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, 2001

                        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, 2001
were $6,284,738.

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, 2001, was approximately $5,963,939. (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, 2001, there were 2,276,759 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, 2001.
Part III of Form 10-KSB - Portions of Proxy Statement for 2002 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 $550,000 at September 30, 2001, 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, 2001, 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 common stock, and
shareholders other than Cambray MHC held 965,537 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 mortgage loans
secured by one-to-four family residences. More recently, the Company has
diversified its lending by increasing its number of automobile loans and real
estate and non-real estate commercial loans. The increased emphasis on non-real
estate lending, which had accelerated in the past few years, decreased slightly
this year. Real estate loans grew by $1.4 million in the 2001 fiscal year and
their percentage of total loans rose by 0.42% from 77.60% to 78.02% at September
30, 2001.

         The Company's revenues come principally from interest on loans and
securities. The Company's primary sources of funds are deposits, borrowing from
the Federal Home Loan Bank ("FHLB") and proceeds from principal and interest
payments on loans and investment securities. At September 30, 2001, the Company
had $82.9 million in assets, $47.7 million in deposits and $16.7 million in
total equity.

         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 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 analysis 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; changes in competition; and 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 full service
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 two mining companies and a paper mill. Fort
Drum, a major military installation, is located at the southern edge of the
Company's primary market area. The Company estimates that its share of the
residential mortgage lending market in its market area is approximately 10% to
15%. We estimate that our share of all bank deposits in our market area is
approximately 25%.

         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 recent shut down by a mining company located in the Company's market area is
expected to adversely affect the local economy. At this time it is not known if
this is a temporary situation caused by market forces in the zinc industry, or
whether it will become permanent. Some employees have chosen to relocate to
mining operations in the mid-west United States due to the uncertainty that
exists. A major 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 loan production office in Alexandria Bay, New York on the
St. Lawrence River to pursue lending opportunities in adjoining communities. We
applied to the OTS in August, 2001 to open a new branch office in Alexandria Bay
and received approval in September, 2001. After receiving approvals from the
town and county planning boards to construct a new office in that community, the
Company purchased property in Alexandria Bay on September 27, 2001. We have
developed building plans with an architect, and are now finalizing the plans so
the project can be bid. We anticipate that construction will begin in the spring
of 2002, with an opening in the summer.

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 which
may have much greater financial and marketing resources. However, the Company
believes it benefits from its community bank orientation as well as its

                                        3
<PAGE>

relatively high core deposit base. Recent acquisitions of other banks in central
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, 2001,
the Company had total loans of $56.0 million, of which $35.7 million, or 63.8%,
were one-to-four family first lien residential mortgage loans. The Company had
an additional $1.2 million of home equity loans and home equity lines of credit
outstanding, or 2.1% of total loans, secured by subordinate liens on one-to-four
family residences. In recent years, the Company has focused on increasing its
level of auto loans, commercial loans and commercial mortgage loans to expand
its business, increase its yields and improve interest rate sensitivity. At
September 30, 2001, commercial loans totaled $7.3 million, of which $5.7 million
were commercial mortgage loans and $1.6 million were other commercial loans. The
Company's portfolio of auto loans decreased by 1.8% from last year to $8.4
million, or 15.1% of total loans. Management believes that this decrease was in
part caused by two seperate events. First, automobile sales were depressed due
to the weakening economy and second, in an attempt to stimulate automobile sales
the auto industry provided special low or no rate financing arrangements thus
substantially reducing the opportunity for the Company to finance new and used
car sales. Other consumer loans dropped to $1.9 million from $2.1 million, and
decreased to 3.4% of total loans. The remainder of the Company's loans consisted
of passbook and construction loans. The Company's ratio of net loans to total
assets was 67.3% at September 30, 2001.

         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.

                                        4
<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,
                                --------------------------------------------------------------------------------------------------

                                       2001                2000                1999                1998                1997
                                       ----                ----                ----                ----                ----
                                          Percent             Percent             Percent             Percent             Percent
                                 Amount   of Total   Amount   of Total   Amount   of Total   Amount   of Total   Amount   of Total
                                --------  --------  --------  --------  --------  --------  --------  --------  --------  --------
                                                                      (Dollars in thousands)

Real estate loans:
<S>                             <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>
  Residential................   $ 35,750    63.81%  $ 36,640    67.13%  $ 33,320    71.50%  $ 28,834    80.71%  $ 28,896    81.85%
  Home equity................      1,153     2.06%       791     1.45%       771     1.65%       835     2.34%       823     2.33%
  Commercial real estate.....      5,729    10.23%     4,593     8.41%     3,748     8.04%     1,578     4.42%     1,825     5.17%
  Construction...............      1,073     1.92%       331     0.61%       296     0.64%       124     0.35%       308     0.87%
                                --------   ------   --------   ------   --------   ------   --------   ------   --------   ------

  Total real estate loans....     43,705    78.02%    42,355    77.60%    38,135    81.83%    31,371    87.82%    31,852    90.22%


Other loans:
  Passbook loans.............        429     0.77%       389     0.71%       411     0.88%       323     0.91%       475     1.35%
  Automobile loans...........      8,442    15.06%     8,594    15.75%     5,306    11.38%     2,166     6.06%     1,283     3.63%
  Other consumer loans.......      1,875     3.35%     2,059     3.77%     2,045     4.39%     1,384     3.87%     1,613     4.57%
  Commercial loans...........      1,570     2.80%     1,181     2.17%       707     1.52%       477     1.34%        81     0.23%
                                --------   ------   --------   ------   --------   ------   --------   ------   --------   ------

Total other loans............     12,316    21.98%    12,223    22.40%     8,469    18.17%     4,350    12.18%     3,452     9.78%

Total loans..................     56,021   100.00%    54,578   100.00%    46,604   100.00%    35,721   100.00%    35,304   100.00%
                                --------            --------            --------            --------            --------

  Deferred loan costs (fees),
    net......................        413                 382                 187                 (30)                (51)
  Allowance for loan losses..       (655)               (663)               (620)               (484)               (403)
                                --------            --------            --------            --------            --------

Total loans, net.............   $ 55,779            $ 54,297            $ 46,171            $ 35,207            $ 34,850
                                ========            ========            ========            ========            ========
</TABLE>

                                        5
<PAGE>

         Residential Mortgage Loans. Substantially all of the Company's
residential mortgage loan originations are 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 is $5.7 million, or 15.9% of the Company's $35.8 million of
residential mortgage loans at September 30, 2001. 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.

         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 circumstances 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 three 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 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 5%. 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 FHLB'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 venue to offer longer-term lower rate mortgages.
The lack of title insurance and surveys means that a portion of the Company's
residential mortgage loan portfolio may not be salable at par under this
program. 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.

         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.

                                        6
<PAGE>

         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, 2001, the Company had $1,153,000 in
outstanding advances on home equity lines of credit, $808,000 of unused home
equity lines of credit and $505,000 in regular amortizing home equity loans.

         Commercial Mortgage Loans. The Company had a portfolio of $5.7 million
of commercial mortgage loans at September 30, 2001. This category of loans
increased by $1.4 million, or 33.4 % during the twelve months ended September
30, 2001. The Company offers such loans in order to diversify risk, obtain
higher yields ordinarily associated with commercial mortgage loans, and benefit
from the improved interest rate sensitivity of loans with shorter terms.

         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 26.7% of the Company's commercial mortgage loan balances maturing
after September 30, 2002 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
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.

         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, 2001, the Company had $1.1 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.

         Automobile Loans. In recent years, the Company has exerted efforts 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.

                                        7
<PAGE>

         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, 2001, the Company had $8.4 million of auto loans, 1.8% lower than
the level one year earlier. The general economic downturn and lending practices
of automobile manufacturers, in which interest free financing is offered, have
negatively impacted our growth in this area. 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, but home
improvement loans are offered with terms up to fifteen years, although most have
terms not exceeding ten years. Other consumer loans totaled $1.9 million at
September 30, 2001. 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.

         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 fixed rates being more prevalent. The
Company had $1.6 million of such loans at September 30, 2001, compared to $1.2
million on September 30, 2000, an increase of 33.3%. The Company is not
aggressively marketing such loans to businesses in its market area. The Company
offers these loans in order to satisfy customer requests, diversify its product
offerings, maintain and seek to expand market share in light of increased
competition, improve yields and improve the interest rate sensitivity of its
assets.

         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 credits on an ongoing basis after making the loan to be
able to address any credit problems promptly if they occur.

         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 greater than $75,000, up to $150,000 require loan committee approval.
Loans ranging from $150,000 up to $250,000 require Large Loan Committee approval
(the Large Loan Committee consists of three outside directors and the
President). Loans exceeding $250,000 must be approved by the full Board of
Directors.

         Under federal law and applicable OTS regulations, we may not lend more
than 15% of our 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, 2001, the Company's largest loan was a
participation loan with Ogdensburg Savings & Loan Association for an automobile
dealer located in the Company's market area secured by automobile inventory with
a balance of $300,000. At year-end, this loan was current and performing in
accordance with its terms. This customer also had the largest loan relationship
with the Company, combining all loans to a single borrower or related group of
borrowers, at $355,000, substantially below our regulatory loan limit to one
borrower of $2.3 million. At September 30, 2001, all loans for the customer were
current and performing in accordance with their terms.

                                        8
<PAGE>

         The Company neither purchases nor sells loans. The Company does not
service loans for other lenders and the Company has never purchased
loan-servicing rights, however we may do so in the future.

         The following table shows the contractual maturity of the Company's
loan portfolio at September 30, 2001. 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     Home equity      Commercial     Other
                       Mortgage    and construction    Mortgage      Loans       Total
                       --------    ----------------    --------      -----       -----
                                               (In thousands)

<S>                    <C>             <C>             <C>         <C>         <C>
Amounts due:
  Within 1 year        $     94        $     10        $      3    $    821    $    928
    1 to 2 years            342              30             121       1,399       1,892
    2 to 3 years            585              31              37       3,085       3,738
    3 to 5 years          1,150              72             901       6,230       8,353
    5 to 10 years         9,371              10           2,459         781      12,621
    over 10 years        24,208           2,073           2,208          --      28,489
                       --------        --------        --------    --------    --------
      Total loans      $ 35,750        $  2,226        $  5,729    $ 12,316    $ 56,021
                       ========        ========        ========    ========    ========
</TABLE>



         The following table shows, as of September 30, 2001, the amount of
loans due after September 30, 2002, and whether they have fixed interest rates
or adjustable interest rates.

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

             Residential mortgage   $ 30,000   $  5,656   $ 35,656
             Home equity
             and construction          1,121      1,095      2,216
             Commercial mortgage       4,196      1,530      5,726
             Other Loans              10,571        924     11,495
                                    --------   --------   --------
                      Total         $ 45,888   $  9,205   $ 55,093
                                    ========   ========   ========


         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.

                                        9
<PAGE>

         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 real estate owned. At September 30, 2001, the Company had $182,000
of foreclosed real estate, represented by seven single-family residences. 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 the expense, foreclosed assets, net. 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, 2001, the Company had
$549,000 of "loans to facilitate," with one loan of $31,000 not current in
accordance with its 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 $38,000 at September 30, 2001.

         From time to time, the Company may give concessions to borrowers with
past due loans in order to assist the borrowers in repaying their loans by
restructuring the loan terms. These concessions generally involve lengthening
the repayment term of an existing loan in order to reduce monthly payments. The
Company generally does not agree to interest rate reductions or principal
forgiveness in order to restructure a loan. At September 30, 2001, the Company
had $571,000 of loans outstanding in which modifications had been made in order
to assist the borrower in repaying the loan. All but two loans totaling $56,000
were current in accordance with their restructured terms at September 30, 2001.

         The following table sets forth the Company's loan delinquencies by
type, by amount and by percentage of each loan category at September 30, 2001.

<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
                    Number   Amount   Category   Number   Amount   Category   Number   Amount   Category
                    ------   ------   --------   ------   ------   --------   ------   ------   --------
                                                   (Dollars in thousands)
<S>                   <C>    <C>        <C>        <C>    <C>        <C>        <C>    <C>        <C>
Real estate loans     12     $ 260      0.59%       5     $ 121      0.28%      17     $ 381      0.87%
Other Loans           17       131      1.06%      13       316      2.57%      30       447      3.63%
                     ---     -----                ---     -----                ---     -----
     Total            29     $ 391      0.70%      18     $ 437      0.78%      47     $ 828      1.48%
                     ===     =====                ===     =====                ===     =====
</TABLE>

(1) These loans are included as non-accrual loans in the following schedule.

         The following table sets forth information with respect to the
Company's non-performing assets (which generally include loans that are
delinquent for 90 days or more and foreclosed real estate) at the dates
indicated. At September 30, 2001, there were no loans other than those included
in the table below 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 fourth
straight year.

                                       10
<PAGE>

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

                                                2001    2000    1999    1998    1997
                                                ----    ----    ----    ----    ----
                                                       (Dollars in thousands)
<S>                                             <C>     <C>     <C>     <C>     <C>
         Non-accrual loans:
              Real estate loans .............   $121    $354    $196    $259    $553
              Other Loans ...................    316      55      25      --      12
                                                ----    ----    ----    ----    ----
              Total non-accrual loans .......    437     409     221     259     565

              Foreclosed real estate ........    182      91     169      51     157
              Other repossessed assets ......     38      20      --      --      --
                                                ----    ----    ----    ----    ----
              Total repossessed assets ......    220     111     169      51     157
                                                ----    ----    ----    ----    ----

              Total non-performing assets ...   $657    $520    $390    $310    $722
                                                ====    ====    ====    ====    ====

         Non-performing loans as a percent
         of  total loans ....................   0.78%   0.75%   0.47%   0.73%   1.60%

         Non-performing assets as a percent
         of total assets ....................   0.79%   0.69%   0.56%   0.52%   1.31%
</TABLE>


         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 $28,000 for fiscal 2001, $15,000 for fiscal 2000 and
$11,000 for fiscal 1999.

         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
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, 2001, the Company had $438,000 of
assets classified as Substandard and $65,000 classified as Doubtful or 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

                                       11
<PAGE>

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 potential 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.

         The following table analyzes activity in the Company's allowance for
loan losses during the periods indicated.

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

<S>                                             <C>       <C>       <C>       <C>       <C>
         Allowance, beginning of period         $   663   $   620   $   484   $   403   $   479
         Provision                                   80       158       162       130       250
         Charge-offs:
            Real estate                              26        55        40        87       312
            Other loans                             109       124        20        47        54
                                                -------   -------   -------   -------   -------
               Total charge-offs                    135       179        60       134       366
         Recoveries:
            Real estate                               6        32        21        66        22
            Other loans                              41        32        13        19        18
                                                -------   -------   -------   -------   -------
               Total recoveries                      47        64        34        85        40
                                                -------   -------   -------   -------   -------
         Net charge-offs                             88       115        26        49       326

         Allowance, end of period               $   655   $   663   $   620   $   484   $   403
                                                =======   =======   =======   =======   =======


         Allowance as a percent of total loans     1.17%     1.21%     1.33%     1.35%     1.14%
         Allowance as a percent of non-
           performing loans                      149.89%   162.10%   280.54%   186.87%    71.33%

         Ratio of net charge-offs to average
           loans outstanding                       0.16%     0.23%     0.07%     0.14%     0.97%
</TABLE>


                                       12
<PAGE>

         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.

                                                 At September 30,
                                                 ----------------
                                             2001               2000
                                             ----               ----

                                                Percent            Percent
                                                of Loans           of Loans
                                                to Total           to Total
                                        Amount   Loans     Amount   Loans
                                        ------   -----     ------   -----
                                              (Dollars in thousands)
         Allowance allocated to:
             Real estate loans          $  317    78.02%   $  363    77.60%
             Other loans                   338    21.98%      300    22.40%
                                        ------   ------    ------   ------
                Total allowance         $  655   100.00%   $  663   100.00%
                                        ======   ======    ======   ======


<TABLE>
<CAPTION>
                                                          At September 30,
                                                          ----------------
                                             1999               1998               1997
                                             ----               ----               ----

                                                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:
             Real estate loans          $  481    81.83%   $  394    87.82%   $  315    90.22%
             Other loans                   139    18.17%       90    12.18%       88     9.78%
                                        ------   ------    ------   ------    ------   ------
                Total allowance         $  620   100.00%   $  484   100.00%   $  403   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, 2001, 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.

                                       13
<PAGE>

         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. At September 30, 2001, the Company's securities
portfolio included securities with a fair value of $19.1 million classified as
available-for-sale and securities with an amortized cost of $2.6 million
classified as held-to-maturity. 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
$21.7 million at September 30, 2001, including $19.1 million classified as
available-for-sale and $2.6 million classified as held-to-maturity. The Company
invests primarily in debt securities issued by the United States Government and
its agencies ($3.8 million at September 30, 2001), taxable and tax-exempt
municipal securities ($1.1 million at September 30, 2001), and mortgage-backed
securities issued or guaranteed by government-sponsored enterprises ($8.5
million at September 30, 2001). 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, 2001, 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. 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, 2001, the Company's mortgage-backed securities portfolio contained
$5.9 million classified as available-for-sale and $2.6 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.

         Equity Securities. At September 30, 2001, the Company had $925,000 in
fair value of corporate equity securities represented by Freddie Mac common
stock with a cost of $15,000. In addition, the Company also had at September 30,
2001 a mutual fund investment classified as available-for-sale with a carrying
value of $6.9 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.

                                       14
<PAGE>

         At September 30, 2001, the Company also had $820,000 of stock in the
Federal Home Loan Bank ("FHLB") of New York 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 6.20% (annualized) for the year ended September 30,
2001.

         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.

                                                       At September 30,
                                                       ----------------
                                                   2001      2000      1999
                                                 Carrying  Carrying  Carrying
                                                   Value     Value     Value
                                                  -------   -------   -------
                                                        (In thousands)
         Securities Available for Sale:
                   U.S. Government and
                     federal agency securities    $ 3,816   $ 4,099   $ 4,357
                   Mortgage-backed securities       5,876     4,436     5,300
                   Municipal securities             1,085     1,975     2,359
                                                  -------   -------   -------
                       Total debt securities       10,777    10,510    12,016

                   Corporate securities               925       837       887
                   Mutual funds                     7,375        21        68
                                                  -------   -------   -------
                       Total available for sale    19,077    11,368    12,971

          Securities Held to Maturity:
                     Mortgage-backed securities     2,593     4,205     6,009
                     Other securities                  58        58        10
                                                  -------   -------   -------
                       Total held to maturity       2,651     4,263     6,019
                                                  -------   -------   -------
                         Total Securities         $21,728   $15,631   $18,990
                                                  =======   =======   =======


         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, 2001. 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 net worth 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. Government securities..  $     0   0.00%   $ 1,276   5.42%   $ 2,540   6.09%   $    --   0.00%   $ 3,816   5.86%   $ 3,816
Mortgage-backed securities..      175   5.93%     2,118   6.02%        --   0.00%     6,176   4.45%     8,469   4.87%     8,513
Municipal securities........      126   4.00%       457   6.85%        --   0.00%       502   6.05%     1,085   6.15%     1,085
       Other securities.....    8,358   4.55%        --   0.00%        --   0.00%        --   0.00%     8,358   4.55%     8,357
                              -------           -------           -------           -------           -------           -------
       Total................  $ 8,659   4.57%   $ 3,851   5.92%   $ 2,540   6.09%   $ 6,678   4.56%   $21,728   5.00%   $21,771
                              =======   ====    =======   ====    =======   ====    =======   ====    =======   ====    =======
</TABLE>
(1) Includes equity securities which have no maturity.

         Sources of Funds

         General. The Company's primary source of funds is deposits. During
2001, the Company also used borrowings as a source of funds to improve leverage.
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,

                                       15
<PAGE>

the Company expects that it will continue to offer the same types of deposit
products but also expects that it will continue to use FHLB 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, 2001, the Company had $47.7 million of deposits.

         The Company prices its deposit offerings based upon market and
competitive conditions in its market area. 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, 2001.

<TABLE>
<CAPTION>
                                                                   At September 30,
                                                     2001               2000               1999
                                                     ----               ----               ----
                                                        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
              (2.75-3.0%)...................   $13,795    28.93%  $14,694    31.40%  $15,423    34.18%
           NOW and money market
              accounts (2.0-4.0%)...........     6,964    14.61%    6,618    14.14%    6,449    14.30%
           Demand accounts..................       738     1.55%      621     1.33%      184     0.41%
                                               -------   ------   -------   ------   -------   ------
           Total non-time accounts..........    21,497    45.09%   21,933    46.87%   22,056    48.89%

         Time accounts:
         3.00 - 3.99%.......................     1,818     3.81%       --     0.00%       --     0.00%
         4.00 - 4.99%.......................     9,070    19.02%    1,703     3.64%   12,588    27.90%
         5.00 - 5.99%.......................     3,705     7.77%   11,748    25.10%   10,201    22.61%
         6.00 - 6.99%.......................     8,059    16.90%    7.071    15.11%      166     0.37%
         7.00 - 7.99%.......................     3,534     7.41%    4,345     9.28%      102     0.23%
                                                 -----   ------   -------   ------   -------   ------
         Total time accounts................    26,186    54.91%   24,867    53.13%   23,057    51.11%
                                                ------   ------   -------   ------   -------   ------
         Total deposits.....................   $47,683   100.00%  $46,800   100.00%  $45,113   100.00%
</TABLE>

         At September 30, 2001, the Company had $3.4 million in certificates of
deposit with balances of $100,000 or more ("jumbo deposits"), representing 7.06%
of all deposits.

         The following table sets forth the amount of certificates of deposit in
denominations of $100,000 at September 30, 2001, and the remaining period to
maturity of such deposits.

                                 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
                -------        ------       ------        ---------     -----
                 $ 381         $ 536       $ 1,221         $ 1,228     $ 3,366

                                       16
<PAGE>

         Borrowings. During fiscal 2001, the Company incurred borrowings and
invested these proceeds into additional loans and securities. All advances were
from the FHLB of New York and generally had terms of one to ten years with the
entire principal balance repayable at the earlier of call date or maturity. The
average balance of FHLB of New York outstanding loans payable during 2001 was
$14.6 million and the weighted average cost was 5.32%. The highest balance
outstanding during the year and the balance at September 30, 2001 was $16.4
million. In 2000, the average balance of loans payable to FHLB New York was
$10.7 million at a weighted average cost of 6.31%. The highest outstanding
balance during the 2000 fiscal year was $11.8 million, with $10.8 million
outstanding at year-end.

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, 2001, the Company had 22 full-time and two part-time
employees. 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 FHLB of New York. 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
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, 2001, the Bank's regulatory limit on
loans to one borrower was in excess of $2.3 million. At that date, the Bank's
largest aggregate loans to one borrower was $355,000.

         QTL Test. The HOLA requires the Bank to meet a qualified thrift lender,
or "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

                                       17
<PAGE>

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, 2001 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 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 FHLB of New
York and uses it as a source for borrowing funds. The Company must own stock in
the FHLB of New York 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 FHLB of New York. At

                                       18
<PAGE>

September 30, 2001, we had $820,000 of capital stock of the FHLB New York, which
satisfied this requirement and we had FHLB of New York borrowings totaling $16.4
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
payment of such dividend to the mutual holding company is probable, an
appropriate dollar amount is recorded as a liability. Cambray MHC elected to
waive the dividend to record holders of September 15, 2001 payable on September
30, 2001.

         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 Securities and
Exchange Commission ("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.

Item 2.  Description of Properties

         The Company conducts its business through its headquarters at 42 Church
Street in the Town and Village of Gouverneur. This year, the Company purchased a
building next to the Bank at 26 John Street to house accounting and executive
offices. The net book value of these two premises is $168,000. The Company
believes that with the additional office space added this past year its current
facilities are adequate for its current needs. 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 Alexandria Bay, New York. The book value of the
premises is zero. As mentioned above, the Company purchased property in
Alexandria Bay to locate a full service branch office. The lot, approximately
2.5 acres, cost $464,000, but provides space for additional development that
could provide either other income or a return of investment in the future.

                                       19
<PAGE>

Item 3.  Legal Proceedings

         The Registrant's subsidiary, Gouverneur Savings and Loan Association
(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. 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,
2001.


                                     PART II

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

         Information contained under the caption "Common Stock" in the 2001
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 "Managements Discussion and
Analysis of Financial Condition and Results of Operations" in the 2001 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 2001 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, 2001
         and 2000.
         Consolidated Statements of Income for the Years Ended September 30,
         2001 and 2000.
         Consolidated Statements of Changes in Shareholders' Equity for the
         Years Ended September 30, 2001 and 2000.
         Consolidated Statements of Cash Flows for the Years Ended September 30,
         2001 and 2000.
         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, 2001, 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


                                    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

                                       20
<PAGE>

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 19, 2002, 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 19, 2002, 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, 2001, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.

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 19,
2002, 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

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 19, 2002, 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 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 19, 2002, 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) Financial statements and schedules

See consolidated financial statements listed in Item 8 hereof.

         There are no financial statement schedules which are required to be
filed as part of this Form since they are not applicable.

(b) Reports on Form 8-K

         The Company filed no reports on Form 8-K during the quarter ended
September 30, 2001.

(c) Exhibits

         See Index to Exhibits.

                                       21
<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, 2001                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, 2001               /s/ FRANK LANGEVIN
                                --------------------------------
                                Frank Langevin, Chairman of the Board

December 18, 2001               /s/ RICHARD F. BENNETT
                                --------------------------------
                                Richard F. Bennett, President, Chief Executive
                                Officer and Director

December 18, 2001               /s/ ROBERT TWYMAN
                                --------------------------------
                                Robert Twyman, Vice President and Chief
                                Financial Officer Principal financial and
                                accounting officer

December 18, 2001               /s/ CHARLES VANVLEET
                                --------------------------------
                                Charles VanVleet, Vice President and Secretary

December 18, 2001               /s/ RICHARD JONES
                                --------------------------------
                                Richard Jones, Director

December 18, 2001               /s/ ROBERT LEADER
                                --------------------------------
                                Robert Leader, Director

December 18, 2001               /s/ TIMOTHY MONROE
                                --------------------------------
                                Timothy Monroe, Director

December 18, 2001               /s/ JOSEPH PISTOLESI
                                --------------------------------
                                Joseph Pistolesi, Director

December 18, 2001               /s/ LARRY STRAW
                                --------------------------------
                                Larry Straw, Director

                                       22
<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                      2001 Annual Report to Stockholders

         21                      Subsidiaries of Registrant
</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.


                                       23
<PAGE>
                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                        Consolidated Financial Statements

                           September 30, 2001 and 2000
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT
                          ----------------------------


The Board of Directors and Shareholders
Gouverneur Bancorp, Inc.:

We have audited the accompanying consolidated statements of financial condition
of Gouverneur Bancorp, Inc. and subsidiary (the Company) as of September 30,
2001 and 2000, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits 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 audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Gouverneur Bancorp,
Inc. and subsidiary as of September 30, 2001 and 2000, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.




                                                /s/ Fust Charles Chambers LLP



November 5, 2001
Syracuse, New York
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                 Consolidated Statements of Financial Condition
                           September 30, 2001 and 2000
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                          Assets                                        2001          2000
                          ------                                      --------      --------
<S>                                                                   <C>           <C>
Cash and due from banks                                               $  1,679         1,528
Federal funds sold                                                        --           1,100
Interest-bearing deposits in bank                                        1,173           760
Securities available for sale                                           19,077        11,368
Securities held to maturity (fair value of $2,696 in 2001
    and $4,204 in 2000)                                                  2,651         4,263
Loans                                                                   56,434        54,960
Less allowance for loan losses                                            (655)         (663)
                                                                      --------      --------
                  Loans, net                                            55,779        54,297
Accrued interest receivable                                                485           496
Federal Home Loan Bank of New York stock, at cost                          820           590
Premises and equipment, net                                                899           298
Other assets                                                               300           200
                                                                      --------      --------
                  Total assets                                        $ 82,863        74,900
                                                                      ========      ========
       Liabilities and Shareholders' Equity
       ------------------------------------
Liabilities:
    Deposits:
       Non interest-bearing demand                                         738           621
       NOW and money market                                              6,964         6,618
       Savings                                                          13,795        14,694
       Time                                                             26,186        24,867
                                                                      --------      --------
                  Total deposits                                        47,683        46,800
    Securities sold under agreements to repurchase                       8,400         7,300
    Advances from the Federal Home Loan Bank of New York                 8,000         3,500
    Other liabilities                                                    2,124         1,311
                                                                      --------      --------
                  Total liabilities                                     66,207        58,911
                                                                      --------      --------
Commitments and contingencies (notes 13 and 14)
Shareholders' equity:
    Preferred stock, $.01 par value, 1,000,000 shares authorized;
       none issued                                                        --            --
    Common stock, $.01 par value; 9,000,000 shares authorized;
       2,384,040 shares issued                                              24            24
    Additional paid-in capital                                           4,540         4,550
    Retained earnings                                                   12,463        11,943
    Accumulated other comprehensive income                                 610           356
    Unearned common stock held by MRP                                      (89)           41
    Unallocated common stock held by ESOP                                 (349)         (382)
    Treasury stock, at cost, 107,281 shares                               (543)         (543)
                                                                      --------      --------
                  Total shareholders' equity                            16,656        15,989
                                                                      --------      --------
                  Total liabilities and shareholders' equity          $ 82,863        74,900
                                                                      ========      ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                        1
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                        Consolidated Statements of Income
                     Years ended September 30, 2001 and 2000
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                           2001       2000
                                                                          ------     ------
<S>                                                                       <C>        <C>
Interest income:
    Loans                                                                 $4,740      4,432
    Securities                                                             1,140      1,053
    Other short-term investments                                              75        101
                                                                          ------     ------
                  Total interest income                                    5,955      5,586
                                                                          ------     ------
Interest expense:
    Deposits                                                               2,174      1,904
    Borrowings                                                               777        677
                                                                          ------     ------
                  Total interest expense                                   2,951      2,581
                                                                          ------     ------
                  Net interest income                                      3,004      3,005
Provision for loan losses                                                     80        158
                                                                          ------     ------
                  Net interest income after provision for loan losses      2,924      2,847
                                                                          ------     ------
Noninterest income:
    Service charges                                                          108        103
    Net gain on sale of securities available for sale                         98         67
    Other                                                                    123        136
                                                                          ------     ------
                  Total noninterest income                                   329        306
                                                                          ------     ------
Noninterest expenses:
    Salaries and employee benefits                                         1,014        957
    Directors' fees                                                           60         90
    Occupancy and equipment                                                  221        207
    Data processing                                                          119        112
    Postage and supplies                                                     104         89
    Professional fees                                                        177        210
    Foreclosed assets, net                                                    45         58
    Other                                                                    280        271
                                                                          ------     ------
                  Total noninterest expenses                               2,020      1,994
                                                                          ------     ------
                  Income before income tax expense                         1,233      1,159
Income tax expense                                                           467        434
                                                                          ------     ------
                  Net income                                              $  766        725
                                                                          ======     ======
Earnings per common share - basic                                         $  .35        .33
                                                                          ======     ======
Earnings per common share - diluted                                       $  .35        .32
                                                                          ======     ======
</TABLE>

See accompanying notes to consolidated financial statements.

                                        2
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

           Consolidated Statements of Changes in Shareholders' Equity
                     Years ended September 30, 2001 and 2000
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                           Accumulated
                                                                              Additional                      other
                                                                  Common        paid-in       Retained    comprehensive
                                                                   stock        capital       earnings        income
                                                                  -------       -------        -------        -------
<S>                                                               <C>           <C>            <C>            <C>
Balance at September 30, 1999                                     $    24         4,553         11,470            390
Comprehensive income:
    Net income                                                       --            --              725           --
    Change in net unrealized gain (loss) on securities
       available for sale, net of taxes                              --            --             --              (34)

                  Total comprehensive income                          691

Allocation of ESOP shares (5,087 shares)                             --              (3)          --             --
Amortization of MRP                                                  --            --             --             --
Purchase of treasury stock (107,281 shares)                          --            --             --             --
Cash dividends declared ($.11 per share)                             --            --             (252)          --
                                                                  -------       -------        -------        -------
Balance at September 30, 2000                                          24         4,550         11,943            356
Comprehensive income:
    Net income                                                       --            --              766           --
    Change in net unrealized gain (loss) on securities
       available for sale, net of taxes                              --            --             --              254

                  Total comprehensive income                        1,020

Allocation of ESOP shares (6,711 shares)                             --               8           --             --
Common stock acquired by MRP (30,600 shares)                         --             (18)          --             --
Amortization of MRP                                                  --            --             --             --
Cash dividends declared ($.16 per share)                             --            --             (246)          --
                                                                  -------       -------        -------        -------
Balance at September 30, 2001                                     $    24         4,540         12,463            610
                                                                  =======       =======        =======        =======

<CAPTION>
                                                                 Unearned     Unallocated
                                                                  common         common
                                                                stock held     stock held      Treasury
                                                                  by MRP         by ESOP         stock          Total
                                                                  -------        -------        -------        -------
<S>                                                               <C>            <C>            <C>            <C>
Balance at September 30, 1999                                        --             (408)          --           16,029
Comprehensive income:
    Net income                                                       --             --             --              725
    Change in net unrealized gain (loss) on securities
       available for sale, net of taxes                              --             --             --              (34)
                                                                                                               -------
                  Total comprehensive income
                                                                                                               -------
Allocation of ESOP shares (5,087 shares)                             --               26           --               23
Amortization of MRP                                                    41           --             --               41
Purchase of treasury stock (107,281 shares)                          --             --             (543)          (543)
Cash dividends declared ($.11 per share)                             --             --             --             (252)
                                                                  -------        -------        -------        -------
Balance at September 30, 2000                                          41           (382)          (543)        15,989
Comprehensive income:
    Net income                                                       --             --             --              766
    Change in net unrealized gain (loss) on securities
       available for sale, net of taxes                              --             --             --              254
                                                                                                               -------
                  Total comprehensive income
                                                                                                               -------
Allocation of ESOP shares (6,711 shares)                             --               33           --               41
Common stock acquired by MRP (30,600 shares)                         (145)          --             --             (163)
Amortization of MRP                                                    15           --             --               15
Cash dividends declared ($.16 per share)                             --             --             --             (246)
                                                                  -------        -------        -------        -------
Balance at September 30, 2001                                         (89)          (349)          (543)        16,656
                                                                  =======        =======        =======        =======
</TABLE>
See accompanying notes to consolidated financial statements

                                        3
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                     Years ended September 30, 2001 and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                   2001          2000
                                                                 --------      --------
<S>                                                              <C>           <C>
Cash flows from operating activities:
    Net income                                                   $    766           725
    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Depreciation                                                 88            68
          Provision for loan losses                                    80           158
          Deferred income taxes                                       (51)           45
          Net gains on sales of securities                            (98)          (67)
          Net amortization of securities                               92            59
          Loss on retirement of premises and equipment               --               7
          Allocated and earned shares of ESOP and MRP                  56            64
          (Increase) decrease in accrued interest receivable           11           (27)
          Decrease in other assets                                    140           228
          Increase (decrease) in other liabilities                    695          (185)
                                                                 --------      --------

                  Net cash provided by operating activities         1,779         1,075
                                                                 --------      --------

Cash flows from investing activities:
    Net increase in loans                                          (1,803)       (8,499)
    Proceeds from sales of securities available for sale            1,486            68
    Proceeds from maturities and principal reductions of
       securities available for sale                                5,896         1,510
    Purchases of securities available for sale                    (14,656)         --
    Purchases of securities held to maturity                         --             (50)
    Proceeds from maturities and principal reductions of
       securities held to maturity                                  1,607         1,802
    Additions to premises and equipment                              (689)          (95)
    Purchase of Federal Home Loan Bank of New York stock             (230)         (205)
                                                                 --------      --------

                  Net cash used in investing activities            (8,389)       (5,469)
                                                                 --------      --------
</TABLE>

                                        4                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                Consolidated Statements of Cash Flows, Continued

                     Years ended September 30, 2001 and 2000
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                  2001          2000
                                                                --------      --------
<S>                                                             <C>           <C>
Cash flows from financing activities:
    Net increase in deposits                                         883         1,687
    Net repayments of short-term borrowings                       (5,400)       (2,000)
    Proceeds of long-term debt                                    16,400         5,400
    Repayment of long-term debt                                   (5,400)         --
    Purchase of common stock by MRP                                 (163)         --
    Dividends paid on common stock                                  (246)         (252)
    Purchase of treasury stock                                      --            (543)
                                                                --------      --------

                  Net cash provided by financing activities        6,074         4,292
                                                                --------      --------

                  Net decrease in cash and cash equivalents         (536)         (102)

Cash and cash equivalents at beginning of year                     3,388         3,490
                                                                --------      --------

Cash and cash equivalents at end of year                        $  2,852         3,388
                                                                ========      ========

Supplemental disclosure of cash flow information:
    Cash paid during the year for:
       Interest                                                 $  2,881         2,601
                                                                ========      ========
       Income taxes                                             $    393           462
                                                                ========      ========

    Non-cash investing activities:
       Additions to foreclosed assets                           $    241           215
                                                                ========      ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                        5
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                           September 30, 2001 and 2000


(1)   Business
      --------

      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, 2001.

      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).

(2)   Summary of Significant Accounting Policies
      ------------------------------------------

      (a)  Basis of Presentation
           ---------------------

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

      (b)  Use of Estimates
           ----------------

           The preparation of the consolidated financial statements in
               conformity with generally accepted accounting principles requires
               management to make estimates and assumptions that affect the
               reported amounts of assets and liabilities and disclosure of
               contingent assets and liabilities at the date of the consolidated
               financial statements and the reported amounts of revenues and
               expenses during the reporting period. Actual results could differ
               from those estimates. A material estimate that is particularly
               susceptible to significant change in the near term is the
               determination of the allowance for loan losses.

                                        6                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(2)   Summary of Significant Accounting Policies, Continued
      -----------------------------------------------------

      (c)  Cash and Cash Equivalents
           -------------------------

           For purposes of the consolidated statements of cash flows, cash and
               cash equivalents include cash and due from banks, federal funds
               sold and interest-bearing deposits in bank which represent
               short-term highly liquid investments.

      (d)  Securities
           ----------

           The Company classifies its debt securities at the time of purchase as
               either securities available for sale or securities held to
               maturity. The Company does not hold any securities considered to
               be trading. Debt securities that management has the positive
               intent and ability to hold to maturity are classified as
               securities held to maturity and are recorded at amortized cost.
               Securities not classified as held to maturity are classified as
               securities available for sale and recorded at fair value, with
               unrealized gains and losses excluded from earnings and reported
               in other comprehensive income.

           Purchase premiums and discounts are recognized in interest income
               using the interest method over the term of the securities.
               Declines in the fair value of securities held to maturity and
               securities available for sale below their cost that are deemed to
               be other than temporary are reflected in earnings as realized
               losses. Gains and losses on the sale of securities are recorded
               on the trade date and are determined using the specific
               identification method.

      (e)  Loans
           -----

           Loans are reported at the principal amount outstanding, net of
               deferred costs and allowance for loan losses. Loan origination
               fees, net of certain direct origination costs are deferred and
               are recognized as an adjustment of the related loan yield using
               the interest method.

           The accrual of interest on loans is generally discontinued and
               previously accrued interest is reversed when loan payments are 90
               days or more past due or when, in the opinion of management,
               collectibility becomes uncertain. Subsequent recognition of
               interest income occurs only to the extent that payment is
               received. Loans are returned to accrual status when all principal
               and interest amounts contractually due are brought current and
               future payments are reasonably assured.

                                        7                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(2)   Summary of Significant Accounting Policies, Continued
      -----------------------------------------------------

      (f)  Allowance for Loan Losses
           -------------------------

           The allowance for loan losses is established as losses are estimated
               to have occurred through a provision for loan losses charged to
               earnings. Loan losses are charged against the allowance when
               management believes the uncollectibility of a loan balance is
               confirmed. Subsequent recoveries, if any, are credited to the
               allowance.

           The allowance for loan losses is evaluated on a regular basis by
               management and is based upon management's periodic review of the
               collectibility of the loans in light of historical experience,
               the nature and volume of the loan portfolio, adverse situations
               that may affect the borrower's ability to repay, estimated value
               of any underlying collateral and prevailing economic conditions.
               This evaluation is inherently subjective as it requires estimates
               that are susceptible to significant revisions as more information
               becomes available.

           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, amount of the shortfall in
               relation to the principal and interest owed. Impairment is
               measured on a loan by loan basis for commercial 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 mortgage
               loans for impairment disclosures.

                                        8                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(2)   Summary of Significant Accounting Policies, Continued
      -----------------------------------------------------

      (g)  Foreclosed Assets, Net
           ----------------------

           Real estate acquired in settlement of loans is initially recorded at
               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 the expense, foreclosed assets, net.

      (h)  Premises and Equipment
           ----------------------

           Landis carried at cost and building and improvements and furniture
               and equipment are carried at cost less accumulated depreciation.
               Depreciation is computed on the straight-line method over the
               estimated useful lives of the assets.

      (i)  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
               current market price of the shares and the shares become
               outstanding for earnings per share computations.

      (j)  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
               the MRP in accordance with the provisions of Accounting
               Principles Board (APB) Opinion No. 25, Accounting for Stock
               Issued to Employees, and related interpretations. The Company
               provides proforma net income and proforma 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.

                                        9                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(2)   Summary of Significant Accounting Policies, Continued
      -----------------------------------------------------

      (k)  Income Taxes
           ------------

           Deferred tax assets and liabilities are recognized for the future tax
               consequences attributable to differences between the financial
               statement carrying amounts of existing assets and liabilities and
               their respective tax bases. Deferred tax assets and liabilities
               are measured using enacted tax rates expected to apply to taxable
               income in the years in which those temporary differences are
               expected to be recovered or settled. The effect on deferred tax
               assets and liabilities of a change in tax rate is recognized in
               the period that includes the enactment date.

      (l)  Financial Instruments With Off-Balance Sheet Risk
           -------------------------------------------------

           The Company does not engage in the use of derivative financial
               instruments. The Company's off-balance sheet financial
               instruments are limited to commitments to extend credit.

      (m)  Earnings per Common Share
           -------------------------

           Basic earnings per common share is calculated by dividing net income
               available to common shareholders by the weighted average number
               of 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.

           Earnings per common share have been computed based on the following
               (in thousands):

<TABLE>
<CAPTION>
                                                                                2001       2000
                                                                               ------     ------
<S>                                                                            <C>        <C>
                  Net income applicable to common stock                        $  766        725
                                                                               ======     ======
                  Average number of common shares outstanding                   2,191      2,221
                  Effect of dilutive options                                       17         40
                                                                               ------     ------
                            Average number of common shares outstanding
                               used to calculate diluted earnings per share     2,208      2,261
                                                                               ======     ======
</TABLE>

                                       10                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(2)   Summary of Significant Accounting Policies, Continued
      -----------------------------------------------------

      (n)  Comprehensive Income
           --------------------

           Comprehensive income, presented in the consolidated statements of
               changes in shareholders' equity, consists of net income and the
               net change for the period in after-tax unrealized gains or losses
               on securities available for sale. Accumulated other comprehensive
               income in the consolidated statements of financial condition
               represents the net unrealized gains or losses on securities
               available for sale as of the reporting dates, net of related tax
               effect.

           A summary of unrealized gains (losses) and reclassification
               adjustments, net of tax, of securities available for sale for the
               years ended September 30 follows (in thousands):

<TABLE>
<CAPTION>
                                                                    2001        2000
                                                                   ------      ------
<S>                                                                <C>         <C>
                 Unrealized holding gains (losses) arising
                    during the period net of tax (pre-tax
                    amount of $ 523,000 and $10,000)               $  314           6

                 Reclassification adjustment for losses
                    (gains) realized in net income during
                    this period, net of tax (pre-tax amount
                    of ($98,000) and ($67,000))                       (60)        (40)
                                                                   ------      ------

                 Other comprehensive (loss) income, net of tax     $  254         (34)
                                                                   ======      ======
</TABLE>

      (o)  Segment Reporting
           -----------------

           As a community-oriented financial institution, substantially all of
               the Company's operations involve the delivery of loan and deposit
               products to customers. Management makes operating decisions and
               assesses performance based on an ongoing review of these
               community banking operations, which constitute the Company's only
               operating segment for financial reporting purposes.

                                       11                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(2)   Summary of Significant Accounting Policies, Continued
      -----------------------------------------------------

      (p)  New Accounting Standards
           ------------------------

           In July 2001, the Financial Accounting Standards Board (FASB) issued
               Statement No. 141, Business Combinations, which requires all
               business combinations to be accounted for under the purchase
               method of accounting, thus eliminating the pooling of interests
               method of accounting. The adoption of this statement is effective
               for the transactions initiated after June 30, 2001.

           In July 2001, the FASB issued Statement No. 142, Goodwill and Other
               Intangible Assets, which requires acquired intangible assets
               (other than goodwill) to be amortized over their useful economic
               life, while goodwill and any acquired intangible asset with an
               indefinite useful economic life would not be amortized, but would
               be reviewed for impairment on an annual basis based upon
               guidelines specified by the Statement. The adoption of this
               statement is effective October 1, 2002.

           In June 2001, the FASB issued Statement No. 143, Accounting for
               Asset Retirement Obligations, which addresses the financial
               accounting and reporting for obligations associated with the
               retirement of tangible long-lived assets and the associated asset
               retirement costs. This Statement requires that the fair value of
               a liability for an asset retirement obligation be recognized in
               the period in which it is incurred if a reasonable estimate of
               fair value can be made. The associated asset retirement costs are
               capitalized as part of the carrying amount of the long-lived
               asset.

           In October 2001, the FASB issued Statement No. 144, Accounting for
               Impairment of Disposal of Long-Lived Assets, that replaces SFAS
               No. 121, Accounting for the Impairment of Long-Lived Assets and
               for Long-Lived Assets to be Disposed Of. The provisions of SFAS
               No. 144 are effective October 1, 2002. The Company does not
               believe there will be a material impact on the Company's
               consolidated financial statements upon the adoption of this
               Statement.

           Adoption of these statements is not expected to have a material
               impact on the Company's financial condition or results of
               operations.

                                       12                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(3)   Securities
      ----------

      The amortized cost and fair values of securities, with gross unrealized
         gains and losses, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                   September 30, 2001
                                                      ----------------------------------------------
                                                                    Gross        Gross
                                                      Amortized  unrealized    unrealized     Fair
                                                         cost       gains        losses       value
                                                       -------     -------      -------      -------
<S>                                                    <C>         <C>          <C>          <C>
         Securities available for sale:
             Debt securities:
                U.S. Government and federal agency     $ 3,750          66         --          3,816
                Mortgage-backed                          5,872          21          (17)       5,876
                Municipal                                1,076           9         --          1,085
                                                       -------     -------      -------      -------
                     Total debt securities              10,698          96          (17)      10,777
             Corporate equity securities                    15         910         --            925
             Mutual funds                                7,318          57         --          7,375
                                                       -------     -------      -------      -------
                                                       $18,031       1,063          (17)      19,077
                                                       =======     =======      =======      =======
         Securities held to maturity:
             Mortgage-backed                             2,593          45         --          2,638
             Other                                          58        --           --             58
                                                       -------     -------      -------      -------
                                                       $ 2,651          45         --          2,696
                                                       =======     =======      =======      =======

<CAPTION>
                                                                   September 30, 2000
                                                      ----------------------------------------------
                                                                    Gross        Gross
                                                      Amortized  unrealized    unrealized     Fair
                                                         cost       gains        losses       value
                                                       -------     -------      -------      -------
<S>                                                    <C>         <C>          <C>          <C>
         Securities available for sale:
             Debt securities:
                U.S. Government and federal agency     $ 4,201        --           (102)       4,099
                Mortgage-backed                          4,492        --            (56)       4,436
                Municipal                                2,015           1          (41)       1,975
                                                       -------     -------      -------      -------
                     Total debt securities              10,708           1         (199)      10,510
             Corporate equity securities                    16         821         --            837
             Mutual funds                                   21        --           --             21
                                                       -------     -------      -------      -------
                                                       $10,745         822         (199)      11,368
                                                       =======     =======      =======      =======
         Securities held to maturity:
             Mortgage-backed                             4,205        --            (59)       4,146
             Other                                          58        --           --             58
                                                       -------     -------      -------      -------
                                                       $ 4,263        --            (59)       4,204
                                                       =======     =======      =======      =======
</TABLE>

                                       13                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(3)   Securities, Continued
      ---------------------

      The amortized cost and fair value of debt securities based on the earlier
         of call date or contractual maturity at September 30, 2001 follows (in
         thousands):

                                                         Amortized     Fair
                                                            cost       value
                                                          -------     -------

             Securities available for sale:
                Due within one year                       $ 3,826       3,875
                Due after one year through five years       1,000       1,026
                                                          -------     -------
                                                            4,826       4,901
                Mortgage-backed securities                  5,872       5,876
                                                          -------     -------

                                                          $10,698      10,777
                                                          =======     =======

             Securities held to maturity:
                Due within one year                       $    58          58

                Mortgage-backed securities                  2,593       2,638
                                                          -------     -------

                                                          $ 2,651       2,696
                                                          =======     =======

      Expected maturities may differ from contractual maturities because
         borrowers may have the right to prepay obligations with or without
         prepayment penalties.

      Gross gains of approximately $98,000 were realized on sales of securities
         available for sale in 2001 and $67,000 in 2000. There were no gross
         losses in 2001 and 2000.

                                       14                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(4)   Loans Receivable
      ----------------

      Loans at September 30 are summarized as follows (in thousands):

                                                          2001        2000
                                                         -------     -------

             Mortgage loans:
                Residential - one to four family         $35,750      36,640
                Commercial 5,729                           4,593
                Construction                               1,073         519
                                                         -------     -------

                           Total mortgage loans           42,552      41,752
                                                         -------     -------

             Other loans:
                Commercial and agricultural                1,570       1,181
                Automobile                                 8,442       8,594
                Home equity                                1,153         791
                Passbook                                     429         389
                Other                                      1,875       2,059
                                                         -------     -------

                           Total other loans              13,469      13,014
                                                         -------     -------

                           Total loans                    56,021      54,766

             Undisbursed portion of loans in process        --          (188)
             Net deferred costs                              413         382
                                                         -------     -------

                                                         $56,434      54,960
                                                         =======     =======

      An analysis of the allowance for loan losses follows (in thousands):

                                                          2001        2000
                                                         -------     -------

             Balance at beginning of year                $   663         620
             Provision for loan losses                        80         158
             Loans charged-off                              (135)       (179)
             Recoveries                                       47          64
                                                         -------     -------

             Balance at end of year                      $   655         663
                                                         =======     =======

                                       15                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(4)   Loans Receivable, Continued
      ---------------------------

      A substantial portion of the Company's loans are mortgages in St.
         Lawrence, Jefferson and Lewis Counties in New York State. Accordingly,
         the ultimate collectibility of a substantial portion of the loan
         portfolio is susceptible to changes in market conditions in this area.

      The principal balances of loans not accruing interest amounted to
         approximately $437,000 and $409,000 at September 30, 2001 and 2000,
         respectively. The interest income foregone for nonaccruing loans was
         approximately $28,000 and $15,000 during the years ended September 30,
         2001 and 2000, respectively.

      The Company's recorded investment in impaired loans totalled $415,000 at
         September 30, 2001. The average recorded investment in impaired loans
         was $208,000 in 2001. The allowance for loan losses associated with
         these impaired loans was $51,000 at September 30, 2001. The Company had
         no impaired loans in 2000. The amount of interest income recognized on
         impaired loans was not significant for the year ended September 30,
         2001.

      In the ordinary course of business, the Company has and expects to
         continue to have transactions, including loans, with its officers and
         directors. In the opinion of management, such transactions were on
         substantially the same terms, including interest rates and collateral,
         as those prevailing at the time of comparable transactions with other
         persons and did not involve more than a normal risk of collectibility
         or present any other unfavorable features. Loans to such borrowers at
         September 30, 2001 and 2000 were $403,000 and $333,000, respectively.

(5)   Accrued Interest Receivable
      ---------------------------

      Accrued interest receivable at September 30 is summarized as follows (in
         thousands):

                                                        2001     2000
                                                       -----    -----

             Loans                                     $ 329      313
             Securities                                  156      183
                                                       -----    -----

                                                       $ 485      496
                                                       =====    =====

                                       16                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(6)   Premises and Equipment
      ----------------------

      Premises and equipment at September 30 are summarized as follows (in
         thousands):

                                                        2001         2000
                                                       -------      -------
             Land                                      $   504           30
             Buildings and improvements                    604          478
             Furniture and equipment                       377          288
                                                       -------      -------
                                                         1,485          796
             Less accumulated depreciation                (586)        (498)
                                                       -------      -------

                                                       $   899          298
                                                       =======      =======

      Depreciation expense for the years ended September 2001 and 2000 amounted
         to $88,000 and $68,000, respectively.

(7)   Deposits

      At September 30, 2001 and 2000, the aggregate amounts of time deposits in
         denominations of $100,000 or more were approximately $3,366,000 and
         $3,519,000, respectively.

      At September 30, 2001 the scheduled maturities of time deposits are as
         follows (in thousands):

             Within one year                                       $ 22,629
             One through two years                                    2,807
             Two through three years                                    510
             Three through five years                                   240
                                                                   --------

                                                                   $ 26,186
                                                                   ========

      Interest expense on deposits is summarized as follows (in thousands):

                                                           2001       2000
                                                          ------     ------

             Savings                                      $  470        532
             Time                                          1,559      1,250
             NOW and money market                            145        122
                                                          ------     ------

                                                          $2,174      1,904
                                                          ======     ======

                                       17                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

(8)   Borrowed Funds
      --------------

      Borrowed funds at September 30 are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                2001                           2000
                                                    --------------------------       --------------------------
                                                              Weighted average                 Weighted average
                                                    Amount      interest rate        Amount      interest rate
                                                    ------      -------------        ------      -------------
<S>                                                 <C>                  <C>         <C>                <C>
             Securities sold under
                agreements to repurchase            $  8,400             4.69%         7,300              6.63%

             Advances from the
                Federal Home Loan
                Bank of New York                       8,000             4.53%         3,500              6.82%
                                                    --------                        --------
                                                    $ 16,400                          10,800
                                                    ========                        ========
</TABLE>

      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):

                           Year ending
                           -----------
                               2002                                $  3,000
                               2003                                   1,200
                               2004                                   1,700
                               2005                                     500
                               2011                                  10,000
                                                                   --------
                                                                   $ 16,400
                                                                   ========

      At September 30, 2001, $5.0 million of securities sold under agreements to
         repurchase and $5.0 million of advances from the FHLBNY are callable in
         2002.

      The securities sold under agreements to repurchase are secured by
         mortgage-backed securities. The collateral underlying the securities
         sold under agreements to repurchase had a carrying value of $8,860,000
         and a fair value of $8,949,000 at September 30, 2001 and a carrying
         value of $8,768,000 and a fair value of $8,646,000 at September 30,
         2000. 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 $12,716,000 at
         September 30, 2001. 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.

                                       18                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(9)   Income Taxes
      ------------

      The components of income tax expense are (in thousands):

                                                           2001       2000
                                                          -----      -----
             Current:
                Federal                                   $ 404        309
                State                                       114         80
                                                          -----      -----
                                                            518        389
                                                          -----      -----

             Deferred:
                Federal                                     (40)        35
                State                                       (11)        10
                                                          -----      -----
                                                            (51)        45
                                                          -----      -----
                                                          $ 467        434
                                                          =====      =====

      Actual tax expense attributable to income before income taxes differed
         from "expected" tax expense, computed by applying the U.S. federal
         statutory tax rate of 34% to income before income tax as follows (in
         thousands):

<TABLE>
<CAPTION>
                                                                      2001       2000
                                                                     -----      -----
<S>                                                                  <C>        <C>
             Computed "expected" tax expense                         $ 419        394
             Increase (decrease) in income taxes resulting from:
                State taxes, net of federal tax benefits                68         53
                Other items, net                                       (20)       (13)
                                                                     -----      -----
                                                                     $ 467        434
                                                                     =====      =====
</TABLE>

                                       19                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(9)   Income Taxes, Continued
      -----------------------

      The components of the net deferred tax liability, included in other
         liabilities, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                       2001     2000
                                                                       ----     ----
<S>                                                                    <C>      <C>
             Deferred tax assets:
                Allowance for loan losses                              $260      270
                Deferred directors' fees                                 55       43
                Accrued expenses                                         49       66
                Other                                                    39       27
                                                                       ----     ----
                           Total deferred tax assets                    403      406
                                                                       ----     ----

             Deferred tax liabilities:
                Accumulated depreciation on premises and equipment       16       20
                Accrued interest receivable                             147      198
                Net deferred loan costs                                 164      153
                Unrealized gains on securities available for sale       430      266
                Prepaid expenses                                         26       36
                                                                       ----     ----

                           Total deferred tax liabilities               783      673
                                                                       ----     ----

                           Net deferred tax liability                  $380      267
                                                                       ====     ====
</TABLE>

      Realization of deferred tax assets is dependent upon the generation of
         future taxable income or the existence of sufficient taxable income
         within the carryback period. A valuation allowance is provided when it
         is more likely than not that some portion of the deferred tax assets
         will not be realized. In assessing the need for a valuation allowance,
         management considers the scheduled reversal of the deferred tax
         liabilities, the level of historical taxable income and projected
         future taxable income over the periods in which the temporary
         differences comprising the deferred tax assets will be deductible.
         Management believes that no valuation allowance is necessary at
         September 30, 2001 and 2000.

      Included in retained earnings at September 30, 2001 is approximately
         $1,274,000 representing aggregate provisions for loan losses taken
         under the Internal Revenue Code. Use of these reserves to pay dividends
         in excess of earnings and profits or to redeem stock, or if the
         institution fails to qualify as a bank for federal income tax purposes,
         would result in taxable income to the Bank.

                                       20                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(10)  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, 2001 and 2000 expense
         for the Plan amounted to $58,000 and $48,000, respectively.

      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 shall be repaid in ten
         equal annual installments through 2009. The loan bears interest at
         7.75%. At September 30, 2001, 16,089 shares were released or committed
         to be released and 69,736 shares remained as unallocated shares. The
         fair value of the unallocated shares on September 30, 2001 amounted to
         $593,400. The cost of the ESOP shares that have not been allocated or
         committed to be released to participants is deducted from stockholders'
         equity. The Company recorded $41,000 and $23,000 of compensation
         expense related to the ESOP for the years ended September 30, 2001 and
         2000, respectively.

(11)  Deferred Compensation Plan
      --------------------------

      In 1998, the Company instituted a nonqualified deferred compensation plan
         for directors, under which participants may elect to defer all or part
         of their annual director fees. At September 30, 2001 and 2000, deferred
         director fees included in other liabilities aggregated $138,000 and
         $109,000, respectively. Deferred compensation expense for the years
         ended September 30, 2001 and 2000 amounted to $29,000 and $54,000,
         respectively.

(12)  Stock Option and Management Recognition Plans
      ---------------------------------------------

      On October 27, 1999, shareholders approved the Stock Option Plan and the
         Management Recognition Plan (MRP) for directors, officers and key
         employees. 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.

                                       21                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(12)  Stock Option and Management Recognition Plans, Continued

      Activity in the Stock Option Plan is as follows:

                                                         Options    Option price
                                                       outstanding    per share
                                                       -----------    ---------

             Outstanding at September 30, 1999               --         $ --

             Granted                                       58,250        4.75
                                                           ------       -----
             Outstanding at September 30, 2000             58,250        4.75

             Granted                                         --           --
                                                           ------       -----
             Outstanding at September 30, 2001             58,250       $4.75
                                                           ======       =====
             Options exercisable at September 30, 2001     11,650
                                                           ======

      The fair value of these options was estimated at the date of grant using
         the Black-Scholes option pricing model with the following assumptions:
         risk-free interest rate of 5.9%; dividend yield of 2.2%; market price
         volatility of 26.6%; expected option life of 8 years. The estimated
         weighted average fair value of the options granted during 2000 was
         $1.99 per option.

      The Company has elected to account for its stock-based compensation plan
         in accordance with Accounting Principles Board Opinion No. 25. Proforma
         amounts of net income and earnings per share under Statement of
         Financial Standards No. 123 for the years ended September 30 are as
         follows:
                                                         2001       2000
                                                         ----       ----

             Net income:
                As reported                           $   766        725
                Proforma                                  752        711

             Earnings per common share - basic:
                As reported                           $      .35        .33
                Proforma                                     .34        .32
             Earnings per common share - diluted:
                As reported                           $      .35        .32
                Proforma                                     .34        .31

      On October 27, 1999, the Company awarded 23,100 shares (42,912 authorized)
         of restricted stock under the MRP. The market value of shares awarded
         at the date of the grant approximated $110,000. Compensation expense
         for the MRP was $15,000 and $41,000 for the years ended September 30,
         2001 and 2000, respectively.

                                       22                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(13)  Commitments and Contingencies
      -----------------------------

      The Company 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 consist of commitments to
         extend credit and involve, to varying degrees, elements of credit,
         market and interest rate risk in excess of the amounts recognized in
         the consolidated statement of financial condition.

      The Company's exposure to credit loss in the event of nonperformance by
         the other party to the financial instrument for loan commitments is
         represented by the contractual or notional amount of these instruments.
         The Company uses the same credit policies in making commitments as it
         does for on-balance sheet instruments.

      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. Since some of the commitments are expected to expire without
         being drawn upon, the total commitment amounts do not necessarily
         represent future cash requirements. The amount of collateral obtained,
         if deemed necessary by the Company upon extension of credit, is based
         on management's credit evaluation of the customer.

      Commitments to originate fixed and adjustable rate loans were $1,282,000
         and $1,153,000 at September 30, 2001 and 2000, respectively.

      Unused lines of credit, which includes home equity, consumer and
         commercial, amounted to $1,109,000 and $744,000 at September 30, 2001
         and 2000, respectively.

(14)  Retained Earnings
      -----------------

      Cambray Mutual Holding Company (Cambray) has waived receipt of its
         September 2001 dividend in the amount of $118,010 from the Company. The
         dividends waived by Cambray are considered as a restriction on the
         retained earnings of the Company.

                                       23                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(15)  Regulatory Capital Requirements
      -------------------------------

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

      Quantitative measures established by regulation to ensure capital adequacy
         require the Company and Bank to maintain minimum amounts and ratios set
         forth in the table below of total and Tier I capital to risk-weighted
         assets (as defined in the regulations), Core capital (as defined) and
         Tangible capital (as defined). Management believes at September 30,
         2001, that the Company and the Bank meet all capital adequacy
         requirements to which they are subject.

      As of September 30, 2001, the most recent notification from the Office of
         Thrift Supervision categorized the Bank as well capitalized under the
         regulatory framework for prompt corrective action. To be categorized as
         well capitalized, the Bank has to maintain minimum total risk-based,
         Tier I risk-based, Core capital and Tangible capital ratios as set
         forth in the table below. There are no conditions or events since the
         most recent notification that management believes have changed the
         Bank's category.

                                       24                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(15)  Regulatory Capital Requirements, Continued
      ------------------------------------------

      The following is a summary of the Company's and Bank's actual capital
         amounts and ratios compared to minimum capital adequacy requirements
         and the requirements for classification as a well capitalized
         institution under prompt corrective action provisions (dollars in
         thousands):

<TABLE>
<CAPTION>
                                                                                                   To be classified as
                                                                                                  well-capitalized under
                                                                           Minimum capital           prompt corrective
                                                       Actual           adequacy requirements        action provisions
                                              -----------------------   ----------------------    ----------------------
                                               Amount         Ratio      Amount        Ratio        Amount       Ratio
<S>                                           <C>             <C>       <C>            <C>         <C>           <C>
      September 30, 2001
      ------------------
      Total capital (to risk-
         weighted assets):
             Company                          $ 17,016         37.88%   $  3,584          8.0%     $ 4,480         10.0%
             Bank                               16,385         36.57       3,584          8.0        4,480         10.0
      Core capital (to adjusted
         tangible assets):
             Company                            16,046         19.61       2,454          3.0        4,091          5.0
             Bank                               15,415         18.77       2,464          3.0        4,106          5.0
      Tangible capital (to
         tangible assets):
             Company                            16,046         19.61       1,227          1.5         -          N/A
             Bank                               15,415         18.77       1,232          1.5         -          N/A
      Tier I capital (to risk-
         weighted assets):
             Company                            16,046         35.82       1,792          4.0        2,688          6.0
             Bank                               15,415         34.41       1,792          4.0        2,688          6.0

      September 30, 2000
      ------------------
      Total capital (to risk-
         weighted assets):
             Company                          $ 16,517         40.14%   $  3,292          8.0%     $ 4,115         10.0%
             Bank                               15,458         37.57       3,292          8.0        4,115         10.0
      Core capital (to adjusted
         tangible assets):
             Company                            15,633         21.05       2,228          3.0        3,714          5.0
             Bank                               14,574         19.53       2,239          3.0        3,732          5.0
      Tangible capital (to
         tangible assets):
             Company                            15,633         21.05       1,114          1.5        -           N/A
             Bank                               14,574         19.53       1,120          1.5        -           N/A
      Tier I capital (to risk-
         weighted assets):
             Company                            15,633         37.99       1,646          4.0        2,469          6.0
             Bank                               14,574         35.42       1,646          4.0        2,469          6.0
</TABLE>

                                       25                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(16)  Fair Value of Financial Instruments
      -----------------------------------

      The following methods and assumptions were used by the Company in
         estimating fair value disclosures for financial instruments:

             Cash and cash equivalents: The fair values are considered to
             approximate the carrying amounts, as reported in the balance sheet.

             Securities: Fair values of securities are based on exchange quoted
             market prices, where available. If quoted market prices are not
             available, fair values are based on quoted market prices of similar
             instruments.

             Loans: For variable rate loans that reprice frequently and loans
             due on demand with no significant change in credit risk, fair
             values are considered to approximate carrying amounts. The fair
             values for fixed-rate loans are estimated using discounted cash
             flow analyses, using interest rates currently being offered for
             loans with similar terms to borrowers of similar credit rating.

             FHLB Stock: The carrying amount of this instrument, which is
             redeemable at par, approximates fair value.

             Accrued Interest Receivable and Payable: The carrying amount of
             accrued interest approximates fair value.

             Deposits: The fair value of demand, savings, NOW and money market
             accounts are, by definition, equal to the amount payable on demand
             at the reporting date. Fair values for fixed-rate time certificates
             are estimated using a discounted cash flow calculation that applies
             interest rates currently being offered on these products to a
             schedule of aggregated expected monthly maturities on time
             deposits.

             Borrowed Funds: The fair value of securities sold under agreements
             to repurchase and advances from the Federal Home Loan Bank of New
             York are estimated using a discounted cash flow approach that
             applies interest rates currently being offered for similar types of
             borrowing arrangements.

             Off-Balance-Sheet Instruments: The Bank's off-balance-sheet
             instruments consists of lines of credit and commitments to fund
             loans. The fair value of these financial instruments is immaterial
             and has therefore been excluded from the table below.

                                       26                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(16)  Fair Value of Financial Instruments, Continued
      ----------------------------------------------

      The estimated fair values and related carrying amounts of the Bank's
         financial instruments at September 30 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                        2001                    2000
                                                -------------------     --------------------
                                                Carrying     Fair       Carrying     Fair
                                                 amount      value       amount      value
                                                 ------      -----       ------      -----
<S>                                             <C>          <C>         <C>         <C>
             Financial assets:
                Cash and cash equivalents       $ 2,852       2,852       3,388       3,388
                Securities                       21,728      21,773      15,631      15,572
                Loans, net                       55,779      56,413      54,297      53,773
                FHLBNY stock                        820         820         590         590
                Accrued interest receivable         485         485         496         496

             Financial liabilities:
                Deposits                         47,683      47,925      46,800      46,788
                Borrowed funds                   16,400      17,033      10,800      10,800
                Accrued interest payable            114         114          59          59
</TABLE>

(17)  Condensed Parent Company Only Financial Statements
      --------------------------------------------------

      The following presents the condensed statements of financial condition of
         Gouverneur Bancorp, Inc. as of September 30, 2001 and 2000 and
         condensed statements of income and cash flows for the years ended
         September 30, 2001 and 2000.

           Condensed Statements of Financial Condition (in thousands)
           ----------------------------------------------------------

<TABLE>
<CAPTION>
                                                                            2001       2000
                                                                          -------     -------
<S>                                                                       <C>         <C>
             Assets:
                Cash                                                      $   550         994
                Other assets                                                   80          41
                Investment in banking subsidiary                           16,026      14,976
                                                                          -------     -------

                           Total assets                                   $16,656      16,011
                                                                          =======     =======

             Liabilities and shareholders' equity:
                Other liabilities                                            --            22
                Shareholders' equity                                       16,656      15,989
                                                                          -------     -------

                           Total liabilities and shareholders' equity     $16,656      16,011
                                                                          =======     =======
</TABLE>

                                       27                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(17)  Condensed Parent Company Only Financial Statements, Continued
      -------------------------------------------------------------

                  Condensed Statements of Income (in thousands)
                  ---------------------------------------------

<TABLE>
<CAPTION>
                                                                             2001        2000
                                                                            ------      ------
<S>                                                                         <C>         <C>
             Income                                                         $   57          72
             Expense                                                           125         119
                                                                            ------      ------

                           Loss before equity in earnings of subsidiary        (68)        (47)

             Equity in earnings of subsidiary                                  834         772
                                                                            ------      ------

                           Net income                                       $  766         725
                                                                            ======      ======
</TABLE>

                Condensed Statements of Cash Flows (in thousands)
                -------------------------------------------------

<TABLE>
<CAPTION>
                                                                             2001        2000
                                                                            ------      ------
<S>                                                                         <C>         <C>
             Cash flows from operating activities:
                Net income                                                  $  766         725
                Adjustments to reconcile net income to net
                   cash used in operating activities:
                      Equity in earnings of subsidiary                        (834)       (772)
                      Other, net                                                 1           1
                                                                            ------      ------

                           Net cash used in operating activities               (67)        (46)
                                                                            ------      ------

             Cash flows from investing activities:
                Principal collected on ESOP note receivable                     32          23
                                                                            ------      ------

                           Net cash provided by investing activities            32          23
                                                                            ------      ------

             Cash flows from financing activities:
                Purchase of management recognition plan stock                 (163)       --
                Purchase of treasury stock                                    --          (543)
                Cash dividends paid                                           (246)       (252)
                                                                            ------      ------

                           Net cash used in financing activities              (409)       (795)
                                                                            ------      ------

                           Net decrease in cash and cash equivalents          (444)       (818)

             Cash and cash equivalents at beginning of year                    994       1,812
                                                                            ------      ------

             Cash and cash equivalents at end of year                       $  550         994
                                                                            ======      ======
</TABLE>

                                       28                            (Continued)
<PAGE>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements


(18)  Quarterly Summarized Financial Information (Unaudited)
      ------------------------------------------------------

      Selected quarterly financial data for fiscal 2001 and 2000 follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                           Year ended September 30, 2001
                                                 --------------------------------------------------
         By quarter                              First      Second     Third      Fourth      Year
                                                 ------     ------     ------     ------     ------
<S>                                              <C>        <C>        <C>        <C>        <C>
         Interest income                         $1,451      1,523      1,523      1,458      5,955
         Interest expense                           737        754        750        710      2,951
                                                 ------     ------     ------     ------     ------
                  Net interest income               714        769        773        748      3,004
                                                 ------     ------     ------     ------     ------
         Provision for loan losses                   30         20         20         10         80
         Noninterest income                          65        146         57         61        329
         Noninterest expenses                       497        514        474        535      2,020
                                                 ------     ------     ------     ------     ------
                  Income before income taxes        252        381        336        264      1,233
         Income taxes                                99        154        123         91        467
                                                 ------     ------     ------     ------     ------
                  Net income                     $  153        227        213        173        766
                                                 ======     ======     ======     ======     ======
         Earnings per common share:
            Basic                                $ 0.07       0.10       0.10       0.08       0.35
            Diluted                                0.07       0.10       0.10       0.08       0.35
                                                 ======     ======     ======     ======     ======

<CAPTION>
                                                           Year ended September 30, 2000
                                                 --------------------------------------------------
         By quarter                              First      Second     Third      Fourth      Year
                                                 ------     ------     ------     ------     ------
<S>                                              <C>        <C>        <C>        <C>        <C>
         Interest income                         $1,322      1,384      1,420      1,460      5,586
         Interest expense                           582        617        665        717      2,581
                                                 ------     ------     ------     ------     ------
                  Net interest income               740        767        755        743      3,005
                                                 ------     ------     ------     ------     ------
         Provision for loan losses                   39       --           10        109        158
         Noninterest income                          64        117         69         56        306
         Noninterest expenses                       520        557        451        466      1,994
                                                 ------     ------     ------     ------     ------
                  Income before income taxes        245        327        363        224      1,159
         Income taxes                                96        126        143         69        434
                                                 ------     ------     ------     ------     ------
                  Net income                     $  149        201        220        155        725
                                                 ======     ======     ======     ======     ======
         Earnings per common share:
            Basic                                $ 0.07       0.09       0.10       0.07       0.33
            Diluted                                0.07       0.09       0.10       0.06       0.32
                                                 ======     ======     ======     ======     ======
</TABLE>

                                       29