================================================================================

                                  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, 2007

                                       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, 2007
-----------------------------                  --------------
Common Stock, par value $ .01                     2,300,059

Transitional Small Business Disclosure Format (check one):

                                 Yes [ ] No [X]

================================================================================
<PAGE>

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

                                                                            PAGE
                                                                            ----
PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements - Unaudited

         Consolidated Statements of Financial Condition at June 30, 2007
         and at September 30, 2006                                            3

         Consolidated Statements of Income for the three and nine months
         ended June 30, 2007 and 2006                                         4

         Consolidated Statements of Shareholders' Equity for the nine
         months ended June 30, 2007 and 2006                                  5

         Consolidated Statements of Cash Flows for the nine months ended
         June 30, 2007 and 2006                                               7

         Notes to Consolidated Financial Statements                           8

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

Item 3.  Controls and Procedures                                             28

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                   28

Item 6.  Exhibits                                                            28

SIGNATURES                                                                   29

EXHIBITS                                                                     30

                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                         JUNE 30,      SEPTEMBER 30,
                                                                                           2007            2006
                                                                                      -------------    -------------
<S>                                                                                   <C>              <C>
ASSETS:
Cash and due from banks                                                               $       2,196    $       2,308
Interest-bearing deposits in bank                                                               894              162
                                                                                      -------------    -------------
              Total cash and cash equivalents                                                 3,090            2,470

Securities available-for-sale                                                                10,231            9,845
Securities held-to-maturity (fair value 2007: $84: 2006: $93)                                    83               92

Loans held for sale                                                                           2,119            2,160

Loans receivable, net of allowance for loan losses: 2007 $907: 2006 $948                    106,589          105,642

Investment in Federal Home Loan Bank stock, at cost                                           1,757            1,773
Investment in life insurance                                                                  3,740            3,631
Premises and equipment, net                                                                   3,070            2,225
Accrued interest receivable and other assets                                                  1,924            2,237
                                                                                      -------------    -------------
              Total assets                                                            $     132,603    $     130,075
                                                                                      =============    =============
LIABILITIES:
Deposits: Non-interest-bearing demand                                                 $       4,289    $       3,493
          NOW and money market                                                               13,073           11,966
          Savings                                                                            18,151           19,342
          Time                                                                               39,493           37,662
                                                                                      -------------    -------------
              Total deposits                                                                 75,006           72,463

Advances from the Federal Home Loan Bank                                                     34,550           35,250
Other liabilities                                                                             2,633            2,507
                                                                                      -------------    -------------
              Total liabilities                                                             112,189          110,220
                                                                                      -------------    -------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued                         -                -
Common stock, $.01 par value, 9,000,000 shares authorized; 2,384,040 shares issued               24               24
Additional paid-in capital                                                                    4,886            4,847
Retained earnings                                                                            15,907           15,398
Treasury Stock, at cost, (shares 2007: 83,981: 2006: 91,956)                                   (425)            (466)
Accumulated other comprehensive income                                                          121              234
Unearned common stock held by Management Recognition Plan                                         -              (44)
Unallocated common stock held by Employee Stock Ownership Plan                                  (99)            (138)
                                                                                      -------------    -------------
              Total shareholders' equity                                                     20,414           19,855
                                                                                      -------------    -------------
              Total liabilities and shareholders' equity                              $     132,603    $     130,075
                                                                                      =============    =============
</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,
                                                           ---------------------------   ---------------------------
                                                               2007           2006           2007           2006
                                                           ------------   ------------   ------------   ------------
<S>                                                        <C>            <C>            <C>            <C>
INTEREST INCOME:
Loans                                                      $      1,853   $      1,738   $      5,584   $      5,113
Securities-taxable                                                  125            114            358            356
          -non-taxable                                               18             11             43             36
Other short-term investments                                         24             14             49             23
                                                           ------------   ------------   ------------   ------------
    Total interest income                                         2,020          1,877          6,034          5,528
                                                           ------------   ------------   ------------   ------------

INTEREST EXPENSE:
Deposits                                                            555            466          1,605          1,170
Borrowings - short term                                             126            106            397            458
Borrowings - long term                                              305            258            892            689
                                                           ------------   ------------   ------------   ------------
    Total interest expense                                          986            830          2,894          2,317
                                                           ------------   ------------   ------------   ------------
    Net interest income                                           1,034          1,047          3,140          3,211
Provision for loan losses                                             -             15             15             65
                                                           ------------   ------------   ------------   ------------
    Net interest income after provision for loan losses           1,034          1,032          3,125          3,146
                                                           ------------   ------------   ------------   ------------

NON-INTEREST INCOME:
Service charges                                                      60             55            167            169
Realized gain on sales of securities - AFS                           96              -             96             98
Realized gain (loss) on sales of loans held for sale                  -              -              -              7
Life insurance death benefit                                          -              -              -             62
Earnings on investment in life insurance                             37             32            109             99
Realized gain on foreclosed assets, net                               6              3             23             55
Other                                                                68             19            178            118
                                                           ------------   ------------   ------------   ------------
    Total non-interest income                                       267            109            573            608
                                                           ------------   ------------   ------------   ------------

NON-INTEREST EXPENSES:
Salaries and employee benefits                                      433            476          1,348          1,291
Directors fees                                                       65             18            163            119
Occupancy and equipment                                             140            111            402            351
Data processing                                                      32             31             94             92
Postage and supplies                                                 30             30            109             97
Professional fees                                                    74             52            195            165
Other                                                               106            108            360            302
                                                           ------------   ------------   ------------   ------------
    Total non-interest expenses                                     880            826          2,671          2,417
                                                           ------------   ------------   ------------   ------------

    Income before income tax expense                                421            315          1,027          1,337
Income tax expense                                                  153            106            360            447
                                                           ------------   ------------   ------------   ------------
    Net income                                             $        268   $        209   $        667   $        890
                                                           ============   ============   ============   ============

Earnings per common share - basic                          $       0.12   $       0.09   $       0.29   $       0.40
Earnings per common share - diluted                        $       0.12   $       0.09   $       0.29   $       0.39
</TABLE>

See accompanying notes to consolidated financial statements

                                        4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                   ACCUMULATED    UNEARNED   UNALLOCATED
                                                  ADDITIONAL                          OTHER        COMMON      COMMON
                                          COMMON   PAID-IN    RETAINED  TREASURY  COMPREHENSIVE  STOCK HELD  STOCK HELD
                                           STOCK   CAPITAL    EARNINGS   STOCK       INCOME        BY MRP      BY ESOP      TOTAL
                                          ------  ----------  --------  --------  -------------  ----------  -----------  --------
<S>                                       <C>     <C>         <C>       <C>       <C>            <C>         <C>          <C>
Balance at September 30, 2006             $   24  $    4,847  $ 15,398  $   (466) $         234  $      (44) $      (138) $ 19,855
                                                                                                                          --------

Comprehensive income:
   Net income                                                      667                                                         667
   Change in unrealized gains on
     securities available for sale,
     net of reclassification adjustment
     and tax effects                                                                       (113)                              (113)
                                                                                                                          --------
Total comprehensive income                                                                                                     554
                                                                                                                          --------

Allocation of ESOP shares (7,829 shares)                  55                                                          39        94
Adoption SFAS 123(R)                                     (44)                                            44                      -
Amortization of MRP                                       27                                                                    27
Amortization of stock option grants                        3                                                                     3
Exercise of stock options, 7,975 shares                   (2)                 41                                                39
Cash dividends declared, $0.16 per share                          (158)                                                       (158)
                                          ------  ----------  --------  --------  -------------  ----------  -----------  --------
Balance at June 30, 2007                  $   24  $    4,886  $ 15,907  $   (425) $         121  $        -  $       (99) $ 20,414
                                          ======  ==========  ========  ========  =============  ==========  ===========  ========
</TABLE>

                                        5
<PAGE>

                     GOUVERNEUR BANCORP, INC AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         Nine months ended June 30, 2006
           (In thousands, except share and per share data) (Unaudited)

<TABLE>
<CAPTION>
                                                                                   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
                                                                                                                          --------

Allocation of ESOP shares, 7,266 shares                   53                                                          36        89
Amortization of MRP shares                                18                                             12                     30
Exercise of stock options, 6,650 shares                   (2)                 33                                                31
Cash dividends declared, $0.15 per share                          (147)                                                       (147)
                                          ------  ----------  --------  --------  -------------  ----------  -----------  --------
Balance at June 30, 2006                  $   24  $    4,808  $ 15,135  $   (466) $         137  $      (55) $      (150) $ 19,433
                                          ======  ==========  ========  ========  =============  ==========  ===========  ========
</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,
                                                                             ------------------------------
                                                                                  2007             2006
                                                                             -------------    -------------
<S>                                                                          <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income                                                                 $         667    $         890
  Adjustments to reconcile net income to net cash provided by
   operating activities:
     Provision for loan losses                                                          15               65
     Depreciation                                                                      111               86
     Write down of foreclosed real estate                                                6                -
     Net amortization of securities premiums and discounts                               -                7
     Net realized gains on sales of securities - AFS                                   (96)             (98)
     Proceeds from sales of loans held for sale                                          -            1,232
     Net realized gains on sales of loans                                                -               (7)
     Life insurance death benefit                                                        -              (62)
     Earnings on bank owned life insurance                                            (109)             (99)
     Allocated and earned shares of SOP, ESOP and MRP                                  124              119
     Net realized gain on sale of foreclosed assets                                    (23)             (55)
     (Increase) decrease in accrued interest receivable and other assets               380              (48)
     Increase (decrease) in accrued interest payable and other liabilities             201             (485)
                                                                             -------------    -------------
             Net cash provided by operating activities                               1,276            1,545
                                                                             -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Securities available for sale:
     Proceeds from sales                                                                98              192
     Proceeds from maturities and principal reductions                               1,656            1,116
     Purchases                                                                      (2,232)            (521)
  Securities held to maturity, proceeds from maturities                                  9               13
  Redemptions of Federal Home Loan Bank stock                                           16              229
  Net increase in loans                                                             (1,211)          (5,329)
  Proceeds from sales of foreclosed assets                                             240               16
  Additions to premises and equipment                                                 (956)            (379)
                                                                             -------------    -------------
             Net cash used in investing activities                                  (2,380)          (4,663)
                                                                             -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in deposits                                                           2,543           10,214
  Net repayments of FHLB advances                                                     (700)          (5,150)
  Exercise of stock options                                                             39               31
  Cash dividends paid                                                                 (158)            (147)
                                                                             -------------    -------------
             Net cash provided by financing activities                               1,724            4,948
                                                                             -------------    -------------
             Net increase in cash and cash equivalents                                 620            1,830
Cash and cash equivalents - Beginning                                                2,470            2,666
                                                                             -------------    -------------
Cash and cash equivalents - Ending                                           $       3,090    $       4,496
                                                                             =============    =============
NON-CASH INVESTING ACTI VITIES:
  Additions to foreclosed assets                                             $         290    $          64
CASH PAID DURING THE PERIOD FOR:
  Interest                                                                           2,858            2,319
  Income taxes                                                                         405              491
</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, 2007 and  September  30, 2006 and for the
         three and nine-month periods ended June 30, 2007 and 2006. 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,  2007 and  2006.  The  results  of  operations  for the  three  and
         nine-month  periods ended June 30, 2007 are not necessarily  indicative
         of the results which may be expected for an entire fiscal year or other
         interim periods.

         The data in the consolidated  statements of condition for September 30,
         2006 was derived from the Company's annual report on Form 10-KSB.  That
         data,  along with the interim  financial  information  presented in the
         consolidated statements of financial condition,  income,  shareholders'
         equity  and cash  flows  should  be read in  conjunction  with the 2006
         consolidated financial statements, including the notes thereto included
         in the Company's 2006 Annual Report on Form 10-KSB. Certain amounts for
         the  three-month  and  nine-month  periods  ended  June 30,  2006  were
         reclassified to conform to the presentation of June 30, 2007.

2.       Earnings Per Common Share

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

                                        8
<PAGE>

         Basic and diluted earnings per share for the three and nine-month
         periods ending June 30, 2007 and 2006 were computed as follows:

                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                  Three Months Ended             Nine Months Ended
                                                                        June 30,                      June 30,
                                                              ---------------------------   ---------------------------
                                                                  2007           2006           2007           2006
                                                              ------------   ------------   ------------   ------------
         <S>                                                  <C>            <C>            <C>            <C>
         BASIC EARNINGS PER SHARE:

         Net income                                           $        268   $        209   $        667   $        890
                                                              ============   ============   ============   ============

         Weighted average common shares outstanding                  2,271          2,249          2,266          2,243
                                                              ============   ============   ============   ============
         Basic earnings per share                             $       0.12   $       0.09   $       0.29   $       0.40
                                                              ============   ============   ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                                                  Three Months Ended             Nine Months Ended
                                                                        June 30,                      June 30,
                                                              ---------------------------   ---------------------------
                                                                  2007           2006           2007           2006
                                                              ------------   ------------   ------------   ------------
         <S>                                                  <C>            <C>            <C>            <C>
         DILUTED EARNINGS PER SHARE:

         Net income                                           $        268   $        209   $        667   $        890
                                                              ============   ============   ============   ============
         Weighted average common shares outstanding                  2,271          2,249          2,266          2,243
         Additional potentially dilutive securities
           (equivalent in common stock)
             common stock options and unearned MRP shares               26             29             27             27
                                                              ------------   ------------   ------------   ------------
         Diluted weighted average common shares outstanding          2,297          2,278          2,293          2,270
                                                              ============   ============   ============   ============
         Diluted earnings per share                           $       0.12   $       0.09   $       0.29   $       0.39
                                                              ============   ============   ============   ============
</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, 2007 and
         2006 is as follows:

                                        9
<PAGE>

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                  Three Months Ended             Nine Months Ended
                                                                        June 30,                      June 30,
                                                              ---------------------------   ---------------------------
                                                                  2007           2006           2007           2006
                                                              ------------   ------------   ------------   ------------
         <S>                                                  <C>            <C>            <C>            <C>
         Unrealized holding gains (losses) arising
          during the period                                   $        (63)  $        (57)  $        (92)  $       (127)

         Reclassification adjustment for gains realized in
          net income during period                                     (96)             -            (96)           (98)
                                                              ------------   ------------   ------------   ------------
                                                                      (159)           (57)          (188)          (225)
         Tax effect                                                     63             23             75             90
                                                              ------------   ------------   ------------   ------------

         Other comprehensive income (loss), net of tax        $        (96)  $        (34)  $       (113)  $       (135)
                                                              ============   ============   ============   ============
</TABLE>

4.       Stock Option and Management Recognition Plans

         The  Company  has  a  Stock   Option  Plan  ("SOP")  and  a  Management
         Recognition  Plan ("MRP") for  directors,  officers and key  employees.
         Both  plans  are  described  in Note 12 to the  Company's  Consolidated
         Financial  Statements included in its Annual Report on Form 10-KSB, for
         the fiscal year ended September 30, 2006.  Through  September 30, 2006,
         the Company  accounted for its SOP using the intrinsic value method set
         forth in Accounting  Principles  Board Opinion No. 25,  "Accounting for
         Stock Issued to Employees," ("APB No. 25") and related interpretations.
         Under APB No. 25,  generally,  when the exercise price of the Company's
         stock options  equaled the market price of the underlying  stock on the
         date of the grant, no compensation expense was recognized.  The Company
         adopted  SFAS  No.  123R,  using  the  modified-prospective  transition
         method,  beginning on October 1, 2006 and, therefore,  began to expense
         the fair value of all options over their  remaining  vesting periods to
         the extent the options were not fully  vested as of the  adoption  date
         and  began to  expense  the fair  value of all  stock  options  granted
         subsequent to September 30, 2006, over their vesting periods.

         SFAS 123R also  requires  the benefits of realized  tax  deductions  in
         excess  of   previously   recognized   tax   benefits  on   stock-based
         compensation  expense to be reported as a financing cash flow (none for
         the three and nine month  periods  ended June 30,  2007) rather than an
         operating cash flow, as previously  required.  In accordance with Staff
         Accounting Bulletin ("SAB") No. 107, the Company classified share-based
         compensation within  non-interest  expenses to correspond with the same
         line item as the cash compensation paid to employees and directors.

         Both employee and non-employee  director options  generally vest over a
         five-year  service  period.  Compensation  expense  recognized  for all
         option grants is net of estimated  forfeitures  and is recognized  over
         the awards' respective  vesting periods.  The fair values of all option
         grants were estimated using the Black-Scholes  option pricing model. We
         recognize  compensation  expense for the fair  values of these  awards,
         which have graded vesting,  on a  straight-line  basis over the vesting
         period of the awards. No options were granted in the nine-month periods
         ending June 30, 2006 or 2007. All options granted previously have fully
         vested and no further expense will be recognized.

         The Company awarded 1,700 shares of stock under the MRP to one director
         during the nine month period ended June 30, 2007. The aggregate expense
         for these shares, which have a five-year vesting period, is expected to
         be approximately  $13,000 and will be expensed ratably over the vesting
         period.

                                       10
<PAGE>

         During  the nine  months  ended June 30,  2007,  the  Company  recorded
         $31,000 of  share-based  compensation  expense,  which was comprised of
         $3,000 for stock  option  expense  and  $28,000  for MRP  expense.  The
         Company estimates it will record  share-based  compensation  expense of
         approximately $39,000 in fiscal 2007.

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

<TABLE>
<CAPTION>
                                                          Three Months Ended            Nine Months Ended
                                                            June 30, 2007                 June 30, 2007
                                                     ---------------------------   ---------------------------
                                                                      Impact of                     Impact of
                                                                     Share-Based                   Share-Based
                                                                    Compensation                  Compensation
         (In thousands, except per share data)       As Reported       Expense      As Reported      Expense
         -----------------------------------------   ------------   ------------   ------------   ------------
         <S>                                         <C>            <C>            <C>            <C>
         Net income                                  $        268   $          6   $        667   $         19

         Earnings per share:
           Basic                                     $       0.12   $       0.00   $       0.29   $       0.01
           Diluted                                   $       0.12   $       0.00   $       0.29   $       0.01
</TABLE>

         A  summary  of  the  Company's   stock  option   activity  and  related
         information  for its stock  option plan for the nine months  ended June
         30, 2007, was as follows:

<TABLE>
<CAPTION>
                                                                                     Weighted
                                                                      Weighted        Average      Aggregate
                                                                      Average        Remaining     Intrinsic
                                                                      Exercise      Contractual      Value
                                                       Options         Price           Term         (000's)
                                                     ------------   ------------   ------------   ------------
         <S>                                               <C>      <C>               <C>         <C>
         Outstanding at September 30, 2006                 49,625   $       5.62
             Exercised                                     (7,975)          4.79
                                                     ------------   ------------
         Outstanding at June 30, 2007                      41,650   $       5.78      2.9 years   $        241
                                                     ============   ============   ============   ============
         Exercisable at June 30, 2007                      41,650   $       5.78      2.9 years   $        241
                                                     ============   ============   ============   ============
</TABLE>

         At September 30, 2006,  there were 2,000  non-vested  options  having a
         weighted  average fair value of $3.36 per option.  These options vested
         on April 23, 2007,  so there are no unvested  options at June 30, 2007.
         There will be no future  expenses  for these  options as they have been
         fully expensed.

         A summary of the status of the Company's MRP shares as of June 30, 2007
         and changes  during the nine months ended June 30,  2007,  is presented
         below:

                                                                      Weighted
                                                      Restricted      Average
                                                        Shares       Grant Date
                                                       (000's)       Fair Value
                                                     ------------   ------------
         Non-vested at September 30, 2006                   9,920   $      12.33
             Granted                                        1,700          12.50
             Vested                                          (800)          9.30
                                                     ------------   ------------
         Non-vested at June 30, 2007                       10,820   $      12.58
                                                     ============   ============

                                       11
<PAGE>

         Expected  future  compensation  expense  relating to the non-vested MRP
         shares  at June  30,  2007 is  $110,000  and  will be  expensed  over a
         weighted average period of 3.4 years.

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

<TABLE>
<CAPTION>
                                                                    Three Months    Nine Months
                                                                        Ended          Ended
         (In thousands, except per share data)                      June 30, 2006  June 30, 2006
         ------------------------------------------------------     -------------  -------------
         <S>                                                        <C>            <C>
         Net income, as reported                                    $         209  $         890

         Total stock-based compensation expense determined
           under fair value method for all awards, net of taxes                (8)           (23)
         Amounts included in determination of net income,
           net of taxes                                                         6             18
                                                                    -------------  -------------
         Pro forma net income                                       $         207  $         885
                                                                    =============  =============

         Earnings per share:
            Basic - as reported                                     $        0.09  $        0.40
            Basic - pro forma                                                0.09           0.39
            Diluted - as reported                                   $        0.09  $        0.39
            Diluted - pro forma                                              0.09           0.39
</TABLE>

5.       Commitments and Contingencies

         Outstanding  letters  of credit  written  are  conditional  commitments
         issued by the Company to guarantee the  performance  by a customer to a
         third  party.  The  Company's  exposure  to credit loss in the event of
         nonperformance  by the  other  party to the  financial  instrument  for
         standby letters of credit is represented by the  contractual  amount of
         those  instruments.  The Bank uses the same  credit  policies in making
         conditional  obligations as it does for on-balance  sheet  instruments.
         The Company had six standby letters of credit  totaling  $203,000 as of
         June 30, 2007.

         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.

6.       Dividend Restrictions

         Cambray Mutual Holding Company  ("Cambray  MHC"),  the Company's parent
         mutual  holding  company,  held  1,311,222  shares,  or  57.0%,  of the
         Company's issued and outstanding  common stock, and shareholders  other
         than Cambray MHC held 988,837 shares or 43.0% of such stock at June 30,
         2007.  Cambray  MHC has  filed a  notice  with  the  Office  of  Thrift
         Supervision ("OTS") to waive its right to receive cash dividends during
         the 2007 calendar  year.  The Company paid a cash dividend on March 31,
         2007 to all public shareholders.

                                       12
<PAGE>

         Cambray MHC has waived  receipt of several past  dividends  paid by the
         Company.  The dividends  waived are  considered as a restriction on the
         retained earnings of the Company. As of June 30, 2007 and September 30,
         2006,  the aggregate  retained  earnings  restricted for cash dividends
         waived were $1,718,000 and $1,508,000, respectively.

7.       Recently Issued Accounting Standards

         In September  2006, the Financial  Accounting  Standards Board ("FASB")
         issued Statement of Financial  Accounting  Standards  ("SFAS") No. 157,
         "Fair Value  Measurements,"  which  defines fair value,  establishes  a
         framework  for  measuring  fair value  under  U.S.  GAAP,  and  expands
         disclosures  about fair  value  measurements.  SFAS No. 157  applies to
         other  accounting  pronouncements  that  require  or permit  fair value
         measurements.  The new guidance is effective for  financial  statements
         issued for fiscal years  beginning  after  November  15, 2007,  and for
         interim periods within those fiscal years. We are currently  evaluating
         the potential impact, if any, of the adoption of FASB Statement No. 157
         on our consolidated financial position,  results of operations and cash
         flows.

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

         In February  2007, the FASB issued FASB Staff Position (FSP) FAS 158-1,
         "Conforming  Amendments to the Illustrations in FASB Statements No. 87,
         No. 88, and No 106 and to the  Related  Staff  Implementation  Guides."
         This FSP makes conforming amendments to other FASB statements and staff
         implementation  guides and provides  technical  corrections to SFAS No.
         158,  "Employers'  Accounting  for  Defined  Benefit  Pension and Other
         Postretirement  Plans." The conforming  amendments in this FSP shall be
         applied  upon  adoption of SFAS No. 158. We believe our adoption of FSP
         FAS 158-1 will not have a material impact on our consolidated financial
         statements or disclosures.

         In February  2007, the FASB issued SFAS No. 159, "The Fair Value Option
         for Financial Assets and Financial  Liabilities-Including  an amendment
         of FASB Statement No. 115." SFAS No. 159 permits  entities to choose to
         measure  many  financial  instruments  and certain  other items at fair
         value.  Unrealized  gains and  losses on items for which the fair value
         option  has  been  elected  will  be  recognized  in  earnings  at each
         subsequent  reporting  date.  SFAS No. 159 is effective for our Company
         October 1, 2008. The Company is evaluating the impact that the adoption
         of SFAS No. 159 will have on our consolidated financial statements.

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

                                       13
<PAGE>

         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.

         In May 2007,  the FASB  issued  FASB Staff  Position  ("FSP")  FIN 48-1
         "Definition  of  Settlement  in FASB  Interpretation  No.  48" (FSP FIN
         48-1). FSP FIN 48-1 provides guidance on how to determine whether a tax
         position  is  effectively   settled  for  the  purpose  of  recognizing
         previously  unrecognized  tax  benefits.  FSP  FIN  48-1  is  effective
         retroactively to January 1, 2007. The  implementation  of this standard
         did not have a material impact on our consolidated  financial  position
         or results of operations.

         On September 7, 2006, the Task Force reached a conclusion on EITF Issue
         No. 06-5, "Accounting for Purchases of Life Insurance - Determining the
         Amount  That  Could Be  Realized  in  Accordance  with  FASB  Technical
         Bulletin No. 85-4,  Accounting for Purchases of Life Insurance"  ("EITF
         06-5"). The scope of EITF 06-5 consists of six separate issues relating
         to  accounting  for  life  insurance  policies  purchased  by  entities
         protecting  against  the  loss of "key  persons."  The six  issues  are
         clarifications of previously issued guidance on FASB Technical Bulletin
         No. 85-4.  EITF 06-5 is  effective  for fiscal  years  beginning  after
         December  15,  2006.  The Company does not expect it to have a material
         impact on the Company's consolidated financial statements.

         In March 2007, the FASB ratified  Emerging  Issues Task Force Issue No.
         06-10 "Accounting for Collateral Assignment Split-Dollar Life Insurance
         Agreements" (EITF 06-10).  EITF 06-10 provides guidance for determining
         a  liability  for  the  postretirement  benefit  obligation  as well as
         recognition and measurement of the associated asset on the basis of the
         terms of the collateral assignment  agreement.  EITF 06-10 is effective
         for fiscal years  beginning  after  December  15, 2007.  The Company is
         currently  assessing  the  impact  of EITF  06-10  on its  consolidated
         financial position and results of operations.

         In March 2007, the FASB ratified EITF Issue No. 06-11,  "Accounting for
         Income Tax Benefits of Dividends on Share-Based  Payment  Awards." EITF
         06-11 requires  companies to recognize the income tax benefit  realized
         from  dividends  or dividend  equivalents  that are charged to retained
         earnings and paid to employees for nonvested equity-classified employee
         share-based  payment  awards  as  an  increase  to  additional  paid-in
         capital.  EITF 06-11 is  effective  for fiscal  years  beginning  after
         September 15, 2007.  The Company does not expect EITF 06-11 will have a
         material  impact on its  financial  position,  results of operations or
         cash flows.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

      When we use words or phrases  like "will  probably  result,"  "we expect,"
"will  continue,"  "we  anticipate,"  "estimate,"  "project,"  "should cause" or
similar  expressions  in this  Form  10-QSB  or in any  press  releases,  public
announcements,  filings with the Securities and Exchange  Commission  ("SEC") or
other disclosures,  we are making  "forward-looking  statements" as described in
the Private  Securities  Litigation  Reform Act of 1995.  In  addition,  certain
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.

                                       14
<PAGE>

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

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

o     Technological factors affecting our operations;

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

o     Monetary and fiscal policies of the federal government;

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

o     Changes in laws and regulations affecting us;

o     Changes in competition; and

o     Changes in consumer preferences.

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

GENERAL

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

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

                                       15
<PAGE>

RECENT DEVELOPMENTS

      In May 2007 we decided to close the Clayton  Lending  Office at the end of
June 2007 when the lease  expired  on the  rented  office  and merge it into the
Alexandria Bay office,  which included relocating the loan officer.  This office
has done  very  well in  generating  loan  business  over the past  four  years,
accumulating  approximately $16 million in loans. However, these loans have been
funded by  borrowings,  the costs of which  have  doubled in the last two years.
This has greatly reduced the  profitability of this office. At the same time, we
have  temporarily  reduced  our  focus on  growing  the loan  portfolio  through
increased  borrowings  until the spread between  borrowing  costs and loan rates
improves.

      By January 1, 2008,  the  Company's  stock must be  eligible  for a Direct
Registration System ("DRS") operated by a securities depository to meet the rule
change of the American Stock Exchange ("AMEX").  DRS enables an investor to have
securities registered in her name and to electronically  transfer her securities
to her  broker-dealer  in order to  effect a  transaction  without  the risk and
delays associated with the use of securities certificates.  Registrar & Transfer
("R&T"),  our transfer agent, is a DRS eligible  transfer agent and will provide
this service for our shareholders.  We have completed the set-up process and our
shareholders will soon be able to use this form of registration.

      There has been much  public  discussion  about  sub-prime  lending and the
losses that are resulting from that practice.  The Company and the Bank have not
directly  engaged in any form of sub-prime  lending and we have not  experienced
any losses to date that would indicate that a problem might exist.

      After much  debate,  the SEC voted on May 23rd to approve the long awaited
interpretive guidance for management on Section 404 of the Sarbanes-Oxley Act of
2002 ("Section 404"). During this meeting, the SEC concluded that smaller public
companies  will be required to comply with Section 404 for periods  ending after
December  15, 2007 and no further  delays will be granted.  The new  guidance is
useful  to all  public  filers,  although  particularly  significant  for  those
non-accelerated filers who must comply with Section 404 for the first time. This
guidance provided by the SEC is the first time management will have a roadmap of
it own as it goes through the Section 404 compliance process. We are required to
file an  unaudited  internal  control  report in our 2008 annual  report for the
fiscal  year ending  September  30,  2008,  and to include an  auditor's  report
starting with our 2009 annual report.

      The  Public  Company  Accounting   Oversight  Board's  ("PCAOB")  Auditing
Standard No. 5, "An Audit of Internal  Control  Over  Financial  Reporting"  was
approved  July 25, 2007 by the SEC. It replaces  the PCAOB's  previous  internal
control auditing  standard,  Auditing Standard No. 2. It is unknown at this time
what impact this standard will have.

      In February 2007, the new branch office building in Gouverneur  opened for
business. Some renovations will be done to the old branch office building before
the accounting staff is moved from the current executive  offices building.  Mr.
Bennett,  President  and CEO,  has moved his office  from the  executive  office
building to the new branch office  building.  Once the accounting  personnel are
relocated  to the old branch  office,  the  executive  office  building,  with a
carrying value of approximately  $100,000, will be razed and used for additional
parking.  Once the building is removed the remaining  carrying value  associated
with the building,  and the costs of the razing,  will be classified as land and
will not impact the income statement.

                                       16
<PAGE>

CRITICAL ACCOUNTING POLICIES

      Note 2 to the consolidated  financial  statements of the Company (included
in Item 7 of the Annual  Report on Form 10-KSB of the Company for the year ended
September 30, 2006) lists  significant  accounting  policies used in 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.

                                       17
<PAGE>

AVERAGE BALANCES, INTEREST RATES AND YIELDS

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

<TABLE>
<CAPTION>
                                                                For the three months Ended June 30,
                                         ----------------------------------------------------------------------------------
                                                          2007                                       2006
                                         ---------------------------------------    ---------------------------------------
                                           Average                      Yield/        Average                      Yield/
                                           Balance      Interest       Cost (6)       Balance      Interest       Cost (6)
                                         -----------   -----------   -----------    -----------   -----------   -----------
                                                                       (Dollars in thousands)
<S>                                      <C>           <C>                  <C>     <C>           <C>                  <C>
Loans, net (1)                           $   108,791   $     1,853          6.83%   $   103,946   $     1,738          6.71%
Securities (2)                                11,655           143          4.92%        11,364           125          4.41%
Other short-term investments                   1,865            24          5.16%         1,196            14          4.70%
                                         -----------   -----------                  -----------   -----------
   Total interest-earning assets             122,311         2,020          6.62%       116,506         1,877          6.46%
                                                       -----------                                -----------
Non-interest-earning assets                   10,423                                      8,854
                                         -----------                                -----------
   Total assets                          $   132,734                                $   125,360
                                         ===========                                ===========

Savings and club accounts (3)            $    18,831            48          1.02%   $    20,045            51          1.02%
Time certificates                             39,343           468          4.77%        37,690           380          4.04%
NOW and money market accounts                 12,783            39          1.22%        11,589            35          1.21%
Borrowings                                    35,329           431          4.89%        32,400           364          4.51%
                                         -----------   -----------                  -----------   -----------
   Total interest-bearing liabilities        106,286           986          3.72%       101,724           830          3.27%
                                                       -----------                                -----------
Non-interest-bearing liabilities               6,122                                      4,311
                                         -----------                                -----------
   Total liabilities                         112,408                                    106,035
Shareholders' equity                          20,326                                     19,325
                                         -----------                                -----------
   Total liabilities and
    shareholders' equity                 $   132,734                                $   125,360
                                         ===========                                ===========

Net interest income/spread (4)                         $     1,034          2.90%                 $     1,047          3.19%
                                                       ===========   ===========                  ===========   ===========
Net earning assets/net interest
 margin (5)                              $    16,025                        3.39%   $    14,782                        3.60%
                                         ===========                 ===========    ===========                 ===========
Ratio of average interest-earning
  Assets to average interest-
  bearing liabilities                           1.15x                                      1.15x
                                         ===========                                ===========
</TABLE>

Notes appear on following page

                                       18
<PAGE>

AVERAGE BALANCES, INTEREST RATES AND YIELDS (continued)

<TABLE>
<CAPTION>
                                                                 For the nine months Ended June 30,
                                         ----------------------------------------------------------------------------------
                                                          2007                                       2006
                                         ---------------------------------------    ---------------------------------------
                                           Average                      Yield/        Average                      Yield/
                                           Balance      Interest       Cost (6)       Balance      Interest       Cost (6)
                                         -----------   -----------   -----------    -----------   -----------   -----------
                                                                       (Dollars in thousands)
<S>                                      <C>           <C>                  <C>     <C>           <C>                  <C>
Loans, net (1)                           $   108,914   $     5,584          6.85%   $   102,516   $     5,113          6.67%
Securities (2)                                11,208           401          4.78%        11,817           392          4.44%
Other short-term investments                   1,282            49          5.11%           605            23          5.08%
                                         -----------   -----------                  -----------   -----------
   Total interest-earning assets             121,404         6,034          6.65%       114,938         5,528          6.43%
                                                       -----------                                -----------
Non-interest-earning assets                   10,128                                      8,759
                                         -----------                                -----------
   Total assets                          $   131,532                                $   123,697
                                         ===========                                ===========

Savings and club accounts (3)            $    18,950           145          1.02%   $    19,811           151          1.02%
Time certificates                             38,931         1,346          4.62%        33,370           918          3.68%
NOW and money market accounts                 12,316           114          1.24%        11,788           101          1.15%
Borrowings                                    35,537         1,289          4.85%        35,395         1,147          4.33%
                                         -----------   -----------                  -----------   -----------
   Total interest-bearing liabilities        105,734         2,894          3.66%       100,364         2,317          3.09%
                                                       -----------                                -----------
Non-interest-bearing liabilities               5,609                                      4,264
                                         -----------                                -----------
   Total liabilities                         111,343                                    104,628
Shareholders' equity                          20,189                                     19,069
                                         -----------                                -----------
   Total liabilities and
    shareholders' equity                 $   131,532                                $   123,697
                                         ===========                                ===========

Net interest income/spread (4)                         $     3,140          2.99%                 $     3,211          3.34%
                                                       ===========   ===========                  ===========   ===========
Net earning assets/net interest
 margin (5)                              $    15,670                        3.46%   $    14,574                        3.74%
                                         ===========                 ===========    ===========                 ===========
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.  Yields and costs are
      computed based upon the actual number of days in the period  annualized to
      a 365-day year.

                                       19
<PAGE>

RATE VOLUME ANALYSIS OF NET INTEREST INCOME

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

<TABLE>
<CAPTION>
                                               Three months ended June 30,                 Nine months ended June 30,
                                                      2007 vs. 2006                              2007 vs. 2006
                                               Increase (Decrease) Due To:                Increase (Decrease) Due To:
                                         ---------------------------------------    ---------------------------------------
                                            Volume        Rate          Total          Volume        Rate          Total
                                         -----------   -----------   -----------    -----------   -----------   -----------
                                                                       (Dollars in thousands)
<S>                                      <C>           <C>           <C>            <C>           <C>           <C>
INTEREST-EARNING ASSETS:

Loans                                    $        83   $        32   $       115    $       329           142   $       471
Securities                                         3            15            18            (12)           21             9
Other short-term investments                       9             1            10             26             -            26
                                         -----------   -----------   -----------    -----------   -----------   -----------
   Total interest-earning assets                  95            48           143            343           163           506
                                         -----------   -----------   -----------    -----------   -----------   -----------

INTEREST-BEARING LIABILITIES:

Savings and club accounts                         (3)            -            (3)            (6)            -            (6)
Time certificates                                 17            71            88            169           259           428
NOW and money market accounts                      4             -             4              5             8            13
Borrowings                                        35            32            67              5           137           142
                                         -----------   -----------   -----------    -----------   -----------   -----------
   Total interest-bearing liabilities             53           103           156            173           404           577
                                         -----------   -----------   -----------    -----------   -----------   -----------

Net change in net interest income        $        42   $       (55)  $       (13)   $       170   $      (241)  $       (71)
                                         ===========   ===========   ===========    ===========   ===========   ===========
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2007 AND SEPTEMBER 30, 2006.

      During the nine months from  September  30, 2006  through  June 30,  2007,
total assets  increased  $2.5 million,  or 1.92%,  from $130.1 million to $132.6
million.  Net loans  increased by  $947,000,  or 0.90%,  from $105.6  million to
$106.6  million  during the same  period.  The increase in loans  resulted  from
increases  of $2.2  million  in real  estate  loans  and $0.2  million  in other
commercial  loans  combined  with a decrease of $1.4  million in other  consumer
loans.  The  decrease  in other  consumer  loans was  primarily  the result of a
decrease in automobile loans.

      Borrowed funds from FHLB,  consisting of advances and security  repurchase
obligations,  were $34.6  million on June 30, 2007,  down from $35.3  million at
September  30,  2006.  The  decrease of $0.7  million in borrowed  funds was the
result of an increase in deposits.  Deposits  increased  $2.5 million,  or 3.4%,
during the nine months from $72.5 million to $75.0 million.  Increases in demand
deposits, NOW and money market accounts, and time deposits of $0.8 million, $1.1
million  and $1.8  million,  respectively,  more than  offset a decrease of $1.2
million in savings accounts. Brokered deposits accounted for $1.5 million of the
increase in time deposits.

                                       20
<PAGE>

      Shareholders' equity increased by $559,000 during the first nine months of
this fiscal year,  as net income of $667,000,  combined  with  $124,000 from the
allocation  and  amortization  of SOP,  ESOP and MRP shares and $39,000 from the
exercise of stock  options,  more than offset the payment of a cash  dividend of
$158,000 to our shareholders and a decrease of $113,000 in the unrealized gains,
net of taxes, in the available-for-sale securities portfolio. Treasury stock was
used to supply 7,975 shares needed when five individuals exercised some of their
vested stock options.

      At June 30, 2007,  non-performing  assets were 0.48% of total assets, down
from 0.53% at September 30, 2006. Non-performing loans were 0.51% of total loans
at June 30,  2007,  down from  0.64% at  September  30,  2006.  A summary of the
Company's   non-performing   assets  and  related  ratios  follows  (dollars  in
thousands):

                                                June 30,       September 30,
      Non-performing assets                       2007             2006
      ------------------------------------    -------------    -------------
      Non-accrual loans
      Residential mortgages
       and home equity loans                  $          94    $         183
      Commercial mortgages                              446              247
      Consumer other                                      6               22
      Commercial other                                    -                -
                                              -------------    -------------
         Total non-accrual loans                        546              452

      Residential mortgage loans over 90
       days delinquent and still accruing                 -              228
                                              -------------    -------------
         Total non-performing loans                     546              680

      Foreclosed real estate                             85                -
      Other repossessed assets                            3               11
                                              -------------    -------------
         Total non-performing assets          $         634    $         691
                                              =============    =============

      Non-performing loans to total loans              0.51%            0.64%

      Non-performing assets to
       total assets                                    0.48%            0.53%

      The Company had no loans more than 90 days  delinquent  and still accruing
at June 30, 2007 and $228,000 of such loans at September 30, 2006.

      At June 30, 2007, one  non-accrual  residential  mortgage in the amount of
$70,000 and two non-accrual  commercial mortgage loans totaling $446,000 were 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 $41,000  decrease in the loan
loss  allowance to $907,000 at June 30, 2007, is  appropriate at this time based
on the history of losses in the loan portfolio over the past six years.

                                       21
<PAGE>

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND
2006.

      General.  Our net income  for the three  months  ended  June 30,  2007 was
$268,000,  an  increase of  $59,000,  or 28.23%,  from last year's net income of
$209,000 for the same  period.  The increase in net income was the result of the
combination of the following factors:

      1.  net interest income  decreased by $13,000 as interest income increased
          $143,000,  mainly due to the  growth in loans,  and  interest  expense
          increased $156,000,

      2.  non-interest income grew by $158,000 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 $54,000 in the three month period
          this year compared to last year's period and

      5.  income taxes increased $47,000.

      Basic  earnings  per share and diluted  earnings per share were both $0.12
for this year's quarter versus $0.09 in last year's quarter.

      Interest  Income.  Interest  income  increased  $143,000,  or 7.62%,  from
$1,877,000  for the three months ended June 30, 2006 to $2,020,000 for the three
months  ended June 30,  2007.  An  increase  of 16 basis  points  (0.16%) in the
average interest rate earned on our interest-earning  assets, from 6.46% in last
year's  quarter to 6.62% in this  year's  quarter,  resulted  in an  increase of
$48,000 in interest income, while a $5.8 million increase in the average balance
of  interest-earning  assets  resulted  in an  increase  of $95,000 in  interest
income.

      Interest income on loans  increased by $115,000,  or 6.62%, in this year's
quarter from the same period last year. The average yield on loans was 6.83% for
the three month  period  ending June 30,  2007,  an increase of 12 basis  points
(0.12%),  from  6.71% for the three  month  period  ending  June 30,  2006.  The
increased yield resulted in an increase of $32,000 in interest income,  while an
increase of $4.9 million in the average  balance of loans from $103.9 million to
$108.8 million resulted in an increase of $83,000 in interest income.

      Loan  growth  from July 1,  2006  through  June 30,  2007 was very good as
indicated by the growth by $4.9 million of the average balance of loans from the
three  months  ended June 30,  2006 to the three  months  ended  June 30,  2007.
However,  nearly all of the growth occurred from April 1, 2006 through  December
31, 2006 since the average  balance of loans for the three months ended June 30,
2007  increased  only $0.1 million to $108.8 million from $108.7 million for the
three  months ended  December  31, 2006.  This slow down in loan growth has been
deliberate  as we increased our loan rates in response to an increase in funding
costs.  The current  interest  rate  environment  has been  characterized  by an
inverted  yield curve,  meaning that the interest  rates at the short end of the
curve, from overnight investments to one-year maturities,  are higher than rates
on  maturities  from  one to ten  years.  In this  environment,  loan  arbitrage
opportunities,  in which we match  borrowings  against  mortgage  loans,  are no
longer as  attractive  as those we created in prior  periods  which  continue to
produce income even though the spread has narrowed.  We have  therefore  decided
not to grow the  loan  portfolio  by  growing  borrowings  until  funding  costs
stabilize and margins begin expanding,  and instead, will invest available funds
in liquid assets,  mainly our available for sale  securities  portfolio.  We are
reducing our lending activity to preserve our external funding  capabilities for
when margins improve. We expect that when short-term interest rates are adjusted
downward  resulting in a positive yield curve, new arbitrage  opportunities will
become available and we will look to grow the loan portfolio more aggressively.

                                       22
<PAGE>

      Interest income on securities and other short-term  investments  increased
by  $28,000,  or 20.14% for the  quarter  ended June 30, 2007 versus the quarter
ended June 30, 2006. An increase in the yield on our securities  portfolio of 51
basis  points,  or 0.51%,  from  4.41% in last  year's  quarter to 4.92% in this
year's  quarter  resulted in an increase of $15,000 in interest  income while an
increase of $0.3  million in the  average  balance of  securities  over the same
period increased interest income by $3,000. Over the same time frame, a 46 basis
point,  or  0.46%,  increase  in the  average  interest  rate  earned  on  other
short-term investments increased interest income by $1,000, while an increase of
$0.7 million in the average balance of other  short-term  investments  increased
interest income by $9,000.

      Interest Expense.  Interest expense increased $156,000,  or 18.80%, in the
third  quarter of fiscal  2007  versus  the third  quarter  of fiscal  2006.  An
increase  of  45  basis   points   (0.45%)  in  the  average  rate  we  paid  on
interest-bearing liabilities from 3.27% last year to 3.72% this year resulted in
an increase of $103,000 in interest  expense,  while an increase of $4.6 million
from $101.7 million to $106.3 million in the average balance of interest-bearing
liabilities resulted in a $53,000 increase in interest expense.

      Interest expense  decreased $3,000, or 5.88%, on savings and club accounts
due to a decrease of $1.2 million in the average  balance from $20.0  million in
last year's quarter to $18.8 million in this year's quarter. Comparing the three
months ended June 30, 2007 to the three  months  ended June 30,  2006,  interest
expense  increased on NOW and money market accounts,  time deposits and borrowed
funds by $4,000, $88,000 and $67,000,  respectively.  The average balance of NOW
and money market accounts increased by $1.2 million from the 2006 fiscal quarter
to the 2007 fiscal quarter  resulting in a $4,000 increase in interest  expense.
Over the same period,  an increase of 73 basis points,  or 0.73%, in the average
rate we paid on time deposits  increased  interest expense by $71,000,  while an
increase in the average balance of time deposits of $1.7 million  resulted in an
increase  of  $17,000  in  interest  expense.  The  cost of our  borrowed  funds
increased by 38 basis points, or 0.38%, from the third quarter of fiscal 2006 to
the third  quarter  of fiscal  2007,  resulting  in an  increase  of  $32,000 in
interest expense,  while an increase in the average balance of borrowed funds of
$2.9 million resulted in an increase of $35,000 in interest expense.

      Net Interest  Income.  Our net interest  income  decreased by $13,000,  or
1.24%,  from  $1,047,000  for the three  month  period  ending  June 30, 2006 to
$1,034,000  for the three month period ending June 30, 2007, as interest  income
increased by $143,000 and interest expense  increased by $156,000,  as described
above.

      Our interest rate spread (the difference  between the average rate we earn
and the average rate we pay) decreased by 29 basis points,  or 0.29%, from 3.19%
in last  year's  quarter to 2.90% in this year's  quarter.  Also,  net  interest
margin decreased by 21 basis points (0.21%) to 3.39% in the third fiscal quarter
of 2007, down from 3.60% in the corresponding quarter of 2006.

      Average capital represented 16.6% of average  interest-earning  assets for
the quarters ended June 30, 2007 and 2006.  Changes in the average capital ratio
measure  changes in leverage.  Since the ratio did not change,  it reflects that
our leveraging remained the same. Our ratio of average  interest-earning  assets
to average interest-bearing liabilities was 1.15 times in both 2006 and 2007.

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

                                       23
<PAGE>

      For the three months  ended June 30,  2007,  we did not record a provision
for loan losses,  compared to $15,000 in the same quarter last year. At June 30,
2007 and 2006, the ratio of our loan loss allowance to total loans was 0.85% and
0.88%, respectively.  On March 31, 2007, the allowance was $921,000, or 0.86% of
total  loans,  and we  determined  at the  end of the  third  quarter  that  the
appropriate level for the allowance was $907,000.  We had charge-offs during the
quarter of $23,000 and recoveries of $9,000.

      Our level of  non-accruing  loans,  loans 90 days and still  accruing  and
restructured  loans  was  $546,000,  or 0.51% of  total  loans at June 30,  2007
compared to  $536,000,  or 0.50% of total loans at March 31,  2007.  There was a
slight  decrease  in the ratio of the loan loss  allowance  to total  loans from
0.86% at March 31, 2007 to 0.85% at June 30, 2007.

      Non-interest  Income.  Our  non-interest  income  increased  $158,000 from
$109,000  in the 2006  quarter  to  $267,000  in the 2007  quarter.  Two  items,
realized  gain on the sale of available  for sale  securities  and income on the
assets of the deferred  directors fees plan accounted for most of that gain with
increases of $96,000 and $43,000, respectively.

      Non-interest  Expenses.   Non-interest  expenses  increased  $54,000  from
$826,000 for the 2006 fiscal third quarter to $880,000 for the 2007 fiscal third
quarter.   Directors  fees  expense  increased  by  $47,000,  of  which  $43,000
represents an increase in deferred fees income and $4,000 represents  additional
payments to directors for meetings held this year. The increase in  professional
fees  by  $22,000  is  due to the  consultant  costs  associated  with  SOX  404
implementation and occupancy and equipment cost increased $29,000 due to the new
office in  Gouverneur.  Offsetting  these  increases  in part was a decrease  in
salaries  and  employee  benefits of $43,000,  $37,000 of which is related to an
adjustment that was made to accrued  compensation expense in last year's quarter
to reflect an increased estimate of annual employee bonuses.

      At June 30, 2007 we had thirty-one  full-time and four part-time employees
and on June 30, 2006 we had thirty-three  full-time  employees and one part-time
employee.

      Income tax expense. Our income tax expense increased by $47,000, or 44.3%,
from  $106,000  for the third  quarter of fiscal 2006 to  $153,000  for the same
quarter of fiscal 2007.  The increased  expense was the result of an increase in
income before income tax of $106,000, or 33.7%, from $315,000 for the first nine
months last  fiscal  year to  $421,000  for the first nine months of this fiscal
year.  Our effective tax rate was 36.3% for the three months ended June 30, 2007
compared to 33.7% for the same period in 2006. The increased  effective tax rate
in the current quarter is due to a larger percentage of our pre-tax income being
taxable.

                                       24
<PAGE>

COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 2007 AND
2006.

      General.  Our net  income  for the nine  months  ended  June 30,  2007 was
$667,000,  a decrease of $223,000,  or 25.06%,  from last year's  $890,000.  The
following operating results combined to produce the increase:

      1.  net interest income  decreased by $71,000 as interest income increased
          $506,000 and interest expense increased $577,000,

      2.  provision for loan losses decreased by $50,000,

      3.  non-interest income decreased by $35,000,

      4.  non-interest expenses increased $254,000 and

      5.  income  taxes  decreased  by  $87,000 as a result of the  decrease  in
          pre-tax income.

      Basic earnings per common share and diluted earnings per common share were
both  $0.29 for the first  nine  months of this  fiscal  year and were $0.40 and
$0.39, respectively, for the first nine months of the last fiscal year.

      Interest  Income.  Interest income increased by $506,000,  or 9.15%,  from
$5,528,000  for the nine months ended June 30, 2006 to  $6,034,000  for the nine
months ended June 30,  2007.  Average  interest-earning  assets  increased  $6.5
million,  or 5.66%, from $114.9 million for the first nine months of fiscal year
2006 to $121.4  million  for the same  period this year.  The  increase  was the
result of a $6.4  million  increase in the average  balance of loans from $102.5
million in fiscal 2006 to $108.9  million in fiscal 2007,  combined with a small
increase in the average  balance of  securities  and other  investments  of $0.1
million from $12.4 million last year to $12.5 million this year.

      The average interest rate we earned on our interest-earning  assets was 22
basis points (0.22%) higher in the first nine months this year than last year as
the average rate rose from 6.43% last year to 6.65% this year.  The average rate
earned on loans  increased 18 basis points (0.18%) from 6.67% last year to 6.85%
this year,  while the average  rate earned on  securities  increased by 34 basis
points,  or 0.34%, from 4.44% last year to 4.78% this year, and the average rate
on other short-term investments,  primarily FHLB deposits,  increased by 3 basis
points (0.03%) from 5.08% to 5.11%.

      The increase in the average  interest rate earned on loans  resulted in an
increase  of  $142,000 in  interest  income,  while the  increase in the average
balance of loans  increased  interest  income by  $329,000,  totaling a $471,000
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 $21,000,  while the
increase in the average balances  increased interest income by $14,000 resulting
in a total increase of $35,000 in interest income.

      Overall,  the increases in the average  interest rates increased  interest
income by $163,000,  while the increase in the volume of interest-earning assets
produced a  $343,000  increase  in  interest  income,  for a total  increase  of
$506,000 in interest income.

      Interest  Expense.  Interest expense increased by $577,000 from $2,317,000
for the first nine  months of 2006 to  $2,894,000  for the first nine  months of
2007 as a result of both  interest  rate  increases  and an  increase in average
interest-bearing  liabilities.  An  increase of 57 basis  points  (0.57%) in the
average rate we paid on interest-bearing liabilities from 3.09% in 2006 to 3.66%
in 2007 increased interest expense by $404,000, while an increase in the average
balance of interest-bearing  liabilities of $5.3 million, from $100.4 million at
June 30,  2006 to  $105.7  million  at June 30,  2007,  resulted  in  additional
interest expense of $173,000.

                                       25
<PAGE>

      Interest expense increased on NOW and money market accounts, time deposits
and  borrowings  by  $13,000,  $428,000  and  $142,000,  respectively,  while it
decreased  $6,000 on savings and club  accounts for the nine months  ending June
30,  2007  versus the nine  months  ending June 30,  2006.  These  changes  were
comprised of the following components:

      1.  a decrease of $0.8 million in the average  balance of savings and club
          accounts, from $19.8 million to $19.0 million,  resulted in a decrease
          of $6,000 in interest expense,

      2.  the average rate we paid on NOW and money market accounts increased by
          9 basis points  (0.09%) from 1.15% to 1.24%,  resulting in an increase
          of $8,000 in interest expense, while an increase of $0.5 million, from
          $11.8  million  to  $12.3  million  in the  average  balance  of these
          accounts resulted in an increase of $5,000 in interest expense, and

      3.  the average  interest rate on time deposits  increased 94 basis points
          (0.94%)  from  3.68% to 4.62%,  resulting  in a $259,000  increase  in
          interest expense, while a $5.5 million increase in the average balance
          of time  deposits,  from  $33.4  million to $38.9  million,  increased
          interest expense by $169,000.

      4.  an increase  of 52 basis  points  (0.52%),  from 4.33% to 4.85% on the
          average rate we paid on borrowed funds increased  interest  expense by
          $137,000,  while an increase of $0.1 million in the average  amount of
          those  borrowings,  from  $35.4  million to $35.5  million,  increased
          interest expense by $5,000.

      Net Interest  Income.  The net effect of the increases in interest  income
and interest expense was a decrease of $71,000, or 0.02%, in net interest income
from  $3,211,000 for the first nine months of the 2006 fiscal year to $3,140,000
for the first nine months of the 2007 fiscal year. Our interest rate spread (the
difference  between  the  average  rate we earn  and  the  average  rate we pay)
decreased  by 35 basis  points  (0.35%) from 3.34% last year to 2.99% this year.
Net interest  margin  decreased  by 28 basis  points  (0.28%) from 3.74% for the
first nine months of fiscal  2006,  to 3.46% for the first nine months of fiscal
2007.

      Average capital represented 16.6% of average  interest-earning  assets for
the nine  months  ended June 30,  2007 and June 30,  2006.  Our ratio of average
interest-earning assets to average  interest-bearing  liabilities was 1.15 times
in both 2007 and 2006.

      Provision for Loan Losses. Year to date, we had charge-offs of $73,000 and
recoveries  of $17,000.  We provided  $15,000 for loan losses for the first nine
months of this  fiscal  year as compared to $65,000 for the first nine months of
the past  fiscal  year.  At June 30,  2007 and 2006 the  ratio of our loan  loss
allowance to total loans was 0.85% and 0.88%, respectively.  As disclosed in the
comparison of financial condition  discussion,  our level of non-accruing loans,
loans 90 days past due and still accruing and  restructured  loans was $546,000,
or 0.51% of total loans at June 30, 2007 compared to $680,000, or 0.64% of total
loans at September 30, 2006. Management believes that these loans are adequately
secured and do not require any adjustment to the allowance for loan losses.

      Non-interest  Income.  Non-interest income was $35,000 lower for the first
nine months of this year  versus the same period last year.  The main reason the
decrease occurred was because of two income items we had last year, but not this
year. The first was $62,000 in death benefit  income on life insurance  policies
insuring a director  and the second was a $7,000  gain on the sale of loans.  We
also had $32,000  more in  realized  gain on sale of  foreclosed  assets in last
year's nine-month period than in this year's period.  Partially offsetting these
reductions  in income  were  increases  of  $44,000  in  income on the  deferred
directors fees plan,  $10,000 in income on bank-owned  life insurance and $9,000
in loan fees.

                                       26
<PAGE>

      Non-interest Expense.  Non-interest expenses increased by $254,000 for the
first nine months of fiscal 2007 compared to fiscal 2006.  There were  increases
in salaries and benefits of $57,000,  directors  fees of $44,000,  occupancy and
equipment of $51,000,  postage and supplies of $12,000 and professional  fees of
$30,000.  We  also  had a  $58,000  increase  in  other  non-interest  expenses,
including $24,000 in contributions,  $15,000 in advertising,  $9,000 in ATM card
expense and $6,000 in telephone expense. The $44,000 increase in director's fees
represents  the  offsetting  expense to the gain in income on the deferred  fees
plan mentioned under non-interest  income due to the increased  liability to the
participants in the plan.  Professional  fees includes $29,000 in costs incurred
for  compliance  with the  Sarbanes-Oxley  Act of 2002,  Section  404  requiring
management  of public  companies  to assess and report on the  effectiveness  of
their internal controls over financial reporting.  As a small business filer, we
are  required  to  comply  by  September  30,  2008.   We  expect   expenses  of
approximately $40,000 will be incurred this fiscal year.

      Income tax  expense.  Our income tax  expense  year-to-date  decreased  by
$87,000,  or 19.5%, from $447,000 last year to $360,000 this year. The decreased
expense was the result of decreased  income  before  income tax of $310,000,  or
23.2%,  from $1,337,000 for the first nine months last fiscal year to $1,027,000
for the first nine months of this fiscal year.  Our effective tax rate was 35.1%
for the nine months ended June 30, 2007 compared to 33.4% for the same period in
2006.  The effective  rate was increased in part because there is no non-taxable
death benefit from life insurance this year.

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, 2007,  we increased our cash
and cash equivalents by $620,000. We have originated $17.3 million of new loans.
However,  loans,  net, after  payments,  charge-offs and transfers to foreclosed
real estate, increased by $947,000 over this period.

      Deposits  increased by $2.5 million  during the nine months ended June 30,
2007. Brokered deposits accounted for $1.5 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 $0.7 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
$17.4 million against our one to four family first mortgage  portfolio.  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,  2007,  the ratio was 5.96% as compared
to 6.04% on June 30, 2006.

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.

                                       27
<PAGE>

      We had $2.1 million in  outstanding  commitments to make loans at June 30,
2007,  along with $4.5 million of unused home equity,  commercial  and overdraft
lines of credit.  We also have a commitment to sell the $2.1 million  guaranteed
portion of a USDA  guaranteed  loan we  originated.  We are awaiting  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,  2007,  we had  $32.0  million  of  time  certificates
scheduled  to  mature  within  one  year.  We  anticipate  that  we  can  retain
substantially  all of those deposits if we need to do so to fund loans and other
investments as part of our efforts to grow and leverage our capital.

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, 2007, the Bank exceeded all
regulatory capital requirements of the OTS applicable to it, with Tier I capital
of $20.0 million,  or 15.1% of adjusted  total assets and with total  risk-based
capital of $20.9 million,  or 27.2% of risk-weighted  assets.  The Bank also had
tangible capital of $20.0 million, or 15.1% of average tangible assets. The Bank
was classified as "well capitalized" at June 30, 2007 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, 2007, 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,  2007,  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

                                       28
<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 3, 2007                  By: /s/ Richard F. Bennett
                                          --------------------------------------
                                          Richard F. Bennett
                                          President and Chief Executive Officer
                                          (principal executive officer
                                          and officer duly authorized to sign on
                                          behalf of the registrant)


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

                                       29