Expanded Information

Gouverneur Bancorp, Inc., organized in 1999, serves as the holding company for Gouverneur Savings and Loan Association (the Bank). The Bank'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 United States government and its agencies, and mortgaged-backed securities. The Bank's loans are mainly residential mortgage loans secured by one- to four-family residences, with the balance of the portfolio composed of commercial mortgage loans, other consumer loans (mostly automobile loans) and other non-real estate commercial loans. Through two full-service branch offices and one lending office, it services a primary market area consisting of southern St. Lawrence County and northern Jefferson and Lewis counties in New York State.

Lending Activities

The Bank's loans consist primarily of mortgage loans secured by one- to four-family residences. As of September 30, 2004, it had total loans of $80.2 million, of which $63.6 million, or 79.3%, were one- to four-family, first-lien residential mortgage loans.

Approximately two-thirds of the Bank's residential mortgage loan originations are first-lien, fixed-rate mortgage loans with terms up to 25 years, but predominantly from 15 to 20 years. It also offers adjustable-rate mortgage loans. The adjustable-rate residential mortgage portfolio was 26.5% of the Bank's $63.6 million of residential mortgage loans, compared to September 30, 2003, when $16.3million of the $48.7 million, or 33.5%, in residential loans were adjustable rate.

The Bank offers a home equity line of credit secured by a residential one- to four-family mortgage, usually a second lien. It 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. The Bank also 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.

The Bank offers commercial mortgage loans with loan-to-value ratios up to 70%. It offers both fixed- and adjustable-rate commercial mortgage loans, with 73.9% of the Bank's commercial mortgage loan balances maturing after September 30, 2004, having adjustable interest rates. It also 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. As of September 30, 2004, it had $6 million of auto loans, 10.4% lower than the level one year earlier. The Bank also makes fixed-rate consumer loans either unsecured or secured by savings accounts or other consumer assets.

The Bank 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.

Investment Activities

The Bank's investment securities totaled $14 million as of September 30, 2004, including $13.8 million classified as available for sale and $0.2 million classified as held to maturity. It invests primarily in debt securities issued by the United States government and its agencies and mortgage-backed securities issued or guaranteed by government-sponsored enterprises. The Bank has classified all recent purchases of investment securities as available for sale in order to maintain flexibility in managing its investments. It purchases only investment-grade debt securities, and, as of September 30, 2004, none of its investment securities were in default or otherwise classified. As September 30, 2004, the Bank had $680,000 in fair market value of corporate equity securities represented by the Federal Home Loan Mortgage Corporation (FHLMC) common stock with a cost of $10,000.

Sources of Funds

The Bank 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 (CDs). The Bank's deposits are obtained predominantly from its primary market area. As September 30, 2004, it had $61.6 million of deposits.