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 December 31, 2006

                                       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                                   February 6, 2007
-----------------------------                     ----------------
Common Stock, par value $ .01                        2,299,459


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 December 31,
         2006 and at September 30, 2006                                       3

         Consolidated Statements of Income for the three months ended
         December 31, 2006 and 2005                                           4

         Consolidated Statements of Changes in Shareholders' Equity for
         three months ended December 31, 2006 and 2005                        5

         Consolidated Statements of Cash Flows for the three months
         ended December 31, 2006 and 2005                                     7

         Notes to Consolidated Financial Statements                           8

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.                                          13

Item 3.  Controls and Procedures                                             22

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

Item 1.  Legal Proceedings                                                   23

Item 6.  Exhibits                                                            23

                                       2
<PAGE>
<TABLE>
<CAPTION>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                  (In thousands, except share data) (Unaudited)
                                                                               December 31,     September 30
                                                                                   2006             2006
                                                                               -------------    -------------
<S>                                                                            <C>              <C>
Assets:
Cash and due from banks                                                        $       1,918    $       2,308
Interest-bearing deposits in bank                                                      1,344              162
                                                                               -------------    -------------
                           Total cash and cash equivalents                             3,262            2,470

Securities available-for-sale                                                          9,358            9,845
Securities held-to-maturity (fair value of $89 at December 31,
   2006 and $93 at September 30, 2006)                                                    89               92

Loans held for sale                                                                    2,147            2,160

Loans, net of deferred fees                                                          108,296          106,590
Less allowance for loan losses                                                          (931)            (948)
                                                                               -------------    -------------
                         Loans, net                                                  107,365          105,642

Investment in Federal Home Loan Bank stock, at cost                                    1,796            1,773
Investment in life insurance                                                           3,665            3,631
Bank premises and equipment, net                                                       2,677            2,225
Accrued interest receivable and other assets                                           1,854            2,237
                                                                               -------------    -------------
                         Total assets                                          $     132,213    $     130,075
                                                                               =============    =============

Liabilities:
Deposits: Non interest-bearing demand                                          $       3,248    $       3,493
          NOW and money market                                                        12,500           11,966
          Savings                                                                     18,568           19,342
          Time                                                                        39,103           37,662
                                                                               -------------    -------------
                         Total deposits                                               73,419           72,463

Advances from Federal Home Loan Bank                                                  35,750           35,250
Accrued interest payable and other liabilities                                         2,892            2,507
                                                                               -------------    -------------
                         Total liabilities                                           112,061          110,220
                                                                               -------------    -------------

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                                                             4,871            4,847
Retained earnings                                                                     15,614           15,398
Treasury stock, at cost, December, 86,281 shares; September, 91,956 shares              (437)            (466)
Accumulated other comprehensive income                                                   246              234
Unearned common stock held by MRP                                                        (41)             (44)
Unallocated common stock held by ESOP                                                   (125)            (138)
                                                                               -------------    -------------
                         Total shareholders' equity                                   20,152           19,855
                                                                               -------------    -------------
                         Total liabilities and shareholders' equity            $     132,213    $     130,075
                                                                               =============    =============
</TABLE>

See accompanying notes to the 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
                                                                         December 31,
                                                                ----------------------------
                                                                    2006            2005
                                                                ------------    ------------
<S>                                                             <C>             <C>
Interest income:
     Loans                                                      $      1,853    $      1,681
     Securities - taxable                                                120             126
                - non-taxable                                             12              12
     Other short-term investments                                          9               4
                                                                ------------    ------------
                  Total interest income                                1,994           1,823
                                                                ------------    ------------
Interest expense:
     Deposits                                                            518             343
     Borrowings - short-term                                             139             197
     Borrowings - long-term                                              290             187
                                                                ------------    ------------
                  Total interest expense                                 947             727
                                                                ------------    ------------

                  Net interest income                                  1,047           1,096
Provision for loan losses                                                 15              25
                                                                ------------    ------------
                  Net interest income after provision for
                   loan losses                                         1,032           1,071
                                                                ------------    ------------
Non-interest income
     Service charges
                                                                          52              64
     Net realized gains on sales of loans
                                                                          --               7
     Earnings on investment in life insurance                             34              31
     Income on foreclosed assets, net                                     --              32
     Other                                                                63              43
                                                                ------------    ------------
                  Total non-interest income                              149             177
                                                                ------------    ------------

Non-interest expenses
     Salaries and employee benefits                                      454             408
     Directors fees                                                       52              43
     Occupancy and Equipment                                             100             105
     Data processing                                                      31              30
     Postage and supplies                                                 35              30
     Professional fees                                                    59              61
     Expense on foreclosed assets, net                                     3              --
     Other                                                               117             114
                                                                ------------    ------------
                  Total non-interest expenses                            851             791
                                                                ------------    ------------

                  Income before income tax expense                       330             457

Income tax expense                                                       114             162
                                                                ------------    ------------
                  Net income                                    $        216    $        295
                                                                ============    ============

Earnings per common share - basic                               $       0.10    $       0.13
Earnings per common share - diluted                             $       0.09    $       0.13
</TABLE>

See accompanying notes to the consolidated financial statements.

                                       4
<PAGE>
<TABLE>
<CAPTION>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                      Three months ended December 31, 2006
                  (In thousands, except share data) (Unaudited)

                                                                                   Accumulated    Unearned    Unearned
                                             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                                                     216                                                              216
 Change in net unrealized
  gain on Securities
  available for sale, net
  of taxes                                                                                 12                                     12
                                                                                                                          ----------
  Total comprehensive income                                                                                                     228
                                                                                                                          ----------

Allocation of ESOP shares,
 2,482 shares                                       19                                                               13           32
Amortization of stock options                        2                                                                             2
Amortization of MRP                                  5                                                   3                         8
Exercise of stock options
 5,675 shares                                       (2)                       29                                                  27
                               ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
Balance at December 31, 2006   $       24   $    4,871   $   15,614   $     (437)  $      246   $      (41)  $     (125)  $   20,152
                               ==========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

                                       5
<PAGE>
<TABLE>
<CAPTION>

                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                      Three months ended December 31, 2005
                  (In thousands, except share data) (Unaudited)

                                                                                   Accumulated    Unearned    Unearned
                                             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, 2005             $       24   $    4,739   $   14,392   $     (499)  $      272   $      (67)  $     (186)  $   18,675
                                                                                                                          ----------

Comprehensive Income:
 Net Income                                                     295                                                              295
 Change in net unrealized
  gain on Securities
  available for sale, net
  of taxes                                                                                 15                                     15
                                                                                                                          ----------
   Total comprehensive income                                                                                                    310
                                                                                                                          ----------

Allocation of ESOP shares
 (2,303 shares)                                     15                                                               11           26

Amortization of MRP                                  6                                                   4                        10
Exercise of stock options
 (2,250 shares)                                                               11                                                  11
                               ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
Balance at December 31, 2005   $       24   $    4,760   $   14,687   $     (488)  $      287   $      (63)  $     (175)  $   19,032
                               ==========   ==========   ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

                                       6
<PAGE>
<TABLE>
<CAPTION>

                                                                                   Three Months Ended
                                                                                       December 31,
                                                                               ----------------------------
                                                                                   2006            2005
                                                                               ------------    ------------
<S>                                                                            <C>             <C>
 Cash flows from operating activities:
   Net Income                                                                  $        216    $        295
   Adjustments to reconcile net income to net cash provided by
      operating activities:
         Provision for loan losses                                                       15              25
         Net amortization of deferred fees on loans                                      32              36
         Net amortization of securities premiums and discounts                           --               4
         Depreciation                                                                    24              28
         Net realized gains on sale of loans                                             --              (7)
         Proceeds from sale of loans held for sale                                       --           1,232
         Earnings on investment in life insurance                                       (34)            (31)
         Stock-based compensation expense                                                42              36
         Net realized gain on sales of foreclosed assets                                 --             (32)
         (Increase) decrease in accrued interest receivable and other assets            498              (8)
         Increase in accrued interest payable and other liabilities                     378             203
                                                                               ------------    ------------
                    Net cash provided by operating activities                         1,171           1,781
                                                                               ------------    ------------

Cash flows from investing activities:
   Securities available for sale:
         Proceeds from maturities and principal reductions                              511             473
         Purchases                                                                       (5)             (6)
   Securities held to maturity - proceeds from maturities                                 3               5
   Proceeds from sales of foreclosed assets                                              20               3
   (Purchases) redemptions of Federal Home Loan Bank stock                              (23)             33
   Net increase in loans                                                             (1,892)         (3,010)
   Additions to premises and equipment                                                 (476)            (43)
                                                                               ------------    ------------
                    Net cash used in investing activities                            (1,862)         (2,545)
                                                                               ------------    ------------

Cash flows from financing activities:
   Net increase in deposits                                                             956             401
   Net proceeds (repayments) from FHLB advances                                         500            (250)
   Exercise of stock options                                                             27              11
                                                                               ------------    ------------
                    Net cash provided by financing activities                         1,483             162
                                                                               ------------    ------------

Net increase (decrease) in cash and cash equivalents                                    792            (602)
Cash and cash equivalents at beginning of period                                      2,470           2,666
                                                                               ------------    ------------

Cash and cash equivalents at end of period                                     $      3,262    $      2,064
                                                                               ============    ============

Non-cash investing activities:
   Foreclosed assets received in settlement of loans                           $        135    $         14
Cash paid during the period for:
   Interest                                                                             910             729
   Income taxes paid                                                                     14              --
</TABLE>

See accompanying notes to consolidated financial statements.

                                       7
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

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

         The accompanying unaudited consolidated 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 December 31, 2006 and September 30,
         2006 and for the three-month periods ended December 31, 2006 and 2005.
         All material intercompany accounts and transactions have been
         eliminated in this consolidation. These statements were prepared in
         accordance with accounting principles generally accepted in the United
         States of America ("GAAP") for interim financial information and with
         instructions for Form 10-QSB and Article 10 of Regulation S-X.
         Accordingly, they do not include all information or footnotes necessary
         for a complete presentation of financial statements in conformity with
         GAAP.

         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 periods ended December 31, 2006 and
         2005. The results of operations for the three-month period ended
         December 31, 2006 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 condition for September 30,
         2006 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 2006
         consolidated financial statements, including the notes thereto included
         in the Company's 2006 Annual Report on Form 10-KSB.

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

         Basic earnings per share is calculated by dividing net income available
         to common shareholders by the weighted average number of shares
         outstanding during the period. Unallocated shares held by the Company's
         Employee Stock Ownership Plan ("ESOP") are not included in the weighted
         average number of shares outstanding. Unearned shares held by the
         Company's Management Recognition Plan ("MRP") are not included in the
         weighted average number of shares outstanding. Diluted earnings per
         share reflects additional common shares that would have been
         outstanding assuming the issuance of unearned MRP shares and the
         exercise of common stock options, as well as any adjustment to income
         that would result.


                                       8
<PAGE>
<TABLE>
<CAPTION>

         Basic and diluted earnings per common share for the three-month periods
         ended December 31, 2006 and 2005 were computed as follows:

                      (In thousands, except per share data)

                                                                   Three Months Ended
                                                                       December 31,
                                                                -------------------------
                                                                   2006           2005
                                                                ----------     ----------
<S>                                                             <C>            <C>
         Basic earnings per common share:
         Net income                                             $      216     $      295
         Weighted average common shares outstanding                  2,262          2,237
         Basic earnings per common share                        $     0.10     $     0.13

         Diluted earnings per common share:
         Net income                                             $      216     $      295
                                                                ----------     ----------
         Weighted average common shares outstanding                  2,262          2,237
         Additional potentially dilutive securities
            (equivalent in common stock)
               Common Stock options and unearned MRP shares             30             28
                                                                ----------     ----------
         Diluted weighted average common shares outstanding          2,292          2,265
                                                                ----------     ----------
         Diluted earnings per common share                      $     0.09     $     0.13
</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. Accumulated other comprehensive income in the consolidated
         statements of financial condition represents the net unrealized gains
         or losses on securities available for sale as of the reporting dates,
         net of related tax effect.

         A summary of the unrealized gains (losses) and reclassification
         adjustments of securities available for sale and the related tax
         effects for the three-month periods ended December 31, 2006 and 2005 is
         as follows:
<TABLE>
<CAPTION>

                                                                   Three Months Ended
                                                                       December 31,
                                                               -------------------------
                                                                   2006           2005
                                                                ----------     ----------
                                                                     (In thousands)
<S>                                                             <C>            <C>
         Unrealized holding gains arising
           during the period                                    $       19     $       25

         Reclassification adjustment for gains and losses
           realized in net income during period                         --             --
                                                                ----------     ----------
                                                                        19             25
         Tax effect                                                     (7)           (10)
                                                                ----------     ----------
         Other comprehensive income, net of tax                 $       12     $       15
                                                                ==========     ==========
</TABLE>

                                       9
<PAGE>

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

         The Company has a Stock Option Plan ("SOP") and an MRP for directors,
         officers and key employees. Both plans are described in Note 12 to the
         Company's Consolidated Financial Statements included in its Annual
         Report on Form 10-KSB, for the fiscal year ended September 30, 2006.
         Through September 30, 2006, the Company accounted for its SOP using the
         intrinsic value method set forth in Accounting Principles Board Opinion
         No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and
         related interpretations. Under APB No. 25, generally, when the exercise
         price of the Company's stock options equaled the market price of the
         underlying stock on the date of the grant, no compensation expense was
         recognized. The Company adopted SFAS No. 123R, 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 requisite service periods.

         SFAS 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 months ended December 31, 2006) 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
         options grants is net of estimated forfeitures and is recognized over
         the awards' respective requisite service periods. The fair values of
         all option grants were estimated using the Black-Scholes option pricing
         model. We recognize compensation expense for the fair values of these
         awards, which have graded vesting, on a straight-line basis over the
         requisite service period of the awards. No options were granted in the
         three-month periods ending December 31, 2005 or 2006.

         The Company awarded 1,700 shares of stock under the MRP during the
         quarter ended December 31, 2006. The aggregate expense for these
         shares, which have a five-year vesting period, is expected to be
         approximately $13,000 and will be expensed ratably over the vesting
         period. During the three months ended December 31, 2006, the Company
         recorded $10,000 of share-based compensation expense, which was
         comprised of stock option expense of $2,000 and $8,000 for MRP shares.
         The Company estimates it will record share-based compensation expense
         of approximately $39,000 in fiscal 2007.

                                       10
<PAGE>

         The following table illustrates the impact of share-based compensation
         on net income and earnings per share:
<TABLE>
<CAPTION>

                                                                             Three Months Ended
                                                                              December 31, 2006
                                                                          -------------------------
                                                                                          Impact of
                                                                                         Share-Based
                                                                              As         Compensation
         (In thousands, except per share data)                             Reported        Expense
         -------------------------------------                            ----------     ----------
<S>                                                                       <C>            <C>
         Net income                                                       $      216     $        6

         Earnings per share:
             Basic                                                        $     0.10     $     0.00
             Diluted                                                      $     0.09     $     0.00

<CAPTION>

         A summary of the Company's stock option activity and related
         information for its stock option plan for the three months ended
         December 31, 2006, was as follows:

                                                                           Weighted
                                                            Weighted        Average       Aggregate
                                                            Average        Remaining      Intrinsic
                                                            Exercise      Contractual       Value
                                             Options         Price           Term          (000's)
                                            ----------     ----------     ----------     ----------
<S>                                           <C>        <C>             <C>           <C>
         Outstanding at September 30, 2006      49,625     $     5.62
               Exercised                        (5,675)          4.79
                                            ----------     ----------

         Outstanding at December 31, 2006       43,950     $     5.73      3.4 years     $      298
                                            ==========     ==========     ==========     ==========

         Exercisable at December 31, 2006       41,950     $     5.56      3.4 years     $      291
                                            ==========     ==========     ==========     ==========
<CAPTION>

         At both December 31 and September 30, 2006, there were 2,000 non-vested
         options having a weighted average fair value of $3.36 per option.
         Expected future expenses for these options total approximately $2,000,
         all of which will be expensed within the next four months.

         A summary of the status of the Company's MRP shares as of December 31,
         2006 and changes during the three months ended December 31, 2006, is
         presented below:

                                                                                          Weighted
                                                                          Restricted       Average
                                                                            Shares       Grant Date
                                                                            (000's)      Fair Value
                                                                          ----------     ----------
<S>                                                                         <C>       <C>
         Non-vested at September 30, 2006                                      9,920     $    12.33
               Granted                                                         1,700          12.50
               Vested                                                             --             --
                                                                          ----------     ----------

         Non-vested at December 31, 2006                                      11,620     $    12.36
                                                                          ==========     ==========
</TABLE>

         Expected future compensation expense relating to the non-vested MRP
         shares at December 31, 2006 is $128,000 and will be expensed over a
         weighted average period of 3.6 years.

         For purposes of pro forma disclosures, the estimated fair value of the
         stock options and MRP shares were amortized to expense over their
         assumed vesting periods. The following table illustrates the effect on
         net income and earnings per share if the Company had applied the fair
         value recognition provisions of SFAS No. 123 to all stock-related
         compensation:

                                       11
<PAGE>
<TABLE>
<CAPTION>


                                                                        Three Months Ended
                                                                           December 31,
         (In thousands, except per share data)                                 2005
         -------------------------------------                            --------------
<S>                                                                       <C>
         Net income, as reported                                          $          295

         Total stock-based compensation expense determined
            under fair value method for all awards, net of taxes                      (8)
         Reclassification adjustment for gains realized in
         Amounts included in determination of net income,
            net of taxes                                                               6
                                                                          --------------
         Pro forma net income                                             $          293
                                                                          ==============
         Earnings per share:
             Basic - as reported                                          $         0.13
             Basic - pro forma                                                      0.13
             Diluted - as reported                                        $         0.13

             Diluted - pro forma                                                    0.13
</TABLE>

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

         Outstanding letters of credit written are conditional commitments
         issued by the Bank to guarantee the performance by a customer to a
         third party. The Bank'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 Bank had six standby letters of credit totaling $63,000 as of
         December 31, 2006.

         The credit risk involved in issuing letters of credit is essentially
         the same as that involved in extending other loan commitments. The Bank
         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.

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

         Cambray Mutual Holding Company ("Cambray MHC"), the Company's parent
         mutual holding company, held 1,311,222 shares, or 57.1%, of the
         Company's issued and outstanding common stock, and shareholders other
         than Cambray MHC held 986,537 shares or 42.9% of such stock at December
         31, 2006. Cambray MHC has filed a notice with the Office of Thrift
         Supervision ("OTS") to waive its right to receive cash dividends during
         the 2007 calendar year.

         Cambray MHC waived receipt of several past dividends paid by the
         Company. The dividends waived are considered a restriction on the
         retained earnings of the Company. As of December 31, 2006 and September
         30, 2006, the aggregate retained earnings restricted for cash dividends
         waived was $1,508,000.

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

         In September 2006, the Financial Accounting Standards Board ("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. GAAP, and expands
         disclosures about fair value measurements. SFAS No. 157 applies to
         other accounting pronouncements that require or permit fair value

                                       12
<PAGE>

         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 consolidated financial position, results of operations and cash
         flows.

         On September 29, 2006, the FASB issued SFAS No. 158, "Employers'
         Accounting for Defined Benefit Pension and Other Postretirement Plans,"
         which amends SFAS Nos. 87 and 106 to require recognition of the
         overfunded or underfunded status of pension and other postretirement
         benefit plans on the balance sheet. Under SFAS 158, gains and losses,
         prior service costs and credits, and any remaining transition amounts
         under SFAS Nos. 87 and 106 that have not yet been recognized through
         net periodic benefit cost will be recognized in accumulated other
         comprehensive income, net of tax effects, until they are amortized as a
         component of net periodic cost. The measurement date - the date at
         which the benefit obligation and plan assets are measured - is required
         to be the Company's fiscal year end. SFAS 158 is effective for
         publicly-held companies for fiscal years ending after December 15,
         2006, except for the measurement date provisions, which are effective
         for fiscal years ending after December 15, 2008. The Company is
         currently analyzing the effects of SFAS 158 but does not expect its
         implementation will have a significant impact on the Company's
         consolidated financial conditions or results of operations.

         In September 2006, the FASB issued FASB Staff Position AUG AIR-l,
         "Accounting for Planned Major Maintenance Activities," which is
         effective for fiscal years beginning after December 15, 2006. This
         position statement eliminates the accrue-in-advance method of
         accounting for planned major maintenance activities. We do not expect
         this pronouncement to have a significant impact on the determination or
         reporting of our financial results.

         On September 13, 2006, the Securities and Exchange Commission ("SEC")
         issued Staff Accounting Bulleting ("SAB") No. 108. SAB No. 108 provides
         interpretive guidance on how the effects of the carryover or reversal
         of prior year misstatements should be considered in quantifying a
         potential current year misstatement. Prior to SAB No. 108, companies
         might evaluate the materiality of financial-statement misstatements
         using either the income statement or balance approach, with the income
         statement approach focusing on new misstatements added in the current
         year, and the balance sheet approach focusing on the cumulative amount
         of misstatement present in a company's balance sheet. Misstatements
         that would be material under one approach could be viewed as immaterial
         under another approach, and not be corrected. SAB No. 108 now requires
         that companies view financial statement misstatements as material if
         they are material according to either the income statement or balance
         sheet approach. The Company has analyzed SAB 108 and determined that
         upon adoption it will have no impact on the Company's consolidated
         financial conditions or results of operations.

         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. We are currently evaluating the impact of
         adopting FIN 48 on our 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 or other
disclosures, we are making "forward-looking statements" as described in the

                                       13
<PAGE>

Private Securities Litigation Reform Act of 1995. In addition, certain
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
regarding 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        Fluctuations in loan demand and deposit flows;

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

o        Changes in laws and regulations affecting us, including changes in
         accounting standards and legal compliance requirements;

o        Changes in competition, including non-bank investments; 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, to a large extent, 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
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, which includes 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 of the Federal
Deposit Insurance Corporation ("FDIC"), and the Bank is subject to regulation by
the FDIC and the OTS.

                                       14
<PAGE>

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, 2006) lists significant accounting policies used in the
development and presentation of its financial statements. This discussion and
analysis, the significant accounting policies, and other financial statement
disclosures identify and address key variables and other qualitative and
quantitative factors that are necessary for an understanding and evaluation of
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 of 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.

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

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

                                       15
<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 December 31,
                                                      ---------------------------------------------------------------------------
                                                                      2006                                   2005
                                                      ------------------------------------   ------------------------------------
                                                                                (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)                                        $  108,687   $    1,853         6.76%  $  101,148   $    1,681         6.59%
Securities (2)                                            11,117          132         4.71%      12,289          138         4.46%
Other short-term investments                                 711            9         5.02%         413            4         3.84%
                                                      ----------   ----------                ----------   ----------
   Total interest-earning assets                         120,515        1,994         6.56%     113,850        1,823         6.35%
                                                                   ----------                             ----------
Non-interest-earning assets                                9,823                                  8,507
                                                      ----------                             ----------
   Total assets                                       $  130,338                             $  122,357
                                                      ==========                             ==========



Savings and club accounts (3)                         $   19,254   $       50         1.03%  $   19,770   $       50         1.00%
Time certificates                                         38,367          430         4.45%      30,900          259         3.33%
NOW and money market accounts                             12,078           38         1.25%      11,981           34         1.13%
Borrowings                                                35,421          429         4.81%      36,676          384         4.15%
                                                      ----------   ----------                ----------   ----------
   Total interest-bearing liabilities                    105,120          947         3.57%      99,327          727         2.90%
                                                                   ----------                             ----------
Non-interest-bearing liabilities                           5,205                                  4,189
                                                      ----------                             ----------
   Total liabilities                                     110,325                                103,516
Shareholders' equity                                      20,013                                 18,841
                                                      ----------                             ----------
   Total liabilities and
      shareholders' equity                            $  130,338                             $  122,357
                                                      ==========                             ==========

Net interest income/spread (4)                                     $    1,047         2.99%               $    1,096         3.45%
                                                                   ==========   ==========                ==========   ==========

Net earning assets/net interest margin (5)            $   15,395                      3.45%  $   14,523                      3.82%
                                                      ==========                ==========   ==========                ==========

Ratio of average interest-earning
   assets to average interest-bearing liabilities          1.15x                                  1.15x
                                                      ==========                             ==========
</TABLE>

Notes appear on following page

                                       16
<PAGE>

(1)  Shown net of the allowance for loan losses. Average loan balances include
     non-accrual loans and loans 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)  Include 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.

Rate Volume Analysis of Net Interest Income

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

                                        For the three months ended December 31,
                                                    2006 vs. 2005
                                         ------------------------------------
                                             Increase (Decrease) Due To:
                                         ------------------------------------
                                           Volume        Rate        Total
                                         ----------   ----------   ----------
                                                 (Dollars in thousands)
Interest-earning assets:

 Loans                                   $      128   $       44   $      172
 Securities                                     (14)           8           (6)
 Other short-term investments                     4            1            5
                                         ----------   ----------   ----------
   Total interest-earning assets                118           53          171
                                         ----------   ----------   ----------

Interest-bearing liabilities:

 Savings and club accounts                       (1)           1           --
 Time certificates                               71          100          171
 NOW and money market accounts                   --            4            4
 Borrowings                                     (14)          59           45
                                         ----------   ----------   ----------
  Total interest-bearing liabilities             56          164          220
                                         ----------   ----------   ----------

Net change in net interest income        $       62   $     (111)  $      (49)
                                         ==========   ==========   ==========

                                       17
<PAGE>

Comparison of Financial Condition at December 31, 2006 and September 30, 2006.

         During the three months from September 30, 2006 through December 31,
2006, total assets increased $2.1 million, or 1.6%, from $130.1 million to
$132.2 million. Net loans increased by $1.8 million, or 1.7%, from $105.6
million to $107.4 million. This increase resulted mainly from growth of $2.4
million in residential real estate loans. One commercial real estate loan in the
amount of $2.4 million carries a 90% guarantee, or $2.1 million, from the United
States Department of Agriculture, ("USDA"). The guaranteed portion is classified
as held for sale on the consolidated statements of financial condition at
December 31, 2006, and will be sold in the secondary market upon receiving final
USDA approval.

         Borrowed funds from FHLB, consisting of advances and securities
repurchase obligations, were $35,750,000 on December 31, 2006 and $35,250,000 on
September 30, 2006.

         Deposits increased $956,000, or 1.3%, during the quarter from $72.5
million to $73.4 million, due to an increase of $1.5 million in time deposits,
which resulted from a $1.6 million increase in brokered deposits

         Shareholders' equity rose by $297,000 during the first quarter of the
fiscal year as a result of net income of $216,000, Employee Stock Ownership Plan
shares earned of $32,000, proceeds of $27,000 due to the exercise of stock
options, amortization of stock option expense of $2,000, amortization of
Management Recognition Plan ("MRP") shares of $8,000 and a $12,000 increase in
unrealized gains on securities available-for-sale. Treasury stock was used to
supply the 5,675 shares needed for the exercise of vested stock options.

         Non-performing assets increased from $691,000 on September 30, 2006 to
$946,000 at December 31, 2006, while the ratio of non-performing assets to total
assets increased from 0.53% to 0.72% over the same period. Non-performing loans
increased from $680,000, or 0.64% of total loans at September 30, 2006 to
$821,000, or 0.76% at December 31, 2006. A summary of the Company's
non-performing assets and related ratios follows:


         Non-performing assets                   December 31,    September 30,
                                                     2006            2006
                                                 ------------    ------------
         Non-accrual loans
         Residential mortgages
             and home equity loans               $        549    $        183
         Commercial mortgages                             247             275
         Consumer other                                    25              22
         Commercial other                                  --              --
                                                 ------------    ------------
             Total non-accrual loans                      821             452

         Residential mortgage loans over 90
           days delinquent and still accruing              --             228
                                                 ------------    ------------
             Total non-performing loans                   821             680

         Foreclosed real estate                           106              --
         Other repossessed assets                          19              11
                                                 ------------    ------------
           Total non-performing assets           $        946    $        691
                                                 ============    ============
         Non-performing loans as a
              percent of total loans                     0.76%           0.64%

         Non-performing assets as a
              percent of total assets                    0.72%           0.53%

                                       18
<PAGE>

         Five of six non-accrual residential mortgages are currently in
foreclosure proceedings, with one of the foreclosed loans in bankruptcy
proceedings. One loan in foreclosure in the amount of $248,000 is related to the
death of the borrower.

         A commercial mortgage loan in the amount of $247,000 is in foreclosure
proceedings.

         The Company had no loans more than 90 days delinquent and still
accruing at December 31, 2006.

         Management feels that the increase in non-performing residential
mortgages may be in part related to higher energy costs precipitated by the more
than tripling of oil prices on the world market in the past two years. These
increases for both heating fuel and gasoline are impacting all residents and
especially those on limited incomes. We suspect there also has been an increase
in delinquencies related to energy prices. Management believes that the
non-performing loans are adequately secured by collateral. Further, management
is not aware of any other factors common to these loans, which caused their
non-performance. Accordingly, while we will continue to monitor asset quality,
management has determined that the allowance for loan losses is appropriate at
this time.

Comparison of Results of Operations for the Three Months Ended December 31, 2006
and 2005.

         General. Our net income for the three months ended December 31, 2006
was $216,000, a decrease of $79,000, or 26.8%, over our net income of $295,000
for the same period last year. The decrease in net income was the result of the
following factors:

         1.       our net interest income decreased by $49,000, as interest
                  income increased $171,000 and interest expense increased by
                  $220,000,

         2.       non-interest income decreased by $28,000 from last year's
                  period principally due to $32,000 of income on foreclosed
                  assets last year as compared with none this year,

         3.       the provision for loan losses decreased by $10,000 for the
                  first quarter of this fiscal year versus last fiscal year,

         4.       non-interest expenses increased $60,000 from last year to this
                  year principally due to increases in salaries and employee
                  benefits expense and directors' fees of $46,000 and $9,000,
                  respectively, and

         5.       a decrease of $48,000 in income taxes.

         Basic and diluted earnings per share were $0.10 and $0.09,
respectively, for this year's quarter and $0.13 for both measures in last year's
quarter.

         Interest Income. An analysis of the information shown previously in the
Average Balances, Interest Rates and Yields table and in the Rate Volume
Analysis of Net interest Income table follows:

         1.       Results for the three months ended December 31, 2006 show that
                  interest income increased by $171,000, or 9.4%, from
                  $1,823,000 for the three months ended December 31, 2005 to
                  $1,994,000. Interest income increased $118,000 due to an
                  increase in the average balance of interest-earning assets,
                  from $113.9 million to $120.5 million, while interest income
                  increased $53,000 due to an increase in the average rate
                  earned on interest-earning assets from 6.35% to 6.56%.

         2.       Interest income on loans increased $172,000, or 10.2%, for the
                  first three months of fiscal 2007, as compared to the first
                  three months of fiscal 2006. Growth of the average balance of
                  loans accounted for an increase in interest income of
                  $128,000, while an increase in the average rate on loans
                  increased interest income $44,000.

                                       19
<PAGE>

         3.       Interest income on securities and other short-term investments
                  decreased by $1,000 from $142,000 for the three months ended
                  December 31, 2005 to $141,000 for the three months ended
                  December 31, 2006. A decrease in the average balance of
                  securities and other short-term investments decreased interest
                  income by $10,000, while an increase in the average interest
                  rate on securities and other short-term investments increased
                  interest income by $9,000.

         Interest Expense. An analysis of the information shown previously in
the Average Balances, Interest Rates and Yields table and in the Rate Volume
Analysis of Net interest Income table follows:

         1.       Interest expense increased by $220,000, or 30.3%, from
                  $727,000 for the first quarter of fiscal 2006 to $947,000 for
                  the first quarter of fiscal 2007. Interest expense increased
                  $56,000 due to an increase in the average balance of
                  interest-bearing liabilities, mainly time certificates
                  including broker CDs, which increased from $99.3 million last
                  year to $105.1 million this year. Over the same time frame,
                  interest expense increased by $164,000 due to an increase in
                  the average rate paid on interest-bearing liabilities from
                  2.90% to 3.57%.

         2.       The average balance of time certificates increased $7.5
                  million, from $30.9 million for the quarter ended December 31,
                  2006 to $38.4 million for the quarter ended December 31, 2006
                  resulting in an increase of $71,000 in interest expense. Most
                  of the increase in CDs was in brokered CDs which increased
                  from none at December 31, 2005 to $5.6 million at December 31,
                  2006. Over the same period, the average balance of borrowings
                  decreased by $1.3 million, from $36.7 million to $35.4 million
                  resulting in a decrease in interest expense of $14,000.
                  Increases in the average interest rate paid on time
                  certificates, NOW and money market accounts, and borrowings
                  increased interest expense $100,000, $4,000 and $59,000,
                  respectively.

         Net Interest Income. Net interest income decreased by $49,000, or 4.5%,
in the first three months of fiscal 2007 versus the first three months of fiscal
2006. The decrease in net interest income represents the difference between the
$171,000 increase in interest income and the $220,000 increase in interest
expense. The Average Balances, Interest Rates and Yields table shows that spread
continues to decrease even though the Federal Reserve has paused from raising
interest rates. We will continue to see this compression in spread as time
deposits and borrowings mature and price to the current yield curve which has
shifted upward as compared to the yield curve when the liabilities originated.
The average interest rate on interest-earning assets increased by 21 basis
points, while the average interest rate on interest-bearing liabilities
increased by 67 basis points, thereby reducing spread by 46 basis points.

         The Rate Volume Analysis of Net Interest Income table shows that the
reduction of interest spread by 0.46% decreased net interest income by $49,000.
The current interest rate environment is characterized by an inverted yield
curve, meaning that the interest rates at the short end of the curve, from
overnight investments to one-year maturities, are higher than rates on
maturities from one to ten years. In this environment, loan arbitrage
opportunities, in which we match borrowings against mortgage loans are no longer
as attractive as those we created in prior periods which continue to produce
income even though the spread has narrowed. We have therefore decided not to
pursue loan arbitrage until funding costs stabilize and margins begin expanding,
and instead, will invest available funds in liquid assets, mainly our investment
portfolio.

         Average shareholders' equity represented 16.6% of average
interest-earning assets for the quarter ended December 31, 2006, while it
represented 16.5% of average interest-earning assets for the same quarter last
year. Our ratio of average interest-earning assets to average interest-bearing
liabilities was 1.15 times in the first quarters of both fiscal 2007 and 2006.

         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 or lower, then we adjust it, with a charge
or credit 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

                                       20
<PAGE>

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 December 31, 2006, we provided $15,000 for
loan losses, compared to $25,000 in the same quarter last year. At December 31,
2006, the ratio of our loan allowance to total loans was 0.87% as compared to
0.86% on December 31, 2005. On September 30, 2006 the allowance was $948,000, or
0.90% of total loans, and we determined at the end of the quarter that the
appropriate level for the allowance was $931,000. We had charge-offs during the
quarter of $35,000 and recoveries of $3,000, so a $15,000 provision was
necessary to reach the desired level for the allowance. Our level of
non-accruing loans, loans 90 days delinquent and still accruing and restructured
loans was $821,000, or 0.76% of total loans, at December 31, 2006 as compared to
$616,000, or 0.62% of total loans, at December 31, 2005.

         Non-interest Income. Our non-interest income was $28,000 lower in the
first quarter of fiscal 2007 as compared to the same quarter in fiscal 2006. As
stated earlier, we had $32,000 of income on foreclosed assets last year and none
this year.

         Non-interest Expense. Non-interest expense increased by $60,000 from
the quarter ended December 31, 2005 to the quarter ended December 31, 2006. Over
that period, salaries and employee benefits and directors' fees increased by
$46,000 and $9,000, respectively. The costs of health insurance increased by
$26,000 over last year's quarter. However, $20,000 of that amount represents a
savings we had in last year `s quarter when a change in the health insurance
coverage allowed us to eliminate the self-insurance portion liability. Director
fees increased by $14,000 due to an increase in the value of the deferred
directors fees plan assets, but were reduced by $5,000 due in part to having one
less director in this year's quarter.

         At December 31, 2006, we had thirty-two full-time and three part-time
employees, compared to thirty-three full time and one part-time employees at the
end of December 2005.

         Income tax expense. Our income tax expense decreased by $48,000, or
29.6%, comparing the first quarter of fiscal 2007 to the same quarter of fiscal
2006. The decreased expense was the result of lower income before taxes of
$127,000 over the same period, a decrease of 27.8%.

Liquidity and Capital Resources

         Our primary sources of funds are deposits, borrowings from FHLB, 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. 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 three months ended December 31, 2006, we increased our
cash and cash equivalents by $792,000.

         Deposits increased by $956,000 during the quarter ended December 31,
2006. 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 reduced borrowings from FHLB by $500,000 during the quarter ended
December 31, 2006, but increased brokered CDs by $1,590,000.

         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

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<PAGE>

money is normally higher than the average cost of deposits. As a member of the
FHLB, the Bank can arrange to borrow an additional $16.1 million against our one
to four family mortgage portfolio. We have used borrowed funds to help us
leverage capital and grow the Bank, but have not needed borrowings to cover
liquidity shortfalls. In addition to borrowings, we believe that, if we need to
do so, we can attract additional deposits by increasing the rates we offer.

         We measure liquidity on a monthly basis and want to maintain a
liquidity ratio of between 5% and 15%. At December 31, 2006, the ratio is 4.8%.
We will continue to monitor liquidity.

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 unfounded loans.

         We had $2.7 million in outstanding commitments to make loans at
December 31, 2006, along with $4.3 million of unused home equity, commercial and
overdraft lines of credit. We also have a commitment to sell the $2.1 million
guaranteed portion of a USDA guaranteed loan we originated. We are awaiting USDA
approval for the sale. We anticipate that we will have enough funds to meet our
current loan commitments and to fund draws on the lines of credit through the
normal turnover of our loan and securities portfolios. At December 31, 2006, we
had $32.3 million of time certificates scheduled to mature within one year
including brokered CDs. 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.

Capital Resources

         The OTS has minimum capital ratio requirements applying to the Bank,
but there are no comparable minimum capital requirements that apply to us as a
savings and loan holding company. At December 31, 2006, the Bank exceeded all
regulatory capital requirements of the OTS applicable to it, with Tier I capital
of $19.6 million, or 14.9% of average assets and with total risk-based capital
of $20.5 million, or 26.7% of risk-weighted assets. The Bank also had tangible
capital of $19.6 million, or 14.9% of average tangible assets. The Bank was
classified as "well capitalized" at December 31, 2006 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 December 31, 2006,
and they have concluded that as of that date, our disclosure controls and
procedures were effective at ensuring that required information will be
disclosed on a timely basis in our reports filed under the Exchange Act.

(b) Changes in Internal Controls. There were no significant changes to our
internal controls or in other factors that could significantly affect our
internal controls during the quarter ended December 31, 2006, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

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<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 advise of counsel, does not believe that any currently known legal
actions, individually or in the aggregate, will have a material effect on its
consolidated financial condition or results of operation.

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 Chief 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: February 9, 2007            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)


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