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, 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                                     August 2, 2006
-----------------------------                         --------------
Common Stock, par value $ .01                            2,292,084

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,
            2006 and at September 30, 2005                                    3

            Consolidated Statements of Income for the three and nine
            months ended June 30, 2006 and 2005                               4

            Consolidated Statements of Shareholders' Equity for the nine
            months ended June 30, 2006 and 2005                               5

            Consolidated Statements of Cash Flows for the nine months ended
            June 30, 2006 and 2005                                            7

            Notes to Consolidated Financial Statements                        8

Item 2.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations.                                       11

Item 3.     Controls and Procedures                                          24

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

Item 1.     Legal Proceedings                                                24

Item 6.     Exhibits                                                         24

SIGNATURES                                                                   25

EXHIBITS                                                                     26

                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

<TABLE>
<CAPTION>
                                     GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                  (In thousands, except share data) (Unaudited)


                                                                                       June 30,      September 30,
                                                                                         2006            2005
                                                                                     ------------    ------------
<S>                                                                                  <C>             <C>
Assets:
Cash and due from banks                                                              $      2,589    $      2,210
Interest-bearing deposits in bank                                                           1,907             456
                                                                                     ------------    ------------
               Total cash and cash equivalents                                              4,496           2,666


Securities available-for-sale                                                              10,071          10,992
Securities held-to-maturity (fair value 2006: $96: 2005: $110)                                 96             109

Loans, held for sale                                                                        2,173           3,436

Loans receivable, net of allowance for loan losses: 2006 $921: 2005 $869                  101,978          96,740

Investment in Federal Home Loan Bank stock, at cost                                         1,609           1,838
Investment in life insurance                                                                3,598           3,717
Premises and equipment, net                                                                 1,840           1,547
Accrued interest receivable and other assets                                                1,909           1,478
                                                                                     ------------    ------------
               Total assets                                                          $    127,770    $    122,523
                                                                                     ============    ============

Liabilities:
Deposits: Non-interest-bearing demand                                                $      2,595    $      2,043
          NOW and money market                                                             11,888          11,956
          Savings                                                                          19,887          19,101
          Time                                                                             39,808          30,864
                                                                                     ------------    ------------
               Total deposits                                                              74,178          63,964

Advances from the Federal Home Loan Bank                                                   31,600          36,750
Other liabilities                                                                           2,559           3,134
                                                                                     ------------    ------------
               Total liabilities                                                          108,337         103,848
                                                                                     ------------    ------------

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                                                                  4,808           4,739
Retained earnings                                                                          15,135          14,392
Treasury Stock, at cost, (shares 2006: 91,956: 2005: 98,606)                                 (466)           (499)
Accumulated other comprehensive income                                                        137             272
Unearned common stock held by Management Recognition Plan                                     (55)            (67)
Unallocated common stock held by Employee Stock Ownership Plan                               (150)           (186)
                                                                                     ------------    ------------
               Total shareholders' equity                                                  19,433          18,675
                                                                                     ------------    ------------
               Total liabilities and shareholders' equity                            $    127,770    $    122,523
                                                                                     ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                        3
<PAGE>

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


<TABLE>
<CAPTION>
                                                             Three Months Ended          Nine Months Ended
                                                                  June 30,                   June 30,
                                                           -----------------------    -----------------------
                                                              2006         2005          2006         2005
                                                           ----------   ----------    ----------   ----------
<S>                                                        <C>          <C>           <C>          <C>
Interest income:
----------------
Loans                                                      $    1,738   $    1,500    $    5,113   $    4,296
Securities-taxable                                                114          119           356          346
          -non-taxable                                             11           12            36           36
Other short-term investments                                       14            9            23           24
                                                           ----------   ----------    ----------   ----------
     Total interest income                                      1,877        1,640         5,528        4,702
                                                           ----------   ----------    ----------   ----------

Interest expense:
-----------------
Deposits                                                          466          285         1,170          814
Borrowings - short term                                           106          103           458          232
Borrowings - long term                                            258          171           689          509
                                                           ----------   ----------    ----------   ----------
     Total interest expense                                       830          559         2,317        1,555
                                                           ----------   ----------    ----------   ----------

     Net interest income                                        1,047        1,081         3,211        3,147
Provision for loan losses                                          15           30            65          100
                                                           ----------   ----------    ----------   ----------
     Net interest income after provision for loan losses        1,032        1,051         3,146        3,047
                                                           ----------   ----------    ----------   ----------

Non-interest income:
--------------------
Service charges                                                    55           52           169          143
Realized gain on sales of securities - AFS                         --           --            98           96
Realized gain (loss) on sales of loans held for sale               --           --             7          (17)
Life insurance death benefit                                       --           --            62           --
Earnings on investment in life insurance                           32           30            99           99
Realized gain (loss) on sale of foreclosed assets, net              3           (2)           55            7
Other                                                              34           34           112          108
                                                           ----------   ----------    ----------   ----------
     Total non-interest income                                    124          114           602          436
                                                           ----------   ----------    ----------   ----------

Non-interest expenses:
----------------------
Salaries and employee benefits                                    476          427         1,291        1,263
Directors fees                                                     33           36           113           99
Occupancy and equipment                                           103           98           319          285
Data processing                                                    31           34            92          104
Postage and supplies                                               30           29            97           80
Professional fees                                                  52           54           165          158
Other                                                             116           97           334          333
                                                           ----------   ----------    ----------   ----------
     Total non-interest expenses                                  841          775         2,411        2,322
                                                           ----------   ----------    ----------   ----------

     Income before income tax expense                             315          390         1,337        1,161
Income tax expense                                                106          144           447          425
                                                           ----------   ----------    ----------   ----------
     Net income                                            $      209   $      246    $      890   $      736
                                                           ==========   ==========    ==========   ==========

Earnings per common share - basic                          $     0.09   $     0.11    $     0.40   $     0.33
Earnings per common share - diluted                        $     0.09   $     0.11    $     0.39   $     0.33
</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, 2006
                                           (In thousands, except 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, 2005      $     24   $   4,739    $  14,392    $   (499)   $    272    $    (67)   $    (186)   $   18,675
                                                                                                                         ----------

Comprehensive income:
   Net income                                                    890                                                            890
   Change in unrealized gains
      on securities available
      for sale, net of
      reclassification
      adjustment and
      tax effects                                                                       (135)                                  (135)
                                                                                                                         ----------

Total comprehensive income                                                                                                      755
                                                                                                                         ----------

Cash dividends declared,
  $0.15 per share                                               (147)                                                          (147)
Allocation of ESOP shares,
  7,266 shares                                       53                                                            36            89
Amortization of MRP                                  18                                               12                         30
Exercise of stock options,
  6,650 shares                                       (2)                      33                                                 31
                                   --------   ---------    ---------    --------    --------    --------    ---------    ----------
Balance at June 30, 2006           $     24   $   4,808    $  15,135    $   (466)   $    137    $    (55)   $    (150)   $   19,433
                                   ========   =========    =========    ========    ========    ========    =========    ==========
</TABLE>

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                              GOUVERNEUR BANCORP, INC AND SUBSIDIARY
                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                 Nine months ended June 30, 2005
                                          (In thousands, except 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, 2004     $     24   $   4,642   $  13,632    $   (511)   $    451    $    (57)   $    (231)   $   17,950
                                                                                                                       ----------

Comprehensive income:
   Net income                                                  736                                                            736
   Change in unrealized gain
      on securities available
      for sale, net of
      reclassification
      adjustment and
      tax effects                                                                      (82)                                   (82)
                                                                                                                       ----------

     Total comprehensive income                                                                                               654
                                                                                                                       ----------

Cash dividends declared,
   $0.14 per share                                            (136)                                                          (136)
Allocation of ESOP shares,
   6,743 shares                                     63                                                           33            96
Amortization of MRP                                                                                  6                          6
Exercise of stock options,
   1,125 shares                                      2                       6                                                  8
                                  --------   ---------   ---------    --------    --------    --------    ---------    ----------
Balance at June 30, 2005          $     24   $   4,707   $  14,232    $   (505)   $    369    $    (51)   $    (198)   $   18,578
                                  ========   =========   =========    ========    ========    ========    =========    ==========
</TABLE>

See accompanying notes to consolidated financial statements

                                       6
<PAGE>

                                GOUVERNEUR BANCORP, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (In thousands) (Unaudited)
<TABLE>
<CAPTION>
                                                                                  Nine Months Ended
                                                                                      June 30,
                                                                               ------------------------
                                                                                  2006          2005
                                                                               ----------    ----------
<S>                                                                            <C>           <C>
Cash flows from operating activities:
  Net Income                                                                   $      890    $      736

  Adjustments to reconcile net income to net cash provided by
    operating activities:
       Provision for loan losses                                                       65           100
       Depreciation                                                                    86            90
       Net amortization of securities premiums and discounts                            7            18
       Net realized gains on sales of securities - AFS                                (98)          (96)
       Proceeds from sales of loans held for sale                                   1,232         1,241
       Net realized (gains) losses on sales of loans                                   (7)           17
       Life insurance death benefit                                                   (62)           --
       Earnings on bank owned life insurance                                          (99)          (99)
       Allocated and earned shares of ESOP and MRP
                                                                                      119           102
       Net realized gain on sale of foreclosed assets                                 (55)          (14)
       Increase in accrued interest receivable and other assets                       (48)          (69)
       Increase (decrease) in accrued interest payable and other liabilities         (485)        1,046
                                                                               ----------    ----------
                    Net cash provided by operating activities                       1,545         3,072
                                                                               ----------    ----------

Cash flows from investing activities:
  Securities available for sale:
       Proceeds from sales                                                            192           211
       Proceeds from maturities and principal reductions                            1,116         1,974
       Purchases                                                                     (521)          (18)
  Securities held to maturity, proceeds from maturities                                13            65
  (Purchases) redemptions of Federal Home Loan Bank stock                             229          (500)
  Net increase in loans                                                            (5,329)      (16,400)
  Proceeds from sales of foreclosed assets                                             16           120
  Additions to premises and equipment                                                (379)         (171)
                                                                               ----------    ----------
                    Net cash used in investing activities                          (4,663)      (14,719)
                                                                               ----------    ----------

Cash flows from financing activities:
  Net increase in deposits                                                         10,214         2,340
  Proceeds (repayments) from FHLB advances                                         (5,150)       10,000
  Exercise of stock options                                                            31             8
  Cash dividends paid                                                                (147)         (136)
                                                                               ----------    ----------
                     Net cash provided by financing activities                      4,948        12,212
                                                                               ----------    ----------

                     Net increase in cash and cash equivalents                      1,830           565
Cash and cash equivalents - Beginning                                               2,666         2,715
                                                                               ----------    ----------

Cash and cash equivalents - Ending                                             $    4,496    $    3,280
                                                                               ==========    ==========

Non-cash investing activities:
 Additions to foreclosed assets                                                $       64    $       79
Cash paid during the period for:
 Interest                                                                           2,319         1,502
 Income taxes                                                                         491           385
</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, 2006 and September 30, 2005 and for the three and
      nine month periods ended June 30, 2006 and 2005. 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, 2006 and
      2005. The results of operations for the three month and nine month periods
      ended June 30, 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,
      2005 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 2005
      consolidated financial statements, including the notes thereto included in
      the Company's 2005 Annual Report on Form 10-KSB. Certain amounts at
      September 30, 2005 were reclassified to conform to the presentation of
      June 30, 2006.

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 outstanding shares. Diluted earnings per share reflects additional
      common shares that would have been outstanding if dilutive potential
      common shares had been issued (for example, through the exercise of common
      stock options), as well as any adjustment to income that would result from
      the assumed issuance.

                                       8
<PAGE>

      Basic and diluted earnings per share for the three-month and nine month
      periods ending June 30, 2006 and 2005 were computed as follows:

                               (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                 Three Months Ended        Nine Months Ended
                                                                      June 30,                  June 30,
                                                               -----------------------   -----------------------
      Basic earnings per share:                                   2006         2005         2006         2005
                                                               ----------   ----------   ----------   ----------
<S>                                                            <C>          <C>          <C>          <C>
      Net income                                               $      209   $      246   $      890   $      736
      Weighted average common shares outstanding                    2,249        2,230        2,243        2,227
                                                               ----------   ----------   ----------   ----------
      Basic earnings per share                                 $     0.09   $     0.11   $     0.40   $     0.33
                                                               ==========   ==========   ==========   ==========

                                                                 Three Months Ended        Nine Months Ended
                                                                      June 30,                  June 30,
                                                               -----------------------   -----------------------
      Diluted earnings per share:                                 2006         2005         2006         2005
                                                               ----------   ----------   ----------   ----------

      Net income                                               $      209   $      246   $      890   $      736
      Weighted average common shares outstanding                    2,249        2,230        2,243        2,227
      Additional potentially dilutive securities from common
         stock options                                                 29           33           27           35
                                                               ----------   ----------   ----------   ----------
      Diluted weighted average common shares outstanding            2,278        2,263        2,270        2,262
                                                               ----------   ----------   ----------   ----------
      Diluted earnings per share                               $     0.09   $     0.11   $     0.39   $     0.33
                                                               ==========   ==========   ==========   ==========
</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 and nine month periods ended June 30, 2006 and 2005 is as
      follows (in thousands):

<TABLE>
<CAPTION>
                                                         Three Months Ended           Nine Months Ended
                                                              June 30,                    June 30,
                                                      ------------------------    ------------------------
                                                         2006          2005          2006          2005
                                                      ----------    ----------    ----------    ----------
<S>                                                   <C>           <C>           <C>           <C>
  Unrealized holding gains (losses) arising
     during the period                                $      (57)   $      119    $     (127)   $      (40)

  Reclassification adjustment for gains realized in
     net income during period                                 --            --           (98)          (96)
                                                      ----------    ----------    ----------    ----------
                                                             (57)          119          (225)         (136)
  Tax effect                                                  23           (48)           90            54
                                                      ----------    ----------    ----------    ----------

  Other comprehensive income (loss), net of tax       $      (34)   $       71    $     (135)   $      (82)
                                                      ==========    ==========    ==========    ==========
</TABLE>

                                       9
<PAGE>

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

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

      The following table illustrates the effect on net income and earnings per
      share if the Company had applied the fair value recognition provisions of
      SFAS No. 123 to stock-based compensation (in thousands, except per share
      data):

<TABLE>
<CAPTION>
                                                                  Three Months Ended           Nine Months Ended
                                                                       June 30,                     June 30,
                                                                ------------------------    ------------------------
                                                                   2006          2005          2006          2005
                                                                ----------    ----------    ----------    ----------
<S>                                                             <C>           <C>           <C>           <C>
      Net income, as reported                                   $      209    $      246    $      890    $      736

      Total stock-based compensation expense determined
         under fair value method for all awards, net of taxes           (8)           (5)          (23)           (8)
      Reclassification adjustment for gains realized in
      Amounts included in determination of net income,
         net of taxes                                                    6             1            18             3
                                                                ----------    ----------    ----------    ----------
       Pro forma net income                                     $      207    $      242    $      885    $      731
                                                                ==========    ==========    ==========    ==========


      Earnings per share:
          Basic - as reported                                   $     0.09    $     0.11    $     0.40    $     0.33
          Basic - pro forma                                           0.09          0.11          0.39          0.33
          Diluted - as reported                                 $     0.09    $     0.11    $     0.39    $     0.33
          Diluted - pro forma                                         0.09          0.11          0.39          0.32
</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 has
      four standby letters of credit totaling $61,000 as of June 30, 2006.

      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.

                                       10
<PAGE>

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

      Cambray Mutual Holding Company ("Cambray MHC"), the Company's parent
      mutual holding company, held 1,311,222 shares, or 57.2%, of the Company's
      issued and outstanding common stock, and shareholders other than Cambray
      MHC held 980,862 shares or 42.8% of such stock at June 30, 2006. Cambray
      MHC has filed a notice with the Office of Thrift Supervision ("OTS") to
      waive its right to receive cash dividends during the 2006 calendar year.
      The Company paid a cash dividend on March 31, 2006 to all public
      shareholders.

      Cambray MHC 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, 2006 and September 30, 2005, the
      aggregate retained earnings restricted for cash dividends waived were
      $1,311,000 and $1,114,000, respectively.

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

      In December 2004, the Financial Accounting Standards Board issued
      Statement No. 123(R), "Share-Based Payment". Statement No. 123(R) revised
      Statement No. 123, "Accounting for Stock-Based Compensation", and
      supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees",
      and its related implementation guidance. Statement No. 123(R) will require
      compensation costs related to share-based payment transactions to be
      recognized in the financial statements (with limited exceptions). The
      amount of compensation cost will be measured based on the grant-date fair
      value of the equity or liability instruments issued. Compensation cost
      will be recognized over the period that an employee provides service in
      exchange for the award. The statement is effective for the Company as of
      October 1, 2006. The Company is evaluating the impact that the adoption
      will have on the consolidated financial statements.

      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 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
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:

                                       11
<PAGE>

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, 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, 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.

                                       12
<PAGE>

Recent Developments

     The Bank has not yet received the proceeds of life insurance policies on
former director Straw's life. We have recognized income of $62,000 as our
estimate of the death benefit proceeds we will receive in excess of the
surrender values of the policies. Since this matter is still unresolved and
should our estimate be incorrect, an adjustment to that amount will be made when
the correct amount is determined.

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, 2005) 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.

     The analysis has two components, specific and general allocations.
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 for the remainder of the portfolio.

     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.

                                       13
<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,
                                                         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)                          $   103,946   $     1,738          6.71%   $    90,698   $     1,500          6.63%
Securities (2)                               11,364           125          4.41%        12,922           131          4.07%
Other short-term investments                  1,196            14          4.70%         1,331             9          2.71%
                                        -----------   -----------                  -----------   -----------
   Total interest-earning assets            116,506         1,877          6.46%       104,951         1,640          6.27%
                                                      -----------                                -----------
Non-interest-earning assets                   8,854                                      8,686
                                        -----------                                -----------
   Total assets                         $   125,360                                $   113,637
                                        ===========                                ===========

Savings and club accounts (3)           $    20,045            51          1.02%   $    20,240            53          1.05%
Time certificates                            37,690           380          4.04%        29,635           202          2.73%
NOW and money market accounts                11,589            35          1.21%        11,443            30          1.05%
Borrowings                                   32,400           364          4.51%        30,211           274          3.64%
                                        -----------   -----------                  -----------   -----------
   Total interest-bearing liabilities       101,724           830          3.27%        91,529           559          2.45%
                                                      -----------                                -----------
Non-interest-bearing liabilities              4,311                                      3,699
                                        -----------                                -----------
   Total liabilities                        106,035                                     95,228
Shareholders' equity                         19,325                                     18,409
                                        -----------                                -----------
   Total liabilities and
      shareholders' equity              $   125,360                                $   113,637
                                        ===========                                ===========

Net interest income/spread (4)                        $     1,047          3.19%                 $     1,081          3.82%
                                                      ===========   ===========                  ===========   ===========
Net earning assets/net
  interest margin (5)                   $    14,782                        3.60%   $    13,422                        4.13%
                                        ===========                 ===========    ===========                 ===========

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

Notes appear on following page

                                       14
<PAGE>

Average Balances, Interest Rates and Yields (continued)

<TABLE>
<CAPTION>
                                                               For the nine months Ended June 30,
                                                         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)                          $   102,516   $     5,113          6.67%   $    87,339   $     4,296          6.58%
Securities (2)                               11,817           392          4.44%        13,490           382          3.79%
Other short-term investments                    605            23          5.08%         1,406            24          2.28%
                                        -----------   -----------                  -----------   -----------
   Total interest-earning assets            114,938         5,528          6.43%       102,235         4,702          6.15%
                                                      -----------                                -----------
Non-interest-earning assets                   8,759                                      8,614
                                        -----------                                -----------
   Total assets                         $   123,697                                $   110,849
                                        ===========                                ===========

Savings and club accounts (3)           $    19,811           151          1.02%   $    19,991           155          1.04%
Time certificates                            33,370           918          3.68%        29,498           579          2.62%
NOW and money market accounts                11,788           101          1.15%        11,735            80          0.91%
Borrowings                                   35,395         1,147          4.33%        27,968           741          3.54%
                                        -----------   -----------                  -----------   -----------
   Total interest-bearing liabilities       100,364         2,317          3.09%        89,192         1,555          2.33%
                                                      -----------                                -----------
Non-interest-bearing liabilities              4,264                                      3,383
                                        -----------                                -----------
   Total liabilities                        104,628                                     92,575
Shareholders' equity                         19,069                                     18,274
                                        -----------                                -----------
   Total liabilities and
      shareholders' equity              $   123,697                                $   110,849
                                        ===========                                ===========

Net interest income/spread (4)                        $     3,211          3.34%                 $     3,147          3.82%
                                                      ===========   ===========                  ===========   ===========
Net earning assets/net
  interest margin (5)                   $    14,574                        3.74%   $    13,043                        4.12%
                                        ===========                 ===========    ===========                 ===========

Ratio of average interest-earning
  assets to average interest-bearing
  liabilities                                  1.15x                                      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.

                                       15
<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,
                                       --------------------------------------    --------------------------------------
                                                   2006 vs. 2005                             2006 vs. 2005
                                       --------------------------------------    --------------------------------------
                                            Increase (Decrease) Due To:               Increase (Decrease) Due To:
                                       --------------------------------------    --------------------------------------

                                         Volume        Rate          Total         Volume         Rate         Total
                                       ----------    ----------    ----------    ----------    ----------    ----------

                                                                    (Dollars in thousands)
Interest-earning assets:
<S>                                    <C>           <C>           <C>           <C>           <C>           <C>
 Loans                                 $      220    $       18    $      238    $      757    $       60    $      817
 Securities                                   (16)           10            (6)          (33)           43            10
 Other short-term investments                  (1)            6             5           (13)           12            (1)
                                       ----------    ----------    ----------    ----------    ----------    ----------
   Total interest-earning assets              203            34           237           711           115           826
                                       ----------    ----------    ----------    ----------    ----------    ----------

Interest-bearing liabilities:

 Savings and club accounts                     (1)           (1)           (2)           --            (4)           (4)
 Time certificates                             64           114           178            83           256           339
 NOW and money market accounts                 --             5             5            --            21            21
 Borrowings                                    21            69            90           221           185           406
                                       ----------    ----------    ----------    ----------    ----------    ----------
  Total interest-bearing liabilities           84           187           271           304           458           762
                                       ----------    ----------    ----------    ----------    ----------    ----------

Net change in net interest income      $      119    $     (153)   $      (34)   $      407    $     (343)   $       64
                                       ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

Comparison of Financial Condition at June 30, 2006 and September 30, 2005.

     During the nine months from September 30, 2005 through June 30, 2006, total
assets increased $5.3 million, or 4.33%, from $122.5 million to $127.8 million.
Net loans increased by $5.3 million, or 5.48%, from $96.7 million to $102.0
million during the same period. The increase in loans resulted from increases of
$4.9 million in residential real estate loans, $0.5 million in commercial real
estate loans, and $0.2 million in other commercial loans, combined with a
decrease of $0.3 million in other consumer loans. The decrease in other consumer
loans was the result of a decrease in automobile loans.

     Borrowed funds from FHLB, consisting of advances and security repurchase
obligations, were $31.6 million on June 30, 2006, down from $36.8 million at
September 30, 2005. The decrease of $5.2 million in borrowed funds was the
result of purchasing brokered deposits through the Promontory Interfinancial
Network's Certificate of Deposit Account Registry Service(R) (or "CDARS"). This
program provides an alternative funding source along with FHLB borrowings for
loan growth when local deposit growth is not sufficient by itself at prices that

                                       16
<PAGE>

are similar to the costs of FHLB borrowings. Deposits increased $10.2 million,
or 15.9%, during the nine months from $64.0 million to $74.2 million. Increases
in demand deposits, savings and time deposits of $0.6 million, $0.8 million and
$8.9 million, respectively, more than offset a decrease of $0.1 million in NOW
and money market accounts. Deposits purchased from the CDARS program accounted
for $6.9 million of the increase in time deposits.

     Shareholders' equity increased by $758,000 during the first nine months of
this fiscal year, as net income of $890,000 combined with $119,000 from the
allocation of ESOP and MRP shares and $31,000 from the exercise of stock
options, more than offset the payment of a cash dividend of $147,000 to our
shareholders and a decrease of $135,000 in the unrealized gains, net of taxes,
in the available-for-sale securities portfolio. Treasury stock was used to
supply 6,650 shares needed when five directors exercised some of their vested
stock options.

     At June 30, 2006, non-performing assets were 0.36% of total assets, up from
0.33% at September 30, 2005. Non-performing loans were 0.39% of total loans at
June 30, 2006 and September 30, 2005. A summary of the Company's non-performing
assets and related ratios follows (dollars in thousands):


                                                     June 30,      September 30,
             Non-performing assets                     2006            2005
             ---------------------                 ------------    ------------

             Non-accrual loans
             -----------------
             Residential mortgages
                 And home equity loans             $        136    $        115
             Commercial mortgages                           250             275
             Consumer other                                  17               3
             Commercial other                                --              --
                                                   ------------    ------------
                Total non-accrual loans                     403             393

             Restructured commercial mortgage                --              --
             Restructured commercial other                   --              --
                                                   ------------    ------------
                 Total non-performing loans                 403             393

             Foreclosed real estate                          43              --
             Other repossessed assets                        11               6
                                                   ------------    ------------
               Total non-performing assets         $        457    $        399
                                                   ============    ============

             Non-performing loans to total loans           0.39%           0.39%

             Non-performing assets to
                  total assets                             0.36%           0.33%

     The Company had no loans more than 90 days delinquent and accruing at June
30, 2006 or September 30, 2005.

     Two residential mortgages totaling $81,000 in non-accrual loans are in
foreclosure, while the third loan in this category in the amount of $55,000 is
being settled in an estate. The one commercial mortgage loan in non-accrual is
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 $52,000 increase in the loan
loss allowance to $921,000 at June 30, 2006, is appropriate for the increase in
the size of the loan portfolio during the nine months ended June 30, 2006.

                                       17
<PAGE>

Comparison of Results of Operations for the Three Months Ended June 30, 2006 and
2005.

     General. Our net income for the three months ended June 30, 2006 was
$209,000, a decrease of $37,000, or 15.04%, from last year's net income of
$246,000 for the same period. The decrease in net income was the result of the
combination of the following factors:

     1.   net interest income decreased by $34,000 as interest income increased
          $237,000, mainly due to the growth in loans, and interest expense
          increased $271,000,

     2.   non-interest income grew by $10,000 over last year's period,

     3.   the provision for loan losses decreased by $15,000 for the third
          quarter of this fiscal year versus last fiscal year,

     4.   non-interest expense increased by $66,000 in the three month period
          this year compared to last year's period and

     5.   income taxes decreased $38,000.

     Basic earnings per share were $0.09 for this year's quarter versus $0.11 in
last year's quarter, while diluted earnings per share were $0.09 and $0.11,
respectively.

     Interest Income. Interest income increased $237,000, or 14.45%, from
$1,640,000 for the three months ended June 30, 2005 to $1,877,000 for the three
months ended June 30, 2006. An increase of 19 basis points (0.19%) in the
average interest rate earned on our interest-earning assets resulted in an
increase of $34,000 in interest income, while an $11.6 million increase in the
average balance of interest-earning assets resulted in an increase of $203,000
in interest income.

     Interest income on loans increased by $238,000, or 15.87%. The yield on
loans was 6.71% for the three month periods ending June 30, 2006, an increase of
8 basis points (0.08%), resulting in an increase of $18,000 in interest income,
while an increase of $13.2 million in the average balance of loans from $90.7
million to $103.9 million resulted in an increase of $220,000 in interest
income.

     Interest income on securities and other short-term investments decreased by
$1,000, or 0.71% for the quarter ended June 30, 2006 versus the quarter ended
June 30, 2005. An increase in the yields on our securities portfolio of 34 basis
points, or 0.34% from 4.07% in last year's quarter to 4.41% in this year's
quarter resulted in an increase of $10,000 in interest income while a decrease
of $1.5 million in the average balance of securities over the same period
reduced interest income by $16,000. A 199 basis point, or 1.99% increase in the
average interest rate earned on other short-term investments increased interest
income by $6,000, while a decrease of $0.1 million in the average balance of
other short-term investments decreased interest income by $1,000.

     Interest Expense. Interest expense increased $271,000, or 48.48%, in the
third quarter of fiscal 2006 versus fiscal 2005. An increase of 82 basis points
(0.82%) in the average rate we paid on interest-bearing liabilities from 2.45%
last year to 3.27% this year resulted in an increase of $187,000 in interest
expense, while an increase of $10.2 million from $91.5 million to $101.7 million
in the average balance of interest-bearing liabilities resulted in an $84,000
increase in interest expense.

     Interest expense decreased $2,000, or 3.77%, on savings and club accounts
as a decrease in the average rate paid of 3 basis points (0.03%) from 1.05% in
last year's quarter to 1.02% in this year's quarter decreased interest expense
by $1,000, while a decrease of $0.2 million in the average balance from $20.2
million last year to $20.0 million this year decreased interest expense by

                                       18
<PAGE>

$1,000. Interest expense increased on NOW and money accounts, time deposits and
borrowed funds by $5,000, $178,000 and $90,000, respectively. The average rate
we paid on NOW and money market accounts increased by 16 basis points, or 0.16%,
resulting in a $5,000 increase in interest expense, while an increase of $0.2
million in the average balance of NOW and money market accounts resulted in no
change in interest expense. An increase of 131 basis points, or 1.31%, in the
average rate we paid on time deposits increased interest expense by $114,000,
while an increase in the average balance of time deposits of $8.1 million
resulted in an increase of $64,000 in interest expense. The cost of our borrowed
funds increased by 87 basis points, or 0.87%, resulting in an increase of
$69,000 in interest expense, while an increase in the average balance of
borrowed funds of $2.2 million resulted in an increase of $21,000 in interest
expense.

     Net Interest Income. Our net interest income decreased by $34,000 for the
three month period ending June 30, 2006 as compared to the three month period
ending June 30, 2005, as interest income increased by $237,000 and interest
expense increased by $271,000, as described above.

     Starting in June 2004, the Federal Reserve has raised short term interest
rates in seventeen increments of 25 basis points each, a total 425 basis points
(4.25%). During this period, long term interest rates have increased very little
as evidenced by the fact that the average ten-year treasury rate was 4.73% in
June 2004 and 5.11% in June 2006. The flattened yield curve (in which the spread
between the two-year and ten-year treasuries is less than 20 basis points), has
negatively affected our third quarter net interest income as compared to the
same period last year, because we have had to raise our deposit rates in
response to our competition and pay higher rates on our borrowings, without a
similar increase in our loan yields. During previous periods in this interest
rate environment, we have been able to compensate for the compressed spread by
growing the volume of our loan portfolio. However, that strategy depends on
having an initial spread high enough to absorb future rate increases to the
liabilities allocated to the new loans throughout the life of the loans. Since
the initial spreads have been reduced to unacceptable levels, we have raised
loan rates and effectively reduced loan demand and can no longer grow loans at
the pace necessary to offset the reduced margin. Therefore, a continuation of
the Federal Reserve's current approach to short term interest rates will depress
the Company's net interest income and earnings in future periods.

     Our interest rate spread (the difference between the average rate we earn
and the average rate we pay) decreased by 63 basis points, or 0.63%, from 3.82%
in last year's quarter to 3.19% in this year's quarter. Also, net interest
margin decreased by 73 basis points (0.73%) to 3.60% in the third fiscal quarter
of 2006, down from 4.13% in the corresponding quarter of 2005.

     Average capital represented 16.6% of average interest-earning assets for
the quarter ended June 30, 2006, while it represented 17.5% of average
interest-earning assets for the same quarter last year. The decrease in the
capital ratio, which reflects an increase in leverage, reflects that our growth
in interest-earning assets from the last fiscal year has been greater than our
equity growth for the same period. Our ratio of average interest-earning assets
to average interest-bearing liabilities was 1.15 times in both 2005 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, 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, 2006, we provided $15,000 for loan
losses, compared to $30,000 in the same quarter last year. At June 30, 2006 and
2005, the ratio of our loan loss allowance to total loans was 0.88% and 0.87%,
respectively. On March 31, 2006, the allowance was $893,000, or 0.89% of total
loans, and we determined at the end of the third quarter that the appropriate

                                       19
<PAGE>

level for the allowance was $921,000. We had charge-offs during the quarter of
$1,000 and recoveries of $14,000, so a $15,000 provision was necessary to reach
the desired level for the allowance.

     Our level of non-accruing loans, loans 90 days and still accruing and
restructured loans was $403,000, or 0.39% of total loans at June 30, 2006
compared to $402,000, or 0.40% of total loans at March 31, 2006. There was a
slight decrease in the ratio of the loan loss allowance to total loans from
0.89% at March 31, 2006 to 0.88% at June 30, 2006.

     Non-interest Income. Our non-interest income was $10,000 higher in the 2006
quarter versus the 2005 quarter. Realized gain on the sale of foreclosed assets
accounted for half of that increase.

     Non-interest Expenses. Our non-interest expenses increased by $66,000 from
the 2005 fiscal quarter to this year's quarter. This increase was primarily due
to increased costs of $49,000 for salaries and employee benefits, of which
$37,000 represents an adjustment to accrued compensation expense to reflect an
increased estimate of annual employee bonuses, and $19,000 in other non-interest
expenses. A timing difference in the payment of membership fees to the AMEX was
responsible for $17,000 of the increase as the payment was made in the second
quarter of last fiscal year versus the third quarter of this fiscal year.

     A recent pronouncement by the SEC has delayed the Company's required
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 to September 30,
2007. Section 404 requires the management of public companies to assess and
report on the effectiveness of their internal controls over financial reporting.
Based upon information we have received from our independent auditors and the
experience of companies who, because of their market capitalization, have been
required to comply with Section 404 earlier than we, we anticipate that our
internal and external audit and related fees will increase as we put in place
the systems, policies and procedures necessary to comply with Section 404. While
we cannot quantify the compliance costs at this time, we expect that such costs
will materially and permanently increase our non-interest expense.

     In May 2006, the SEC and the Public Company Accounting Oversight Board
separately announced a series of steps they intend to take to improve the
implementation of the Sarbanes-Oxley Section 404 internal control requirements.
The announcements effectively communicate that the SEC will not exempt smaller,
public companies from the requirements of Section 404, as was recommended by the
SEC's Advisory Committee on Smaller Public Companies.

     The SEC's planned actions include a "short" further postponement of the
effective date for implementation of Section 404 for non-accelerated filers. The
announcement did not specify a new effective date, but indicated that the
additional postponement period would be short and that all filers would be
required to comply with the management assessment requirements of Section 404
for fiscal years beginning on or after December 16, 2006. If that date is
approved, our required compliance would be delayed to September 30, 2008.

     At June 30, 2006 and 2005 we had thirty-three full-time and one part-time
employees.

     Income tax expense. Our income tax expense decreased by $38,000, or 19.4%,
from $144,000 for the third quarter of fiscal 2005 to $106,000 for the same
quarter of fiscal 2006. The decreased expense was the result of lower income
before income tax of $75,000, or 19.2%, from $390,000 for the first nine months
last fiscal year to $315,000 for the first nine months of this fiscal year. Our
effective tax rate was 33.7% for the three months ended June 30, 2006 compared
to 36.9% for the same period in 2005.

                                       20
<PAGE>

Comparison of Results of Operations for the Nine Months Ended June 30, 2006 and
2005.

     General. Our net income for the nine months ended June 30, 2006 was
$890,000, an increase of $154,000 from last year's $736,000, or 20.9%. The
following operating results combined to produce the increase:

     1.   net interest income increased by $64,000 as interest income increased
          $826,000 and interest expense increased $762,000,

     2.   provision for loan losses decreased by $35,000,

     3.   non-interest income improved by $166,000 ($62,000 of which derives
          from life insurance income related to the death of Director Straw and
          $48,000 is from realized gains on the sale of foreclosed assets),

     4.   non-interest expenses increased $89,000 and

     5.   income taxes increased by $22,000 as a result of the increase in
          pre-tax income.

     Basic earnings per common share and diluted earnings per common share were
$0.40 and $0.39, respectively, for the first nine months of this fiscal year and
both were $0.33 for the first nine months of the last fiscal year.

     Interest Income. Interest income increased by $826,000, or 17.57%, from
$4,702,000 for the nine months ended June 30, 2005 to $5,528,000 for the nine
months ended June 30, 2006. Average interest-earning assets increased $12.7
million, or 12.43%, from $102.2 million for the first nine months of fiscal year
2005 to $114.9 million for the same period this year. The increase was the
result of a $15.2 million increase in the average balance of loans from $87.3
million in fiscal 2006 to $102.5 million in fiscal 2006, partially offset by
decreases in securities and other investments of $2.5 million from $14.9 million
last year to $12.4 million this year.

     The average interest rate we earned on our interest-earning assets was 28
basis points (0.28%) higher in the first nine months this year than last year as
the average rate rose from 6.15% last year to 6.43% this year. The average rate
earned on loans increased 9 basis points (0.09%) from 6.58% last year to 6.67%
this year, while the average rate earned on securities increased by 65 basis
points, or 0.65%, from 3.79% last year to 4.44% this year, and the average rate
on other short-term investments, primarily FHLB deposits, increased by 280 basis
points (2.80%) from 2.28% to 5.08%.

     The increase in the average interest rate earned on loans resulted in an
increase of $60,000 in interest income, while the increase in the average
balance of loans increased interest income by $757,000, totaling an $817,000
increase in interest income for the loan portfolio.

     For securities and other short-term investments, an increase in interest
rates earned resulted in an increase in interest income of $55,000, while a
decrease in the average balances decreased interest income by $46,000 resulting
in a net increase of $9,000 in interest income.

     Overall, the increases in the average interest rates increased interest
income by $115,000, while the increase in the volume of interest-earning assets
produced a $711,000 increase in interest income, for a total increase of
$826,000 in interest income.

     Interest Expense. Interest expense increased by $762,000 from $1,555,000
for the first nine months of 2005 to $2,317,000 for the first nine months of
2006 as a result of both interest rate increases and an increase in average
interest-bearing liabilities. An increase of 76 basis points (0.76%) in the
average rate we paid on interest-bearing liabilities from 2.33% in 2005 to 3.09%
in 2006 increased interest expense by $458,000, while an increase in the average
balance of interest-bearing liabilities of $11.2 million, from $89.2 million at
June 30, 2005 to $100.4 million at June 30, 2006, resulted in additional
interest expense of $304,000.

                                       21
<PAGE>

     Interest expense increased on NOW and money market accounts, time deposits
and borrowings by $21,000, $339,000 and $406,000, respectively, while it
decreased $4,000 on savings and club accounts for the nine months ending June
30, 2006 versus the nine months ending June 30, 2005. These changes were
comprised of the following components:

     1.   the average rate we paid on savings and club accounts decreased by 2
          basis points (0.02%) from 1.04% to 1.02%, resulting in a decrease of
          $4,000 in interest expense, while a decrease of $0.1 million in the
          average balance of these accounts, from $20.0 million to $19.9
          million, resulted in no change in interest expense,

     2.   the average rate we paid on NOW and money market accounts increased by
          24 basis points (0.24%) from 0.91% to 1.15%, resulting in an increase
          of $21,000 in interest expense, while an increase of $0.1 million,
          from $11.7 million to $11.8 million in the average balance of these
          accounts resulted in no change in interest expense, and

     3.   the average interest rate on time deposits increased 106 basis points
          (1.06%) from 2.62% to 3.68%, resulting in a $256,000 increase in
          interest expense, while a $3.9 million increase in the average balance
          of time deposits, from $29.5 million to $33.4 million, increased
          interest expense by $83,000.

     4.   an increase of 79 basis points (0.79%), from 3.54% to 4.33% on the
          average rate we paid on borrowed funds increased interest expense by
          $185,000, while an increase of $7.4 million in the average amount of
          those borrowings, from $28.0 million to $35.4 million, increased
          interest expense by $221,000 and resulted in a total increase of
          $406,000.

     Net Interest Income. The net effect of the increases in interest income and
interest expense was a $64,000 increase in net interest income from the first
nine months of the 2005 fiscal year to the first nine months of the 2006 fiscal
year. Our interest rate spread (the difference between the average rate we earn
and the average rate we pay) decreased by 48 basis points (0.48%) from 3.82%
last year to 3.34% this year. Net interest margin decreased by 38 basis points
from 4.12% for the first nine months of fiscal 2005, to 3.74% for the first nine
months of fiscal 2006.

     Average capital represented 16.6% of average interest-earning assets for
the nine months ended June 30, 2006, while it represented 17.8% of average
interest-earning assets for the same period in 2005. Our ratio of average
interest-earning assets to average interest-bearing liabilities was 1.15 times
in both 2006 and 2005.

     Provision for Loan Losses. Year to date, we had charge-offs of $41,000 and
recoveries of $28,000. We provided $65,000 for loan losses for the first nine
months of this fiscal year as compared to $100,000 for the first nine months of
the past fiscal year. At June 30, 2006 and 2005 the ratio of our loan loss
allowance to total loans was 0.88% and 0.87%, respectively. As disclosed in the
comparison of financial condition discussion, our level of non-accruing loans,
loans 90 days and still accruing and restructured loans was $403,000, or 0.39%
of total loans at June 30, 2006 compared to $393,000, or 0.39% of total loans at
September 30, 2005. Management feels that these loans are adequately secured and
do not require any adjustment to the allowance for loan losses.

     Non-interest Income. Our non-interest income was $166,000 higher for the
first nine months of this year versus the same period last year. The increase
resulted in most part from $62,000 in death benefit income on life insurance
policies, as well as realized gains on the sale of foreclosed assets, which
increased by $48,000, realized gains on sales of loans held for sale, which
increased by $24,000 from a $17,000 loss last year to a $7,000 gain this year
and service charges which increased by $26,000.

     Non-interest Expense. Non-interest expenses increased by $89,000 for the
first nine months of fiscal 2006 compared to fiscal 2005. Increases in salaries
& benefits, directors fees, occupancy and equipment cost, postage and supplies
and professional fees of $28,000, $14,000, $34,000, $17,000 and $7,000
respectively, partially offset by a decrease of $12,000 in data processing
costs, accounted for most of the increase.

                                       22
<PAGE>

     Income tax expense. Our income tax expense year-to-date increased by
$22,000, or 5.2%, from $425,000 last year to $447,000 this year. The increased
expense was the result of higher income before income tax of $176,000, or 15.2%,
from $1,161,000 for the first nine months last fiscal year to $1,337,000 for the
first nine months of this fiscal year. Our effective tax rate was 33.4% for the
nine months ended June 30, 2006 compared to 36.6% for the same period in 2005.
The effective rate was reduced in part because the death benefit from life
insurance is non-taxable.

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, 2006, we increased our cash
and cash equivalents by $1,830,000. We have originated $22.8 million of new
loans. However, loans, net, after payments, charge-offs and transfers to
foreclosed real estate, increased by $5.3 million over this period.

     Deposits increased by $10.2 million during the nine months ended June 30,
2006. Deposits purchased from the CDARS program accounted for $6.9 million of
this increase. 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 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
$18.1 million against our one to four family first mortgage portfolio. Our
borrowing potential has increased since our last report for two reasons; 1)we
were approved to a 35% of total assets borrowing limit at FHLB and 2)we have
replaced some borrowings with brokered deposits. We have used borrowed funds to
help us leverage capital we received from our stock sale, 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 June 30, 2006, the ratio was 6.04% as compared
to 8.10% on June 30, 2005.

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 $3.9 million in outstanding commitments to make loans at June 30,
2006, along with $4.3 million of unused home equity, commercial and overdraft
lines of credit. We also have a commitment to sell the $2.2 million guaranteed
portion of a USDA guaranteed loan we originated. We are awaiting final USDA
approval for the sale. 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, 2006, we had $31.8 million of time certificates
scheduled to mature within one year. We anticipate that we can retain

                                       23
<PAGE>

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 the Company
as a savings and loan holding company. At June 30, 2006, the Bank exceeded all
regulatory capital requirements of the OTS applicable to it, with Tier I capital
of $19.2 million, or 14.9% of average assets and with total risk-based capital
of $20.0 million, or 27.1% of risk-weighted assets. The Bank also had tangible
capital of $19.2 million, or 14.9% of average tangible assets. The Bank was
classified as "well capitalized" at June 30, 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 June 30, 2006, 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, 2006, including any
corrective actions with regard to significant deficiencies and material
weakness.


                           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

                                       24
<PAGE>

                                   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 4, 2006                  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)

                                       25