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

                                   FORM 10-QSB


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

      For the quarterly period ended June 30, 2008

                                       OR

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

      For the transition period from _______________ to ___________________


                        Commission file number 001-14910


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


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


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


                    Issuer's telephone number (315) 287-2600

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 [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
                                 Yes [ ] No [X]

                                                            Outstanding at
              Class                                         August 1, 2008
  -----------------------------                             --------------
  Common Stock, par value $ .01                                2,299,384

Transitional Small Business Disclosure Format (check one):
                                 Yes [ ] No [X]
<PAGE>

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

PART 1 - FINANCIAL INFORMATION                                             Page
------------------------------                                             ----

Item 1.  Financial Statements - Unaudited

         Consolidated Statements of Financial Condition at June 30, 2008
         and at September 30, 2007                                           3

         Consolidated Statements of Income for the three and nine months
         ended June 30, 2008 and 2007                                        4

         Consolidated Statements of Shareholders' Equity for the nine
         months ended June 30, 2008 and 2007                                 5

         Consolidated Statements of Cash Flows for the nine months ended
         June 30, 2008 and 2007                                              7

         Notes to Consolidated Financial Statements                          8

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.                                         14

Item 3.  Controls and Procedures                                            28

PART II - OTHER INFORMATION
---------------------------

Item 1.  Legal Proceedings                                                  29

Item 6.  Exhibits                                                           29

SIGNATURES                                                                  29

EXHIBITS                                                                    30

                                       2
<PAGE>
<TABLE>
<CAPTION>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements - Unaudited

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

                                                                                           June 30,     September 30,
                                                                                             2008            2007
                                                                                         ------------    ------------
<S>                                                                                      <C>             <C>
Assets:
Cash and due from banks                                                                  $      1,847    $      2,381
Interest-bearing deposits in bank                                                               5,248           1,499
                                                                                         ------------    ------------
                 Total cash and cash equivalents                                                7,095           3,880

Securities available-for-sale                                                                   9,731           9,784
Securities held-to-maturity (fair value 2008: $76: 2007: $81)                                      75              81

Loans held for sale                                                                                --           2,105

Loans receivable, net of allowance for loan losses: 2008 $864: 2007 $911                      106,908         106,131

Investment in Federal Home Loan Bank stock, at cost                                             1,462           1,694
Investment in life insurance                                                                    3,895           3,778
Premises and equipment, net                                                                     3,241           3,059
Accrued interest receivable and other assets                                                    2,202           2,077
                                                                                         ------------    ------------
                 Total assets                                                            $    134,609    $    132,589
                                                                                         ============    ============

Liabilities:
Deposits:  Non-interest-bearing demand                                                   $      7,554    $      5,708
           NOW and money market                                                                14,662          13,162
           Savings                                                                             17,453          17,617
           Time                                                                                43,124          39,742
                                                                                         ------------    ------------
                 Total deposits                                                                82,793          76,229

Advances from the Federal Home Loan Bank                                                       27,950          33,150
Other liabilities                                                                               3,045           2,780
                                                                                         ------------    ------------
                 Total liabilities                                                            113,788         112,159
                                                                                         ------------    ------------

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                                                                      4,969           4,910
Retained earnings                                                                              16,447          16,024
Treasury Stock, at cost, (shares 2008: 84,656: 2007: 83,981)                                     (439)           (425)
Accumulated other comprehensive loss                                                             (137)            (18)
Unallocated common stock held by Employee Stock Ownership Plan                                    (43)            (85)
                                                                                         ------------    ------------
                 Total shareholders' equity                                                    20,821          20,430
                                                                                         ------------    ------------
                 Total liabilities and shareholders' equity                              $    134,609    $    132,589
                                                                                         ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>

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

                                                                Three Months Ended               Nine Months Ended
                                                                     June 30,                        June 30,
                                                           ----------------------------    ----------------------------
                                                               2008            2007            2008            2007
                                                           ------------    ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>             <C>
Interest income:
----------------
Loans                                                      $      1,752    $      1,853    $      5,425    $      5,584
Securities-taxable                                                   97             125             336             358
          -non-taxable                                               33              18              85              43
Other short-term investments                                         20              24              64              49
                                                           ------------    ------------    ------------    ------------
     Total interest income                                        1,902           2,020           5,910           6,034
                                                           ------------    ------------    ------------    ------------
Interest expense:
-----------------
Deposits                                                            557             555           1,695           1,605
Borrowings - short term                                              10             126             149             397
Borrowings - long term                                              303             305             917             892
                                                           ------------    ------------    ------------    ------------
     Total interest expense                                         870             986           2,761           2,894
                                                           ------------    ------------    ------------    ------------

     Net interest income                                          1,032           1,034           3,149           3,140
Provision for loan losses                                            --              --              --              15
                                                           ------------    ------------    ------------    ------------
     Net interest income after provision for loan losses          1,032           1,034           3,149           3,125
                                                           ------------    ------------    ------------    ------------
Non-interest income:
--------------------
Service charges                                                     108              60             307             167
Realized gain (loss) on sales of securities - AFS                    --              96              (1)             96
Earnings on investment in life insurance                             40              37             117             109
Realized gain on foreclosed assets, net                              --               6              --              23
Other                                                                48              68              82             178
                                                           ------------    ------------    ------------    ------------
     Total non-interest income                                      196             267             505             573
                                                           ------------    ------------    ------------    ------------
Non-interest expenses:
----------------------
Salaries and employee benefits                                      449             433           1,389           1,348
Directors fees                                                       36              65              52             163
Occupancy and equipment                                             113             140             361             402
Data processing                                                      35              32             104              94
Postage and supplies                                                 30              30             107             109
Professional fees                                                   113              74             239             195
Other                                                               107             106             347             360
                                                           ------------    ------------    ------------    ------------
     Total non-interest expenses                                    883             880           2,599           2,671
                                                           ------------    ------------    ------------    ------------

     Income before income tax expense                               345             421           1,055           1,027
Income tax expense                                                  118             153             352             360
                                                           ------------    ------------    ------------    ------------
     Net income                                            $        227    $        268    $        703    $        667
                                                           ============    ============    ============    ============

Earnings per common share - basic                          $       0.10    $       0.12    $       0.31    $       0.29
Earnings per common share - diluted                        $       0.10    $       0.12    $       0.31    $       0.29
</TABLE>

See accompanying notes to consolidated financial statements

                                       4
<PAGE>
<TABLE>
<CAPTION>

                                               GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                   Nine months ended June 30, 2008
                                     (In thousands, except share and per share data) (Unaudited)

                                                                                         Accumulated     Unallocated
                                                   Additional                               Other          Common
                                       Common       Paid-in     Retained     Treasury   Comprehensive    Stock held
                                        Stock       Capital     Earnings      Stock         Loss           by ESOP        Total
                                    -----------   ----------   ----------   ----------   ------------   ------------   ----------
<S>                                <C>           <C>          <C>          <C>          <C>            <C>            <C>
Balance at September 30, 2007       $        24   $    4,910   $   16,024   $     (425)  $        (18)  $        (85)  $   20,430
                                                                                                                       ----------
Comprehensive income:
   Net income                                                         703                                                     703
   Net pension and postretirement
     benefit costs, net of taxes                                                                    8                           8
   Change in net unrealized gain
     on securities available for
     sale, net of reclassification
     adjustment and taxes                                                                        (127)                       (127)
                                                                                                                       ----------

Total comprehensive income                                                                                                    584
                                                                                                                       ----------
Allocation of ESOP shares
   (8,436 shares)                                         34                                                      42           76
Cumulative effect of adoption
   of new accounting principle
   on October 1, 2007
   EITF Issue No. 06-4                                               (121)                                                   (121)
Amortization of MRP                                       25                                                                   25
Purchases of treasury stock
   (2,140 shares)                                                                  (20)                                       (20)
Exercise of stock options
   (1,125 shares)                                                                    6                                          6
Cash dividends declared,
   $0.16 per share                                                   (159)                                                   (159)
                                    -----------   ----------   ----------   ----------   ------------   ------------   ----------

Balance at June 30, 2008            $        24   $    4,969   $   16,447   $     (439)  $       (137)  $        (43)  $   20,821
                                    ===========   ==========   ==========   ==========   ============   ============   ==========
</TABLE>


                                       5
<PAGE>
<TABLE>
<CAPTION>

                                               GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                   Nine months ended June 30, 2007
                                     (In thousands, except share and per share data) (Unaudited)

                                                                               Accumulated      Unearned    Unallocated
                                            Additional                            Other          Common        Common
                                 Common      Paid-in     Retained   Treasury  Comprehensive    Stock held    Stock held
                                  Stock      Capital     Earnings     Stock       Income         by MRP        by ESOP      Total
                                ---------   ----------   --------   ---------   -----------   -----------    ----------   ---------
<S>                           <C>         <C>          <C>        <C>         <C>           <C>            <C>          <C>
Balance at September 30, 2006   $      24   $    4,847   $ 15,398   $    (466)  $       234   $       (44)   $     (138)  $  19,855
                                                                                                                          ---------
Comprehensive income:
   Net income                                                 667                                                               667
   Change in unrealized
     gains on securities
     available for sale,
     net of reclassification
     adjustment and taxes                                                              (113)                                   (113)
                                                                                                                          ---------

Total comprehensive income                                                                                                      554
                                                                                                                          ---------

Allocation of ESOP shares
   (7,829 shares)                                   55                                                               39          94
Adoption of SFAS 123(R)                            (44)                                                44                        --
Amortization of MRP                                 27                                                                           27
Amortization of
   stock option grants                               3                                                                            3
Exercise of stock options,
   7,975 shares                                     (2)                    41                                                    39
Cash dividends declared,
   $0.16 per share                                           (158)                                                             (158)
                                ---------   ----------   --------   ---------   -----------   -----------    ----------   ---------

Balance at June 30, 2007        $      24   $    4,886   $ 15,907   $    (425)  $       121   $        --    $      (99)  $  20,414
                                =========   ==========   ========   =========   ===========   ===========    ==========   =========
</TABLE>

See accompanying notes to consolidated financial statements

                                        6
<PAGE>
<TABLE>
<CAPTION>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (In thousands) (Unaudited)
                                                                                    Nine Months Ended
                                                                                         June 30,
                                                                               ----------------------------
                                                                                   2008            2007
                                                                               ------------    ------------
<S>                                                                            <C>             <C>
Cash flows from operating activities:
  Net Income                                                                   $        703    $        667

  Adjustments to reconcile net income to net cash provided by
    operating activities:
       Provision for loan losses                                                         --              15
       Net amortization of deferred fees on loans                                       113             107
       Depreciation                                                                      94             111
       Write down of foreclosed real estate                                              --               6
       Net amortization of securities premiums and discounts                              3              --
       Net realized (gains) losses on sales of securities - AFS                           1             (96)
       Principal payments on loans held for sale                                         20              41
       Proceeds from sales of loans held for sale                                     2,085              --
       Earnings on bank owned life insurance                                           (117)           (109)
       Allocated and earned shares of SOP, ESOP and MRP                                 101             124
       Net realized gain on sale of foreclosed assets                                    --             (23)
       (Increase) decrease in accrued interest receivable and other assets             (152)            380
       Increase in accrued interest payable and other liabilities                       242             201
                                                                               ------------    ------------
                    Net cash provided by operating activities                         3,093           1,424
                                                                               ------------    ------------
Cash flows from investing activities:
  Securities available for sale:
       Proceeds from sales                                                              163              98
       Proceeds from maturities and principal reductions                              1,766           1,656
       Purchases                                                                     (2,092)         (2,232)
  Securities held to maturity, proceeds from maturities                                   6               9
  Redemptions of Federal Home Loan Bank stock                                           232              16
  Net increase in loans                                                              (1,032)         (1,359)
  Proceeds from sales of foreclosed assets                                              164             240
  Additions to premises and equipment                                                  (276)           (956)
                                                                               ------------    ------------
                    Net cash provided by (used in) investing activities              (1,069)         (2,528)
                                                                               ------------    ------------
Cash flows from financing activities:
  Net increase in deposits                                                            6,564           2,543
  Net repayments of FHLB advances                                                    (5,200)           (700)
  Exercise of stock options                                                               6              39
  Cash dividends paid                                                                  (159)           (158)
  Purchase of treasury stock                                                            (20)             --
                                                                               ------------    ------------
                     Net cash provided by financing activities                        1,191           1,724
                                                                               ------------    ------------

                     Net increase in cash and cash equivalents                        3,215             620
Cash and cash equivalents - Beginning                                                 3,880           2,470
                                                                               ------------    ------------
Cash and cash equivalents - Ending                                             $      7,095    $      3,090
                                                                               ============    ============
Non-cash investing activities:
  Additions to foreclosed assets                                               $        142    $        290
Cash paid during the period for:
  Interest                                                                            3,172           2,858
  Income taxes                                                                          423             405
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       7
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

1.       Basis of Presentation
         ---------------------

         The accompanying unaudited financial statements include the accounts of
         Gouverneur Bancorp, Inc. (the "Company") and Gouverneur Savings and
         Loan Association (the "Bank"), the wholly owned and only subsidiary of
         the Company, as of June 30, 2008 and September 30, 2007 and for the
         three and nine-month periods ended June 30, 2008 and 2007. All material
         intercompany accounts and transactions have been eliminated in this
         consolidation. These statements were prepared in accordance with
         instructions for Form 10-QSB and, therefore, do not include information
         or footnotes necessary for a complete presentation of financial
         condition, results of operations, and cash flows in conformity with
         generally accepted accounting principles in the United States of
         America.

         In the opinion of management, all adjustments, consisting of only
         normal recurring adjustments or accruals, which are necessary for a
         fair presentation of the consolidated financial statements have been
         made at and for the three-month and the nine-month periods ended June
         30, 2008 and 2007. The results of operations for the three and
         nine-month periods ended June 30, 2008 are not necessarily indicative
         of the results which may be expected for an entire fiscal year or other
         interim periods.

         The data in the consolidated statements of financial condition for
         September 30, 2007 was derived from the Company's annual report on Form
         10-KSB. That data, along with the interim financial information
         presented in the consolidated statements of financial condition,
         income, shareholders' equity and cash flows should be read in
         conjunction with the 2007 consolidated financial statements, including
         the notes thereto included in the Company's 2007 Annual Report on Form
         10-KSB. Certain amounts for the three-month and nine-month periods
         ended June 30, 2007 were reclassified to conform to the presentation of
         June 30, 2008.

2.       Earnings Per Common Share
         -------------------------

         Basic earnings per common share represent income available to common
         shareholders divided by the weighted average number of common shares
         outstanding during the period. Unearned Employee Stock Ownership Plan
         ("ESOP") and Management Recognition Plan ("MRP") shares are not
         included in the weighted average number of shares outstanding. Diluted
         earnings per share reflect additional common shares that would have
         been outstanding if dilutive potential common shares had been issued,
         as well as any adjustment to income that would result from the assumed
         issuance. Potential common shares that may be issued by the Company
         relate to unearned MRP shares and outstanding stock options and are
         determined using the treasury stock method.

                                       8
<PAGE>

         Basic and diluted earnings per share for the three and nine-month
         periods ending June 30, 2008 and 2007 were computed as follows:
<TABLE>
<CAPTION>

                      (In thousands, except per share data)

                                                                     Three Months Ended           Nine Months Ended
                                                                           June 30,                    June 30,
                                                                  -------------------------   -------------------------
         Basic earnings per share:                                    2008          2007          2008          2007
                                                                  -----------   -----------   -----------   -----------
<S>                                                               <C>           <C>           <C>           <C>
         Net income                                               $       227   $       268   $       703   $       667
                                                                  ===========   ===========   ===========   ===========

         Weighted average common shares outstanding                     2,284         2,271         2,281         2,266
                                                                  ===========   ===========   ===========   ===========

         Basic earnings per share                                 $      0.10   $      0.12   $      0.31   $      0.29
                                                                  ===========   ===========   ===========   ===========

<CAPTION>


                                                                     Three Months Ended           Nine Months Ended
                                                                           June 30,                    June 30,
                                                                  -------------------------   -------------------------
         Diluted earnings per share:                                  2008          2007          2008          2007
                                                                  -----------   -----------   -----------   -----------
<S>                                                               <C>           <C>           <C>           <C>
         Net income                                               $       227   $       268   $       703   $       667
                                                                  ===========   ===========   ===========   ===========

         Weighted average common shares outstanding                     2,284         2,271         2,281         2,266
         Additional potentially dilutive securities
              (equivalent in common stock)
                   common stock options and unearned MRP shares            17            26            20            27
                                                                  -----------   -----------   -----------   -----------
         Diluted weighted average common shares outstanding             2,301         2,297         2,301         2,293
                                                                  ===========   ===========   ===========   ===========
         Diluted earnings per share                               $      0.10   $      0.12   $      0.31   $      0.29
                                                                  ===========   ===========   ===========   ===========


</TABLE>

3.       Comprehensive Income
         --------------------

         Comprehensive income, presented in the consolidated statements of
         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. For the nine months ended June 30, 2008, it also includes the
         amortization of certain pension and postretirement benefit costs
         previously recorded in accumulated other comprehensive income in
         accordance with Statement of Financial Accounting Standards ("SFAS")
         No. 158 "Employers' Accounting for Defined Benefit Pension and Other
         Postretirement Plans". Accumulated other comprehensive income (loss) in
         the consolidated statements of financial condition represents the net
         unrealized gains or losses on securities available for sale and pension
         and postretirement benefit costs related to SFAS No. 158, as of the
         reporting dates, net of related tax effects.

         The components of other comprehensive income (loss) and related tax
         effects for the three and nine month periods ended June 30, 2008 and
         2007 are as follows:

                                       9
<PAGE>
<TABLE>

                                                             Three Months Ended         Nine Months Ended
                                                                   June 30,                  June 30,
                                                           -----------------------   -----------------------
                                                                            (In thousands)

                                                              2008         2007         2008         2007
                                                           ----------   ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>          <C>
         Unrealized holding losses arising
            during the period                              $     (224)  $      (63)  $     (212)  $      (92)
         Reclassification adjustment for (gains) losses
            realized in net income during the period               --          (96)           1          (96)
         Net pension and postretirement benefit costs             (20)          --           13           --
                                                           ----------   ----------   ----------   ----------
                                                                 (244)        (159)        (198)        (188)
         Tax effect                                                98           63           79           75
                                                           ----------   ----------   ----------   ----------
         Other comprehensive loss, net of tax              $     (146)  $      (96)  $     (119)  $     (113)
                                                           ==========   ==========   ==========   ==========
</TABLE>

         The following table shows the components of accumulated other
         comprehensive income (loss) at June 30, 2008 and September 30, 2007:
<TABLE>
<CAPTION>

                                                                                      June 30,   September 30,
                                                                                        2008          2007
                                                                                     ----------   ----------
                                                                                         (In thousands)
<S>                                                                                  <C>          <C>
         Pension and postretirement benefit costs, net of taxes of $127 at
           June 30, 2008 and $133 at September 30, 2007                              $     (191)  $     (199)

         Unrealized holding gains on available for sale securities, net of
          taxes of $36 at June 30, 2008 and $121 at September 30, 2007                       54          181
                                                                                     ----------   ----------
                                                                                     $     (137)  $      (18)
                                                                                     ==========   ==========
</TABLE>

4.       Stock Option and Management Recognition Plans
         ---------------------------------------------

         The Company has a Stock Option Plan ("SOP") and MRP for directors,
         officers and key employees. Both plans are described in Notes 2 and 12
         to the Company's Consolidated Financial Statements included in its
         Annual Report on Form 10-KSB, for the fiscal year ended September 30,
         2007. The Company adopted SFAS No. 123R "Share Based Payment", using
         the modified-prospective transition method, beginning on October 1,
         2006 and, therefore, began to expense the fair value of all options
         over their remaining vesting periods to the extent the options were not
         fully vested as of the adoption date and began to expense the fair
         value of all stock options granted subsequent to September 30, 2006,
         over their vesting periods.

         SFAS No. 123R also requires the benefits of realized tax deductions in
         excess of previously recognized tax benefits on stock-based
         compensation expense to be reported as a financing cash flow (none for
         the three and nine month periods ended June 30, 2008) rather than an
         operating cash flow, as previously required. In accordance with Staff
         Accounting Bulletin ("SAB") No. 107, the Company classified share-based
         compensation within non-interest expenses to correspond with the same
         line item as the cash compensation paid to employees and directors.

         Both employee and non-employee director options generally vest over a
         five-year service period. Compensation expense recognized for all
         option grants is net of estimated forfeitures and is recognized over

                                       10
<PAGE>

         the awards' respective vesting periods. The fair values of all option
         grants were estimated using the Black-Scholes option pricing model. The
         Company recognizes compensation expense for the fair values of these
         awards, which have graded vesting, on a straight-line basis over the
         requisite vesting period of the awards. Stock option compensation
         expense was $0 and $3,000 for the nine months ended June 30, 2008 and
         2007. No options were granted in the nine-month periods ending June 30,
         2008 or 2007.

         The Company awarded no shares of stock under the MRP during the nine
         month period ended June 30, 2008. During the nine months ended June 30,
         2008, the Company recorded $25,000 of share-based compensation expense,
         which was for previously issued MRP shares. The Company estimates it
         will record share-based compensation expense of approximately $33,000
         in fiscal 2008.

         The following tables illustrate the impact of share-based compensation
         on net income and earnings per share:

<TABLE>
<CAPTION>

                                                            Three Months Ended
                                       ------------------------------------------------------------
                                                June 30, 2008                 June 30, 2007
                                       ----------------------------    ----------------------------
                                                         Impact of                      Impact of
                                                        Share-Based                    Share-Based
         (In thousands, except                          Compensation                   Compensation
          per share data)               As Reported       Expense       As Reported       Expense
         ------------------------      ------------    ------------    ------------    ------------
<S>                                    <C>             <C>             <C>             <C>
         Net income                    $        227    $          5    $        268    $          6

         Earnings per share:
             Basic                     $       0.10    $       0.00    $       0.12    $       0.00
             Diluted                   $       0.10    $       0.00    $       0.12    $       0.00

<CAPTION>

                                                             Nine months Ended
                                       ------------------------------------------------------------
                                                June 30, 2008                 June 30, 2007
                                       ----------------------------    ----------------------------
                                                         Impact of                      Impact of
                                                        Share-Based                    Share-Based
         (In thousands, except                         Compensation                   Compensation
          per share data)               As Reported       Expense       As Reported       Expense
         ------------------------      ------------    ------------    ------------    ------------
<S>                                    <C>             <C>             <C>             <C>
         Net income                    $        703    $         15    $        667    $         19

         Earnings per share:
             Basic                     $       0.31    $       0.01    $       0.29    $       0.01
             Diluted                   $       0.31    $       0.01    $       0.29    $       0.01

</TABLE>

5.       Commitments and Contingencies
         -----------------------------

         Outstanding letters of credit written are conditional commitments
         issued by the Company to guarantee the performance by a customer to a
         third party. The Company's exposure to credit loss in the event of
         nonperformance by the other party to the financial instrument for
         standby letters of credit is represented by the contractual amount of
         those instruments. The Bank uses the same credit policies in making
         conditional obligations as it does for on-balance sheet instruments.
         The Company had six standby letters of credit totaling $186,000 as of
         June 30, 2008.

         The credit risk involved in issuing letters of credit is essentially
         the same as that involved in extending other loan commitments. The
         Company requires collateral and personal guarantees supporting these
         letters of credit as deemed necessary. Management believes that the
         proceeds obtained through a liquidation of such collateral in the event
         of a default, and the enforcement of personal guarantees would be
         sufficient to cover the maximum potential amount of future payments
         required under the corresponding guarantees.

                                       11
<PAGE>

6.       Dividend Restrictions
         ---------------------

         Cambray Mutual Holding Company ("Cambray MHC"), the Company's parent
         mutual holding company, held 1,311,222 shares, or 57.0%, of the
         Company's issued and outstanding common stock, and shareholders other
         than Cambray MHC held 988,162 shares or 43.0% of such stock at June 30,
         2008. Cambray MHC has filed a notice with the Office of Thrift
         Supervision ("OTS") to waive its right to receive cash dividends during
         the 2008 calendar year. The Company paid a cash dividend on March 31,
         2008 to all public shareholders.

         Cambray MHC has waived receipt of several past dividends paid by the
         Company. The dividends waived are considered as a restriction on the
         retained earnings of the Company. As of June 30, 2008 and September 30,
         2007, the aggregate retained earnings restricted for cash dividends
         waived were $2,137,000 and $1,927,000, respectively.

7.       Recently Issued Accounting Standards
         ------------------------------------

         In September 2006, the FASB Emerging Issues Task Force ("EITF") issued
         EITF Issue No. 06-4, "Accounting for Deferred Compensation and
         Postretirement Benefit Aspects of Endorsement Split-Dollar Life
         Insurance Arrangements", or EITF 06-4. EITF 06-4 requires that a
         liability be recorded during the service period when a split-dollar
         life insurance arrangement continues after participants' employment or
         retirement. The required accrued liability is based on either the
         post-employment benefit cost for the continuing life insurance or based
         on the future death benefit, depending on the contractual terms of the
         underlying agreement. We adopted EITF 06-4 on October 1, 2007 and
         recorded a cumulative effect adjustment of $121,000 as a reduction of
         retained earnings effective October 1, 2007. Compensation expense for
         the nine months ended June 30, 2008 was $25,000 and is expected to be
         $33,000 for the year ended September 30, 2008 related to the adoption
         of EITF 06-4.

         In July 2006, the Financial Accounting Standards Board ("FASB") issued
         FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes
         - an interpretation of FASB Statement No. 109" (FIN 48), which
         clarifies the accounting for uncertainty in tax positions. This
         Interpretation requires that companies recognize in their financial
         statements the impact of a tax position, if that position is more
         likely than not of being sustained on audit, based on the technical
         merits of the position. The provisions of FIN 48 are effective for
         fiscal years beginning after December 15, 2006, with the cumulative
         effect of the change in accounting principle recorded as an adjustment
         to opening retained earnings. The Company adopted FIN 48 on October 1,
         2007. The impact of adopting FIN 48 did not have a material effect on
         our financial statements.

         FASB statement No. 141 (R) "Business Combinations" was issued in
         December of 2007. This Statement establishes principles and
         requirements for how the acquirer of a business recognizes and measures
         in its financial statements the identifiable assets acquired, the
         liabilities assumed, and any noncontrolling interest in the acquiree.
         The Statement also provides guidance for recognizing and measuring the
         goodwill acquired in the business combination and determines what
         information to disclose to enable users of the financial statements to
         evaluate the nature and financial effects of the business combination.
         The guidance will become effective as of the beginning of a company's
         fiscal year beginning after December 15, 2008. This new pronouncement
         will impact the Company's accounting for business combinations
         completed beginning October 1, 2009.

         In September 2006, the FASB issued Statement of Financial Accounting
         Standards ("SFAS") No. 157, "Fair Value Measurements," which defines
         fair value, establishes a framework for measuring fair value under U.S.
         Generally Accepted Accounting Principles, and expands disclosures about
         fair value measurements. SFAS No. 157 applies to other accounting

                                       12
<PAGE>

         pronouncements that require or permit fair value measurements. The new
         guidance is effective for financial statements issued for fiscal years
         beginning after November 15, 2007, and for interim periods within those
         fiscal years. We are currently evaluating the potential impact, if any,
         of the adoption of FASB Statement No. 157 on our financial position,
         results of operations and cash flows.

         In February 2008, the FASB issued FASB Staff Position (FSP) 157-2,
         "Effective Date of FASB Statement No. 157," that permits a one-year
         deferral in applying the measurement provisions of Statement No. 157 to
         non-financial assets and non-financial liabilities (non-financial
         items) that are not recognized or disclosed at fair value in an
         entity's financial statements on a recurring basis (at least annually).
         Therefore, if the change in fair value of a non-financial item is not
         required to be recognized or disclosed in the financial statements on
         an annual basis or more frequently, the effective date of application
         of Statement 157 to that item is deferred until fiscal years beginning
         after November 15, 2008 and interim periods within those fiscal years.
         This deferral does not apply, however, to an entity that applied
         Statement 157 in interim or annual financial statements prior to the
         issuance of FSP 157-2.The Company is currently evaluating the impact,
         if any, that the adoption of FSP 157-2 will have on the Company's
         operating income or net earnings.

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
         for Financial Assets and Financial Liabilities." This statement permits
         entities to choose to measure many financial instruments and certain
         other items at fair value. An entity shall report unrealized gains and
         losses on items for which the fair value option has been elected in
         earnings at each subsequent reporting date. This statement is effective
         as of the beginning of an entity's first fiscal year that begins on or
         before November 15, 2007. The Company is continuing to evaluate the
         impact of this statement.

         In March 2008, the FASB issued Statement No. 161, "Disclosures about
         Derivative Instruments and Hedging Activities--an amendment of FASB
         Statement No. 133" ("Statement 161"). Statement 161 requires entities
         that utilize derivative instruments to provide qualitative disclosures
         about their objectives and strategies for using such instruments, as
         well as any details of credit-risk-related contingent features
         contained within derivatives. Statement 161 also requires entities to
         disclose additional information about the amounts and location of
         derivatives located within the financial statements, how the provisions
         of SFAS 133 has been applied, and the impact that hedges have on an
         entity's financial position, financial performance, and cash flows.
         Statement 161 is effective for fiscal years and interim periods
         beginning after November 15, 2008, with early application encouraged.
         The Company is currently evaluating the potential impact the new
         pronouncement will have on its financial statements.

         In February 2008, the FASB issued a FASB Staff Position ("FSP") FAS
         140-3, "Accounting for Transfers of Financial Assets and Repurchase
         Financing Transactions." This FSP addresses the issue of whether or not
         these transactions should be viewed as two separate transactions or as
         one "linked" transaction. The FSP includes a "rebuttable presumption"
         that presumes linkage of the two transactions unless the presumption
         can be overcome by meeting certain criteria. The FSP will be effective
         for fiscal years beginning after November 15, 2008 and will apply only
         to original transfers made after that date; early adoption will not be
         allowed. The Company is currently evaluating the potential impact the
         new pronouncement will have on its financial statements.

         In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
         Accepted Accounting Principles." This Statement identifies the sources
         of accounting principles and the framework for selecting the principles
         used in the preparation of financial statements. This Statement is
         effective 60 days following the SEC's approval of the Public Company
         Accounting Oversight Board amendments to AU Section 411, "The Meaning
         of Present Fairly in Conformity with Generally Accepted Accounting
         Principles." The Company is currently evaluating the potential impact
         the new pronouncement will have on its financial statements.

                                       13
<PAGE>

         In April 2008, the FASB issued FASB Staff Position ("FSP") FAS 142-3,
         "Determination of the Useful Life of Intangible Assets." This FSP
         amends the factors that should be considered in developing renewal or
         extension assumptions used to determine the useful life of a recognized
         intangible asset under FASB Statement No. 142, "Goodwill and Other
         Intangible Assets" ("SFAS 142"). The intent of this FSP is to improve
         the consistency between the useful life of a recognized intangible
         asset under SFAS 142 and the period of expected cash flows used to
         measure the fair value of the asset under SFAS 141R, and other GAAP.
         This FSP is effective for financial statements issued for fiscal years
         beginning after December 15, 2008, and interim periods within those
         fiscal years. Early adoption is prohibited. The Company does not expect
         this pronouncement will have a material impact on its financial
         statements.

         In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1,
         "Accounting for Convertible Debt Instruments That May Be Settled in
         Cash upon Conversion (Including Partial Cash Settlement)" which
         clarifies the accounting for convertible debt instruments that may be
         settled in cash (including partial cash settlement) upon conversion.
         The FSP requires issuers to account separately for the liability and
         equity components of certain convertible debt instruments in a manner
         that reflects the issuer's nonconvertible debt borrowing rate when
         interest cost is recognized. The FSP requires bifurcation of a
         component of the debt, classification of that component in equity and
         the accretion of the resulting discount on the debt to be recognized as
         part of interest expense. The FSP requires retrospective application to
         the terms of instruments as they existed for all periods presented. The
         FSP is effective for fiscal years beginning after December 15, 2008,
         and interim periods within those years. Early adoption is not
         permitted. The Company is currently evaluating the potential impact the
         new pronouncement will have on its financial statements.

         In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1,
         "Determining Whether Instruments Granted in Share-Based Payment
         Transactions Are Participating Securities." This FSP clarifies that all
         outstanding unvested share-based payment awards that contain rights to
         nonforfeitable dividends participate in undistributed earnings with
         common shareholders. Awards of this nature are considered participating
         securities and the two-class method of computing basic and diluted
         earnings per share must be applied. This FSP is effective for fiscal
         years beginning after December 15, 2008. The Company does not expect
         this pronouncement will have a material impact on its financial
         statements.

         In June 2008, the FASB ratified EITF Issue No. 07-5, "Determining
         Whether an Instrument (or an Embedded Feature) Is Indexed to an
         Entity's Own Stock" (EITF 07-5). EITF 07-5 provides that an entity
         should use a two step approach to evaluate whether an equity-linked
         financial instrument (or embedded feature) is indexed to its own stock,
         including evaluating the instrument's contingent exercise and
         settlement provisions. It also clarifies the impact of foreign currency
         denominated strike prices and market-based employee stock option
         valuation instruments on the evaluation. EITF 07-5 is effective for
         fiscal years beginning after December 15, 2008. The Company does not
         expect this pronouncement will have a material impact on its financial
         statements.


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

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 Form 10-QSB or in any press releases, public
announcements, filings with the Securities and Exchange Commission ("SEC") or
other disclosures, we are making "forward-looking statements" as described in
the Private Securities Litigation Reform Act of 1995. In addition, certain

                                       14
<PAGE>

information we will provide in the future on a regular basis, such as analysis
of the adequacy of our allowance for loan losses or an analysis of 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
addressing anticipated financial performance, business prospects, and similar
matters.

         The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. We want you to know that a variety of
future events could cause our actual results and experience to differ materially
from what was anticipated in our forward-looking statements. Some of the risks
and uncertainties that may affect our operations, performance, development and
results, the interest rate sensitivity of our assets and liabilities, and the
adequacy of our allowance for loan losses, include:

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

o        Technological factors affecting our operations;

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

o        Monetary and fiscal policies of the federal government;

o        Changes in tax policies and rates by federal, state and local taxing
         authorities;

o        Changes in laws and regulations affecting us;

o        Changes in competition; and

o        Changes in consumer preferences.

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

General

         The Company conducts no income generating activities other than holding
the stock of the Bank and a loan to the ESOP used to purchase shares of Company
common stock for the participants. Consequently, the net income of the Company
is derived primarily from its investment in the Bank. The Bank's net income
depends, very substantially, on its net interest income, which is the difference
between interest earned on its interest earning assets, such as loans and
investments, and the cost of funds, consisting of interest paid on interest
bearing liabilities, such as deposits and borrowings. The Bank's net income is
also affected by the provision for loan losses, as well as by the amount of
other income, including income from fees and service charges, net gains and
losses on sales of investments and operating expenses such as salaries and
employee benefits costs, net expenses on foreclosed real estate and various
categories of operational expenses. External factors, such as general economic
and competitive conditions, particularly changes in interest rates, government
policies and actions of regulatory authorities, can have a substantial effect on
profitability.

         The Bank has been and continues to be a community oriented financial
institution offering a variety of financial services. The Bank attracts deposits
from the general public and uses those deposits together with funds borrowed

                                       15
<PAGE>

from the Federal Home Loan Bank of New York ("FHLB"), to make loans and other
investments. Most of the loans are one to four family residential mortgages made
to residents in the Bank's primary market area, southern St. Lawrence and
northern Jefferson and Lewis counties in New York State. The Bank's deposit
accounts are insured by the Deposit Insurance Fund ("DIF") of the Federal
Deposit Insurance Corporation ("FDIC"), and the Bank is subject to regulation by
the FDIC and the OTS.

Recent Developments

On June 30, 2008, the Company issued a press release announcing that its Board
of Directors approved a 1-for-100 reverse stock split that will allow the
Company to terminate the registration of its common stock with the SEC and
result in the delisting of the Company's shares on the American Stock Exchange.
The reverse stock split, which will be effected at the record shareholder level,
will be immediately followed by a 100-for-1 forward stock split so that
shareholders holding 100 or more shares will not be affected by the transaction.
Under the terms of the proposed transaction, each 100 shares of the Company's
common stock will be converted into one share of common stock. Shareholders of
record owning fewer than 100 shares of the Company's common stock will be
entitled to receive, in lieu of fractional shares, $10.00 in cash for each
pre-reverse stock split share held at the effective time of the reverse stock
split.

The proposed transaction is anticipated to reduce the number of Company
shareholders of record to fewer than 300, which will allow the Company to
deregister its common stock and suspend its reporting obligations under the
federal securities laws. In addition, the common stock of the Company will be
de-listed from the American Stock Exchange, although the Company anticipates
that its common stock will be quoted on the OTC Bulletin Board or in the pink
sheets, to the extent market makers continue to make a market in its shares.

The proposed split transaction is subject to a regulatory notice filing as well
as the approval of the Company's shareholders. Shareholders will be asked to
approve the split transaction at a special meeting of shareholders, currently
expected to be held in September 2008. Subject to regulatory clearance of the
Company's filings relating to the split transaction and subject to shareholder
approval, it is anticipated that the proposed transaction will become effective
during the third or fourth quarter of the 2008 calendar year, at which time the
Company will terminate the registration of its common stock with the SEC and
de-list its common stock from the American Stock Exchange.

Critical Accounting Policies

         Note 2 to the consolidated financial statements of the Company
(included in Item 7 of the Annual Report on Form 10-KSB of the Company for the
year ended September 30, 2007) lists significant accounting policies used in
development and presentation of its financial statements. This discussion and
analysis, the significant accounting policies, and other financial statement
disclosures identify and address key variables and other qualitative and
quantitative factors that are necessary for an understanding and evaluation of
the Company's results of operations. The following accounting policy is the one
identified by management to be critical to the results of operations:

         Allowance for Loan Losses. The allowance for loan losses is the
estimated amount considered adequate to cover credit losses inherent in the
outstanding loan portfolio at the balance sheet date. The allowance is
established through the provision for loan losses charged against income. In
determining the allowance for loan losses, management makes significant
estimates and, accordingly, has identified this policy as probably the most
critical for the Company.

         Management performs a monthly evaluation of the adequacy of the
allowance for loan losses. Consideration is given to a variety of factors in
establishing this estimate, including, but not limited to, current economic
conditions, diversification of the loan portfolio, delinquency statistics,
results of internal loan reviews, borrowers' actual or perceived financial and
managerial strengths, the adequacy of the underlying collateral (if collateral
dependent), the present value of future cash flows and other relevant factors.
This evaluation is inherently subjective, as it requires material estimates that
may be susceptible to significant change, including the amounts and timing of
future cash flows expected to be received on impaired loans.

                                       16
<PAGE>

         The allowance consists of specific, general and unallocated components.
Collateral values discounted for market conditions and selling costs are used to
establish specific allocations. The Bank's historical loan loss experience,
delinquency rates and general economic conditions are used to establish general
allocations. The unallocated component reflects the inherent imprecision in
calculating the allowance.

         Management monitors the adequacy of the allowance for loan losses on an
ongoing basis and reports its adequacy assessment quarterly to the Board of
Directors and the Audit Committee.


                                       17
<PAGE>

Average Balances, Interest Rates and Yields

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

<TABLE>
<CAPTION>

                                                                          For the three months Ended June 30,
                                                                      2008                                   2007
                                                      ------------------------------------   ------------------------------------
                                                                                (Dollars in thousands)

                                                       Average                    Yield/      Average                    Yield/
                                                       Balance      Interest     Cost (6)     Balance      Interest     Cost (6)
                                                      ----------   ----------   ----------   ----------   ----------   ----------
<S>                                                   <C>          <C>                <C>    <C>          <C>                <C>
Loans, net (1)                                        $  106,262   $    1,752         6.63%  $  108,791   $    1,853         6.83%
Securities (2)                                            10,800          130         4.84%      11,655          143         4.92%
Other short-term investments                               4,208           20         1.91%       1,865           24         5.16%
                                                      ----------   ----------                ----------   ----------
   Total interest-earning assets                         121,270        1,902         6.31%     122,311        2,020         6.62%
                                                                   ----------                             ----------
Non-interest-earning assets                               10,561                                 10,423
                                                      ----------                             ----------
   Total assets                                       $  131,831                             $  132,734
                                                      ==========                             ==========

Savings and club accounts (3)                         $   17,661           45         1.02%  $   18,831           48         1.02%
Time certificates                                         43,149          481         4.48%      39,343          468         4.77%
NOW and money market accounts                             14,229           31         0.88%      12,783           39         1.22%
Borrowings                                                28,100          313         4.48%      35,329          431         4.89%
                                                      ----------   ----------                ----------   ----------
   Total interest-bearing liabilities                    103,139          870         3.39%     106,286          986         3.72%
                                                                   ----------                             ----------
Non-interest-bearing liabilities                           7,913                                  6,122
                                                      ----------                             ----------
   Total liabilities                                     111,052                                112,408
Shareholders' equity                                      20,779                                 20,326
                                                      ----------                             ----------
   Total liabilities and
      shareholders' equity                            $  131,831                             $  132,734
                                                      ==========                             ==========

Net interest income/spread (4)                                     $    1,032         2.92%               $    1,034         2.90%
                                                                   ==========   ==========                ==========   ==========
Net earning assets/net interest margin (5)            $   18,131                      3.42%  $   16,025                      3.39%
                                                      ==========                ==========   ==========                ==========

Ratio of average interest-earning
   Assets to average interest-bearing liabilities          1.18x                                  1.15x
                                                     ==========                             ==========

</TABLE>

Notes appear on following page

                                       18
<PAGE>
<TABLE>
<CAPTION>

Average Balances, Interest Rates and Yields (continued)

                                                                          For the nine months Ended June 30,
                                                                      2008                                  2007
                                                      ------------------------------------   ------------------------------------
                                                                                (Dollars in thousands)

                                                       Average                   Yield/       Average                   Yield/
                                                       Balance      Interest     Cost (6)     Balance     Interest      Cost (6)
                                                      ----------   ----------   ----------   ----------   ----------   ----------
<S>                                                   <C>          <C>                <C>    <C>          <C>                <C>
Loans, net (1)                                        $  106,994   $    5,425         6.77%  $  108,914   $    5,584         6.85%
Securities (2)                                            11,007          421         5.11%      11,208          401         4.78%
Other short-term investments                               3,137           64         2.73%       1,282           49         5.11%
                                                      ----------   ----------                ----------   ----------
   Total interest-earning assets                         121,138        5,910         6.52%     121,404        6,034         6.65%
                                                                   ----------                             ----------
Non-interest-earning assets                               10,512                                 10,128
                                                      ----------                             ----------
   Total assets                                       $  131,650                             $  131,532
                                                      ==========                             ==========

Savings and club accounts (3)                         $   17,747          135         1.02%  $   18,950          145         1.02%
Time certificates                                         41,428        1,447         4.67%      38,931        1,346         4.62%
NOW and money market accounts                             13,351          113         1.13%      12,316          114         1.24%
Borrowings                                                30,941        1,066         4.60%      35,537        1,289         4.85%
                                                      ----------   ----------                ----------   ----------
   Total interest-bearing liabilities                    103,467        2,761         3.56%     105,734        2,894         3.66%
                                                                   ----------                             ----------
Non-interest-bearing liabilities                           7,557                                  5,609
                                                      ----------                             ----------
   Total liabilities                                     111,024                                111,343
Shareholders' equity                                      20,626                                 20,189
                                                      ----------                             ----------
   Total liabilities and
      shareholders' equity                            $  131,650                             $  131,532
                                                      ==========                             ==========

Net interest income/spread (4)                                     $    3,149         2.96%               $    3,140         2.99%
                                                                   ==========   ==========                ==========   ==========
Net earning assets/net interest margin (5)            $   17,671                      3.47%  $   15,670                      3.46%
                                                      ==========                ==========   ==========                ==========
Ratio of average interest-earning
   assets to average interest-bearing liabilities           1.17x                                  1.15x
                                                      ==========                             ==========
</TABLE>

(1)  Shown net of the allowance for loan losses. Average loan balances include
     non-accrual loans and loan held for sale. Interest is recognized on
     non-accrual loans only as and when received.
(2)  Securities are included at amortized cost, with net unrealized gains or
     losses on securities available for sale included as a component of
     non-earning assets. Securities include FHLB stock.
(3)  Includes advance payments by borrowers for taxes and insurance (mortgage
     escrow deposits).
(4)  The spread represents the difference between the weighted average yield on
     interest-earning assets and the weighted average cost of interest-bearing
     liabilities.
(5)  The net interest margin, also known as the net yield on average
     interest-earning assets, represents net interest income as a percentage of
     average interest-earning assets.
(6)  Yields are not computed on a tax equivalent basis. Yields and costs are
     computed based upon the actual number of days in the period annualized to a
     365-day year.

                                       19
<PAGE>

Rate Volume Analysis of Net Interest Income

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

                                                 Three months ended June 30,                    Nine months ended June 30,
                                                        2008 vs. 2007                                 2008 vs. 2007
                                                 Increase (Decrease) Due To:                    Increase (Decrease) Due To:
                                       --------------------------------------------    --------------------------------------------
                                          Volume           Rate            Total          Volume           Rate            Total
                                       ------------    ------------    ------------    ------------    ------------    ------------
                                                                          (Dollars in thousands)
<S>                                    <C>             <C>             <C>             <C>             <C>             <C>
Interest-earning assets:

 Loans                                 $        (45)   $        (56)   $       (101)   $        (96)   $        (63)   $       (159)
 Securities                                     (11)             (2)            (13)             (3)             23              20
 Other short-term investments                    17             (21)             (4)             34             (19)             15
                                       ------------    ------------    ------------    ------------    ------------    ------------
   Total interest-earning assets       $        (39)   $        (79)   $       (118)   $        (65)   $        (59)   $       (124)
                                       ------------    ------------    ------------    ------------    ------------    ------------

Interest-bearing liabilities:

 Savings and club accounts                       (3)             --              (3)            (10)             --             (10)
 Time certificates                               43             (30)             13              86              15             101
 NOW and money market accounts                    4             (12)             (8)              6              (7)             (1)
 Borrowings                                     (84)            (34)           (118)           (159)            (64)           (223)
                                       ------------    ------------    ------------    ------------    ------------    ------------
  Total interest-bearing liabilities            (40)            (76)           (116)            (77)            (56)           (133)
                                       ------------    ------------    ------------    ------------    ------------    ------------

Net change in net interest income      $          1    $         (3)   $         (2)   $         12    $         (3)   $          9
                                       ============    ============    ============    ============    ============    ============
</TABLE>

Comparison of Financial Condition at June 30, 2008 and September 30, 2007.

         During the nine months from September 30, 2007 through June 30, 2008,
total assets increased $2.0 million, or 1.51%, from $132.6 million to $134.6
million. Net loans increased by $0.8 million, or 0.75%, from $106.1 million to
$106.9 million during the same period. The increase in net loans resulted from
increases in commercial real estate loans and other commercial loans more than
offsetting decreases in residential real estate loans and consumer loans.

         Borrowed funds from the FHLB, consisting of advances and security
repurchase obligations, were $28.0 million on June 30, 2008, down from $33.2
million at September 30, 2007. Deposits increased $6.6 million, or 8.66%, during
the nine months from $76.2 million to $82.8 million and replaced the decrease of
$5.2 million in borrowed funds. Increases in demand deposits, NOW and money
market accounts, and time deposits of $1.9 million, $1.5 million and $3.4
million, respectively, more than offset a decrease of $0.2 million in savings
accounts. Brokered deposits decreased $0.7 million from $3.7 million at
September 30, 2007 to $3.0 million at June 30, 2008.

                                       20
<PAGE>

         Shareholders' equity increased $391,000 for the nine months ended June
30, 2008. The increase resulted from net income of $703,000 combining with an
increase of $76,000 on ESOP shares earned, amortization of $25,000 on MRP
shares, an $8,000 recognition of pension and postretirement benefit costs, a
$6,000 increase as 1,125 treasury shares were issued when one director exercised
vested stock options, a decrease of $159,000 for a cash dividend paid on March
31, 2008, a $127,000, net of taxes, decrease in unrealized gains on securities
available-for-sale, a decrease of $20,000 for the purchase of treasury shares
and a cumulative effect adjustment to retained earnings of $121,000 related to
the adoption of EITF No. 06-4 which decreased shareholders' equity.


         At June 30, 2008, non-performing assets were 0.58% of total assets,
slightly up from 0.57% at September 30, 2007. Non-performing loans were 0.67% of
total loans at June 30, 2008, up from 0.63% at September 30, 2007. A summary of
the Company's non-performing assets and related ratios follows (dollars in
thousands):

<TABLE>
<CAPTION>

                                                        June 30,      September 30,
           Non-performing assets                          2008            2007
           ---------------------                      ------------    ------------
<S>                                                   <C>             <C>
           Non-accrual loans
           Residential mortgages
             and home equity loans                    $        270    $        127
           Commercial mortgages                                442             249
           Consumer other                                       --               1
           Commercial other                                     --              --
                                                      ------------    ------------
              Total non-accrual loans                          712             377

           Residential mortgage loans over 90
             days delinquent and still accruing                 --             297
                                                      ------------    ------------
               Total non-performing loans                      712             674

           Foreclosed real estate                               41              85
           Other repossessed assets                             25               3
                                                      ------------    ------------
             Total non-performing assets              $        778    $        762
                                                      ============    ============

           Non-performing loans to total loans                0.67%           0.63%

           Non-performing assets to
                total assets                                  0.58%           0.57%
</TABLE>

         The Company had no loans more than 90 days delinquent and still
accruing at June 30, 2008 and $297,000 of such loans at September 30, 2007.

         At June 30, 2008, four of eight non-accrual residential mortgages
totaling $167,000, and two non-accrual commercial mortgage loans totaling
$442,000 are in foreclosure proceedings.

         Management believes that these non-performing loans are adequately
secured by collateral. Further, management is not aware of any factors common to
these loans, which caused their non-performance or any developments that suggest
an upward trend in delinquencies. Accordingly, while we will continue to monitor
asset quality, management has determined that a $47,000 decrease in the loan
loss allowance to $864,000 at June 30, 2008 from September 30, 2007, is
appropriate at this time based on the history of losses in the loan portfolio
over the past six years.

                                       21
<PAGE>

Comparison of Results of Operations for the Three Months Ended June 30, 2008 and
2007.

         General. Our net income for the three months ended June 30, 2008 was
$227,000, a decrease of $41,000, or 15.3%, from last year's net income of
$268,000 for the same period. Last year's net income benefited from a $60,000
after tax gain on the sale of Freddie Mac stock, that isn't present in this
year's results.

         Basic earnings per share and diluted earnings per share were both $0.10
for this year's quarter versus $0.12 in last year's quarter.

         Interest Income. Interest income decreased $118,000, or 5.84%, from
$2,020,000 for the three months ended June 30, 2007 to $1,902,000 for the three
months ended June 30, 2008. A decrease of 31 basis points (0.31%) in the average
interest rate earned on our interest-earning assets, from 6.62% in last year's
quarter to 6.31% in this year's quarter, resulted in a decrease of $79,000 in
interest income, while a $1.0 million decrease in the average balance of
interest-earning assets resulted in a decrease of $39,000 in interest income.

         Interest income on loans decreased by $101,000, or 5.45%, in this
year's quarter from the same period last year. The average yield on loans was
6.63% for the three month period ending June 30, 2008, a decrease of 20 basis
points (0.20%), from 6.83% for the three month period ending June 30, 2007. The
decreased yield resulted in a decrease of $56,000 in interest income, while a
decrease of $2.5 million in the average balance of loans from $108.8 million to
$106.3 million resulted in a decrease of $45,000 in interest income.

         In January 2008, we re-activated the loan arbitrage program to increase
loan originations, especially in the vacation home market, and planned to fund
the loans with additional borrowings through the FHLB. We have not experienced a
surge in loan activity since lowering our lending rates. Buyers are scarce and
may be waiting for real estate prices to stabilize and commodity markets to
settle before making such commitments. Loan growth from June 30, 2007 through
June 30, 2008 was flat as indicated by the decrease of $2.5 million in the
average balance of loans from June 30, 2007 to June 30, 2008. Most of the
decrease represents the sale of loans held for sale of $2.1 million from last
year to this year. Unlike last year when the slow down in loan growth was
deliberate, we have been unable to increase loan production in response to a
decrease in lending rates. We still feel the current interest rate environment
provides an opportunity to profit from loan arbitrage. However, the favorable
market fundamentals may dissipate before the demand re-appears.

         Interest income on securities decreased by $13,000, or 9.09% for the
quarter ended June 30, 2008 versus the quarter ended June 30, 2007. A decrease
in the yield on our securities portfolio of 8 basis points, or 0.08%, from 4.92%
in last year's quarter to 4.84% in this year's quarter resulted in a decrease of
$2,000 in interest income while a decrease of $0.9 million in the average
balance of securities over the same period decreased interest income by $11,000.
Over the same time frame, a 325 basis point, or 3.25%, decrease in the average
interest rate earned on other short-term investments decreased interest income
by $21,000, while an increase of $2.3 million in the average balance of other
short-term investments increased interest income by $17,000.

         Interest Expense. Interest expense decreased $116,000, or 11.76%, in
the third quarter of fiscal 2008 versus the third quarter of fiscal 2007. An
decrease of 33 basis points (0.33%) in the average rate we paid on
interest-bearing liabilities from 3.72% last year to 3.39% this year resulted in
a decrease of $76,000 in interest expense, while a decrease of $3.2 million from
$106.3 million to $103.1 million in the average balance of interest-bearing
liabilities resulted in a $40,000 decrease in interest expense.

         Interest expense on time deposits increased $13,000 from $468,000 for
the quarter ending June 30, 2007 to $481,000 for the quarter ending June 30,
2008. A decrease of 29 basis points, or 0.29%, in the average rate we paid on
time deposits decreased interest expense by $30,000, while an increase in the
average balance of time deposits of $3.8 million resulted in an increase of
$43,000 in interest expense. Comparing the three months ended June 30, 2008 to
the three months ended June 30, 2007, interest expense decreased on savings and
club accounts, NOW and money market accounts and borrowed funds by $3,000,

                                       22
<PAGE>

$8,000 and $118,000, respectively. Interest expense decreased $3,000, or 6.25%,
on savings and club accounts due to a decrease of $1.1 million in the average
balance from $18.8 million in last year's quarter to $17.7 million in this
year's quarter. The average balance of NOW and money market accounts increased
by $1.4 million from the 2007 fiscal quarter to the 2008 fiscal quarter
resulting in a $4,000 increase in interest expense, while a decrease in the
average rate by 34 basis points (0.34%) reduced interest expense by $12,000. The
cost of our borrowed funds decreased by 41 basis points, or 0.41%, from the
third quarter of fiscal 2007 to the third quarter of fiscal 2008, resulting in a
decrease of $34,000 in interest expense, while a decrease in the average balance
of borrowed funds by $7.2 million resulted in a decrease of $84,000 in interest
expense.

         Net Interest Income. Our net interest income decreased by $2,000, or
0.19%, from $1,034,000 for the three month period ending June 30, 2007 to
$1,032,000 for the three month period ending June 30, 2008, as interest income
decreased by $118,000 and interest expense decreased by $116,000, as described
above.

         Our interest rate spread (the difference between the average rate we
earn and the average rate we pay) increased by 2 basis points, or 0.02%, from
2.90% in last year's quarter to 2.92% in this year's quarter. Also, net interest
margin increased by 3 basis points (0.03%) to 3.42% in the third fiscal quarter
of 2008, up from 3.39% in the corresponding quarter of 2007.

         Average capital represented 17.1% of average interest-earning assets
for the quarter ended June 30, 2008 compared to 16.6% at June 30, 2007. Our
ratio of average interest-earning assets to average interest-bearing liabilities
was 1.18 times at June 30, 2008 and 1.15 times at June 30, 2007.

         Provision for Loan Losses. The provision for loan losses results from
our analysis of the adequacy of the allowance for loan losses. If we believe
that the allowance should be higher, then we increase it, with a charge to
provision for loan losses, which is an expense on our income statement. In
determining the appropriate provision for loan losses, management considers the
level of and trend in non-performing loans, the level of and trend in net loan
charge-offs, the dollar amount and mix of the loan portfolio, as well as general
economic conditions and real estate trends in the Company's market area, which
can impact the inherent risk of loss in the Company's portfolio. Furthermore,
the OTS may disagree with our judgments regarding the risks in our loan
portfolio and could require us to increase the allowance in the future.

         For the three months ended June 30, 2008 and 2007, we did not record a
provision for loan losses. At June 30, 2008 and 2007, the ratio of our loan loss
allowance to total loans was 0.81% and 0.85%, respectively. On March 31, 2008,
the allowance was $882,000, or 0.84% of total loans, and we determined at the
end of the third quarter that the appropriate level for the allowance was
$864,000. We had charge-offs during the quarter of $24,000 and recoveries of
$6,000.

         Our level of non-accruing loans, loans 90 days and still accruing and
restructured loans was $712,000, or 0.67% of total loans at June 30, 2008
compared to $711,000, or 0.68% of total loans at March 31, 2008. There was a
decrease in the ratio of the loan loss allowance to total loans from 0.84% at
March 31, 2008 to 0.81% at June 30, 2008.

         Non-interest Income. Our non-interest income decreased $71,000 from
$267,000 in the 2007 quarter to $196,000 in the 2008 quarter. Service charge
income increased $48,000 as the result of an overdraft privilege program
implemented last year. Offsetting this increase in part was a decrease in the
value of the investments in the deferred fees plan of $35,000. Realized gain on
the sale of available for sale securities more than accounted for reduction in
this year's quarter as we recognized a $96,000 gain last year and no gain this
year. We have been selling some Freddie Mac stock each year since 2000 and have
booked profit totaling $820,000 over the last nine years. Unlike last year's
quarter, we have not sold any stock due to the dramatic price decrease in the
stock, which has fallen from over $60 per share to the current price of less
than $5 per share due to the current condition of the housing market. We
currently own 5,920 shares at a cost of less than $1 per share. Should the stock
become worthless, we would post a loss of less than $6,000. We will continue to
hold the stock as we expect that it will recover some of the lost value when the
economy improves.

                                       23
<PAGE>

         Non-interest Expenses. Non-interest expenses increased $3,000 from
$880,000 for the 2007 fiscal third quarter to $883,000 for the 2008 fiscal third
quarter. Salaries and employee benefits are up $16,000, or 3.7% from last year's
quarter. Professional fees increased by $39,000 due to the consultant costs
associated with the reverse stock split transaction both before and after the
decision by the Board of Directors to pursue this option. Offsetting these
increases in part was a decrease in directors' fees expense of $29,000,
resulting primarily from a $35,000 loss in the value of the investments in the
deferred fees plan, and a decrease of $27,000 in occupancy and equipment costs
from eliminating the former administrative offices and the Clayton lending
office.

         At June 30, 2008 we had thirty-two full-time and four part-time
employees and on June 30, 2007 we had thirty-one full-time employees and four
part-time employees.

         Income tax expense. Our income tax expense decreased by $35,000, or
22.88%, from $153,000 for the third quarter of fiscal 2007 to $118,000 for the
same quarter of fiscal 2008. The decreased expense was the result of a decrease
in income before income tax of $76,000, or 18.05%, from $421,000 for the third
quarter of last fiscal year to $345,000 for the third quarter of this fiscal
year. Our effective tax rate was 34.2% for the three months ended June 30, 2008
compared to 36.3% for the same period in 2007. The decreased effective tax rate
in the current quarter is due to a larger percentage of our pre-tax income being
non-taxable.

Comparison of Results of Operations for the Nine Months Ended June 30, 2008 and
2007.

         General. Our net income for the nine months ended June 30, 2008 was
$703,000, an increase of $36,000, or 5.40%, from last year's $667,000. The
following operating results combined to produce the increase:

         1.       net interest income increased by $9,000 as interest income
                  decreased $124,000 and interest expense decreased $133,000,

         2.       provision for loan losses decreased by $15,000,

         3.       non-interest income decreased by $68,000,

         4.       non-interest expenses decreased $72,000 and

         5.       income taxes decreased by $8,000 as a result of an increase in
                  non-taxable income.

         Basic earnings per common share and diluted earnings per common share
were both $0.31 for the first nine months of this fiscal year and $0.29 for the
first nine months of the last fiscal year.

         Interest Income. Interest income decreased by $124,000, or 2.06%, from
$6,034,000 for the nine months ended June 30, 2007 to $5,910,000 for the nine
months ended June 30, 2008. While average interest-earning assets decreased only
$0.3 million, or 0.25%, from $121.4 million for the first nine months of fiscal
year 2007 to $121.1 million for the same period this year, it resulted in a
decrease of $65,000 in interest income as the average balance of loans decreased
$1.9 million while the average balance of other short-term investments increased
by $1.8 million. Changes in rates for interest earning assets resulted in a
decrease of $59,000 in interest income.

         The average interest rate we earned on our interest-earning assets was
13 basis points (0.13%) lower in the first nine months of this year over last
year as the average rate fell from 6.65% last year to 6.52% this year. The
average rate earned on loans decreased 8 basis points (0.08%) from 6.85% last
year to 6.77% this year, while the average rate earned on securities increased
by 33 basis points, or 0.33%, from 4.78% last year to 5.11% this year, and the
average rate on other short-term investments, primarily FHLB deposits, decreased
by 238 basis points (2.38%) from 5.11% to 2.73%.

                                       24
<PAGE>

         The decrease in the average interest rate earned on loans resulted in a
decrease of $63,000 in interest income, while the decrease in the average
balance of loans decreased interest income by $96,000, totaling a $159,000
decrease in interest income for the loan portfolio.

         For securities and other short-term investments, the changes in
interest rates earned resulted in an increase in interest income of $4,000,
while the increase in the average balances increased interest income by $31,000
resulting in a total increase of $35,000 in interest income.

         Interest Expense. Interest expense decreased by $133,000 from
$2,894,000 for the first nine months of 2007 to $2,761,000 for the first nine
months of 2008 as a result of both an overall interest rate decrease and a
decrease in average interest-bearing liabilities. A decrease of 10 basis points
(0.10%) in the average rate we paid on interest-bearing liabilities from 3.66%
in 2007 to 3.56% in 2008 decreased interest expense by $56,000, while a decrease
in the average balance of interest-bearing liabilities of $2.2 million, from
$105.7 million at June 30, 2007 to $103.5 million at June 30, 2008, resulted in
a decrease in interest expense of $77,000.

         Interest expense increased on time certificates by $101,000, or 7.50%,
from $1,346,000 for the nine months ended June 30, 2007 to $1,447,000 for the
nine months ended June 30, 2008. An increase in the average rate paid on time
certificates from 4.62% for the first three quarters in the 2007 fiscal year to
4.67% for the first three quarters of the 2008 fiscal year increased interest
expense by $15,000, while an increase $2.5 million in the average balance of
time certificates over the same time frame increased interest expense by
$86,000.

         Interest expense decreased on savings and club accounts and on
borrowings by $10,000 and $223,000, respectively, as

         1.       a decrease of $1.2 million in the average balance of savings
                  and club accounts, from $19.0 million to $17.8 million,
                  resulted in a decrease of $10,000 in interest expense,

         2.       a decrease of 25 basis points (0.25%), from 4.85% to 4.60% on
                  the average rate we paid on borrowed funds decreased interest
                  expense by $64,000, while a decrease of $4.6 million in the
                  average amount of those borrowings, from $35.5 million to
                  $30.9 million, decreased interest expense by $159,000.

         Net Interest Income. The net effect of the increases in interest income
and interest expense was an increase of $9,000, or 0.29%, in net interest income
from $3,140,000 for the first nine months of the 2007 fiscal year to $3,149,000
for the first nine months of the 2008 fiscal year. Our interest rate spread (the
difference between the average rate we earn and the average rate we pay)
decreased by 3 basis points (0.03%) from 2.99% last year to 2.96% this year. Net
interest margin increased by 1 basis point (0.01%) from 3.46% for the first nine
months of fiscal 2007, to 3.47% for the first nine months of fiscal 2008.

         Average capital represented 17.02% and 16.63% of average
interest-earning assets for the nine months ended June 30, 2008 and June 30,
2007, respectively. Our ratio of average interest-earning assets to average
interest-bearing liabilities was 1.17 times and 1.15 times in 2008 and 2007,
respectively.

         Provision for Loan Losses. Year to date, we had charge-offs of $57,000
and recoveries of $15,000. We recorded no provision for loan losses for the
first nine months of this fiscal year as compared to $15,000 for the first nine
months of the past fiscal year. At June 30, 2008 and 2007 the ratio of our loan
loss allowance to total loans was 0.81% and 0.85%, respectively. As disclosed in
the comparison of financial condition discussion, our level of non-accruing
loans, loans 90 days past due and still accruing and restructured loans was
$712,000, or 0.67% of total loans at June 30, 2008 compared to $674,000, or

                                       25
<PAGE>

0.63% of total loans at September 30, 2007. Management believes that these loans
are adequately secured and do not require any adjustment to the allowance for
loan losses.

         Non-interest Income. Non-interest income was $68,000 lower for the
first nine months of this year versus the same period last year. Service charge
income increased by $140,000, but that was more than offset by decreases of
$126,000 in the market value of the underlying plan assets in the deferred
directors' fees plan and $97,000 in gain/loss on the sale of available for sale
securities. Service charge income increased as the result of an overdraft
privilege program implemented last year.

         Non-interest Expense. Non-interest expenses decreased by $72,000 to
$2,599,000 for the first nine months of fiscal 2008 compared to $2,671,000 for
the first nine months of fiscal 2007. Increases of $41,000 in salaries and
employee benefits, $44,000 in professional fees and $10,000 in data processing
costs were more than offset by decreases of $111,000 in directors' fees, $41,000
in occupancy and equipment costs and $13,000 in other non-interest expense were
primarily responsible for the decrease in non-interest expenses. The decrease in
directors' fees was the result of a $126,000 decrease in the market value of the
underlying plan assets in the deferred directors fees plan. Professional fees
increased due to the consultant costs associated with the split transaction both
before and after the decision by the Board of Directors to pursue this option.

         Income tax expense. Our income tax expense year-to-date decreased by
$8,000, or 2.22%, from $360,000 last year to $352,000 this year. The decreased
expense was the result of increased non-taxable income. Our effective tax rate
was 33.4% for the nine months ended June 30, 2008 compared to 35.1% for the same
period in 2007.

Liquidity and Capital Resources

         Our primary sources of funds are deposits, borrowings from the Federal
Home Loan Bank, and proceeds from the principal and interest payments on loans
and securities. Scheduled maturities and principal payments on loans and
securities are predictable sources of funds. We can also control the funds
available from borrowings to a certain extent. However, general economic
conditions and interest rate conditions can cause increases or decreases in
deposit outflows and loan pre-payments, which can also affect the level of funds
we have available for investment.

         In general, we manage our liquidity by maintaining a sufficient level
of short-term investments so funds are readily available for investment in loans
when needed. During the nine months ended June 30, 2008, we increased our cash
and cash equivalents by $3.2 million. We have originated $20.4 million of new
loans for the first nine months of this fiscal year. However, loans, net, after
payments, charge-offs and transfers to foreclosed real estate, increased by $1.0
million over this period.

         Deposits increased by $6.6 million during the nine months ended June
30, 2008, including a decrease in brokered deposits of $0.7 million. In addition
to factors within our control, such as our deposit pricing strategies and our
marketing efforts, deposit flows are affected by the level of general market
interest rates, the availability of alternate investment opportunities, general
economic conditions, and other factors outside our control. We decreased our
borrowings from FHLB by $5.2 million during this same period.

         We monitor our liquidity regularly. Excess liquidity is invested in
overnight federal funds sold and other short-term investments. If we need
additional funds, we can borrow those funds, although the cost of borrowing
money is normally higher than the average cost of deposits. As a member of the
Federal Home Loan Bank of New York, the Bank can arrange to borrow an additional
$23.7 million against our one to four family first mortgage portfolio. We have
used borrowed funds to help us leverage capital, but have not needed borrowings
to cover liquidity shortfalls. In addition to borrowings, we believe that, if
needed, we can attract additional deposits by increasing the rates we offer.

         We measure liquidity on a monthly basis and strive to maintain a
liquidity ratio of between 5% and 15%. At June 30, 2008, the ratio was 9.92% as
compared to 5.96% on June 30, 2007.

                                       26
<PAGE>

Off Balance Sheet Arrangements

         The Company's financial statements do not reflect off-balance sheet
arrangements that are made in the normal course of business. These off-balance
sheet arrangements consist of unfunded loans.

         We had $2.1 million in outstanding commitments to make loans at June
30, 2008, along with $6.1 million of unused home equity, commercial and
overdraft lines of credit. We anticipate that we will have enough liquid funds
to meet our current loan commitments, purchase commitments and to fund draws on
the lines of credit through the normal turnover of our loan and securities
portfolios. At June 30, 2008, we had $28.2 million of time certificates
scheduled to mature within one year. We anticipate that we can retain
substantially all of those deposits if we need to do so to fund loans and other
investments as part of our efforts to grow and leverage our capital.


                                       27
<PAGE>

Capital Resources

         The OTS has minimum capital ratio requirements applying to the Bank,
but there are no comparable minimum capital requirements that apply to the
Company as a savings and loan holding company. At June 30, 2008, the Bank
exceeded all regulatory capital requirements of the OTS applicable to it, with
Tier I capital of $20.6 million, or 15.3% of adjusted total assets and with
total risk-based capital of $21.5 million, or 27.9% of risk-weighted assets. The
Bank also had tangible capital of $20.6 million, or 15.3% of average tangible
assets. The Bank was classified as "well capitalized" at June 30, 2008 under OTS
regulations.

Item 3.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The term "disclosure
controls and procedures" is defined in Rule 13a-14(c) of the Securities Exchange
Act of 1934, or (the "Exchange Act"). This term refers to the controls and
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under the Exchange Act is
recorded, processed, summarized and reported within required time periods. Our
Chief Executive Officer and our Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of June 30, 2008, and
they have concluded as of that date, our disclosure controls and procedures were
effective at ensuring that required information will be disclosed on a timely
basis in our reports filed under the Exchange Act.

(b) Changes in Internal Controls. There were no significant changes to our
internal controls or in the other factors that could significantly affect our
internal controls during the quarter ended June 30, 2008, including any
corrective actions with regard to significant deficiencies and material
weakness.


                                       28
<PAGE>

                           PART II - OTHER INFORMATION

         Item 1. Legal Proceedings

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

         Item 6. Exhibits

                  31.1     Certification of Principal Executive Officer pursuant
                           to Rule 13a - 14(a)/15d - 14(a)

                  31.2     Certification of Principal Financial Officer pursuant
                           to Rule 13a - 14(a)/15d - 14(a)

                  32.1     Certification of Principal Executive Officer pursuant
                           to Section 1350

                  32.2     Certification of Principal Financial Officer pursuant
                           to Section 1350


                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                   Gouverneur Bancorp, Inc.

Date: August 11, 2008              By: /s/ Richard F. Bennett
                                       -----------------------------------------
                                       Richard F. Bennett
                                       President and Chief Executive Officer
                                       (principal executive officer and officer
                                       duly authorized to sign on behalf of the
                                       registrant)


                                   By: /s/ Robert J. Twyman
                                       -----------------------------------------
                                       Robert J. Twyman
                                       Vice President and Chief Financial
                                       Officer (principal financial officer duly
                                       authorized to sign on behalf of the
                                       registrant)


                                       29