporation organized
under the laws of the United States in March 1999, in connection with the
reorganization of its wholly owned subsidiary, Gouverneur Savings and Loan
Association (the "Bank"), into a mutual holding company structure. The Company's
assets consist primarily of all the outstanding capital stock of the Bank, and
cash of $77,000 at September 30, 2003, representing a portion of the net
proceeds of the Company's stock offering completed March 23, 1999. The Company's
principal business is the ownership of the Bank. At September 30, 2003, Cambray
Mutual Holding Company ("Cambray MHC"), the Company's parent mutual holding
company, held 1,311,222 shares or 57.6% of the Company's issued and outstanding
common stock, and shareholders other than Cambray MHC held 966,662 shares, or
42.4% of the issued and outstanding common stock. The Company is a savings and
loan holding company registered with the Office of Thrift Supervision ("OTS")
and subject to regulation under federal banking laws and regulations. In this
document, references to the Company include the Bank, unless the context denotes
otherwise. The terms "Registrant", "we", "our" or similar terms refer to
Gouverneur Bancorp, Inc.

     The Company's business consists of gathering deposits from the general
public within its market area and investing those deposits primarily in loans,
debt obligations issued by the U.S. Government and its agencies, and
mortgaged-backed securities. The Company's loans are mainly residential mortgage
loans secured by one-to-four family residences with the balance of the portfolio
composed of commercial mortgage loans, other consumer loans (mostly automobile
loans), and other non-real estate commercial loans. Net loans increased by $10.4
million, or 19.2%, from $54.3 million on September 30, 2002 to $64.7 million on
September 30, 2003.

     The Company's revenues come principally from interest on loans and
securities. The Company's primary sources of funds are deposits, borrowings from
the Federal Home Loan Bank of New York ("FHLBNY") and proceeds from principal
and interest payments on loans and investment securities. At September 30, 2003,
the Company had $90.0 million in assets, $58.4 million in deposits and $17.6
million in total equity, as compared with last year's balances of $85.1 million,
$52.8 million and $17.2 million respectively.

     The Company's offices are located at 42 Church Street, Gouverneur, New York
13642. Our telephone number is (315) 287-2600.

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 (the "SEC")
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.

                                        2
<PAGE>

     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.

Market Area

     The Bank, a community oriented savings and loan association which was
chartered in 1892, has been headquartered in the Town and Village of Gouverneur
since its formation. Its deposits are insured up to the applicable limits by the
Federal Deposit Insurance Corporation ("FDIC"). Through the Bank's two full
service branch offices and one lending office, the Company services a primary
market area consisting of southern St. Lawrence County and northern Jefferson
and Lewis Counties in New York State. Based on the 2000 Census, the Company
estimates that the population in this market area is approximately 100,000. The
Company's market area is predominately rural with many small towns. The
population of the service area works in diverse industries, including
manufacturing, agriculture, retail trades, construction, mining, health care,
education and government service. The largest private employers in the market
area are a mining company and a paper mill. Another mining operation has been
closed for about two years costing the local economy over 100 jobs. That
operation was recently purchased out of bankruptcy by a Canadian company. At
this time, it is not known when the mining operation will resume production and
to what extent it will affect the local economy. Market forces in the zinc
industry continue to be a factor as the world price of zinc remains low. A
second paper mill within our service area, which closed three years ago, has
been purchased and is expected to open soon and employ between 100 and 115
people when it reaches full operation.

     Fort Drum, a major military installation, is located at the southern edge
of the Company's primary market area. The market area for our Alexandria Bay and
Clayton offices is dominated by tourist related businesses along the St.
Lawrence River. The two largest resort hotels are year round businesses, while
most others are seasonal and service the expanded spring and summer population.
Most of the full-time residents are employed in Watertown, NY, the largest city
in the three county area with a population of about 30,000, and the county seat
for Jefferson County. The New York State Department of Transportation and
Jefferson County offices are both located in Watertown and are major employers.
There are several small to medium sized manufacturers, including paper mills.
Watertown provides the major retail shopping center for the three counties and
also attracts shoppers from Canada who enter the United States via the Thousand
Islands Bridge and travel approximately 30 miles to Watertown.

     Economic and demographic conditions in the Company's market area may make
implementation of the Company's operating strategy more difficult. Per capita
income and median home values are below New York State and national levels in
our market area. Unemployment in each of the three counties in the Company's
market area is higher than statewide and national unemployment rates. A major,
ongoing expansion of the Fort Drum facility may improve local economic
conditions. However, since Fort Drum is on the edge of our market area the
expansion may not benefit the Company. Furthermore, the local population is
showing little or no growth, as the 2000 Census showed less than a 1.0% increase
in the area since 1990, versus the statewide average of 5.5%. These conditions
are believed to extend to communities adjoining the Company's market area as
well. In order to grow the Bank by expanding its customer base, in August 1999,
the Company opened a lending office in Alexandria Bay, New York on the St.
Lawrence River to pursue lending opportunities in adjoining communities. In
August 2002, we closed the existing leased lending office and moved that
operation to our newly constructed full service branch office in Alexandria Bay.
At the same time, to enhance our presence along the St. Lawrence River, we
opened a new lending office in Clayton, New York, approximately ten miles west
of Alexandria Bay.

                                        3
<PAGE>

Competition

     The Company's principal competitors for deposits are other savings and loan
associations, savings banks, commercial banks and credit unions in the Company's
market area, as well as money market mutual funds, insurance companies and
securities brokerage firms, many of which are substantially larger in size than
the Company. The Company's competition for loans comes principally from savings
banks, savings and loan associations, commercial banks, mortgage bankers,
finance companies and other institutional lenders. Direct or indirect
competition for loans from nationally recognized secondary market lenders has
increased in recent years, having the effect of both reducing the Company's
market share and driving down the interest rates it can earn on residential
mortgages. The Company's principal methods of competition include loan and
deposit pricing, flexible underwriting which permits variation from secondary
market underwriting requirements when believed appropriate, maintaining close
ties with its local community, advertising and marketing programs and providing
personalized services.

     The Company faces competition from other financial institutions having much
greater financial and marketing resources. However, the Company believes it
benefits from its community bank orientation as well as its relatively high core
deposit base. Recent acquisitions of other banks in northern New York by larger
institutions may have also given the Company a competitive edge among those
local residents who prefer doing business with a local company.

Lending Activities

     Loan Portfolio Composition. The Company's loans consist primarily of
mortgage loans secured by one-to-four family residences. At September 30, 2003,
the Company had total loans of $64.9 million, of which $45.7 million, or 70.4%,
were one-to-four family first lien residential mortgage loans. The Company had
an additional $3.0 million of home equity loans and home equity lines of credit
outstanding, or 4.6% of total loans, secured by subordinate liens on one-to-four
family residences. The growth in residential mortgage loans is the result of the
Company re-focusing its energies on growing the residential mortgage portfolio
and increased opportunities now available in Clayton and Alexandria Bay.

     Residential mortgage loans, including home equity loans and lines,
increased by $9.6 million, or 24.6%, from $39.1 million at September 30, 2002 to
$48.7 million at September 30, 2003 primarily due to our expansion last year
when we opened a full service office in Alexandria Bay, replacing the lending
office, and opened a new lending office in Clayton. Both of these communities
border the St. Lawrence River and include up-scale vacation home properties with
river frontage, in addition to traditional residential properties. We have been
originating mortgages on vacation home properties to buyers who often live and
work outside of our geographic area. That helps to diversify the risk in our
portfolio, since those loans are not directly tied to the local economy. It also
allows us to book larger mortgages since these properties are generally valued
much higher than non-river residences in the region. In Clayton, our residential
mortgage loan portfolio grew $2.9 million from $0.1 million to $3.0 million,
while in Alexandria Bay we increased residential mortgage loans $5.8 million
from $12.0 million to $17.8 million from September 30, 2002 to September 30,
2003. Real estate loans increased as a percentage of total loans by 1.8% from
78.8% last year to 80.6% this year.

     During the past year, automobile manufacturers continued to offer low-rate
financing programs that have worked to reduce new car loan opportunities for the
Bank. In addition, we have not been able to replace a popular auto-lending
program we offered with terms similar to leasing. That program depends on an
insurance company guaranteeing the value of the vehicle at the conclusion of the
loan. The used car market has been negatively impacted by new car financing
programs as the value of used cars has plummeted. No insurance company is
currently willing to write the insurance policies for the program because of the
risk involved. Therefore, we are not currently making many automobile loans. The
Company's portfolio of other consumer loans, for the most part auto loans,
decreased by $1.2 million from last year's total of $10.4 million to $9.2
million this year, as automobile loans decreased by $1.4 million and other

                                        4
<PAGE>

consumer loans increased by $0.2 million. Consumer loans represent 14.2 % of
total loans this year versus 19.0% last year. The Company's ratio of net loans
to total assets increased from 63.8% September 30, 2002 to 71.9% at September
30, 2003.

     The Board has decided not to pursue local commercial lending opportunities
until such time as a commercial lending officer can be added to the staff due to
the additional risks involved in commercial lending. We are not trying to fill
this position. However, we have purchased $2.5 million of the guaranteed portion
of United States Department of Agriculture ("USDA") and Small Business
Administration ("SBA") guaranteed loans. At September 30, 2003, we had a total
of $2.5 million of the guaranteed loans included in other commercial loans. This
produced an increase of $1.8 million, or 34.6%, in commercial loans from $5.2
million on September 30, 2002 to $7.0 million on September 30,2003. We expect to
maintain a portfolio of $2.0 to $3.0 million of the government guaranteed loans
going forward. Bank originated commercial loans totaled $4.5 million, of which
$3.6 million were commercial mortgage loans and $0.9 million were other
commercial loans. Bank originated commercial loans were down $0.7 million, or
13.5%, from $5.2 million on September 20, 2002 to $4.5 million on September 30,
2003, with commercial mortgages decreasing $0.4 million, or 10.0%, from $4.0
million to $3.6 million, and other commercial loans decreasing $0.3 million, or
25.0%, from $1.2 million to $0.9 million.

     Interest rates earned on the Company's loans are affected by the demand for
loans, the supply of money available for lending and the rates offered by
competitors. These factors are in turn affected by, among other things, economic
conditions, monetary policies of the federal government, and legislative tax
policies.

                                        5
<PAGE>

Loan Portfolio Composition

     The following table sets forth the composition of the Company's mortgage
and other loan portfolios in dollar amounts and in percentages at the dates
indicated.

<TABLE>
<CAPTION>
                                                                          At September 30,
                                                                          ----------------

                                           2003                     2002                     2001                    2000
                                           ----                     ----                     ----                    ----
                                                Percent                  Percent                  Percent                 Percent
                                    Amount     of Total      Amount     of Total      Amount     of Total     Amount     of Total
                                   --------    --------     --------    --------     --------    --------    --------    --------
                                                                       (Dollars in thousands)

<S>                                <C>           <C>        <C>           <C>        <C>           <C>       <C>           <C>
Real estate loans:
  Residential mortgages
    including home equities ....   $ 48,660       74.98%    $ 39,055       71.52%    $ 39,223       70.02%   $ 37,762       69.19%
  Commercial mortgages .........      3,624        5.58%       3,951        7.24%       4,482        8.00%      4,593        8.41%
                                   --------    --------     --------    --------     --------    --------    --------    --------

  Total real estate loans ......     52,284       80.56%      43,006       78.76%      43,705       78.02%     42,355       77.60%

Other loans:
  Consumer other ...............      9,234       14.23%      10,350       18.95%      10,746       19.18%     11,042       20.23%
  Commercial other .............      3,378        5.21%       1,248        2.29%       1,570        2.80%      1,181        2.17%
                                   --------    --------     --------    --------     --------    --------    --------    --------

Total other loans ..............     12,612       19.44%      11,598       21.24%      12,316       21.98%     12,223       22.40%
                                   --------    --------     --------    --------     --------    --------    --------    --------

Total Loans ....................     64,896      100.00%      54,604      100.00%      56,021      100.00%     54,578      100.00%
                                   --------                 --------                 --------                --------

  Deferred loan costs (fees),
    net ........................        497                      412                      413                     382
  Allowance for loan losses ....       (655)                    (671)                    (655)                   (663)
                                   --------                 --------                 --------                --------

Loans, net .....................   $ 64,738                 $ 54,345                 $ 55,779                $ 54,297
                                   ========                 ========                 ========                ========
</TABLE>


                                     At September 30,
                                     ----------------

                                           1999
                                           ----
                                                Percent
                                    Amount     of Total
                                   --------    --------
                                  (Dollars in thousands)

Real estate loans:
  Residential mortgages
    including home equities ....   $ 34,387       73.79%
  Commercial mortgages .........      3,748        8.04%
                                   --------    --------

  Total real estate loans ......     38,135       81.83%

Other loans:
  Consumer other ...............      7,762       16.65%
  Commercial other .............        707        1.52%
                                   --------    --------

Total other loans ..............      8,469       18.17%


Total Loans ....................     46,604      100.00%
                                   --------

  Deferred loan costs (fees),
    net ........................        187
  Allowance for loan losses ....       (620)
                                   --------

Loans, net .....................   $ 46,171
                                   ========


                                       6
<PAGE>

                           Residential Mortgage Loans

     Residential - first lien. Approximately two-thirds of the Company's
residential mortgage loan originations are first lien, fixed-rate mortgage loans
with terms up to 25 years, but predominantly from 15 to 20 years. The Company
also offers adjustable-rate mortgage loans. The adjustable-rate residential
mortgage portfolio was $16.3 million this year end, or 33.5% of the Company's
$48.7 million of residential mortgage loans, compared to September 30, 2002 when
$9.3 million of the $39.1 million in residential loans were adjustable-rate, or
23.8%. Customer preference has strongly favored fixed-rate mortgage loans and
most of the adjustable rate loans have fixed rates for the first five years of
the loan term. While we have decided not to compete with the secondary fixed
rate mortgage market, we have been able to compete with the adjustable rate
market and increase our residential mortgage loan portfolio.

     When underwriting residential mortgage loan applications, the Company
considers the income and assets of the borrower, the borrower's prior credit
history and the value of the collateral offered for the loan. In light of the
nature of the local market and competitive considerations, the Company
occasionally waives adverse credit information related to the borrower if the
loan is generally considered to be sound. The Company believes it has adopted
prudent policies and procedures for underwriting and generally experiences a
declination rate of approximately 30% on all residential mortgage applications.

     The Company obtains independent appraisals on all residential first
mortgage loans and attorneys' opinions of title are required at closing. Current
surveys are generally not required because the Company believes that the cost of
obtaining a survey in the local market is not justified by the risks involved.
In most cases, the Company accepts the attorney's title opinion rather than
requiring title insurance on residential mortgage loans. This practice has not
resulted in losses. Private mortgage insurance is required on loans with a loan
to value ratio in excess of 90% and is usually required on loans with loan to
value ratios between 80% and 90% depending upon other circumstances. For the
past five years, real estate tax escrows have been required on all mortgage
loans. Previously, tax escrows were required only on loans with loan to value
ratios in excess of 85%.

     Although fixed-rate mortgage loans may adversely affect the Company's net
interest income in periods of rising interest rates, the Company originates such
loans to satisfy customer demand. Such loans are generally originated at higher
interest rates than those offered on adjustable mortgage loans originated at the
same time. Therefore, during periods of level or declining interest rates, they
tend to provide higher yields than adjustable loans. Fixed-rate residential
mortgage loans originated by the Company generally include due-on-sale clauses
permitting the Company to demand payment in full if the borrower sells the
property without the Company's consent. Due-on-sale clauses are an important
means of adjusting the rates of the Company's fixed-rate mortgage loan
portfolio, and the Company has generally exercised its rights under these
clauses.

     Adjustable mortgage loans are offered with interest rates that adjust
annually based on the one-year treasury bill index, plus 2.75%. Most of these
loans have initial five-year periods with a fixed interest rate, after which the
rate adjusts annually. Interest rate adjustments are generally limited to 2% per
year for one-year adjustable loans. There is normally a lifetime maximum
interest rate adjustment, measured from the initial interest rate, of 6%. Credit
risks on adjustable rate loans are somewhat greater than on fixed-rate loans
primarily because, as interest rates rise, so do borrowers' payments, increasing
the potential for default.

     The Company has enrolled in FHLBNY's Mortgage Partnership Funding (MPF)
program. This is a secondary market program similar to the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and Federal National Mortgage Association
("Fannie Mae") programs. We are under no obligation to sell existing mortgages.
However, we do want to position the Company to compete with other lenders in our
market area and may use this program to offer longer-term lower rate mortgages.
Management intends to continue to emphasize the origination of mortgage loans
secured by one-to-four family residences while at the same time seeking to
expand the Company's portfolio of other loan types.

                                        7
<PAGE>

     Home Equity Loans. The Company offers a home equity line of credit secured
by a residential one-to-four family mortgage, usually a second lien. The Company
has sought to increase its volume of these revolving credit loans because the
adjustable rates help improve the interest rate sensitivity of the Company's
assets. These loans provide for an initial advance period of ten years, during
which the borrower pays 1/240th of the outstanding principal balance, plus
interest, each month, and can borrow, repay, and re-borrow the principal
balance. This is followed by a repayment period of ten years, during which the
balance of the loan is repaid in principal and interest installments.

     The Company also offers home equity junior mortgage loans that are fully
advanced at closing and repayable in monthly principal and interest installments
over a period generally not to exceed 10 years. Customers in the local market
tend to prefer these loans to adjustable rate revolving credit home equity loans
because, the Company believes, they like the stability of the fixed interest
rate more than the flexibility of a line of credit.

     The maximum loan to value ratio, including prior liens, is 75% for junior
mortgage loans. At September 30, 2003, the Company had $2.8 million in
outstanding advances on home equity lines of credit, $1.8 million of unused home
equity lines of credit and $0.2 million in regular amortizing home equity loans.

     Construction Loans. The Company offers residential single-family
construction loans primarily to persons who intend to occupy the property upon
completion of construction. The loans automatically convert to regular
amortizing loans after construction is complete. Proceeds of the construction
loan are advanced in stages as construction is completed. The loans generally
provide for a construction period of not more than twelve months during which
the borrower pays interest only. In recognition of the risks involved in such
loans, the Company carefully monitors construction through regular inspections.
At September 30, 2003, the Company had only $0.2 million of construction loans.
Construction loan levels tend to increase during the summer because of the
seasonal nature of residential construction, but even during the summer these
loans generally do not represent more than 2% of the Company's loan portfolio.
Occasionally, the Company makes construction loans for purposes other than the
construction of the borrower's residence when appropriate opportunities arise.

                            Commercial Mortgage Loans

     The Company has been offering such loans to diversify risk and obtain a
higher yield normally associated with this type of loan. However, management is
not actively soliciting such loans due to the current low interest rate
environment since the margin on prime rate loans is not commensurate with the
additional risk involved on these loans and since the Bank is not searching for
a commercial loan officer.

     The Company offers commercial mortgage loans with loan-to-value ratios up
to 70%. The Company offers both fixed and adjustable rate commercial mortgage
loans, with 66.9% of the Company's commercial mortgage loan balances maturing
after September 30, 2003 having adjustable interest rates.

     The Company generally requires a debt service coverage ratio of at least
120% and the personal guarantee of the principals of the borrower as additional
security. The Company also requires an appraisal by an independent appraiser.
Attorneys' opinions of title are used instead of title insurance for commercial
mortgage loans, but the Company has not experienced losses as a result of this
practice.

     Loans secured by commercial properties generally involve a greater degree
of risk than one-to-four family residential mortgage loans. Because payments on
such loans are often dependent on successful operation or management of the
properties, repayment may be subject to a greater extent to adverse conditions
in the real estate market or the economy. We feel that the additional risk
associated with this type of lending is acceptable since the Bank's strong
capital position is more than sufficient to absorb losses, and because we seek
to minimize these risks through our underwriting policies. The Company evaluates
the qualifications and financial condition of the borrower, including credit
history, profitability and expertise, as well as the value and condition of the
underlying property. The factors considered by the Company include net operating
income; the debt coverage ratio (the ratio of cash net income plus interest to
debt service); and the loan to value ratio. When evaluating the borrower, the

                                        8
<PAGE>

Company considers the financial resources and income level of the borrower, the
borrower's experience in owning or managing similar property and the Company's
lending experience with the borrower. The Company's policy requires borrowers to
present evidence of the ability to repay the loan without having to resort to
the sale of the mortgaged property.

                              Other Consumer Loans

     Automobile Loans. In recent years, the Company has tried to increase its
level of automobile loans in order to provide improved yields, increase the
interest rate sensitivity of its assets and expand its customer base. Auto loans
are originated both through direct contact between the Company and the borrower
and through auto dealers who refer the borrowers to the Company. However, the
Company underwrites the loans itself and the loan is originated in the name of
the Company. The dealer is paid a flat fee for each successful referral.

     The Company offers auto loans for both new and used cars. The loans have
fixed rates with maturities of not more than five and a half years. At September
30, 2003, the Company had $6.7 million of auto loans, 17.3% lower than the level
one year earlier. Principal is repaid quickly on auto loans because the maximum
term is 66 months. That makes it necessary to add new loans to maintain
portfolio level. The lending programs of automobile manufacturers, in which
interest free financing is offered, have negatively impacted not only our
ability to grow the auto loan portfolio, but also our ability to replace the
principal repayments at the level necessary to maintain the portfolio. Auto
loans are offered in amounts up to 100% of the purchase price of the car. The
Company evaluates the credit and repayment ability of the borrower as well as
the value of the collateral in determining whether to approve a loan.

     Other Consumer Loans. The Company also makes fixed-rate consumer loans
either unsecured or secured by savings accounts or other consumer assets.
Consumer loans generally have terms not exceeding five years. Other consumer
loans totaled $2.5 million at September 30, 2003, up $0.2 million at September
30, 2002. Other consumer loans generally have higher interest rates than
mortgage loans. The shorter terms to maturity are helpful in managing the
Company's interest rate risk. Applications for these loans are evaluated based
upon the borrower's ability to repay and the value of any collateral.

                             Other Commercial Loans

     The Company offers commercial non-mortgage loans to local businesses for
working capital, machinery and equipment purchases, expansion, and other
business purposes. These loans generally have higher yields than mortgages
loans, and include installment equipment financing with terms that generally do
not exceed seven years, short-term working capital loans, and commercial lines
of credit with annual reviews. The Company offers fixed and adjustable rate
commercial loans, with variable rates being more prevalent. The Company had $0.9
million of such loans at September 30, 2003, compared to $1.2 million on
September 30, 2002, a decrease of 25.0%. As stated earlier, the Company is not
marketing such loans to businesses in its market area until such time as a
commercial lending officer is added to our staff.

     Applications for these loans are generally evaluated based upon the
borrower's ability to repay the loan from ongoing operations. The loans normally
present greater risks than mortgage loans because the collateral, if any, is
often rapidly depreciable, easier to conceal and of limited value to other
companies. Furthermore, changes in economic conditions and other factors outside
the control of the Company, and often outside the control of the commercial
borrowers, can often have a substantial effect on delinquencies. Therefore, the
Company monitors these accounts on an ongoing basis after making the loan to be
able to address any credit problems promptly if they occur.

     The Company is purchasing the USDA and SBA guaranteed portion of commercial
loans originated by other financial institutions. These loans can be either
fixed or variable rate and can be split into pieces or purchased in full by a
single buyer. During 2003 we purchased $2.5 million of such loans and expect to

                                        9
<PAGE>

maintain a portfolio between $2 million and $3 million. This portfolio will help
diversify our loans as the loans available are from different areas of the
country.

     Origination of loans. Loan originations come from a number of sources.
Residential loan originations can be attributed to depositors, retail customers,
telephone inquiries, advertising, the efforts of the Company's loan officers,
and referrals from other borrowers, real estate brokers and builders. The
Company originates loans through its own efforts and does not use mortgage
brokers, mortgage bankers or other non-employee fee paid loan finders except for
the referral of auto loans from local dealers.

     All of the Company's lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the
Company's Board of Directors. Loan officers have individual authority to make
secured and unsecured loans up to amounts set by the Board. Loans in excess of
$100,000, up to $250,000 require loan committee approval. Loans exceeding
$250,000 must be approved by the Executive Committee of the Board of Directors.

     Under federal law and applicable OTS regulations, the Bank may not lend
more than 15% of the Bank's capital to any one borrower, with additional loans
up to 10% of capital being permitted if the additional loans are secured by
readily marketable collateral. At September 30, 2003, the Company's largest loan
was a residential mortgage loan located in the Company's market area with a
balance of $510,000. This customer also had the largest loan relationship with
the Company, combining all loans to a single borrower or related group of
borrowers, at $510,000, substantially below the Bank's regulatory loan limit to
one borrower of $2.6 million. At September 30, 2003, all loans for this customer
were current and performing in accordance with their terms.

     The Company has not sold loans, serviced loans for other lenders nor
purchased loan-servicing rights but may engage in any one or all such activities
in the future.

     The following table shows the contractual maturity of the Company's loan
portfolio at September 30, 2003. Loans are shown as due based on their
contractual terms to maturity. Adjustable rate loans are shown as maturing when
the final loan payment is due without regard to rate adjustments. The table does
not show the effects of loan amortization, possible prepayments or enforcement
of due-on-sale clauses. Non-performing loans are shown as being due based upon
their contractual maturity without regard to acceleration due to default.

<TABLE>
<CAPTION>
                  Residential     Commercial      Consumer      Commercial
                    mortgage       mortgage         other          other          Total
                  ------------   ------------   ------------   ------------   ------------
                                               (in thousands)

<S>               <C>            <C>            <C>            <C>            <C>
Amount due:
  Within 1 year   $        131   $         --   $        961   $         15   $      1,107
  1 to 2 years             250             42          1,343             65          1,700
  2 to 3 years             529            455          2,157            322          3,463
  3 to 5 years           1,318            223          4,298            512          6,351
  5 to 10 years         10,650          1,464            454             --         12,568
  over 10 years         35,782          1,440             21          2,464         39,707
                  ------------   ------------   ------------   ------------   ------------
    Total loans   $     48,660   $      3,624   $      9,234   $      3,378   $     64,896
                  ============   ============   ============   ============   ============
</TABLE>


     The following table shows, as of September 30, 2003, the amount of loans
due after September 30, 2004, and whether they have fixed interest rates or
adjustable interest rates.

                                       10
<PAGE>

                                            Fixed     Adjustable
                                            Rates        Rates        Total
                                         ----------   ----------   ----------
                                                    (In thousands)

                  Residential mortgage   $   32,298   $   16,231   $   48,529
                  Commercial mortgage         1,199        2,425        3,624
                  Consumer other              7,942          331        8,273
                  Commercial other            1,041        2,322        3,363
                                         ----------   ----------   ----------
                    Total                $   42,480   $   21,309   $   63,789
                                         ==========   ==========   ==========


     Asset Quality

     Delinquency Procedures. When a borrower fails to make a required payment on
a mortgage loan, the Company attempts to cure the deficiency by contacting the
borrower. Late notices are sent when a payment is more than fifteen days past
due and a late charge is generally assessed at that time. The Company attempts
to contact, personally, any borrower who is more than 30 days past due. When a
mortgage loan is 90 days past due, the Company sends a 30 days notice of
acceleration and if the loan is not brought current by the end of that period,
the loan is turned over to an attorney for collection, with foreclosure
generally commenced within 30 to 60 days thereafter. A foreclosure action, if
the default is not cured, generally leads to a judicial sale of the mortgaged
real estate. If the borrower files a bankruptcy petition, the judicial sale is
delayed and the foreclosure action cannot be continued until the Company obtains
relief from the automatic stay provided by the bankruptcy code. The Company has
experienced losses due to delays caused by borrower bankruptcy filings.

     If the Company acquires the mortgaged property at foreclosure sale or
accepts a voluntary deed in lieu of foreclosure, the acquired property is then
classified as foreclosed real estate. At September 30, 2003, the Company had
$92,000 of foreclosed real estate, represented by one single-family residence
and one commercial property. The Company seeks to dispose of these properties
through real estate brokers. Due to adverse local economic conditions in the
residential housing market, the disposition of foreclosed real estate can take
six months or more. When real estate is acquired in full or partial satisfaction
of a loan, it is initially recorded at the fair value less estimated costs to
sell at the date of foreclosure, establishing a new cost basis. Write-downs from
the unpaid loan balance to fair value at the time of foreclosure are charged to
the allowance for loan losses. Subsequent revenue and expenses from operations
and changes in the valuation allowance are charged to other expense. The Company
is permitted to finance sales of foreclosed real estate by "loans to
facilitate", which may involve a lower down payment or a longer repayment term
or other more favorable features than generally would be granted under the
Company's underwriting guidelines. At September 30, 2003, the Company had
$610,000 of "loans to facilitate," with three loans totaling $85,000 not current
in accordance with their terms.

     Late notices are sent on all consumer loans when a payment is more than 10
days past due. When an automobile loan becomes 60 days past due, the Company
seeks to repossess the collateral. If the default is not cured, then upon
repossession the Company sells the automobile as soon as practicable by public
notice and auction. The remaining balance of the loan is fully charged off when
the loan is 120 days past due. When other types of non-mortgage loans become
past due, the Company takes measures to cure defaults through contacts with the
borrower and takes appropriate action, depending upon the borrower and the
collateral, to obtain repayment of the loan. The Company had five repossessed
assets totaling $29,000 at September 30, 2003.

     The following table sets forth the Company's loan delinquencies by type, by
amount and by percentage of each loan category at September 30, 2003.

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                Loans Delinquent For:
                                                                ---------------------
                                    60-89 Days                   90 Days or More (1)              Total Delinquent Loans
                                    ----------                   ---------------                  ----------------------

                                                 Percent                           Percent                           Percent
                                                 of loan                           of loan                           of loan
                             No.      Amount    Category       No.      Amount    Category       No.      Amount    Category
                          --------   --------   --------    --------   --------   --------    --------   --------   --------
                                                                (Dollars in thousands)
<S>                             <C>  <C>            <C>           <C>  <C>            <C>           <C>  <C>            <C>
       Residential mtg          19   $    610       1.25%          4   $    198       0.41%         23   $    808       1.66%
       Commercial mtg            1        225       6.21%          1         83       2.29%          2        308       8.50%
       Consumer other            9         36       0.39%          9         85       0.92%         18        121       1.31%
       Commercial other         --         --       0.00%          1        112       3.32%          1        112       3.32%
                          -------------------               -------------------               -------------------
            Total               29   $    871       1.34%         15   $    478       0.74%         44   $  1,349       2.08%
                          ===================               ===================               ===================
</TABLE>

     (1) These loans are included as non-accrual loans in the following table on
non-performing assets.

     The following table presents information with respect to the Company's
non-performing assets (which generally include loans that are delinquent for 90
days or more, restructured loans and foreclosed real estate) at the dates
indicated.

<TABLE>
<CAPTION>
                                                                      At September 30,
                                                                      ----------------
                                                        2003      2002      2001      2000      1999
                                                       ------    ------    ------    ------    ------
                                                                   (Dollars in thousands)
<S>                                                    <C>       <C>       <C>       <C>       <C>
         Non-accrual loans:
         Residential mortgage ......................   $  198    $  282    $   48    $  354    $  196
         Commercial mortgage .......................       83        41        73        --        --
         Consumer other ............................       85        12        63        55        25
         Commercial other ..........................      112        84       253        --        --
                                                       ------    ------    ------    ------    ------
              Total non-accrual loans ..............      478       419       437       409       221

         Restructured commercial mortgage ..........      225        --        --        --        --
                                                                                               ------
         Restructured commercial other .............       --       261        --        --        --
                                                       ------    ------    ------    ------    ------
              Total non-performing loans ...........      703       680       437       409       221

         Foreclosed real estate ....................       92        25       182        91       169
         Other repossessed assets ..................       29        46        38        20        --
                                                       ------    ------    ------    ------    ------

              Total non-performing assets ..........   $  824    $  751    $  657    $  520    $  390
                                                       ======    ======    ======    ======    ======

         Non-performing loans as a percent
         of total loans ............................     1.08%     1.23%     0.78%     0.75%     0.47%

         Non-performing assets as a percent
         of total assets ...........................     0.92%     0.88%     0.79%     0.69%     0.56%

         Allowance for loan losses as a percent
         of non-performing loans ...................    93.17%    98.68%   149.89%   162.10%   280.54%
</TABLE>

                                       12
<PAGE>

     The Company had no loans more than 90 days delinquent and accruing interest
at September 30, 2003, 2002, 2001, 2000 or 1999.

     During fiscal 2003, the Bank's nonperforming assets increased from $751,000
to $824,000.

     Non-performing loans increased by $23,000 to $703,000 at September 30, 2003
from $680,000 at September 30, 2002, but represented only 1.08% of total loans
versus 1.23% a year earlier. Currently, three of the four residential
non-accrual mortgages are in foreclosure proceedings and the one commercial
mortgage is in bankruptcy proceedings. The borrower in bankruptcy has four
loans, all non-accrual totaling $210,000, comprised of the $83,000 commercial
mortgage, $112,000 commercial equipment loan, $13,000 automobile loan and $2,000
in unsecured credit.

     Five automobile loans totaling $55,000 and four other consumer loans
totaling $30,000 comprise the consumer other total.

     Management believes that these non-performing loans are adequately secured
by collateral. Further, management is not aware of any factors common to these
loans, which caused their non-performance or any developments that suggest an
upward trend in delinquencies. Management has determined that a modest decrease
in the loan loss allowance is appropriate at this time for the following
reasons:

     1.   the allowance as a percent of non-performing loans decreased slightly
          from 98.68% last year to 93.17% this year,
     2.   the size of both the Bank's originated commercial loan portfolio and
          the consumer other loan portfolio decreased by $0.7 million and $1.2
          million respectively,
     3.   the size of the Bank's consumer loan portfolio has decreased by $1.2
          million and
     4.   the growth in the Bank's loan portfolio is in residential mortgages,
          which have traditionally had a lower degree of risk than consumer and
          commercial loans.

     At September 30, 2003, there were no loans other than those included in the
table above with regard to which management had information about possible
credit problems of the borrower that caused management to seriously doubt the
ability of the borrower to comply with present loan repayment terms. The ratio
of non-performing assets to total assets was below 1% for the sixth straight
year.

     It is the Company's policy to discontinue accruing interest on a loan when
its fourth monthly payment is due and unpaid, unless the Company determines that
the nature of the delinquency and the collateral are such that collection of the
principal and interest on the loan in full is reasonably assured. When the
accrual of interest is discontinued, all accrued but unpaid interest is charged
against current period income. Generally, once the accrual of interest is
discontinued, the Company records interest as and when received until the loan
is restored to accruing status. However, if there is substantial doubt as to the
collectibility of the loan, amounts received are recorded as a reduction of
principal until the loan is returned to accruing status.

     The amount of additional interest income that would have been recorded on
non-accrual loans had those loans been performing in accordance with their terms
was approximately $34,000 for fiscal 2003 and $22,000 for fiscal 2002.

     Classified Assets. OTS regulations require that the Company classify its
assets on a regular basis and establish prudent valuation allowances based on
such classifications. In addition, in connection with examinations, OTS
examiners have the authority to identify problem assets and, if appropriate,
require that they be classified. There are three adverse classifications for
problem assets: Substandard, Doubtful and Loss. Substandard assets have one or
more defined weaknesses and are characterized by the distinct possibility that
the Company will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets, with the additional

                                       13
<PAGE>

characteristics that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is a high probability of loss. An asset classified as Loss is considered
not collectible and of such little value that its continuance as an asset on the
financial statements of the Company is not warranted.

     Assets classified as Substandard or Doubtful require the Company to
establish prudent valuation allowances. If an asset or portion thereof is
classified as Loss, the Company must either establish a specific allowance for
loss equal to 100% of the portion of the asset classified Loss or charge off
such amount. If the Company does not agree with an examiner's classification of
an asset it may appeal this determination. On the basis of management's review
of its loans and other assets at September 30, 2003, the Company had $486,000 of
assets classified as Substandard, none classified as Doubtful and none
classified as Loss.

     Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the Company's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover loan losses deemed probable by our estimates. The allowance is
based upon a number of factors, including asset classifications, economic
trends, industry experience and trends, industry and geographic concentrations,
estimated collateral values, management's assessment of the credit risk inherent
in the portfolio, historical loan loss experience and the Company's underwriting
policies. The Company evaluates, on a monthly basis, all loans identified as
problem loans, including all non-accrual loans and other loans where management
has reason to doubt collection in full in accordance with original payment
terms. The Company considers whether the allowance should be adjusted to protect
against risks associated with such loans. In addition, the Company applies a
percentage, for each category of performing loans not designated as problem
loans to determine an additional component of the allowance to protect against
unascertainable risks inherent in any portfolio of performing loans.

     The analysis of the adequacy of the allowance is reported to and reviewed
by the Board of Directors monthly. Management believes it uses a reasonable and
prudent methodology to project losses in the loan portfolio, and hence assess
the adequacy of the allowance for loan losses. However, any such assessment is
only an informed estimate and future adjustments may be necessary if economic
conditions or the Company's actual experience differ substantially from the
assumptions upon which the evaluation of the allowance was based. Furthermore,
state and federal regulators, in reviewing the Company's loan portfolio as part
of a future regulatory examination, may request the Company to increase its
allowance for loan losses, thereby negatively affecting the Company's financial
condition and earnings at that time. Moreover, future additions to the allowance
may be necessary based on changes in economic and real estate market conditions,
new information regarding existing loans, identification of additional problem
loans and other factors, both within and outside of management's control.

                                       14
<PAGE>

     The following table analyzes activity in the Company's allowance for loan
losses during the periods indicated. Loans in the consumer other category are
primarily automobile loans.

<TABLE>
<CAPTION>
                                                            Year Ended September 30,
                                                            ------------------------
                                                  2003      2002      2001      2000      1999
                                                 ------    ------    ------    ------    ------
                                                             (Dollars in thousands)

<S>                                              <C>       <C>       <C>       <C>       <C>
         Allowance, beginning of period          $  671    $  655    $  663    $  620    $  484
         Provision for loan losses                   95        85        80       158       162
         Charge-offs:
           Residential mortgage & Home equity        33        47        26        36        40
           Commercial mortgage                       18        --        --        19        --
           Consumer other                            85        80       103        39        20
           Commercial other                          52        --         6        85        --
                                                 ------    ------    ------    ------    ------
             Total charge-offs                      188       127       135       179        60
         Recoveries:
           Residential mortgage & Home equity        16         8         6        32        21
           Commercial mortgage                       --        --        --        --        --
           Consumer other                            51        50        40        32        13
           Commercial other                          10        --         1        --        --
                                                 ------    ------    ------    ------    ------
             Total recoveries                        77        58        47        64        34
                                                 ------    ------    ------    ------    ------
         Net charge-offs                            111        69        88       115        26
                                                 ------    ------    ------    ------    ------

         Allowance, end of period                $  655    $  671    $  655    $  663    $  620
                                                 ======    ======    ======    ======    ======

         Allowance as a percent of total loans     1.01%     1.23%     1.17%     1.21%     1.33%

         Ratio of net charge-offs to average
           loans outstanding                       0.19%     0.13%     0.16%     0.23%     0.07%
</TABLE>

     The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
                                                       At September 30,
                                                       ----------------
                                                 2003                   2002
                                                 ----                   ----
                                                      Percent                Percent
                                                     of Loans               of Loans
                                                     to Total               to Total
                                           Amount      Loans      Amount      Loans
                                          --------   --------    --------   --------
                                                    (Dollars in thousands)
<S>                                       <C>          <C>       <C>          <C>
           Allowance allocated to:
     Residential & commercial mortgages   $    382      80.56%   $    294      78.76%
     Consumer & commercial other loans         273      19.44%        377      21.24%
                                          --------   --------    --------   --------
       Total allowance                    $    655     100.00%   $    671     100.00%
                                          ========   ========    ========   ========
</TABLE>

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                  At September 30,
                                                                  ----------------
                                                 2001                   2000                    1999
                                                 ----                   ----                    ----
                                                      Percent                Percent                Percent
                                                     of Loans               of Loans               of Loans
                                                     to Total               to Total               to Total
                                           Amount      Loans      Amount      Loans      Amount      Loans
                                          --------   --------    --------   --------    --------   --------
                                                                (Dollars in thousands)
<S>                                       <C>          <C>       <C>          <C>       <C>          <C>
           Allowance allocated to:
     Residential & commercial mortgages   $    317      78.02%   $    363      77.60%   $    481      81.83%
     Consumer & commercial other loans         338      21.98%        300      22.40%        139      18.17%
                                          --------   --------    --------   --------    --------   --------
        Total allowance                   $    655     100.00%   $    663     100.00%   $    620     100.00%
                                          ========   ========    ========   ========    ========   ========
</TABLE>

Environmental Issues

     The Company encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on property securing
their loans. In addition, the presence of hazardous materials may have a
substantial adverse effect on the value of such property as collateral and may
cause economic difficulties for the borrower, causing the loan to go into
default. Although environmental risks are usually associated with loans secured
by commercial real estate, risks also may exist for loans secured by residential
real estate if, for example, there is nearby commercial contamination or if the
residence was constructed on property formerly used for commercial purposes. The
Company attempts to control its risk by requiring a phase one environmental
assessment by a Company approved engineer as part of its underwriting review for
all mortgage loans other than those secured by one-to-four family residences.

     The Company believes its procedures regarding the assessment of
environmental risk are adequate. As of September 30, 2003, the Company was
unaware of any environmental issues with respect to any of its mortgage loans
that would subject it to any material liability at this time. Hidden or future
environmental contamination could adversely affect the values of properties
securing loans in the Company's portfolio.

Investment Activities

     General. The investment policy of the Company, which is approved by the
Board of Directors, is based upon its asset/liability management goals and is
designed primarily to provide satisfactory yields while maintaining adequate
liquidity, a balance of high quality, diversified investments, and minimal risk.
In recognition of the high level of fixed rate residential mortgage loans, the
Company has sought to limit its securities investments to those with adjustable
rates or short terms to maturity. The Company's President implements the
investment policy. All securities purchases and sales are reported to the Board
of Directors each month.

     As required by Statement of Financial Accounting Standards ("SFAS") 115,
securities are classified into three categories: trading, held-to-maturity and
available-for-sale. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value with unrealized gains and losses included in
trading account activities in the statement of income. Securities that the
Company has the positive intent and ability to hold to maturity are classified
as held-to-maturity and reported at amortized cost. All other securities are
classified as available-for-sale. Available-for-sale securities are reported at
fair value with unrealized gains and losses included, on an after-tax basis, as
a separate component of accumulated other comprehensive income. The Company does
not have a trading securities portfolio and has no current plans to maintain
such a portfolio in the future. The Company classifies each security in either
the available-for-sale or the held-to-maturity categories when the security is
purchased.

     Investment Securities. The Company's investment securities totaled $17.9
million at September 30, 2003, including $17.5 million classified as
available-for-sale and $0.4 million classified as held-to-maturity. The Company
invests primarily in debt securities issued by the United States Government and
its agencies ($8.9 million at September 30, 2003) and mortgage-backed securities

                                       16
<PAGE>

issued or guaranteed by government-sponsored enterprises ($6.0 million at
September 30, 2003). The Company has classified all recent purchases of
investment securities as available-for-sale in order to maintain flexibility in
managing its investments. Investment securities are purchased in order to invest
funds that may be needed to make loans in the future, to provide a source of
liquidity if the need for funds arises, to manage interest rate sensitivity, and
to take advantage of acceptable after-tax yields that are available when
purchasing certain tax-exempt municipal securities. The Company purchases only
investment grade debt securities and at September 30, 2003, none of its
investment securities were in default or otherwise classified.

     The Company invests in mortgage-backed securities to supplement the yields
on its loan portfolio and to help satisfy our Qualified Thrift Lender ("QTL")
test, as described on page 21 of this report. Substantially all of the
mortgage-backed securities were issued, and are insured or guaranteed by "Fannie
Mae", "Freddie Mac" or the Government National Mortgage Association ("Ginnie
Mae"). At September 30, 2003, the Company's mortgage-backed securities portfolio
contained $5.6 million classified as available-for-sale and $0.4 million
classified as held-to-maturity.

     The Company employs a strategy of investing in short-term balloon and
one-year adjustable mortgage-backed securities rather than longer term fixed
rate securities. This helps the Company to manage cash flow and mitigate
interest rate sensitivity, but may result in a slightly lower average yield.

     Mortgage-backed securities are more liquid than individual mortgage loans
and may be used to collateralize borrowings of the Company. However, these
securities generally yield less than the loans that underlie them because of the
cost of payment guarantees or credit enhancements that reduce credit risk.
Mortgage-backed securities of the type held by the Company are generally
weighted at 20%, rather than the 50% weighting for performing residential
one-to-four family mortgage loans, in determining risk-based capital ratios.

     Investment securities carry a reduced credit risk as compared to loans.
However, investment securities classified as available-for-sale are subject to
the risk that a fluctuating interest rate environment could cause a material
decline in the carrying value of such securities. In addition, interest rate
fluctuations, real estate market changes and changes in economic conditions may
alter the prepayment rates on the mortgage loans underlying the mortgage-backed
securities and thus affect the value of such securities resulting in a decline
in shareholders' equity.

     Equity Securities. At September 30, 2003, the Company had $636,000 in fair
market value of corporate equity securities represented by Freddie Mac common
stock with a cost of $12,000. In addition, the Company also had at September 30,
2003 a mutual fund investment classified as available-for-sale with a carrying
value of $1.9 million. The mutual fund invests substantially all of its assets
in mortgage-backed securities which are themselves qualified investments for the
Company. Although the mutual fund does not qualify as a liquid asset because the
terms to maturity of the underlying mortgage-backed securities are too long, the
Company considers it a potential source of liquidity because it can be easily
redeemed on a daily basis as and when funds are needed.

     At September 30, 2003, the Company also had $610,000 of stock in the FHLBNY
that was necessary for the Company to maintain its membership in the FHLB
system. The stock is redeemable at par. The yield on this stock was 5.65%
(annualized) for the year ended September 30, 2003.

     The following table sets forth certain information regarding the carrying
value of the Company's available for sale and held to maturity portfolios at the
dates indicated.

                                       17
<PAGE>

                                                         At September 30,
                                                         ----------------
                                                    2003       2002       2001
                                                  Carrying   Carrying   Carrying
                                                    Value      Value      Value
                                                  --------   --------   --------
                                                          (In thousands)

         Securities Available for Sale:
              U.S. Government and
                federal agency securities         $  8,876   $  4,083   $  3,816
              Mortgage-backed securities             5,562      9,827      5,876
              Municipal securities                     531         --      1,085
                                                  --------   --------   --------
                  Total debt securities             14,969     13,910     10,777

              Corporate securities                     636        779        925
              Mutual funds and other securities      1,868      8,275      7,375
                                                  --------   --------   --------
                  Total available for sale          17,473     22,964     19,077

         Securities Held to Maturity:
              Mortgage-backed securities               399      1,284      2,593
              Other securities                          57         57         58
                                                  --------   --------   --------
                  Total held to maturity               456      1,341      2,651
                                                  --------   --------   --------
                    Total Securities              $ 17,929   $ 24,305   $ 21,728
                                                  ========   ========   ========


     The table below sets forth certain information regarding the carrying
value, weighted average yields and stated maturity of the Company's securities
at September 30, 2003. There were no securities (exclusive of obligations of the
U.S. Government and federal agencies) issued by any one entity with a total
carrying value in excess of 10% of the Company's shareholders' equity at that
date.

<TABLE>
<CAPTION>
                        One year             From one             From five            More than
                       Or less (1)        to five years         to ten years           ten years        Total securities
                   ------------------   ------------------   ------------------   ------------------   ------------------
                   Carrying     Ave.    Carrying     Ave.    Carrying     Ave.    Carrying     Ave.    Carrying     Ave.     Market
                     Value     Yield      Value     Yield      Value     Yield      Value     Yield      Value     Yield      Value
                   --------  --------   --------  --------   --------  --------   --------  --------   --------  --------   --------
                                                                (Dollars in thousands)

<S>                <C>           <C>    <C>           <C>    <C>           <C>    <C>           <C>    <C>           <C>    <C>
U.S. Gov't sec     $  1,533      3.85%  $  2,065      3.31%  $  1,501      5.14%  $  3,777      3.50%  $  8,876      2.01%  $  8,876
Mortgage-back sec.       17      5.90%       351      5.52%        --      0.00%     5,593      3.49%     5,961      3.62%     5,964
Municipal sec            --      0.00%        --      0.00%       531      3.66%        --      0.00%       531      3.66%       531
Other sec             2,561      3.47%        --      0.00%        --      0.00%        --      0.00%     2,561      3.47%     2,561
                   --------             --------             --------             --------             --------             --------
     Total         $  4,111      3.62%  $  2,416      3.64%  $  2,032      4.75%  $  9,370      3.50%  $ 17,929      2.84%  $ 17,932
                   ========             ========             ========             ========             ========             ========
</TABLE>

(1) Includes equity securities and mutual funds, which have no maturity.


     Sources of Funds

         General. The Company's primary source of funds is deposits. The Company
has incurred borrowings to fund additional loans and investments, and may do so
again in the future. In addition, the Company derives funds for loans and
investments from loan and security repayments and prepayments and revenues from
operations. Scheduled payments on loans and mortgage-backed and investment
securities are a relatively stable source of funds, while savings inflows and
outflows and loan and mortgage-backed and investment securities prepayments are
significantly influenced by general interest rates and money market conditions.
In general, the Company expects that it will continue to offer the same types of

                                       18
<PAGE>

deposit products but also expects that it will continue to use FHLBNY advances
as a source of funds to maximize the return on the additional capital raised
through the sale of the Company's common stock.

Deposits. The Company offers several types of deposit programs to its customers,
including passbook savings accounts, NOW accounts, money market deposit
accounts, checking accounts and certificates of deposit. Deposit account terms
vary according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. The Company's
deposits are obtained predominantly from its primary market area. The Company
relies primarily on customer service and long-standing relationships with
customers to attract and retain these savings deposits; however, market interest
rates and rates offered by competing financial institutions significantly affect
the Company's ability to attract and retain savings deposits. The Company does
not use brokers to obtain deposits and has no brokered deposits. At September
30, 2003, the Company had $58.4 million of deposits.

     We generally price our deposit rates to be competitive with other
institutions in our market area. Pricing determinations are made weekly by a
committee of officers.

     The following table sets forth the distribution of the Company's deposit
accounts at the dates indicated. The interest rates shown for non-time accounts
are the rates in effect at September 30, 2003.

<TABLE>
<CAPTION>
                                                           At September 30,

                                         2003                   2002                   2001
                                         ----                   ----                   ----
                                              Percent                Percent                Percent
                                   Amount    of Total     Amount    of Total     Amount    of Total
                                  --------   --------    --------   --------    --------   --------
                                                        (Dollars in thousands)

<S>                               <C>          <C>       <C>          <C>       <C>          <C>
Non-time accounts:
   Savings and club accounts
      (1.05 - 2.25%)              $ 19,157      32.79%   $ 15,821      29.99%   $ 13,795      28.93%
   NOW and money market
      Accounts (0.49 - 1.49%)        9,409      16.10%      7,141      13.53%      6,964      14.61%
   Non-interest bearing
      demand accounts                  806       1.38%        779       1.48%        738       1.55%
                                  --------   --------    --------   --------    --------   --------
        Total non-time deposits     29,372      50.27%     23,741      45.00%     21,497      45.09%

Time accounts:
   1.00 - 1.99%                     10,757      18.41%         --       0.00%         --       0.00%
   2.00 - 2.99%                      6,576      11.26%     13,383      25.36%         --       0.00%
   3.00 - 3.99%                      5,547       9.50%      7,780      14.75%      1.818       3.81%
   4.00 - 4.99%                      5,611       9.60%      6,022      11.41%      9,070      19.02%
   5.00 - 5.99%                        560       0.96%      1,705       3.23%      3,705       7.77%
   6.00 - 6.99%                         --       0.00%         85       0.16%      8,059      16.90%
   7.00 - 7.99%                         --       0.00%         45       0.09%      3,534       7.41%
                                  --------   --------    --------   --------    --------   --------
        Total time deposits         29,051      49.73%     29,020      55.00%     26,186      54.91%
                                  --------   --------    --------   --------    --------   --------

Total deposits                    $ 58,423     100.00%   $ 52,761     100.00%   $ 47,683     100.00%
                                  ========   ========    ========   ========    ========   ========
</TABLE>


     At September 30, 2003, the Company had $5.4 million in certificates of
deposit with balances of $100,000 or more ("jumbo deposits"), representing 9.25%
of all deposits.

                                       19
<PAGE>

     The following table sets forth the amount of certificates of deposit in
denominations of $100,000 at September 30, 2003, and the remaining period to
maturity of such deposits.

<TABLE>
<CAPTION>
                                          Amount Due (in thousands)
                                          -------------------------
                                 In More Than   In More Than
                   In 3 Months    3 up to 6      6 up to 12    In More Than
                     or Less        Months         Months        12 Months        Total
                  ------------   ------------   ------------   ------------   ------------
                     <S>            <C>            <C>            <C>            <C>
                     $1,109         $  482         $  304         $3,541         $5,436
</TABLE>


     Borrowings. During fiscal 2003, the Company used an increase in deposits to
repay $1.2 million in borrowings that came due. No new borrowings were incurred
in the 2003 fiscal year. All outstanding advances are from the FHLBNY and
generally have terms of one to ten years with the entire principal balance
repayable at the earlier of call date or maturity. The average balance of FHLBNY
outstanding advances payable during 2003 was $12.8 million and the weighted
average cost was 4.74%. The highest balance outstanding during the year was
$13.4 million and the balance at September 30, 2003 was $12.2 million. In 2002,
the average balance of loans payable to FHLBNY was $15.4 million at a weighted
average cost of 4.63%. The highest outstanding balance during the 2002 fiscal
year was $16.4 million and the balance at September 30, 2002 was $13.4 million.

Subsidiary Activities

     The Company is permitted to own subsidiaries for certain limited purposes,
as permitted under OTS regulations. The Company has no subsidiaries except for
the Bank.

Personnel

     At September 30, 2003, the Company had twenty-nine full-time and three
part-time employees as compared to twenty-nine full-time and two part-time on
September 30, 2002. A collective bargaining unit does not represent employees,
and the Company considers its relationship with its employees to be good.

Regulation

General

     The Bank is a federal savings association subject to extensive regulation,
examination, and supervision by the OTS, as its primary federal regulator and by
the FDIC, as its deposit insurer. The Bank's deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund of the FDIC, and the
Bank is a member of the FHLBNY . The OTS regulates the Company and Cambray MHC
as savings and loan holding companies. The following discussion is not, and does
not purport to be, a complete description of the laws and regulations applicable
to the Company and the Bank. Any change in such laws or regulations by the OTS,
the FDIC or Congress could materially adversely affect the Company and the Bank.

Regulation of Federal Savings Associations

     Business Activities. The Bank's lending, investment and deposit powers come
from the Home Owners' Loan Act, as amended (the "HOLA") and OTS regulations.
These powers are also governed to some extent by the FDIC under the Federal
Deposit Insurance Act and FDIC regulations. The Bank may make mortgage loans,
commercial loans and consumer loans, and may invest in certain types of debt
securities, and other assets. The Bank's lending and investment powers are
subject to limits, including, among others, (a) a prohibition against acquiring
any corporate debt security that is not rated in one of the four highest rating
categories; (b) a limit of 400% of capital that can be invested in loans secured
by non-residential real estate property; (c) a limit of 10% of assets that can

                                       20
<PAGE>

be invested in commercial loans; (d) a limit of 35% of assets that can be
invested in consumer loans, commercial paper and corporate debt securities; (e)
a limit of 5% of assets which can be invested in non-conforming loans (loans in
excess of limits specified in federal law); (f) a limit of the greater of 5% of
assets or its total capital which can be invested in certain construction loans
made for the purpose of financing what is or is expected to become residential
property; and (g) a limit of 10% of assets that can be invested in personal
property used for general leasing activities. The Bank may offer a variety of
deposit accounts, including savings, certificate (time), demand and NOW
accounts.

     Loans to One Borrower. Under the HOLA, federal savings associations are
subject to the limits applicable to national banks on loans to a single borrower
or a related group of borrowers. The Bank generally may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of its
unimpaired capital and surplus. Up to an additional 10% of unimpaired capital
and surplus can be lent if the additional amount is fully secured by readily
marketable collateral. At September 30, 2003, the Bank's regulatory limit on
loans to one borrower was in excess of $2.5 million. At that date, the Bank's
largest aggregate loans to one borrower was $510,000.

     QTL Test. The HOLA requires the Bank to meet a "QTL" test. Under the QTL
test the Bank must maintain at least 65% of its assets, after certain
adjustments, in various types of loans made for residential and housing
purposes, related investments, education, small business and credit card loans,
and consumer loans and certain other loans and investments. The Bank satisfies
the QTL test and the Bank anticipates that it will continue to satisfy the test
in the future. If the Bank fails to satisfy the QTL test it will have to either
restrict its activities or convert to a commercial bank charter.

     Capital Requirements. OTS regulations require that the Bank maintain
tangible capital equal to 1.5% of total assets as adjusted under the OTS
regulations, core capital equal to 3% of such adjusted total assets and total
capital (core capital plus supplementary capital) equal to 8% of risk-weighted
assets. The Bank's capital ratios at September 30, 2003 all substantially
exceeded OTS minimum capital requirements, and those requirements do not now
have a material effect on the Bank.

     Limitations on Capital Distributions. OTS regulates the amount of dividends
and other capital distributions that the Bank may pay to the Company. In
general, if the Bank will satisfy all OTS capital requirements both before and
after the distribution, the Bank may make capital distributions to the Company
in any year equal to the current year' s net income plus retained net income for
the preceding two years. However, because it is a savings and loan holding
company subsidiary, the Bank must notify the OTS of the distribution and the OTS
may object on safety and soundness grounds.

     If any capital distribution will exceed these limits, or if the OTS either
considers the Bank a troubled or problem institution or gives the Bank a rating
in less than the two highest rating categories, then the Bank must get OTS
approval before making a capital distribution. The Bank is not currently
required to obtain OTS approval unless it exceeds the dollar limits, and the
Bank has never paid a dividend to the Company. Therefore, the Company does not
believe that the OTS capital distribution regulations will have a material
affect on its operations or its ability to pay dividends to its stockholders.

     Community Reinvestment Act and Fair Lending Laws. Under the federal
Community Reinvestment Act (the "CRA"), the Bank, consistent with its safe and
sound operation, must help meet the credit needs of its entire community,
including low and moderate income neighborhoods The OTS periodically assesses
the Bank's compliance with CRA requirements. The Bank received a "satisfactory"
CRA rating in its most recent OTS examination. The Bank must also comply with
the Equal Credit Opportunity Act, which prohibits creditors from discrimination
in their lending practices on bases specified in these statutes. The OTS and the
Justice Department may take enforcement action against institutions that fail to
comply with Fair Lending Laws.

     Transactions With Related Parties. The Bank is authorized by federal law to
engage in transactions with its affiliates. In general, an affiliate of the Bank
is any company that controls the Bank or any other company that is controlled by

                                       21
<PAGE>

a company that controls the Bank, excluding the Bank's subsidiaries other than
those that are insured depository institutions. The Bank may not (a) lend to any
of its affiliates that is engaged in activities that are not permissible for
bank holding companies and (b) purchase the securities of any affiliate other
than a subsidiary. Transactions with any individual affiliate may not exceed 10%
of the capital and surplus of the Bank and aggregate transactions with all
affiliates may not exceed 20%. These restrictions do not impose material limits
on the Bank's business activities.

     The Bank's loans to insiders must be made on terms that are substantially
the same as, and follow credit underwriting procedures that are not less
stringent than, those prevailing for comparable transactions with unaffiliated
persons and that do not involve more than the normal risk of repayment or
present other unfavorable features. The loans are also subject to maximum dollar
limits and must generally be approved by the Board of Directors. The Bank may
make loans to insiders on preferential terms as part of a benefit or
compensation program that is widely available to employees. The Bank has no such
benefit or compensation programs.

     Insurance of Deposit Accounts. The Bank pays deposit insurance premiums to
the FDIC. The amount of the premium depends upon the Bank's capital ratios and
supervisory rating category. At present the Bank's capital ratios and
supervisory rating are high enough that the Bank pays no regular deposit
insurance premiums. However, the Bank must pay a share of the cost of the bonds
issued in the late 1980s to recapitalize the now defunct Federal Savings and
Loan Insurance Corporation, currently equal to approximately 0.02% of its
insured deposits per year.

     Federal Home Loan Bank System. The Bank is a member of the FHLBNY and uses
it as a source for borrowing funds. The Company must own stock in the FHLBNY at
least equal to the greater of 1% of the principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each year
or 5% of its advances from the FHLBNY . At September 30, 2003, we had $610,000
of capital stock of the FHLBNY , which satisfied this requirement and we had
FHLBNY borrowings totaling $12.2 million.

     Holding Company Regulation

     General Powers. As a savings and loan holding company, we may engage in
activities prescribed under HOLA and OTS regulations including: (i) furnishing
or performing management services for a savings association subsidiary of such
company; (ii) holding, managing or liquidating assets owned or acquired from a
savings association subsidiary of such company; (iii) conducting as insurance
agency or escrow business; (iv) holding or managing properties used or occupied
by a savings association subsidiary of such company; (v) acting as trustee under
deeds of trust; (vi) any other activity (A) that the Federal Reserve Board, by
regulation, has determined to be permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act of 1956, unless the Director, by
regulation, prohibits or limits any such activity for savings and loan holding
companies; or (B) in which multiple savings and loan holding companies were
authorized (by regulation) to directly engage on March 5, 1987; and (vii)
purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director.

     Waivers of dividends by the Mutual Holding Company. Cambray MHC owns 57.6%
of the stock of the Company. If Cambray MHC decides to waive its share of any
dividend that the Bank is paying to its stockholders, Cambray MHC must notify
the OTS. The OTS reviews dividend waiver notices on a case-by-case basis, and,
in general, does not object to any such waiver if: (i) the mutual holding
company board of directors determines that such waiver is consistent with such
directors' fiduciary duties to the mutual holding company's members, (ii) for as
long as the savings association subsidiary is controlled by the mutual holding
company, the dollar amount of dividends waived by the mutual holding company are
considered as a restriction to the retained earnings of the savings association,
which restriction, if material, is disclosed in the public financial statements
of the savings association as a note to the financial statements; (iii) the
amount of any dividend waived by the mutual holding company is available for
declaration as a dividend solely to the mutual holding company, and, in
accordance with SFAS 5, where the savings association determines that the

                                       22
<PAGE>

payment of such dividend to the mutual holding company is probable, an
appropriate dollar amount is recorded as a liability. Cambray MHC has elected to
waive the dividends totaling $747,397 as of September 30, 2003.

     Conversion of the Mutual Holding Company to Stock Form. OTS regulations
permit the Mutual Holding Company to convert from the mutual to the capital
stock form of organization. The Board of Directors has no current intention or
plans for such a transaction. In general, if such a transaction is undertaken, a
new company would be formed to replace the Company and 57.6% of its stock would
be offered to the depositors of the Bank and to the public. The other current
stockholders of the Company would be entitled to receive 42.4% of the stock of
the new company in exchange for the stock of the Company.

     Federal Securities Law

     The common stock of the Company is registered with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company is subject to
the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.

     Sarbanes-Oxley Act of 2002

     On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act") The Sarbanes-Oxley Act represents a
comprehensive revision of laws affecting corporate governance, accounting
obligations and corporate reporting. Specifically, the Sarbanes-Oxley Act: (i)
creates a new federal accounting oversight body; (ii) revamps auditor
independence rules; (iii) enacts new corporate responsibility and governance
measures; (iv) enhances disclosures by public companies, their directors and
executive officers; (v) strengthens the powers and resources of the SEC; and
(vi) imposes new criminal and civil penalties for securities fraud and related
wrongful conduct. The Sarbanes-Oxley Act is applicable to all companies with
equity or debt securities registered under the Securities Exchange Act of 1934.
Many of the provisions became effective immediately while other provisions are
subject to rulemaking by the SEC. The SEC has adopted some new regulations in
final form and has proposed others. Although we anticipate that we will incur
additional expense in complying with the provisions of the Sarbanes-Oxley Act
and the resulting regulations, management does not expect that such compliance
will have a material impact on our financial condition or results of operations.

Item 2.  Description of Properties

     The Company conducts its business through its headquarters at 42 Church
Street and an adjacent building at 26 John Street in the Town and Village of
Gouverneur and a full service branch office in the Town of Alexandria. The net
book value of these three premises is $1,074,000. As the Bank continues to grow,
it may be necessary to add both production and support personnel. Therefore, the
Board of Directors of the Bank continues to explore possibilities for the
expansion of our headquarters. The Company currently operates a loan production
office out of rented space in Clayton, New York. The book value of the premises
is zero. The Company sold approximately 1.6 acres adjacent to the new branch
building in Alexandria Bay for $250,000 in March 2003. That property now houses
an 11,000 square foot drug store.

Item 3.  Legal Proceedings

     The Bank is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Bank in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Bank's or the Registrant's results of operations and financial
condition. The Registrant is not a party to any litigation.

Item 4.  Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
2003.

                                       23
<PAGE>

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     Information contained under the caption "Common Stock" in the 2003 Annual
Report to Stockholders included as Exhibit 13 hereto is herein incorporated by
this reference.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

     Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 2003 Annual
Report to Stockholders included as Exhibit 13 hereto is herein incorporated by
this reference.

Item 7.  Financial Statements

     The following information appearing in the 2003 Annual Report to
Stockholders included as Exhibit 13 hereto is herein incorporated by this
reference.

     Independent Auditor's Report
     Consolidated Statements of Financial Condition as of September 30, 2003 and
     2002.
     Consolidated Statements of Income for the Years Ended September 30, 2003
     and 2002.
     Consolidated Statements of Shareholders' Equity for the Years Ended
     September 30, 2003 and 2002.
     Consolidated Statements of Cash Flows for the Years Ended September 30,
     2003 and 2002.
     Notes to Consolidated Financial Statements

     With the exception of the information expressly incorporated herein by
reference, the Company's Annual Report to Stockholders for the year ended
September 30, 2003, is not deemed filed as part of this Annual Report on Form
10-KSB.

Item 8.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure:

     None

Item 8A. Control and Procedures

     (a) Evaluation of Disclosure Controls and Procedures. The term "disclosure
controls and procedures" is defined in Rule 13a - 14(c) of the Securities
Exchange Act of 1934, or the Exchange Act. This term refers to the controls and
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under the Exchange Act is
recorded, processed, summarized and reported within required time periods. Our
Chief Executive Officer and our Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of September 30,
2003, and they have concluded that as of that date, our disclosure controls and
procedures were effective at ensuring that required information will be
disclosed on a timely basis in our reports filed under the Exchange Act.

     (b) Changes in Internal Controls. There were no significant changes to our
internal controls or in other factors that could significantly affect our
internal controls during the quarter ended September 30, 2003, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

                                       24
<PAGE>

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act

Directors

     Information contained under the caption "The Election of Directors
(introduction);" "The Election of Directors - The Board of Directors and
Nominees;" "The Election of Directors - Nominees;" "The Election of Directors -
Continuing Directors;" and "The Election of Directors - Meetings of the Board of
Directors and Certain Committees" in the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on February 9, 2004, to be filed with
the Commission within 120 days after the end of the fiscal year covered by this
report is incorporated herein by this reference.

Executive Officers

     Information contained under the caption "The Election of Directors -
Continuing Directors - Richard F. Bennett;" and "The Election of Directors -
Executive Officers Who Are Not Directors" in the definitive Proxy Statement for
the Annual Meeting of Stockholders to be held on February 9, 2004, to be filed
with the Commission within 120 days after the end of the fiscal year covered by
this report, is incorporated herein by this reference.

Compliance with Section 16(a)

     To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 2003, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.

Code of Ethics

     The Company has adopted a Code of Ethics for adherence by its chief
executive officer, chief financial officer and treasurer to promote honest and
ethical conduct; full, fair and proper disclosure of financial information in
the Company's periodic reports; and compliance with applicable laws, rules, and
regulations. The text of the Company's Code of Ethics is included as Exhibit 14
hereto.

Item 10. Executive Compensation

     Information contained under the caption "Compensation" in the definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on February 9,
2004, to be filed with the Commission within 120 days after the end of the
fiscal year covered by this report, is incorporated herein by this reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters

     Information contained under the caption "Principal Owners of Our Common
Stock" in the definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on February 9, 2004, to be filed with the Commission within 120 days
after the end of the fiscal year covered by this report is incorporated herein
by this reference.

                                       25
<PAGE>

Item 12. Certain Relationships and Related Transactions

     Information contained under the caption "Compensation - Transactions With
Directors and Officers" in the definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on February 9, 2004, to be filed with the Commission
within 120 days after the end of the fiscal year covered by this report, is
incorporated herein by this reference.

Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Exhibits

     See Index to Exhibits.

(b) Reports on Form 8-K

     The Company filed no reports on Form 8-K during the quarter ended September
30, 2003.


Item 14. Principal Accountant Fees and Services

Information contained under the caption "Independent Auditors' Fees - Audit
Fees"; "Independent Auditors' Fees - Audit-Related Fees"; "Independent Auditors'
Fees - Tax Fees"; and "Independent Auditors' Fees - All Other Fees" in the
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
February 9, 2004, to be filed with the Commission within 120 days after the end
of the fiscal year covered by this report, is incorporated herein by this
reference.

Information contained under the caption "Report of the Audit Committee -
Pre-Approval Policies and Procedures" in the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on February 9, 2004, to be filed with
the Commission within 120 days after the end of the fiscal year covered by this
report, is incorporated herein by this reference.

                                       26
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.

                                      Gouverneur Bancorp, Inc.

Date: December 18, 2003               By: /s/ RICHARD F. BENNETT
                                          --------------------------------------
                                              Richard F. Bennett, President
                                              (Duly authorized representative)

In accordance with the Exchange Act this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Date:

December 18, 2003                     /s/ FRANK LANGEVIN
                                      ------------------------------------------
                                      Frank Langevin, Chairman of the Board

December 18, 2003                     /s/ RICHARD F. BENNETT
                                      ------------------------------------------
                                      Richard F. Bennett, President, Chief
                                      Executive Officer and Director

December 18, 2003                     /s/ ROBERT J. TWYMAN
                                      ------------------------------------------
                                      Robert J. Twyman, Vice President and Chief
                                      Financial Officer. Principal financial
                                      and accounting officer

December 18, 2003                     /s/ CHARLES VANVLEET
                                      ------------------------------------------
                                      Charles VanVleet, Vice President and
                                      Secretary

December 18, 2003                     /s/ RICHARD JONES
                                      ------------------------------------------
                                      Richard Jones, Director

December 18, 2003                     /s/ ROBERT LEADER
                                      ------------------------------------------
                                      Robert Leader, Director

December 18, 2003                     /s/ TIMOTHY MONROE
                                      ------------------------------------------
                                      Timothy Monroe, Director

December 18, 2003                     /s/ JOSEPH PISTOLESI
                                      ------------------------------------------
                                      Joseph Pistolesi, Director

December 18, 2003                     /s/ LARRY STRAW
                                      ------------------------------------------
                                      Larry Straw, Director


                                       27
<PAGE>

INDEX TO EXHIBITS


<TABLE>
<CAPTION>
                                                                                                    Reference to Previous Filing,
         Exhibit Number    Document                                                                        if applicable.
         --------------    --------                                                                        -------------

<S>                        <C>                                                                                  <C>
         3(1)              Certificate of Incorporation                                                         **

         3(11)             Bylaws                                                                               **

         4                 Form of Stock Certificate                                                            *

         10.1              Employee Stock Ownership Plan                                                        *

         10.2              Stock Option Plan                                                                    ***

         10.3              Management Recognition Plan                                                          ***

         13                2003 Annual Report to Stockholders

         14                Code of Ethics for the President and Chief Executive
                           Officer, Chief Financial Officer, and Treasurer

         21                Subsidiaries of Registrant

         31.1              Certification of Principal Executive Officer pursuant to Exchange Act
                           Rules 13a - 15(e) and 15(d) - 15(e)

         31.2              Certification of Principal Financial Officer pursuant to Exchange Act
                           Rules 13a - 15(e) and 15(d) - 15(e)

         32.1              Certification of Principal Executive Officer pursuant to Section 1350

         32.2              Certification of Principal Financial Officer pursuant to Section 1350

         99.1              Independent auditor's report
</TABLE>


     * Filed as exhibits to the Company's Form S-1 registration statement filed
with the Commission on June 26, 1998 (File No. 333-57845). All of such
previously filed documents are hereby incorporated herein by reference in
accordance with Item 601 of Regulation S-K.

     ** Filed as exhibits to the Company's Pre-effective Amendment No. One to
Form S-1 filed with the Commission on August 5, 1999, 1998 (File No. 333-57845).
All of such previously filed documents are hereby incorporated herein by
reference in accordance with Item 601 of Regulation S-K.

     *** Filed as exhibits to the Company's Definitive Proxy Statement on Form
14A filed with the Commission on September 9, 1999. All of such previously filed
documents are hereby incorporated herein by reference in accordance with Item
601 of Regulation S-K.

                                       28
<PAGE>
                                                                      EXHIBIT 13


                               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 2003 annual report.

     Our efforts during the 2003 fiscal year have concentrated on the
development and growth of the two new offices we opened in August 2002. I am
happy to report that our Alexandria Bay full service branch office has grown its
loan portfolio from $18.4 million at September 30, 2002 to $23.0 million, an
increase of $4.6 million, or 25.0%. Total deposits for that location increased
by $2.4 million, during the first full year of operation from $2.5 million at
the end of the 2002 fiscal year to $4.9 million at the end of the 2003 fiscal
year. Our Clayton lending office began the 2003 fiscal year with $0.4 million in
loans and ended this fiscal year on September 30, 2003 with $3.7 million in
loans, an increase of $3.3 million. For fiscal 2003, our return on average
assets fell from 0.93% last year to 0.68% this year as net income decreased from
$775,000 in 2002 to $592,000 in 2003. This result was expected since the Bank's
earning assets must be grown even more to cover the incremental expenses
associated with the new offices. As these two offices continue to grow, we
should see our performance ratios return to previous levels. For 2003 we are
pleased with the results we achieved, but we are not satisfied because the
results are below our standards. We will continue to look for efficiencies in
all areas to improve your return on investment. Overall, the Company's assets
increased from $85.1 million to $90.0 million, an increase of $4.9 million, or
5.76%. This growth was accomplished because we expanded the Bank last year.

     During the first six months of our fiscal year, through March 2003, we saw
mostly the increased expenses generated by the new offices. However, in April
2003, we began to see increased demand for loans, mainly residential mortgages.
Mortgage rates have been at or near historic lows for more than a year. These
low rates, which affected the yield on both our loan and investment portfolios,
resulted in lowering the average yield on our interest-earning assets by 77
basis points, 0.77%, or 10.9%, from 7.09% in 2002 to 6.32% for the 2003 fiscal
year. Low rates also affected the cost of interest-bearing liabilities as our
average cost of funds decreased 21.1% to 2.81% for this fiscal year from 3.56%
for 2002 fiscal year, a drop of 75 basis points, or 0.75%. The level to which
interest rates have fallen, as well as the length of time they have been at this
low level, cause concern for what will happen when rates do rise. We are working
to improve current earnings, but not at the expense of future earnings. Much of
the growth in mortgages has been of the adjustable rate variety. Our level of
adjustable rate loans has increased from $12.0 million, or 22.0% of total loans,
at September 30, 2002 to $21.4 million, or 33.0% of total loans, at September
30, 2003.

                                        1
<PAGE>

     While our assets increased by $4.9 million, our loan portfolio increased
even more during 2003. Since we hold our mortgages, we believe that offering
mortgages fixed at the current market rates would subject the Bank to excessive
interest rate risk and would expose a higher percentage of our portfolio to the
lower rates. Therefore, while we have lowered our adjustable rate mortgage loans
to be competitive, we have held firm on our fixed rates. Even though we will
lose some loans in the current rate environment, we feel that this strategy will
position our Bank to better handle rising interest rates when they come. Also,
we expect that the new branch office and the new lending office will continue to
provide additional opportunities for loans. Overall, we experienced a $10.4
million increase in net loans, or a 19.15% rise from $54.3 million to $64.7
million for the 2002 fiscal year, while the average rate on our loans fell by 68
basis points, or 8.1%, from 8.38% last year to 7.70% this year.

     Despite the increase in our loan portfolio, our results show that net
interest income decreased by $14,000 over the past twelve months because
interest income was impacted more by the decrease in interest rates than was the
cost of funds. The growth of our loan portfolio over the second half of the
fiscal year helped to minimize the reduction in net interest income.
Non-interest expenses increased $0.4 million, or 18.2%, from $2.2 million last
year to $2.6 million this year. Much of this increase is attributable to the
additional costs of the new offices during the first full year of operation.

     Our biggest concern going forward is when and how fast interest rates rise.
Although we have increased our level of adjustable rate loans, many of the
mortgages added over the past twelve months are fixed for five years before
changing to one-year adjustable rate loans. We will be examining ways to improve
our interest rate risk position during the next year by adjusting our investment
portfolio to better complement our loan portfolio. We will continue to grow our
new markets and improve our market share at each location. PC Banking
alternatives remain on the back burner, but will need to be addressed in the
near future for competitive reasons.

     Our officers and staff have worked very hard for the success we have
achieved and deserve recognition. Without their efforts, we wouldn't have
achieved the growth we have seen over the past twelve months. I also want to
thank the Board of Directors and our stockholders for their support in our
endeavors. We look forward to continuing to grow our franchise and will seek
mergers, acquisitions and de novo branching opportunities for that purpose.



                                       /s/ RICHARD F. BENNETT
                                       -------------------------------------
                                       Richard F. Bennett
                                       President and Chief Executive Officer


                                        2
<PAGE>

                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

Selected Financial Condition Data:

<TABLE>
<CAPTION>
                                                    At September 30,
                                                    ----------------
                                    2003       2002       2001       2000       1999
                                  --------   --------   --------   --------   --------
                                                 (Dollars in thousands)

<S>                               <C>        <C>        <C>        <C>        <C>
  Total Assets                    $ 89,956   $ 85,058   $ 82,863   $ 74,900   $ 69,996
  Loans (1)                         65,393     55,016     56,434     54,960     46,791
  Allowance for loan losses            655        671        655        663        620
  Securities available-for-sale     17,473     22,964     19,077     11,368     12,971
  Securities held-to-maturity          456      1,341      2.651      4,263      6,019
  Cash and cash equivalents          4,288      3,047      2,852      3,388      3,490
  Foreclosed real estate                92         25        182         91        169
  Other repossessed assets              29         46         38         20         --
  Deposits                          58,423     52,761     47,683     46,800     45,113
  Borrowings                        12,200     13,400     16,400     10,800      7,400
  Total shareholders' equity      $ 17,557   $ 17,228   $ 16,656   $ 15,989   $ 16,029
                                  ========   ========   ========   ========   ========
</TABLE>

Selected Operations Data:

<TABLE>
<CAPTION>
                                                Year Ended September 30,
                                                ------------------------
                                    2003       2002       2001       2000       1999
                                  --------   --------   --------   --------   --------
                                                 (Dollars in thousands)

<S>                               <C>        <C>        <C>        <C>        <C>
  Interest income                 $  5,223   $  5,612   $  5,955   $  5,586   $  4,815
  Interest expense                   1,906      2,281      2,951      2,581      2,019
                                  --------   --------   --------   --------   --------
  Net interest income                3,317      3,331      3,004      3,005      2,796
    Provision for loan losses           95         85         80        158        162
                                  --------   --------   --------   --------   --------
  Net interest income after
    Provision for loan losses        3,222      3,246      2,924      2,847      2,634
  Non-interest income                  350        293        329        306        125
  Non-interest expense               2,619      2,240      2,020      1,994      1,687
                                  --------   --------   --------   --------   --------
  Income before income taxes           953      1,299      1,233      1,159      1,072
  Income tax expense                   361        524        467        434        431
                                  --------   --------   --------   --------   --------
  Net income                      $    592   $    775   $    766   $    725   $    641
                                  ========   ========   ========   ========   ========
</TABLE>

Per Common Share:

<TABLE>
<CAPTION>
                                                Year Ended September 30,
                                                ------------------------
                                    2003       2002       2001       2000       1999
                                  --------   --------   --------   --------   --------

<S>                               <C>        <C>        <C>        <C>        <C>
Net Income
  Basic (2)                       $   0.27   $   0.35   $   0.35   $   0.33   $   0.15
  Diluted (2)                         0.26       0.35       0.35       0.32       0.15
  Book Value                          7.71       7.57       7.32       7.02       6.72
  Cash dividends declared             0.26       0.22       0.16       0.11        N/A
   Dividend payout ratio             96.30%*    62.86%*    45.71%*    33.33%       N/A
</TABLE>

*    Cambray Mutual waived its right to dividends declared in 2003, 2002 and
     2001 amounting to $341,000, $288,000 and $118,000 respectively. The
     dividend payout ratio excluding waived dividends was 42.57% in 2003, 27.42%
     in 2002 and 32.11% in 2001.

     Notes appear on following page.

                                        3
<PAGE>

<TABLE>
<CAPTION>
                                                          At or for the Year Ended September 30,
                                                          --------------------------------------

                                                   2003        2002        2001        2000        1999
                                                 --------    --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>         <C>
Performance Ratios:
Return on average assets (net income to
  average total assets) ......................       0.68%       0.93%       0.96%       1.00%       1.03%
Return on average equity (net income
  to average equity) .........................       3.40%       4.56%       4.69%       4.58%       4.84%
Average interest-earning assets to
  average interest-bearing liabilities .......     122.00%     123.40%     125.08%     126.57%     125.04%
Net interest rate spread (4) .................       3.51%       3.53%       2.97%       3.31%       3.81%
Net interest margin (5) ......................       4.01%       4.21%       3.93%       4.29%       4.65%
Net interest income after provision for
  loan losses to total other expenses ........      1.23x       1.45x       1.45x       1.43x       1.54x

Capital and Asset Quality Ratios: (3)
Average equity to average total assets .......      19.88%      20.41%      20.55%      21.77%      21.27%
Total equity to assets end of period .........      19.52%      20.25%      20.10%      21.35%      22.90%
Non-performing assets to total assets ........       0.92%       0.88%       0.79%       0.69%       0.56%
Non-performing loans to total loans ..........       1.08%       1.23%       0.78%       0.75%       0.47%
Allowance for loan losses to total loans .....       1.01%       1.21%       1.17%       1.21%       1.33%
Allowance for loan losses to
  non-performing loans .......................      93.17%      98.68%     149.89%     162.10%     280.54%

Other Data:
Number of real estate loans outstanding ......      1,467       1,393       1,456       1,438       1,383
Number of deposit accounts ...................      7,639       7,216       6.989       7,014       6,890
Full service offices .........................          2           2           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.

                                        4
<PAGE>

Year 2003 Highlights For Our Bank

     During fiscal 2003, Gouverneur Bancorp, Inc. marked its third full year as
a public company. In the course of this year, our subsidiary, Gouverneur Savings
and Loan Association (the "Bank"), increased its assets by $4.9 million, through
mortgage portfolio 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 (including home equity lines of credit). The Bank
also makes consumer, commercial and multi-family real estate and other loans.
Most of the loans are in the Bank's primary market area, 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 ("OTS") 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, primarily deposits. Other categories of expenses generally
include the provision for loan losses, salaries and employee benefits costs, net
expenses on foreclosed real estate 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. Last year, in order to meet the
challenge of competition and increase our earning assets, we:

          o    opened a new full service branch office in Alexandria Bay, NY to
               replace the lending office in that community to allow us to fully
               service current customers in that market area and create new loan
               opportunities, and
          o    opened a new lending office in Clayton, NY, ten miles west of
               Alexandria Bay, to generate additional loan opportunities along
               the St. Lawrence River in conjunction with the new branch office.

     This year, we have increased loans at the Alexandria Bay office by $4.6
million, or 25.0%, from $18.4 million on September 30, 2002 to $23.0 million on
September 30, 2003. The Clayton lending office has grown its loan portfolio from
$0.4 million to $3.7 million over the same period. The growth of these two new
locations lead to an overall increase of $10.4 million in the Bank's net loans,
from $54.3 million at the end of the 2002 year to $64.7 million at the end of
the 2003 fiscal year.

     During fiscal 2003, our deposits increased by $5.6 million, or 10.6%. The
growth was in savings and club accounts at $3.3 million and NOW and money market
accounts at $2.3 million, while demand deposits and time certificates remained
at last year's levels. Deposits at the Alexandria Bay branch office grew by $2.4
million, or 96.0%, from $2.5 million on September 30, 2002 to $4.9 million on
September 30, 2003. We expect that the full service branch in Alexandria Bay
will continue to provide additional deposit growth opportunities for the Bank.
Due to the increase in deposits, we reduced our borrowings by $1.2 million, or
9.0% during the past twelve months.

     We believe that some of our deposit growth has 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. If we are

                                        5
<PAGE>

unable to attract the deposits necessary to support our growth, we will continue
to borrow funds from the Federal Home Loan Bank of New York ("FHLBNY").

     Now that we have added additional locations, it will take some time to
develop these markets. Even though we are starting with an established loan base
in the Alexandria Bay market, it will take time and effort to convert these
customers to full service relationships and to attract new customers and expand
our loan base. We believe that the Clayton Lending office benefits from the
relationships and name recognition from the Alexandria Bay location. We will
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 2003.

     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.

     Critical Accounting Policies

     Note 2 to Gouverneur Bancorp, Inc.'s consolidated financial statements
lists significant accounting policies used in the development and presentation
of its financial statements. This discussion and analysis, the significant
accounting policies, and other financial statement disclosures identify and
address key variables and other qualitative and quantitative factors that are
necessary for an understanding and evaluation of Gouverneur Bancorp, Inc. and
its results of operation.

     The reporting of the Company's financial condition and results of
operations is impacted by the application of accounting policies by management.
Certain accounting policies are particularly sensitive and require significant
judgments, estimates and assumptions to be made by management in matters that
are inherently uncertain.

     The Company's provision for loan losses and the level of the allowance for
loan losses involve significant estimates by management in evaluating the
adequacy of the allowance for loan losses. Management's evaluation is based on
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, current economic conditions and
other relevant factors. While management uses available information to make such
evaluations, future adjustments to the allowance may be necessary if economic
conditions or loan credit quality differ substantially from the assumptions used
in making the evaluation.

     As permitted by SFAS No. 123 the Company accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion (APB) No.
25. Under APB No. 25, no compensation expense is recognized in the income
statement related to any options granted under the Company's stock option plans.
The pro forma impact to net income and earnings per share that would occur if
compensation expense was recognized, based on the estimated fair value of the
options on the date of grant, is disclosed in note 2 to the consolidated
financial statements. The Company intends to continue to account for stock-based
compensation in this manner unless there is more specific guidance issued by the
Financial Accounting Standards Board or unless a clear consensus develops in the
financial services industry on the application of accounting methods.

                                        6
<PAGE>

     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.

     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.

                                        7
<PAGE>

<TABLE>
<CAPTION>
                                                                        For the Year Ended September 30,
                                                                        --------------------------------
                                                       2003                          2002                          2001
                                            ---------------------------   ---------------------------   ---------------------------
                                                                               ($ 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, net (1)                              $57,312   $ 4,413      7.70%  $54,798   $ 4,593      8.38%  $55,089   $ 4,740      8.60%
Securities (2)                               23,194       788      3.40%   22,481       989      4.40%   19,759     1,140      5.77%
Other short-term investments                  2,188        22      1.01%    1,880        30      1.60%    1,536        75      4.88%
                                            -------   -------             -------   -------             -------   -------
   Total interest-earning assets             82,694     5,223      6.32%   79,159     5,612      7.09%   76,384     5,955      7.80%
                                                      -------                       -------                       -------
Non-interest-earning assets                   4,869                         4,078                         3,058
                                            -------                       -------                       -------
      Total assets                          $87,563                       $83,237                       $79,442
                                            =======                       =======                       =======


Savings and club accounts (3)               $17,968   $   321      1.79%  $14,925   $   353      2.37%  $14,277   $   470      3.29%
Time certificates                            28,749       907      3.15%   26,782     1,129      4.20%   25,618     1,559      6.09%
NOW and money market accounts                 8,296        73      0.88%    6,988        87      1.24%    6,575       145      2.21%
Borrowings                                   12,766       605      4.74%   15,364       712      4.63%   14,599       777      5.32%
                                            -------   -------             -------   -------             -------   -------
   Total interest-bearing liabilities        67,779     1,906      2.81%   64,149     2,281      3.56%   61,069     2,951      4.83%
                                                      -------                       -------                       -------
Non-interest-bearing liabilities              2,378                         2,099                         2,048
                                            -------                       -------                       -------
      Total liabilities                      70,157                        66,248                        63,117
Shareholders' equity                         17,406                        16,989                        16,325
                                            -------                       -------                       -------
   Total liabilities and
     shareholders' equity                   $87,563                       $83,237                       $79,442
                                            =======                       =======                       =======


Net interest income/spread (4)                        $ 3,317      3.51%            $ 3,331      3.53%            $ 3,004      2.97%
                                                      =======   =======             =======   =======             =======   =======

Net earning assets/net interest
   margin (5)                               $14,915                4.01%  $15,010                4.21%  $15,315                3.93%
                                            =======             =======   =======             =======   =======             =======
Ratio of average interest-earning assets
   To average interest-bearing liabilities     1.22x                         1.23x                                   1.25x
                                               ====                       =======                                 =======
</TABLE>

Notes appear on following page

                                        8
<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 multiplying the average rate during the first period by the volume
change between the two periods. The effect of a change in interest rates is
calculated by multiplying the change in rate between the two periods by 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,
                                                         ------------------------
                                                2003 vs. 2002                 2002 vs. 2001
                                                -------------                 -------------
                                         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                                  $  204    $ (384)   $ (180)   $  (26)   $ (121)   $ (147)
  Securities                                 30      (231)     (201)      143      (294)     (151)
  Other short-term investments                4       (12)       (8)       14       (59)      (45)
                                         ------    ------    ------    ------    ------    ------
    Total interest-earning assets           238      (627)     (389)      131      (474)     (343)
                                         ------    ------    ------    ------    ------    ------

Interest-bearing liabilities:
  Savings and club accounts                  64       (96)      (32)       20      (137)     (117)
  Time certificates                          75      (297)     (222)       73      (503)     (430)
  NOW and money market accounts              14       (28)      (14)        9       (67)      (58)
  Borrowings                               (123)       16      (107)       40      (105)      (65)
                                         ------    ------    ------    ------    ------    ------
    Total interest-bearing liabilities       30      (405)     (375)      142      (812)     (670)
                                         ------    ------    ------    ------    ------    ------

Net change in net interest income        $  208    $ (222)   $  (14)   $  (11)   $  338    $  327
                                         ======    ======    ======    ======    ======    ======
</TABLE>

                                        9
<PAGE>

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

     Comparison of Financial Condition at September 30, 2003 and 2002

     The Company's total assets amounted to $90.0 million at September 30, 2003,
which was $4.9 million, or 5.76%, higher than our total assets of $85.1 million
one year earlier. The increase was funded primarily through growth in deposits
of $5.6 million after $1.2 million of this increase was used to repay debt with
FHLBNY.

     Cash and due from banks, interest bearing deposits and investment
securities decreased by $5.3 million, or 19.3%, to a total of $22.2 million at
September 30, 2003 compared to $27.5 million at September 30, 2002. Cash and due
from banks increased by $0.3 million while interest-bearing deposits increased
by $0.9 million. Available-for-sale securities decreased during the year by $5.5
million, while securities held-to-maturity decreased by $0.9 million. The
decline in the balances of the available-for-sale portfolio was due to the sale
of mutual fund assets and the decrease in the held-to-maturity portfolio
resulted from scheduled principal repayments on those securities.

     Net loans were $64.7 million at September 30, 2003, an increase of $10.4
million, or 19.2%, compared to $54.3 million one year ago. This increase was the
result of a high amount of refinancing activity due to historically low interest
rates combined with an active real estate market in the Thousand Islands region
affecting both Alexandria Bay and Clayton. The increase was also the result of
management's decision to lower our adjustable mortgage rates.

     Total deposits increased by $5.6 million during the year as saving and club
account deposits increased by $3.3 million and NOW and money market deposits
grew by $2.3 million. Alexandria Bay, which began taking deposits in August 2002
at the new branch, increased deposits by $2.4 million, or 96.0% from $2.5
million at the end of September 2002 to $4.9 million at the end of September
2003. The new branch opens another market for our deposit products and offers us
an alternative to borrowing funds as we grow.

     Borrowed funds decreased by $1.2 million from $13.4 million to $12.2
million at September 30, 2003 as discussed above.

     Total shareholders' equity amounted to $17.6 million at September 30, 2003,
an increase of $0.4 million, or 2.3%, over the balance of $17.2 million at
September 30, 2002. The increase resulted from net income of $592,000 and
increases due to the allocation of Employee Stock Ownership Plan (ESOP) shares
and the amortization of Management Recognition Plan (MRP) shares totaling
$98,000 and the exercise of stock options which were issued from treasury stock
in the amount of $6,000. These increases were partially offset by $252,000 paid
in dividends on common stock, $65,000 paid for the purchase of 6,600 shares of
common stock for the MRP and a $50,000 decrease in the value of available for
sale investments after tax.

     Comparison of Operating Results for the Years Ended September 30, 2003 and
     2002

     Net Income. Net income for the year ended September 30, 2003 was $592,000
compared to net income of $775,000 the previous year. The $183,000 decrease in
net income represents a 23.6% decrease from fiscal 2002. Income before taxes
decreased by $346,000, or 26.6%, as a result of an increase of $57,000 in other
income being more than offset by a decrease in net interest income of $14,000
generated by the decline in interest rates combined with an increase of $10,000
in the provision for loan losses and an increase of $379,000 in non-interest
expenses. Income tax expense was reduced by $163,000 because of the reduced
income before taxes resulting in a decrease of $183,000 in net income.

     Interest Income. Interest income decreased by $389,000 from $5,612,000 in
fiscal 2002 to $5,223,000 in fiscal 2003. We estimate that the decrease in
interest income was composed of an increase of $238,000 due to an increase in

                                       10
<PAGE>

the average balance of interest-earning assets, from $79.2 million to $82.7
million, and a $627,000 decrease in interest income due to a decrease in the
average rate earned on interest-earning assets, from 7.09% to 6.32%. The average
balance of loans increased by $2.5 million, due to increases in real estate
loans and other commercial loans more than offsetting a decrease in other
consumer loans, while the average rate earned on loans decreased from 8.38% to
7.70%. The increase in the average balance of loans resulted in a $204,000
increase in interest income, while the decrease in the average rate on loans
resulted in a $384,000 decrease in interest income. The average balances of
securities and other short-term investments increased by $1.0 million from $24.4
million in fiscal 2002 to $25.4 million in fiscal 2003 while the average rate
earned on securities and other short term investments decreased from 4.18% for
the year ended September 30, 2002 to 3.19% for the year ended September 30,
2003. The increase in the average balance of securities and other short-term
investments increased interest income by $34,000, while the decrease in the
average rate earned on securities and other short-term investments decreased
interest income by $243,000.

     Interest Expense. Interest expense decreased by $375,000 from $2,281,000
for fiscal 2002 to $1,906,000 in fiscal 2003. The increase in the average
balance of interest-bearing liabilities from $64.1 million in fiscal 2002 to
$67.8 million in fiscal 2003 resulted in an increase of $30,000 in interest
expense, while a decrease in the average interest rate from 3.56% for fiscal
2002 to 2.81% for fiscal 2003 resulted in a $405,000 decrease in interest
expense. The decrease in interest rates was attributable to decreases in the
cost of savings and club accounts, time deposits, NOW and money market accounts
offset in part by a slight increase in the cost of borrowings from FHLBNY due to
the payoff of borrowings.

     Our average cost of funds decreased from 3.56% in 2002 to 2.81% in 2003.
The rates decreased on savings and club accounts by 58 basis points to 1.79%, on
time certificates by 105 basis points to 3.15%, on money market and NOW accounts
36 basis points to 0.88%. The cost of borrowings at FHLBNY increased by 11 basis
points to 4.74%.

     Net Interest Income. Our net interest income decreased by $14,000 in fiscal
2003. The decrease was attributable to a $389,000 decrease in interest income
combined with a decrease of $375,000 in interest expense as explained above. The
interest rate change is also reflected by a 2 basis point decrease in our
spread, which is the difference between the average yield earned on our assets
and the average rate paid on our liabilities, from 3.53% to 3.51%.

     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
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 OTS may
disagree with our judgments regarding the risks in our loan portfolio and could
require us to increase the allowance in the future.

     We increased our provision for loan losses from $85,000 in 2002 to $95,000
in 2003. At year-end, the ratio of our loan loss allowance to total loans and
non-performing loans was 1.01% and 93.17% respectively. Our allowance at the
beginning of the year was $671,000 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 $188,000 and recoveries of $77,000, so a $95,000 provision was
necessary to reach the desired level for the allowance.

     Non-interest income. Non-interest income increased from $293,000 in fiscal
year 2002 to $350,000 in fiscal 2003. Service charge income increased $37,000
consistent with the growth in deposits and new accounts, loan fees were up
$12,000, other non-interest income items increased by $23,000, while gains on
sale of securities dropped $15,000 from fiscal year 2002 to 2003.

                                       11
<PAGE>

     Non-interest expenses. Our non-interest expenses increased $379,000 from
$2,240,000 in fiscal 2002 to $2,619,000 in fiscal 2003. Non-interest expenses
include 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, followed by other expense, building,
occupancy and equipment and professional fees.

     The increase was primarily due to increased costs of $186,000 in salaries
and employee benefits expense, $69,000 in building, occupancy and equipment
costs, $48,000 in directors' fees, $43,000 in foreclosed assets expense, $18,000
in telephone expense and $14,000 in utilities. The additional salaries and
employee benefits expense resulted from performance increases to our employees
and the hiring of six employees to staff the new branch office and the new
lending office. Directors' fees are impacted by changes in the market value of
investments which fund the deferred directors' fees plan. Building, occupancy,
equipment and telephone and utilities expense are up because of the new office
locations.

     Income Tax Expense. Our income tax expense decreased from $524,000 in
fiscal 2002 to $361,000 in fiscal 2003, or 31.1%. The effective income tax rate
was 37.9% in 2003 and 40.3% in 2002 due to this decrease. The decrease was the
result of decreased income before income tax expense and permanent differences
between tax and book income expenses as outlined in Note 9 to the Consolidated
Financial Statements.

     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, 2003, we increased our
cash and cash equivalents by $1,241,000. The increase was the net result of the
combination of all our sources and uses of funds. We originated $26.3 million of
new loans and purchased $2.5 million in USDA and SBA guaranteed loans during
fiscal 2003, as compared to originations of $15.8 million and no purchased loans
in fiscal 2002. However, loans, net, after payments, charge-offs and transfers
to foreclosed assets, increased by $10.8 million this year after decreasing by
$1.3 million last year.

     Deposits increased by $5.6 million during fiscal 2003. We believe the
increase is attributable to competitive rates we paid on deposits plus the $2.4
million in new deposits at the new branch in Alexandria Bay. 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.

     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
FHLBNY, the Bank can arrange to borrow in excess of $ 22.0 million of which $5.7
million was outstanding at September 30, 2003, 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 prior years 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 $5.4 million of outstanding commitments to make loans at September
30, 2003, along with $1.0 million to purchase loans and $2.0 million of unused
home equity, commercial and overdraft lines of credit. During the upcoming year,

                                       12
<PAGE>

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 as a percentage of total
assets, borrowing funds, or the use of wholesale or brokered deposits. At
September 30, 2003, we had $18.8 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 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, 2003, 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, 2003 under OTS
regulations.

     We measure liquidity on a monthly basis and want to maintain a liquidity
ratio between 5% and 15%. At September 30, 2003, the ratio is 25.5%. However,
this ratio will drop because we have sold most of the mutual fund assets to
provide liquidity for the loan portfolio. We estimate the ratio will drop to the
15% to 17% range because of this change. We will continue to monitor this
situation and adjust deposit rates, invest funds in longer-term securities or
pay off borrowed funds as necessary.

     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 on 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.

                                       13
<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 9, 2004 at
10:00 am at the Clearview Restaurant, 1180A U.S. Highway 11, Gouverneur, New
York 13642.

Annual Report on Form 10-KSB
----------------------------
For the 2003 fiscal year, Gouverneur Bancorp, Inc. has filed 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
106 Corporate Park Drive, Suite 317
White Plains, New York 10604

Independent Auditors
--------------------
Beard Miller Company LLP
320 East Market Street
Harrisburg, Pennsylvania 17108

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, 2003, 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 for the past two fiscal years.

                                                                          Cash
                                                                        Dividend
Quarter Ended                                     High        Low       Declared
-------------                                   --------    --------    --------

Fiscal 2003
-----------
September 30, 2003                              $  11.20    $  10.12    $   0.13
June 30, 2003                                   $  10.62    $   9.70    $   0.00
March 31, 2003                                  $  10.00    $   9.20    $   0.13
December 31, 2002                               $  10.20    $   9.40    $   0.00

Fiscal 2002
-----------
September 30, 2002                              $  10.50    $   8.60    $   0.12
June 30, 2002                                   $  10.70    $   8.25    $   0.00
March 31, 2002                                  $   8.60    $   7.70    $   0.10
December 31, 2001                               $   9.10    $   7.65    $   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: Retired feed & farm store owner
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 Straw: Project Manager, Cives Steel Co., Northern Division, 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

                                       14
<PAGE>

                            GOUVERNEUR BANCORP, INC.

                          CONSOLIDATED FINANCIAL REPORT


                               SEPTEMBER 30, 2003

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
TABLE OF CONTENTS




                                                                       PAGE NO.

CONSOLIDATED FINANCIAL STATEMENTS:

     Independent Auditor's Report                                          1

     Consolidated Statements of Financial Condition                        2

     Consolidated Statements of Income                                     3

     Consolidated Statements of Shareholders' Equity                       4

     Consolidated Statements of Cash Flows                                 5

     Notes to Consolidated Financial Statements                            6
<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholders
Gouverneur Bancorp, Inc.
Gouverneur, New York


         We have audited the accompanying consolidated statement of financial
condition of Gouverneur Bancorp, Inc. and its subsidiary as of September 30,
2003, and the related consolidated statements of income, shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Gouverneur Bancorp, Inc. and its subsidiary as of September 30,
2002 were audited by other auditors whose report, dated November 16, 2002,
expressed an unqualified opinion on those statements.

         We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

         In our opinion, the 2003 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Gouverneur Bancorp, Inc. and its subsidiary as of September 30, 2003, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.


                                                /s/ Beard Miller Company LLP



Harrisburg, Pennsylvania
October 31, 2003

                                       1
<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                               September 30,
                                                                                         ------------------------
                                                                                            2003          2002
                                                                                         ----------    ----------
                                                                                              (In Thousands)
                                     ASSETS

<S>                                                                                      <C>           <C>
   Cash and due from banks                                                               $    1,762    $    1,481
   Interest bearing deposits with banks                                                       2,526         1,566
                                                                                         ----------    ----------

       Cash and Cash Equivalents                                                              4,288         3,047

   Securities available for sale                                                             17,473        22,964
   Securities held to maturity, fair value 2003 $459; 2002 $1,352                               456         1,341
   Loans receivable, net of allowance for loan losses 2003 $655; 2002 $671                   64,738        54,345
   Investment in FHLB stock, at cost                                                            610           745
   Bank premises and equipment, net                                                           1,484         1,848
   Accrued interest receivable and other assets                                                 907           768
                                                                                         ----------    ----------

       Total Assets                                                                      $   89,956    $   85,058
                                                                                         ==========    ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

   Deposits:
      Non-interest bearing demand                                                        $      806    $      779
      NOW and money market                                                                    9,409         7,141
      Savings                                                                                19,157        15,821
      Time                                                                                   29,051        29,020
                                                                                         ----------    ----------

       Total Deposits                                                                        58,423        52,761

   Securities sold under agreements to repurchase                                             5,700         6,900
   Advances from Federal Home Loan Bank                                                       6,500         6,500
   Accrued interest payable and other liabilities                                             1,776         1,669
                                                                                         ----------    ----------

       Total Liabilities                                                                     72,399        67,830
                                                                                         ----------    ----------

SHAREHOLDERS' EQUITY

   Preferred stock, par value $.01 per share; authorized 1,000,000 shares; none issued           --            --
   Common stock, par value $.01 per share; authorized 9,000,000 shares;
      issued 2,384,040 shares                                                                    24            24
   Paid-in capital                                                                            4,577         4,570
   Retained earnings                                                                         13,365        13,025
   Treasury stock, at cost, 2003 - 106,156 shares; 2002 - 107,281 shares                       (537)         (543)
   Accumulated other comprehensive income                                                       487           537
   Unearned common stock held by management recognition plan                                    (85)          (73)
   Unallocated common stock held by employee stock ownership plan                              (274)         (312)
                                                                                         ----------    ----------

       Total Shareholders' Equity                                                            17,557        17,228
                                                                                         ----------    ----------

       Total Liabilities and Shareholders' Equity                                        $   89,956    $   85,058
                                                                                         ==========    ==========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        2

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                              Years Ended September 30,
                                                             ---------------------------
                                                                 2003           2002
                                                             ------------   ------------
                                                        (In Thousands, Except Per Share Data)

<S>                                                          <C>            <C>
INTEREST INCOME
   Loans receivable, including fees                          $      4,413   $      4,593
   Securities                                                         788            989
   Other                                                               22             30
                                                             ------------   ------------

       Total Interest Income                                        5,223          5,612
                                                             ------------   ------------

INTEREST EXPENSE
   Deposits                                                         1,301          1,569
   Short-term borrowings                                               76            108
   Advances from Federal Home Loan Bank                               529            604
                                                             ------------   ------------

       Total Interest Expense                                       1,906          2,281
                                                             ------------   ------------

       Net Interest Income                                          3,317          3,331

PROVISION FOR LOAN LOSSES                                              95             85
                                                             ------------   ------------

       Net Interest Income after Provision for Loan Losses          3,222          3,246
                                                             ------------   ------------

OTHER INCOME
   Service charges and fees                                           146            109
   Net realized gains on sales of securities                           83             98
   Other                                                              121             86
                                                             ------------   ------------

       Total Other Income                                             350            293
                                                             ------------   ------------

OTHER EXPENSES
   Salaries and employee benefits                                   1,312          1,126
   Directors' fees                                                    101             53
   Occupancy and equipment                                            356            287
   Data processing                                                    127            120
   Postage and supplies                                               116            132
   Professional fees                                                  145            142
   Other                                                              462            380
                                                             ------------   ------------

       Total Other Expenses                                         2,619          2,240
                                                             ------------   ------------

       Income before Income Taxes                                     953          1,299

INCOME TAX EXPENSE                                                    361            524
                                                             ------------   ------------

       Net Income                                            $        592   $        775
                                                             ============   ============

EARNINGS PER SHARE
   Basic                                                     $       0.27   $       0.35
                                                             ============   ============

   Diluted                                                   $       0.26   $       0.35
                                                             ============   ============
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        3

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended September 30, 2003 and 2002

<TABLE>
<CAPTION>
                                                                                   Accumulated   Unearned   Unallocated
                                                                                     Other        Common    Common Stock
                                     Common    Paid-in     Retained    Treasury   Comprehensive  Stock Held    Held
                                     Stock     Capital     Earnings     Stock        Income        by MRP     by ESOP       Total
                                   ---------- ----------  ----------  ----------    ----------   ----------  ----------  ----------
                                                                       (In Thousands)
<S>                                <C>        <C>         <C>         <C>           <C>          <C>         <C>         <C>
BALANCE - SEPTEMBER 30, 2001       $       24 $    4,540  $   12,463  $     (543)   $      610   $      (89) $     (349) $   16,656
                                                                                                                         ----------
Comprehensive income:
   Net income                              --         --         775          --            --           --          --         775
   Change in unrealized gains
      on securities available
      for sale, net of
      reclassification adjustment
      and tax effects                      --         --          --          --           (73)          --                     (73)
                                                                                                                         ----------

   Total Comprehensive Income                                                                                                   702
                                                                                                                         ----------

   Cash dividends declared,
     $.22 per share                        --         --        (213)         --            --           --          --        (213)
   Allocation of ESOP shares,
     7,232 shares                          --         30          --          --            --           --          37          67
   Amortization of MRP                     --         --          --          --            --           16          --          16
                                   ---------- ----------  ----------  ----------    ----------   ----------  ----------  ----------

BALANCE - SEPTEMBER 30, 2002               24      4,570      13,025        (543)          537          (73)       (312)     17,228
                                                                                                                         ----------
Comprehensive income:
   Net income                              --         --         592          --            --           --          --         592
   Change in unrealized gains
      on securities available
       for sale, net of
       reclassification adjustment
       and tax effects                     --         --          --          --           (50)          --          --         (50)
                                                                                                                         ----------

   Total Comprehensive Income                                                                                                   542
                                                                                                                         ----------

   Cash dividends declared,
     $0.26 per share                       --         --        (252)         --            --           --          --        (252)
   Allocation of ESOP shares
     (7,792 shares)                        --         40          --          --            --           --          38          78
   Purchase stock for MRP
     (6,600 shares)                        --        (33)         --          --            --          (32)         --         (65)
   Amortization of MRP                     --         --          --          --            --           20          --          20
   Exercise of stock options
     (1,125 shares)                        --         --          --           6            --           --          --           6
                                   ---------- ----------  ----------  ----------    ----------   ----------  ----------  ----------

BALANCE - SEPTEMBER 30, 2003       $       24 $    4,577  $   13,365  $     (537)   $      487   $      (85) $     (274) $   17,557
                                   ========== ==========  ==========  ==========    ==========   ==========  ==========  ==========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        4

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       Years Ended September 30,
                                                                                       ------------------------
                                                                                          2003          2002
                                                                                       ----------    ----------
                                                                                           (In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                    <C>           <C>
   Net income                                                                          $      592    $      775
   Adjustments to reconcile net income to net cash provided by operating activities:
      Provision for loan losses                                                                95            85
      Depreciation                                                                            148            99
      Deferred income taxes                                                                   (46)          (20)
      Net amortization of securities premiums and discounts                                   120            81
      Net realized gains on sales of securities                                               (83)          (98)
      Stock received from demutualization                                                      --           (15)
      Allocated and earned shares of ESOP and MRP                                              98            83
      Decrease in accrued interest receivable and other assets                                 14            97
      Increase (decrease) in accrued interest payable and other liabilities                   187          (354)
                                                                                       ----------    ----------

         Net Cash Provided by Operating Activities                                          1,125           733
                                                                                       ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Securities available for sale:
      Proceeds from sales                                                                   6,599           112
      Proceeds from maturities and principal reductions                                     5,247         5,209
      Purchases                                                                            (6,330)       (9,289)
   Securities held to maturity, proceeds from maturities                                      883         1,307
   Decrease in investment in FHLB stock                                                       135            75
   Loans purchased                                                                         (2,464)           --
   Net (increase) decrease in loans                                                        (8,321)        1,231
   Net proceeds from sale of land                                                             250            --
   Purchase of bank premises and equipment                                                    (34)       (1,048)
                                                                                       ----------    ----------

         Net Cash Used in Investing Activities                                             (4,035)       (2,403)
                                                                                       ----------    ----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits                                                                 5,662         5,078
   Net decrease in short-term borrowings                                                   (1,200)       (3,000)
   Exercise of stock options                                                                    6            --
   Purchase of common stock for MRP                                                           (65)           --
   Cash dividends paid                                                                       (252)         (213)
                                                                                       ----------    ----------

         Net Cash Provided by Financing Activities                                          4,151         1,865
                                                                                       ----------    ----------

         Net Increase in Cash and Cash Equivalents                                          1,241           195

CASH AND CASH EQUIVALENTS - BEGINNING                                                       3,047         2,852
                                                                                       ----------    ----------

CASH AND CASH EQUIVALENTS - ENDING                                                     $    4,288    $    3,047
                                                                                       ==========    ==========

SUPPLEMENTAL CASH FLOWS INFORMATION
   Interest paid                                                                       $    1,913    $    2,304
                                                                                       ==========    ==========

   Income taxes paid                                                                   $      293    $      437
                                                                                       ==========    ==========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
   Additions to foreclosed assets                                                      $      297    $      118
                                                                                       ==========    ==========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        5

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - NATURE OF OPERATIONS

Gouverneur Bancorp, Inc. (the Company) is a savings and loan holding company.
Its only subsidiary is Gouverneur Savings and Loan Association (the Bank). On
March 23, 1999, the Bank reorganized into the mutual holding company form of
organization as a wholly-owned subsidiary of the Company, a mid-tier stock
holding company that became the majority-owned subsidiary of Cambray Mutual
Holding Company.

Cambray Mutual Holding Company, a mutual holding company whose activity is not
included in the accompanying consolidated financial statements, owns 57.6% of
the outstanding common stock of the Company as of September 30, 2003.

The Bank provides financial services to individuals and businesses primarily in
St. Lawrence, Jefferson and Lewis Counties in New York State. The Bank is
subject to regulation by the Office of Thrift Supervision (OTS).


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiary, the Bank. All intercompany accounts and
     transactions have been eliminated in consolidation.

Estimates

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

Securities

     Securities classified as available for sale are those securities that the
     Company intends to hold for an indefinite period of time but not
     necessarily to maturity. Any decision to sell a security classified as
     available for sale would be based on various factors, including significant
     movement in interest rates, changes in maturity mix of the Company's assets
     and liabilities, liquidity needs, regulatory capital considerations and
     other similar factors. Securities available for sale are carried at fair
     value. Unrealized gains and losses are reported in other comprehensive
     income, net of the related deferred tax effect. Realized gains or losses,
     determined on the basis of the cost of the specific securities sold, are
     included in earnings. Premiums and discounts are recognized in interest
     income using a method which approximates the interest method over the terms
     of the securities.

     Securities classified as held to maturity are those debt securities the
     Company has both the intent and ability to hold to maturity regardless of
     changes in market conditions, liquidity needs or changes in general
     economic conditions. These securities are carried at cost adjusted for the
     amortization of premium and accretion of discount, computed by the interest
     method over the terms of the securities.

     Management determines the appropriate classification of debt securities at
     the time of purchase and re-evaluates such designation as of each balance
     sheet date.

     Federal law requires a member institution of the Federal Home Loan Bank
     system to hold stock of its district Federal Home Loan Bank according to a
     predetermined formula. This restricted stock is carried at cost.

--------------------------------------------------------------------------------
                                        6

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Loans Receivable

     Loans receivable that management has the intent and ability to hold for the
     foreseeable future or until maturity or payoff are stated at their
     outstanding unpaid principal balances, net of an allowance for loan losses
     and any deferred fees. Interest income is accrued on the unpaid principal
     balance. Loan origination fees are deferred and recognized as an adjustment
     of the yield (interest income) of the related loans. The Company is
     generally amortizing these amounts over the contractual life of the loan.

     The accrual of interest is generally discontinued when the contractual
     payment of principal or interest has become 90 days past due or management
     has serious doubts about further collectibility of principal or interest,
     even though the loan is currently performing. A loan may remain on accrual
     status if it is in the process of collection and is either guaranteed or
     well secured. When a loan is placed on nonaccrual status, unpaid interest
     credited to income in the current year is reversed and unpaid interest
     accrued in prior years is charged against the allowance for loan losses.
     Interest received on nonaccrual loans generally is either applied against
     principal or reported as interest income, according to management's
     judgment as to the collectibility of principal. Generally, loans are
     restored to accrual status when the obligation is brought current, has
     performed in accordance with the contractual terms for a reasonable period
     of time and the ultimate collectibility of the total contractual principal
     and interest is no longer in doubt.

Allowance for Loan Losses

     The allowance for loan losses is established through provisions for loan
     losses charged against income. Loans deemed to be uncollectible are charged
     against the allowance for loan losses, and subsequent recoveries, if any,
     are credited to the allowance.

     The allowance for loan losses is maintained at a level considered adequate
     to provide for losses that can be reasonably anticipated. Management's
     periodic evaluation of the adequacy of the allowance is based on the
     Company's past loan loss experience, known and inherent risks in the
     portfolio, adverse situations that may affect the borrower's ability to
     repay, the estimated value of any underlying collateral, composition of the
     loan portfolio, current economic conditions and other relevant factors.
     This evaluation is inherently subjective as it requires material estimates
     that may be susceptible to significant change, including the amounts and
     timing of future cash flows expected to be received on impaired loans.

     A loan is considered impaired when, based on current information and
     events, it is probable that the Company will be unable to collect the
     scheduled payments of principal or interest when due according to the
     contractual terms of the loan agreement. Factors considered by management
     in determining impairment include payment status, collateral value and the
     probability of collecting scheduled principal and interest payments when
     due. Loans that experience insignificant payment delays and payment
     shortfalls generally are not classified as impaired. Management determines
     the significance of payment delays and payment shortfalls on a case-by-case
     basis, taking into consideration all of the circumstances surrounding the
     loan and the borrower, including the length of the delay, the reasons for
     the delay, the borrower's prior payment record and the amount of the
     shortfall in relation to the principal and interest owed. Impairment is
     measured on a loan by loan basis for commercial and construction loans by
     either the present value of expected future cash flows discounted at the
     loan's effective interest rate, the loan's obtainable market price or the
     fair value of the collateral if the loan is collateral dependent.

     Large groups of smaller balance homogeneous loans are collectively
     evaluated for impairment. Accordingly, the Company does not separately
     identify individual consumer and residential real estate loans for
     impairment disclosures.

--------------------------------------------------------------------------------
                                        7
<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Premises and Equipment

     Premises and equipment are stated at cost less accumulated depreciation.
     Depreciation expense is calculated principally on the straight-line method
     over the respective assets estimated useful lives.

Foreclosed Real Estate

     Real estate properties acquired through, or in lieu of, loan foreclosure
     are to be sold and are initially recorded at fair value less cost to sell
     at the date of foreclosure establishing a new cost basis. After
     foreclosure, valuations are periodically performed by management and the
     real estate is carried at the lower of its carrying amount or fair value
     less cost to sell. Revenue and expenses from operations and changes in the
     valuation allowance are included in other expenses. Foreclosed real estate
     is included in other assets.

Income Taxes

     Deferred income tax assets and liabilities are determined based on the
     differences between financial statement carrying amounts and the tax basis
     of existing assets and liabilities. These differences are measured at the
     enacted tax rates that will be in effect when these differences reverse.
     Deferred tax assets are reduced by a valuation allowance when, in the
     opinion of management, it is more likely than not that some portion of the
     deferred tax assets will not be realized. As changes in tax laws or rates
     are enacted, deferred tax assets and liabilities are adjusted through the
     provision for income taxes. The Company and its subsidiary file a
     consolidated federal income tax return.

Advertising Costs

     The Company follows the policy of charging the costs of advertising to
     expense as incurred. Advertising expense was $60,000 and $91,000 in 2003
     and 2002, respectively.

Earnings per Common Share

     Basic earnings per common share represents income available to common
     shareholders divided by the weighted average number of common shares
     outstanding during the period. Unallocated shares held by the Company's
     ESOP are not included in the weighted average number of shares outstanding.
     Diluted earnings per share reflects additional common shares that would
     have been outstanding if dilutive potential common shares had been issued,
     as well as any adjustment to income that would result from the assumed
     issuance. Potential common shares that may be issued by the Company relate
     solely to outstanding stock options and are determined using the treasury
     stock method.

Cash Flow Information

     For the purposes of reporting cash flows, cash and cash equivalents include
     cash on hand, amounts due from banks, interest-bearing deposits with banks
     and federal funds sold.

Off-Balance Sheet Financial Instruments

     In the ordinary course of business, the Company has entered into
     off-balance sheet financial instruments consisting of commitments to extend
     credit. Such financial instruments are recorded in the balance sheets when
     they become payable.

--------------------------------------------------------------------------------
                                       8

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Employee Stock Ownership Plan

     The Company sponsors a non-contributory Employee Stock Ownership Plan
     (ESOP) covering substantially all employees. Employer contributions are
     discretionary and there is no guarantee that a contribution will be made
     during any particular year. However, the Company will make annual
     contributions sufficient to cover principal and interest due under the
     contractual terms of the ESOP loan agreement. Contributions will be in the
     form of cash or Gouverneur Bancorp, Inc. securities. The number of shares
     allocable to Plan participants is based on employee compensation levels.
     Accordingly, as shares are committed to be released to participants, the
     Company reports compensation expense equal to the current market price of
     the shares and the shares become outstanding for earnings per share
     computations. Dividends paid on allocated shares are credited to
     participants' accounts.

Stock Option and Management Recognition Plans

     The Company has a Stock Option Plan (SOP) and a Management Recognition Plan
     (MRP) for directors, officers and key employees. The Company accounts for
     stock options granted under the SOP and for shares awarded under the MRP in
     accordance with the provisions of Accounting Principles Board (APB) Opinion
     No. 25, "Accounting for Stock Issued to Employees," and related
     interpretations. Under the SOP, no stock-based employee compensation cost
     is reflected in net income, as all options granted under the plan had an
     exercise price equal to the market value of the underlying common stock on
     the date of grant. The Company provides pro forma net income and pro forma
     earnings per share disclosures for employee stock options grants as if the
     fair value based method defined in Statement of Financial Accounting
     Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," had
     been applied. The fair value of the shares awarded, under the MRP, measured
     as of the grant date, is recognized as unearned compensation (a component
     of shareholders' equity) and amortized to compensation expense over the
     vesting period.

     The following table illustrates the effect on net income and earnings per
     share if the Company had applied the fair value recognition provisions of
     SFAS No. 123, "Accounting for Stock-Based Compensation," to the stock
     option plan.

<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                                                    September 30,
                                                                              ------------------------
                                                                                 2003          2002
                                                                              ----------    ----------
                                                                      (In Thousands, Except Per Share Data)
<S>                                                                           <C>           <C>
         Net income, as reported                                              $      592    $      775
              Total stock-based employee compensation expense
                  determined under fair value based method for all
                  awards, net of related taxes                                       (36)          (28)
              Compensation expense recorded in statements of income, net
                  of related taxes                                                    12            10
                                                                              ----------    ----------

         Pro forma net income                                                 $      568    $      757
                                                                              ==========    ==========

         Earnings per share (basic):
              As reported                                                     $     0.27    $     0.35
              Pro forma                                                       $     0.26    $     0.35

         Earnings per share (diluted):
              As reported                                                     $     0.26    $     0.35
              Pro forma                                                       $     0.25    $     0.34
</TABLE>

--------------------------------------------------------------------------------
                                       9

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Comprehensive Income

     Accounting principles generally require that recognized revenue, expenses,
     gains and losses be included in net income. Although certain changes in
     assets and liabilities, such as unrealized gains and losses on available
     for sale securities, are reported as a separate component of the equity
     section of the balance sheet, such items, along with net income, are
     components of comprehensive income.

     The components of other comprehensive income and related tax effects are as
     follows:

<TABLE>
<CAPTION>
                                                                              Years Ended
                                                                             September 30,
                                                                       ------------------------
                                                                          2003          2002
                                                                       ----------    ----------
                                                                            (In Thousands)
<S>                                                                    <C>           <C>
          Unrealized holding losses on available for sale securities   $       (1)   $      (22)
          Reclassification adjustment for gains realized in income            (83)          (98)
                                                                       ----------    ----------

                 Net Unrealized Losses                                        (84)         (120)

          Income tax                                                           34            47
                                                                       ----------    ----------

                   Net of Tax Amount                                   $      (50)   $      (73)
                                                                       ==========    ==========
</TABLE>

Segment Reporting

     The Company acts as an independent community financial service provider and
     offers traditional banking and related financial services to individual and
     business customers. Through its branch and automated teller machine
     network, the Company offers a full array of commercial and retail financial
     services, including the taking of time, savings and demand deposits; the
     making of commercial, consumer and mortgage loans; and the providing of
     safe deposit services.

     Management does not separately allocate expenses, including the cost of
     funding loan demand, between the commercial and retail operations of the
     Company. As such, discrete information is not available and segment
     reporting would not be meaningful.

Reclassifications

     Certain items in the 2002 financial statements have been reclassified to
     conform to the 2003 financial statement presentation format. These
     reclassifications had no effect on net income.

--------------------------------------------------------------------------------
                                       10

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Standards

     In November 2002, the Financial Accounting Standards Board (FASB) issued
     FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
     Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
     of Others." This interpretation expands the disclosures to be made by a
     guarantor in its financial statements about its obligations under certain
     guarantees and requires the guarantor to recognize a liability for the fair
     value of an obligation assumed under certain specified guarantees. FIN 45
     clarifies the requirements of FASB Statement No. 5, "Accounting for
     Contingencies." In general, FIN 45 applies to contracts or indemnification
     agreements that contingently require the guarantor to make payments to the
     guaranteed party based on changes in an underlying instrument that is
     related to an asset, liability or equity security of the guaranteed party,
     which would include financial standby letters of credit. Certain guarantee
     contracts are excluded from both the disclosure and recognition
     requirements of this interpretation, including, among others, guarantees
     related to commercial letters of credit and loan commitments. The
     disclosure requirements of FIN 45 require disclosure of the nature of the
     guarantee, the maximum potential amount of future payments that the
     guarantor could be required to make under the guarantee and the current
     amount of the liability, if any, for the guarantor's obligations under the
     guarantee. The accounting recognition requirements of FIN 45 are to be
     applied prospectively to guarantees issued or modified after December 31,
     2002.

     In January 2003, the Financial Accounting Standards Board issued FASB
     Interpretation No. 46, "Consolidation of Variable Interest Entities, an
     Interpretation of ARB No. 51." This interpretation provides new guidance
     for the consolidation of variable interest entities (VIEs) and requires
     such entities to be consolidated by their primary beneficiaries if the
     entities do not effectively disperse risk among parties involved. The
     interpretation also adds disclosure requirements for investors that are
     involved with unconsolidated VIEs. The disclosure requirements apply to all
     financial statements issued after January 31, 2003. The consolidation
     requirements apply immediately to VIEs created after January 31, 2003, and
     are effective December 31, 2003, for VIEs acquired before February 1, 2003.

     In April 2003, the Financial Accounting Standards Board issued Statement
     No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
     Activities." This Statement clarifies the definition of a derivative and
     incorporates certain decisions made by the Board as part of the Derivatives
     Implementation Group process. This Statement is effective for contracts
     entered into or modified, and for hedging relationships designated after
     June 30, 2003, and should be applied prospectively.

     The provisions of the Statement that relate to implementation issues
     addressed by the Derivatives Implementation Group that have been effective
     should continue to be applied in accordance with their respective effective
     dates.

     In May 2003, the Financial Accounting Standards Board issued Statement No.
     150, "Accounting for Certain Financial Instruments with Characteristics of
     both Liabilities and Equity." This Statement requires that an issuer
     classify a financial instrument that is within its scope as a liability.
     Many of these instruments were previously classified as equity. This
     Statement was effective for financial instruments entered into or modified
     after May 31, 2003, and otherwise was effective beginning July 1, 2003.

     The provisions of the above interpretation and statements did not have or
     are not expected to have a significant impact on the financial condition or
     results of operations of the Company.

--------------------------------------------------------------------------------
                                       11

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - SECURITIES

The amortized cost and fair value of securities were as follows:

<TABLE>
<CAPTION>
                                                  September 30, 2003
                                  ---------------------------------------------------
                                    Gross        Gross
                                  Amortized    Unrealized    Unrealized      Fair
                                    Cost         Gains         Losses        Value
                                  ----------   ----------    ----------    ----------
                                                    (In Thousands)
<S>                               <C>          <C>           <C>           <C>
AVAILABLE FOR SALE
     U.S. Government agencies     $    8,774   $      107    $       (5)   $    8,876
     Mortgage-backed securities        5,476           86            --         5,562
     Municipal securities                524            7            --           531
                                  ----------   ----------    ----------    ----------

                                      14,774          200            (5)       14,969
     Equity securities                    12          624            --           636
     Mutual funds                      1,875           --            (7)        1,868
                                  ----------   ----------    ----------    ----------

                                  $   16,661   $      824    $      (12)   $   17,473
                                  ==========   ==========    ==========    ==========

HELD TO MATURITY
     Mortgage-backed securities   $      399   $        4    $       (1)   $      402
     Other                                57           --            --            57
                                  ----------   ----------    ----------    ----------

                                  $      456   $        4    $       (1)   $      459
                                  ==========   ==========    ==========    ==========


                                                  September 30, 2002
                                  ---------------------------------------------------
                                    Gross        Gross
                                  Amortized    Unrealized    Unrealized      Fair
                                    Cost         Gains         Losses        Value
                                  ----------   ----------    ----------    ----------
                                                    (In Thousands)

AVAILABLE FOR SALE
     U.S. Government agencies     $    4,018   $       69    $       (4)   $    4,083
     Mortgage-backed securities        9,752           85           (10)        9,827
                                  ----------   ----------    ----------    ----------

                                      13,770          154           (14)       13,910
     Equity securities                    13          766            --           779
     Mutual funds                      8,249           26            --         8,275
                                  ----------   ----------    ----------    ----------

                                  $   22,032   $      946    $      (14)   $   22,964
                                  ==========   ==========    ==========    ==========

HELD TO MATURITY
     Mortgage-backed securities   $    1,284   $       12    $       (1)   $    1,295
     Other                                57           --            --            57
                                  ----------   ----------    ----------    ----------

                                  $    1,341   $       12    $       (1)   $    1,352
                                  ==========   ==========    ==========    ==========
</TABLE>

--------------------------------------------------------------------------------
                                       12

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - SECURITIES (CONTINUED)

The amortized cost and fair value of securities as of September 30, 2003 by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                           Available for Sale         Held to Maturity
                                         -----------------------   -----------------------
                                          Amortized     Fair        Amortized     Fair
                                            Cost        Value         Cost        Value
                                         ----------   ----------   ----------   ----------
                                                           (In Thousands)
<S>                                      <C>          <C>          <C>          <C>
Due in one year or less                  $    1,511   $    1,533   $       57   $       57
Due after one year through five years         2,010        2,065           --           --
Due after five years through ten years        2,005        2,032           --           --
Due after ten years                           3,772        3,777           --           --
                                         ----------   ----------   ----------   ----------

                                              9,298        9,407           57           57
Mortgage-backed securities                    5,476        5,562          399          402
Mutual funds                                  1,875        1,868           --           --
Equity securities                                12          636           --           --
                                         ----------   ----------   ----------   ----------

                                         $   16,661   $   17,473   $      456   $      459
                                         ==========   ==========   ==========   ==========
</TABLE>

Gross realized gains on sales of securities available for sale were $99,000 in
2003 and $98,000 in 2002. Gross realized losses on sales of securities available
for sale were $16,000 in 2003 and $-0- in 2002. The income tax provision
includes $38,000 and $31,000 for the years ended September 30, 2003 and 2002,
respectively, of income tax expense on net realized securities gains and losses.


NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The components of loans receivable at September 30 were as follows:

                                                 2003          2002
                                              ----------    ----------
                                                   (In Thousands)

         Real estate:
              Residential                     $   45,472    $   36,459
              Commercial                           3,624         3,951
              Construction                           195           662
         Commercial and agricultural               3,378         1,248
         Automobile                                6,679         8,080
         Home equity                               2,993         1,934
         Passbook                                    369           299
         Other                                     2,186         1,971
                                              ----------    ----------

                                                  64,896        54,604
         Deferred fees and costs                     497           412
         Allowance for loan losses                  (655)         (671)
                                              ----------    ----------

                                              $   64,738    $   54,345
                                              ==========    ==========

--------------------------------------------------------------------------------
                                       13

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

The following table presents changes in the allowance for loan losses:

                                                           Years Ended
                                                          September 30,
                                                    ------------------------
                                                       2003          2002
                                                    ----------    ----------
                                                         (In Thousands)

         Balance, beginning                         $      671    $      655
              Provision for loan losses                     95            85
              Recoveries                                    77            58
              Loans charged off                           (188)         (127)
                                                    ----------    ----------

         Balance, ending                            $      655    $      671
                                                    ==========    ==========

The recorded investment in impaired loans requiring an allowance for loan losses
was $436,000 and $761,000 at September 30, 2003 and 2002, respectively. The
related allowance for loan losses associated with these loans was $42,000 and
$50,000 at September 30, 2003 and 2002, respectively. For the years ended
September 30, 2003 and 2002, the average recorded investment in these impaired
loans was $443,000 and $588,000, respectively. The interest income recognized on
these impaired loans was not significant for the years ended September 30, 2003
and 2002.

Loans on which the accrual of interest has been discontinued amounted to
$478,000 and $419,000 at September 30, 2003 and 2002, respectively. The interest
income foregone for nonaccruing loans was approximately $34,000 and $22,000
during the years ended September 30, 2003 and 2002, respectively. Loan balances
past due 90 days or more and still accruing interest, but which management
expects will eventually be paid in full, amounted to $-0- at September 30, 2003
and 2002.


NOTE 5 - PREMISES AND EQUIPMENT

Components of premises and equipment at September 30 are as follows:

                                                   2003          2002
                                                ----------    ----------
                                                    (In Thousands)

         Land                                   $      334    $      574
         Buildings and improvements                  1,254         1,248
         Furniture and equipment                       729           711
                                                ----------    ----------

                                                     2,317         2,533
         Accumulated depreciation                     (833)         (685)
                                                ----------    ----------

                                                $    1,484    $    1,848
                                                ==========    ==========

--------------------------------------------------------------------------------
                                       14

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of $100,000 or more were $5,436,000 and
$4,462,000 at September 30, 2003 and 2002, respectively.

At September 30, 2003, the scheduled maturities of time deposits are as follows
(in thousands):

                   2004                                       $   18,841
                   2005                                            2,764
                   2006                                            3,298
                   2007                                            4,148
                                                              ----------

                                                              $   29,051
                                                              ==========

A summary of interest expense is as follows:

                                                     Years Ended
                                                    September 30,
                                               -----------------------
                                                  2003         2002
                                               ----------   ----------
                                                   (In Thousands)

                   Savings                     $      321   $      353
                   Time                               907        1,129
                   NOW and money market                73           87
                                               ----------   ----------

                                               $    1,301   $    1,569
                                               ==========   ==========

         NOTE 7 - BORROWED FUNDS

Borrowed funds at September 30 are summarized as follows:

<TABLE>
<CAPTION>
                                              2003                      2002
                                      ----------------------    ----------------------
                                                   Weighted                  Weighted
                                                   Average                   Average
                                                   Interest                  Interest
                                        Amount       Rate         Amount       Rate
                                      ----------  ----------    ----------  ----------
                                                    (Dollars in Thousands)

<S>                                   <C>              <C>      <C>              <C>
Securities sold under agreements to
   repurchase                         $    5,700       4.59 %   $    6,900       4.64 %
Advances from the Federal Home Loan
   Bank of New York                        6,500       4.72 %        6,500       4.72 %
                                      ----------  ----------    ----------  ----------

                                      $   12,200                $   13,400
                                      ==========                ==========
</TABLE>

--------------------------------------------------------------------------------
                                       15

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - BORROWED FUNDS (CONTINUED)

Future contractual maturities of the securities sold under agreements to
repurchase and advances from the Federal Home Loan Bank of New York (FHLBNY) are
as follows (in thousands):

           Years ending September 30:
                2004                                     $   1,700
                2005                                           500
                2011                                        10,000
                                                         ---------

                                                         $  12,200
                                                         =========

At September 30, 2003, $5.0 million of securities sold under agreements to
repurchase and $5.0 million in advances from FHLBNY are callable in 2004.

The securities sold under agreements to repurchase are secured by
mortgage-backed securities and agency securities. The collateral underlying the
securities sold under agreements to repurchase had a carrying value of
$6,695,000 and a fair value of $6,808,000 at September 30, 2003 and a carrying
value of $7,214,000 and a fair value of $7,300,000 at September 30, 2002. The
securities sold under agreements to repurchase have fixed interest rates.

The Company utilizes advance programs offered by the FHLBNY including a line of
credit agreement with an available limit of $16,042,000 at September 30, 2003.
Under terms of a blanket collateral agreement with the FHLBNY, outstanding
advances are secured by certain qualifying assets not otherwise pledged. The
advances from the FHLBNY have fixed interest rates.


NOTE 8 - EMPLOYEE BENEFIT PLANS

The Company has a defined contribution 401(k) Retirement Plan (Plan) for all
eligible salaried employees. Employees are permitted to contribute up to 15% of
base pay to the Plan, subject to certain limitations. The Company contributes 3%
of each eligible employee's salary. Additional Company contributions to the Plan
are determined annually by the Board of Directors. For the years ended September
30, 2003 and 2002, expense for the Plan amounted to $47,000 and $64,000,
respectively.

Deferred Compensation Plan

     The Company has a nonqualified deferred compensation plan for directors,
     under which directors may elect to defer all or part of their director
     fees, and a nonqualified deferred compensation plan for the President. At
     September 30, 2003 and 2002, deferred compensation included in other
     liabilities aggregated approximately $236,000 and $149,000, respectively.
     Deferred compensation expense for the years ended September 30, 2003 and
     2002 amounted to $54,000 and $11,000, respectively.

Employee Stock Ownership Plan

     The Company sponsors a non-contributory Employee Stock Ownership Plan
     (ESOP) covering substantially all employees. In connection with
     establishing the Employee Stock Ownership Plan (ESOP) in 1999, the ESOP
     borrowed $429,000 from the Company to purchase 85,825 common shares of the
     Company's stock. The loan is being repaid in ten equal annual installments
     through 2009. The loan bears interest at 7.75%. Compensation expense for
     the ESOP was $78,000 and $67,000 for the years ended September 30, 2003 and
     2002, respectively.

--------------------------------------------------------------------------------
                                       16

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)

The status of the ESOP shares at September 30 are as follows:

                                                    2003         2002
                                                 ----------   ----------

         Shares released for allocation              31,113       23,321
         Unreleased shares                           54,712       62,504
                                                 ----------   ----------

                Total ESOP shares                    85,825       85,825
                                                 ==========   ==========

         Fair value of unreleased shares         $  601,800   $  643,800
                                                 ==========   ==========

NOTE 9 - INCOME TAXES

The components of the provision for income taxes are as follows:

                                                     Years Ended
                                                    September 30,
                                              ------------------------
                                                 2003          2002
                                              ----------    ----------
                                                    (In Thousands)

         Federal:
              Current                         $      329    $      433
              Deferred                               (37)          (16)
                                              ----------    ----------

                                                     292           417
                                              ----------    ----------
         State:
              Current                                 78           111
              Deferred                                (9)           (4)
                                              ----------    ----------

                                                      69           107
                                              ----------    ----------

                                              $      361    $      524
                                              ==========    ==========

A reconciliation of the statutory federal income tax at a rate of 34% to the
income tax expense included in the statements of income for the years ended
September 30, 2003 and 2002 is as follows:

<TABLE>
<CAPTION>
                                                        2003                    2002
                                                --------------------    --------------------
                                                              % of                    % of
                                                             Pretax                  Pretax
                                                 Amount      Income      Amount      Income
                                                --------    --------    --------    --------
                                                           (Dollars in Thousands)
<S>                                             <C>             <C>     <C>             <C>
         Federal income tax at statutory rate   $    324        34.0 %  $    441        34.0%
         State tax, net of federal benefit            46         4.8          71         5.5
         Other                                        (9)       (1.0)         12         0.9
                                                --------    --------    --------    --------

                                                $    361        37.8 %  $    524        40.4%
                                                ========    ========    ========    ========
</TABLE>
--------------------------------------------------------------------------------
                                       17

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - INCOME TAXES (CONTINUED)

The net deferred tax liability included in other liabilities in the accompanying
statements of financial condition includes the following amounts of deferred tax
assets and liabilities:

                                                      2003          2002
                                                   ----------    ----------
                                                        (In Thousands)

         Deferred tax assets:
              Allowance for loan losses            $      257    $      264
              Deferred compensation                        95            59
              Accrued expenses                             16            33
              Other                                        41            37
                                                   ----------    ----------

                Total Deferred Tax Assets                 409           393
                                                   ----------    ----------

         Deferred tax liabilities:
              Net unrealized gains on securities          324           366
              Premises and equipment                       40            46
              Accrued interest receivable                  49            97
              Net deferred loan costs                     195           163
              Prepaid expenses                              9            17
                                                   ----------    ----------

                Total Deferred Tax Liabilities            617           689
                                                   ----------    ----------

                Net Deferred Tax Liability         $     (208)   $     (296)
                                                   ==========    ==========

Retained earnings include $1,274,000 at September 30, 2003 and 2002, for which
no provision for federal income tax has been made. These amounts represent
deductions for bad debt reserves for tax purposes which were only allowed to
savings institutions which met certain definitional tests prescribed by the
Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act
of 1996 eliminated the special bad debt deduction granted solely to thrifts.
Under the terms of the Act, there would be no recapture of the pre-1988 (base
year) reserves. However, these pre-1988 reserves would be subject to recapture
under the rules of the Internal Revenue Code if the Company itself pays a cash
dividend in excess of earnings and profits, or liquidates. The Act also provides
for the recapture of deductions arising from "applicable excess reserve" defined
as the total amount of reserve over the base year reserve. The Company's total
reserve exceeds the base year reserve and deferred taxes have been provided for
this excess.


NOTE 10 - TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS

Certain directors and executive officers of the Company, their families and
their affiliates are customers of the Bank. Any transactions with such parties,
including loans and commitments, were in the ordinary course of business at
normal terms, including interest rates and collateralization, prevailing at the
time and did not represent more than normal risks. At September 30, 2003 and
2002, such loans amounted to $316,000 and $371,000, respectively. During 2003,
new loans to such related parties totaled $96,000 and repayments aggregated
$151,000.

--------------------------------------------------------------------------------
                                       18

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - REGULATORY MATTERS AND STOCKHOLDERS' EQUITY

The Company and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material affect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company's and the Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of September 30, 2003, that the Company and the Bank meets all
capital adequacy requirements to which they are subject.

As of September 30, 2003, the most recent notification from the regulators has
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's category.

The Bank's actual capital amounts and ratios are presented in the table:

<TABLE>
<CAPTION>
                                                                                                        To be Well
                                                                                                    Capitalized under
                                                                         For Capital Adequacy       Prompt Corrective
                                                      Actual                   Purposes             Action Provisions
                                               --------------------       ------------------        ------------------
                                               Amount        Ratio        Amount      Ratio         Amount      Ratio
                                               -------      -------       -------    -------        -------    -------
                                                                       (Dollars in Thousands)
<S>                                            <C>            <C>         <C>            <C>        <C>          <C>
As of September 30, 2003:
     Total risk-based capital                  $17,488        36.44 %     $>3,839       >8.0  %     $>4,799     >10.0 %
                                                                           -            -            -          -
     Core capital (to risk-weighted
     assets)                                    16,887        35.19        >1,920       >4.0         >2,879     > 6.0
                                                                           -            -            -          -
     Core capital (to adjusted total
     assets)                                    16,887        18.90        >2,680       >3.0         >4,466     > 5.0
                                                                           -            -            -          -
     Tangible capital (to adjusted total
         assets)                                16,887        18.90        >1,340       >1.5         N/A          N/A
                                                                           -            -            -          -

As of September 30, 2002:
     Total risk-based capital                  $17,154        39.07 %     $>3,512       >8.0  %     $>4,390     >10.0 %
                                                                           -            -            -          -
     Core capital (to risk-weighted
     assets)                                    16,259        37.03        >1,756       >4.0         >2,634     > 6.0
                                                                           -            -            -          -
     Core capital (to adjusted total
     assets)                                    16,259        19.26        >2,533       >3.0         >4,221     > 5.0
                                                                           -            -            -          -
     Tangible capital (to adjusted total
         assets)                                16,259        19.26        >1,266       >1.5         N/A          N/A
                                                                           -            -            -          -
</TABLE>

The Company's ratios do not differ significantly from the Bank's ratios
presented above.

The Bank is required to maintain average cash reserve balances in vault cash or
with the Federal Reserve Bank. The amount of these restricted cash reserve
balances at September 30, 2003 and 2002 was approximately $285,000 and $300,000,
respectively.

--------------------------------------------------------------------------------
                                       19

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - STOCK OPTION AND MANAGEMENT RECOGNITION PLANS

The Stock Option Plan provides for awards in the form of stock options,
representing a right to purchase up to 107,281 shares of common stock. All
options have a ten-year term and vest ratably over a five-year period.

A summary of the Company's stock option activity and related information for the
years ended September 30 follows:

<TABLE>
<CAPTION>
                                                    2003                      2002
                                          ------------------------   -----------------------
                                                         Weighted                  Weighted
                                                         Average                   Average
                                                         Exercise                  Exercise
                                           Options        Price        Options      Price
                                          ----------    ----------   ----------   ----------
<S>                                           <C>       <C>              <C>      <C>
         Outstanding, beginning of year       68,250    $     5.42       58,250   $     4.75
              Forfeited                       (4,500)         4.75           --           --
              Exercised                       (1,125)         4.75           --           --
              Granted                             --            --       10,000         9.30
                                          ----------    ----------   ----------   ----------

         Outstanding, end of year             62,625    $     6.24       68,250   $     5.42
                                          ==========    ==========   ==========   ==========

         Exercisable, at end of year          33,125    $     5.02
                                          ==========    ==========
</TABLE>

Exercise prices for options outstanding as of September 30, 2003 ranged from
$4.75 to $9.30 per share. The weighted average remaining contractual life is 6.2
years. Options available for grant at September 30, 2003 were 43,531.

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

                                                               Years Ended
                                                              September 30,
                                                            -----------------
                                                             2003       2002
                                                            ------     ------

         Dividend yield                                       N/A %      2.4  %
         Expected life                                        N/A      8 years
         Expected volatility                                  N/A %     34.94 %
         Risk-free interest rate                              N/A %      3.30 %
         Weighted average fair value of options granted       N/A       $3.36

On April 23, 2002, the Company awarded 4,000 shares of restricted stock under
the MRP. The market value of the shares awarded at that date approximated
$37,000. Compensation expense for the MRP was $20,000 and $16,000 for the years
ended September 30, 2003 and 2002, respectively.

--------------------------------------------------------------------------------
                                       20

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - EARNINGS PER COMMON SHARE

The following table sets forth the computations of basic and diluted earnings
per common share:

<TABLE>
<CAPTION>
                                                                  Years Ended September 30,
                                                                 ---------------------------
                                                                     2003           2002
                                                                 ------------   ------------
                                                            (In Thousands, Except Per Share Data)
<S>                                                              <C>            <C>
         Numerator, net income                                   $        592   $        775
                                                                 ============   ============

         Denominator:
              Denominator for basic earnings per common share,
                  weighted average shares                               2,203          2,192
              Effect of dilutive options                                   32             28
                                                                 ------------   ------------

         Denominator for diluted earnings per common share,             2,235          2,220
              adjusted weighted average shares
                                                                 ============   ============

         Basic earnings per common share                         $       0.27   $       0.35
                                                                 ============   ============

         Diluted earnings per common share                       $       0.26   $       0.35
                                                                 ============   ============
</TABLE>

NOTE 14 - OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

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

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

A summary of the Bank's financial instrument commitments is as follows:

                                                           September 30,
                                                      -----------------------
                                                         2003         2002
                                                      ----------   ----------
                                                           (In Thousands)

         Commitments to grant loans                   $    5,367   $    1,736
         Commitments to purchase loans                     1,034           --
         Unfunded commitments under lines of credit        2,029        1,161
                                                      ----------   ----------

                                                      $    8,430   $    2,897
                                                      ==========   ==========

--------------------------------------------------------------------------------
                                       21

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS (CONTINUED)

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the customer and generally consists of real estate.


NOTE 15 - CONCENTRATIONS OF CREDIT RISK

The Bank operates primarily in St. Lawrence, Jefferson and Lewis Counties, New
York and, accordingly, has extended credit primarily to commercial entities and
individuals in this area whose ability to honor their contracts is influenced by
the region's economy. These customers are also the primary depositors of the
Bank. The Bank is limited in extending credit by legal lending limits to any
single borrower or group of borrowers.


NOTE 16 - RETAINED EARNINGS

Cambray Mutual Holding Company (Cambray) has waived receipt of its March and
September 2003 dividends in the amount of $340,917, its March and September 2002
dividends in the amount of $288,470 and its September 2001 dividend in the
amount of $118,010 from the Company. The total dividends waived by Cambray were
$747,397 as of September 30, 2003. The dividends waived by Cambray are
considered as a restriction on the retained earnings of the Company.


NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates herein are not necessarily indicative of the amounts the Company
could have realized in a sales transaction on the dates indicated. The estimated
fair value amounts have been measured as of their respective year ends and have
not been re-evaluated or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.

--------------------------------------------------------------------------------
                                       22

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The following information should not be interpreted as an estimate of the fair
value of the entire Company since a fair value calculation is only provided for
a limited portion of the Company's assets and liabilities. Due to a wide range
of valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Company's disclosures and those of other
companies may not be meaningful. The following methods and assumptions were used
to estimate the fair values of the Company's financial instruments at September
30, 2003 and 2002:

     o    For cash and due from banks and interest-bearing deposits with banks,
          the carrying amount is a reasonable estimate of fair value.

     o    For securities, fair value equals quoted market price, if available.
          If a quoted market price is not available, fair value is estimated
          using quoted market prices for similar securities.

     o    The fair value of loans is estimated by discounting the future cash
          flows using the current rates at which similar loans would be made to
          borrowers with similar credit ratings and for the same remaining
          maturities.

     o    The fair value of the investment in FHLB stock is the carrying amount.

     o    The fair value of accrued interest receivable and accrued interest
          payable is the carrying amount.

     o    The fair value of demand deposits, savings accounts, NOW and money
          market accounts is the amount payable on demand at the reporting date.
          The fair value of fixed-maturity certificates of deposit is estimated
          using the rates currently offered for deposits of similar remaining
          maturities.

     o    The fair value of securities sold under agreements to repurchase and
          advances from the Federal Home Loan Bank are estimated using
          discounted cash flow analyses based upon rates currently available to
          the Bank for similar types of borrowing arrangements.

     o    The fair value of off-balance sheet financial instruments is estimated
          using the fees currently charged to enter into similar agreements.

--------------------------------------------------------------------------------
                                       23

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The estimated fair values of the Bank's financial instruments are as follows:

<TABLE>
<CAPTION>
                                                      September 30, 2003        September 30, 2002
                                                    -----------------------   -----------------------
                                                     Carrying      Fair        Carrying      Fair
                                                      Amount       Value        Amount       Value
                                                    ----------   ----------   ----------   ----------
                                                                      (In Thousands)
<S>                                                 <C>          <C>          <C>          <C>
Financial assets:
     Cash and due from banks and interest-bearing
         deposits with banks                        $    4,288   $    4,288   $    3,047   $    3,047
     Securities                                         17,929       17,932       24,305       24,316
     Loans receivable, net                              64,738       67,449       54,345       56,382
     Investment in FHLB stock                              610          610          745          745
     Accrued interest receivable                           399          399          404          404

Financial liabilities:
     Deposits                                           58,423       58,653       52,761       52,899
     Borrowed funds                                     12,200       13,262       13,400       14,621
     Accrued interest payable                               98           98          105          105

Off-balance sheet financial instruments                     --           --           --           --
</TABLE>

NOTE 18 - GOUVERNEUR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

                                                          September 30,
                                                    -----------------------
                                                       2003         2002
                                                    ----------   ----------
                                                         (In Thousands)

                                     ASSETS

         Cash                                       $       77   $      337
         Investment in bank subsidiary                  17,374       16,796
         Other assets                                      106           95
                                                    ----------   ----------

                                                    $   17,557   $   17,228
                                                    ==========   ==========

                             SHAREHOLDERS' EQUITY

         Shareholders' equity                       $   17,557   $   17,228
                                                    ==========   ==========

--------------------------------------------------------------------------------
                                       24

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 18 - GOUVERNEUR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
  (CONTINUED)

CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                                Years Ended
                                                                               September 30,
                                                                         ------------------------
                                                                            2003          2002
                                                                         ----------    ----------
                                                                              (In Thousands)
<S>                                                                      <C>           <C>
         Income:
              Dividends from subsidiary                                  $       64    $       --
              Interest                                                           31            47
         Other expenses                                                         (92)          (85)
                                                                         ----------    ----------

                Income (Loss) before Equity in Undistributed Earnings
                    of Subsidiary                                                 3           (38)

         Equity in undistributed earnings of subsidiary                         589           813
                                                                         ----------    ----------

                Net Income                                               $      592    $      775
                                                                         ==========    ==========

CONDENSED STATEMENTS OF CASH FLOWS

                                                                                Years Ended
                                                                               September 30,
                                                                         ------------------------
                                                                            2003          2002
                                                                         ----------    ----------
                                                                             (In Thousands)

         CASH FLOWS FROM OPERATING ACTIVITIES
              Net income                                                 $      592    $      775
              Adjustments to reconcile net income to net cash provided
                  by (used in) operating activities:
                  Equity in undistributed earnings of bank subsidiary          (589)         (813)
                  Other, net                                                     11             4
                                                                         ----------    ----------

                Net Cash Provided by (Used in) Operating Activities              14           (34)
                                                                         ----------    ----------

         CASH FLOWS PROVIDED BY INVESTING ACTIVITIES
              Principal collected on ESOP note receivable                        37            34
                                                                         ----------    ----------

         CASH FLOWS FROM FINANCING ACTIVITIES
              Exercise of stock options                                           6            --
              Purchase of stock for MRP                                         (65)           --
              Cash dividends paid                                              (252)         (213)
                                                                         ----------    ----------

                Net Cash Used in Financing Activities                          (311)         (213)
                                                                         ----------    ----------

                Decrease in Cash and Cash Equivalents                          (260)         (213)

         CASH AND CASH EQUIVALENTS - BEGINNING                                  337           550
                                                                         ----------    ----------

         CASH AND CASH EQUIVALENTS - ENDING                              $       77    $      337
                                                                         ==========    ==========
</TABLE>

--------------------------------------------------------------------------------
                                       25

<PAGE>

GOUVERNEUR BANCORP, INC.
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 19 - QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

The following represents summarized quarterly financial data of the Company
which, in the opinion of management, reflects all adjustments necessary for a
fair presentation (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                      ------------------------------------------------------------
2003                                  December 31       March 31        June 30       September 30
-----------------------------------   ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>             <C>
Interest income                       $      1,321    $      1,343    $      1,275    $      1,284
Interest expense                               525             493             449             439
                                      ------------    ------------    ------------    ------------

       Net Interest Income                     796             850             826             845

Provision for loan losses                      (40)            (10)            (25)            (20)
Other expenses, net of other income           (599)           (562)           (543)           (565)
                                      ------------    ------------    ------------    ------------

       Income before Income Taxes              157             278             258             260

Income tax expense                              59             108              97              97
                                      ------------    ------------    ------------    ------------

       Net Income                     $         98    $        170    $        161    $        163
                                      ============    ============    ============    ============

Earnings per share:
     Basic                            $        .04    $        .08    $        .07    $        .08
                                      ============    ============    ============    ============

     Diluted                          $        .04    $        .08    $        .07    $        .07
                                      ============    ============    ============    ============


                                                           Three Months Ended
                                      ------------------------------------------------------------
2002                                  December 31       March 31        June 30       September 30
-----------------------------------   ------------    ------------    ------------    ------------

Interest income                       $      1,428    $      1,399    $      1,376    $      1,409
Interest expense                               663             571             525             522
                                      ------------    ------------    ------------    ------------

       Net Interest Income                     765             828             851             887

Provision for loan losses                      (25)            (25)            (25)            (10)
Other expenses, net of other income           (421)           (447)           (493)           (586)
                                      ------------    ------------    ------------    ------------

       Income before Income Taxes              319             356             333             291

Income tax expense                             126             140             131             127
                                      ------------    ------------    ------------    ------------

       Net Income                     $        193    $        216    $        202    $        164
                                      ============    ============    ============    ============

Earnings per share:
     Basic                            $        .09    $        .10    $        .09    $        .07
                                      ============    ============    ============    ============

     Diluted                          $        .09    $        .10    $        .09    $        .07
                                      ============    ============    ============    ============
</TABLE>

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