UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

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

                  For the fiscal year ended September 30, 2005

                        Commission file number 001-14910

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

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

                   42 Church Street, Gouverneur New York 13642
                    (Address of principal executive offices)
                    Issuer's telephone number (315) 287-2600

           Securities Registered Pursuant to Section 12(b) of the Act:
  Common Stock, par value $0.01 per share              American Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      None

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 [ ].

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

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

Gouverneur Bancorp, Inc.'s revenues for the fiscal year ended September 30, 2005
were $6,999,000.

The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the final closing price of
such stock on December 9, 2005, was approximately $8,109,000. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)

As of December 9, 2005, there were 2,285,434 issued and outstanding shares of
the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
Part II of Form 10-KSB-Annual Report to Stockholders for the fiscal year ended
September 30, 2005. Part III of Form 10-KSB-Portions of Proxy Statement for 2006
Annual Meeting of Stockholders.

Transitional Small Business Disclosure Format. YES [ ] NO [X]
<PAGE>

                                     PART I

Item 1. Description of Business

General

     Gouverneur Bancorp, Inc. ("We" or the "Company") is a corporation organized
under the laws of the United States. The Company's assets consist primarily of
all the outstanding capital stock of its wholly owned subsidiary, Gouverneur
Savings and Loan Association (the "Bank") and its principal business is the
ownership of the Bank. At September 30, 2005, Cambray Mutual Holding Company
("Cambray MHC"), the Company's parent mutual holding company, held 1,311,222
shares or 57.4% of the Company's issued and outstanding common stock, and
shareholders other than Cambray MHC held 974,212 shares, or 42.6% of the issued
and outstanding common stock. The Company is a savings and loan holding company
registered with the Office of Thrift Supervision ("OTS") and subject to
regulation under federal banking laws and regulation. In this document,
references to the Company include the Bank, unless the context denotes
otherwise, and references to the "Registrant" refer to the Company.

     The Company's business consists of gathering deposits from the general
public within its market area and investing those deposits primarily in loans,
debt obligations issued by the U.S. Government and its agencies, and
mortgaged-backed securities. The Company's loans are mainly residential mortgage
loans secured by one-to-four family residences with the balance of the portfolio
composed of commercial mortgage loans, other consumer loans (mostly automobile
loans), and other non-real estate commercial loans.

     The Company's revenues come principally from interest on loans and
securities. The Company's primary sources of funds are deposits, borrowings from
the Federal Home Loan Bank of New York ("FHLB") and proceeds from principal and
interest payments on loans and investment securities. At September 30, 2005, the
Company had $122.2 million in assets, $64.0 million in deposits, $36.8 million
in advances from FHLB and $18.7 million in total equity, as compared with last
year's balances of $104.2 million, $61.6 million, $23.0 million and $18.0
million, respectively. Net loans increased by $16.6 million, or 20.7%, from
$80.2 million on September 30, 2004 to $96.8 million on September 30, 2005.

     The Company's offices are located at 42 Church Street, Gouverneur, New York
13642. Our telephone number is (315) 287-2600.

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 annual report or in any press releases, public
announcements, filings with the Securities and Exchange Commission (the "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 provide, such as analysis of the adequacy of our allowance for
loan losses or an analysis of the 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 about anticipated financial
performance, business prospects, transactions and similar matters.

     The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. We want you to know that a variety of future
events could cause our actual results and experience to differ materially from
what we anticipate when we make our forward-looking statements. Some of the
risks and uncertainties that may affect our operations, performance,
profitability and results, the interest rate sensitivity of our assets and
liabilities, and the adequacy of our allowance for loan losses, include, without
limitation: (i) 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; (ii) changes in the market interest rates

                                       2
<PAGE>

or changes in the speed at which market interest rates change; (iii) changes in
laws and regulations affecting us; (iv) changes in competition; and (v) 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.

     Market Area

     The Bank, a community oriented financial institution, which was chartered
in 1892, has been headquartered in the Town and Village of Gouverneur since its
formation. The Bank's deposits are insured, up to the applicable limits, by the
Federal Deposit Insurance Corporation ("FDIC"). Through the Bank's two full
service branch offices and one lending office, the Company services a primary
market area consisting of southern St. Lawrence County and northern Jefferson
and Lewis Counties in New York State. Based on the 2001 Census, the Company
estimates that the population in this market area is approximately 100,000. The
Company's market area is predominately rural with many small towns. The
population works in diverse industries, including manufacturing, agriculture,
retail trades, construction, mining, health care, education and government
service.

     The largest private employers in the market area are a mining company and a
paper mill. One paper mill, which was expected to open last year, has not, and
another owned by the same company, has stopped production. A zinc mining
operation that has been closed for about five years was purchased out of
bankruptcy by a Canadian company two years ago and was expected to open at that
time. However, the re-opening has been delayed as company officials waited for
the international price of zinc to rise. The company has committed to investing
$20 million into the business, which was the third largest zinc mining operation
in the United States in 1999 and 2000. Company officials have begun advertising
for miners, laborers, heavy equipment operators and others and expect to ramp up
production as soon as possible. The zinc mining company currently has nine
employees and expects to create 183 jobs over the next three years. We view this
as extremely good news since the mine is located squarely within the Bank's
market area and we expect that it will directly benefit our community's economy.

     Fort Drum, a major military installation, is located at the southern edge
of the Company's primary market area. The market area for our Alexandria Bay and
Clayton offices is dominated by tourist related businesses along the St.
Lawrence River. The two largest resort hotels are year round businesses, while
most others are seasonal and service the expanded spring and summer population.
Most of the full-time residents are employed in Watertown, NY, the largest city
in the Company's three-county market area with a population of about 30,000, and
the county seat for Jefferson County. The New York State Department of
Transportation and Jefferson County offices are both located in Watertown and
are major employers. There are several small to medium sized manufacturers,
including paper mills. Watertown provides the major retail shopping center for
the three counties and also attracts shoppers from Canada who enter the United
States via the Thousand Islands Bridge and travel approximately 30 miles to
Watertown.

     Economic and demographic conditions in the Company's market area pose
significant challenges for the Company. Per capita income and median home values
in our market area are below New York State and national levels. Unemployment in
each of the three counties in the Company's market area is higher than statewide
and national unemployment rates. Furthermore, the local population is showing
little or no growth, as the 2001 Census showed less than a 1.0% increase in the
area since 1990, versus the statewide increase of 5.5%. These conditions are
believed to extend to communities adjoining the Company's market area as well.

                                       3
<PAGE>

Competition

     The Company's principal competitors for deposits are other savings and loan
associations, savings banks, commercial banks and credit unions in the Company's
market area, as well as money market mutual funds, insurance companies and
securities and brokerage firms, many of which are substantially larger in size
than the Company. The Company's competition for loans comes principally from
savings banks, savings and loan associations, commercial banks, mortgage
bankers, finance companies and other intuitional lenders, many of whom operate
through the internet, as well as traditional retail offices. Direct or indirect
competition for loans from nationally recognized secondary market lenders has
increased in recent years, having the effect of both reducing the Company's
market share and driving down the interest rates it can earn on residential
mortgages. The Company's principal methods of competition include loan and
deposit pricing, flexible underwriting which permits variation from secondary
market underwriting requirements when believed appropriate, maintaining close
ties with its local community, advertising and marketing programs local decision
making and personalized services.

     The Company faces competition from other financial institutions having much
greater financial and marketing resources. However, the Company believes it
benefits from its community bank orientation, as well as its relatively high
core deposit base. Recent acquisitions of other banks in northern New York by
larger institutions may have also given the Company an edge in the competition
for those local residents who prefer doing business with a local financial
institution.

Lending Activities

     Loan Portfolio Composition. The Company's loans consist primarily of
mortgage loans secured by one-to-four family residences. At September 30, 2005,
the Company had total loans of $96.8 million, of which $78.6 million, or 81.2%,
were one-to-four family residential mortgage loans, an increase of $15.0
million, or 23.6%, from $63.6 million at September 30, 2004. The increase was
primarily due to the continued growth of our full service office in Alexandria
Bay and our lending office in Clayton. Both of these communities border the St.
Lawrence River and include up-scale vacation home properties with river
frontage, in addition to traditional residential properties.

     We continue to originate mortgages on vacation home properties to buyers
who often live and work outside of our geographic area. These loans generally
have higher values than inland residences in the region and help to diversify
the risk on our portfolio, since those loans are not directly tied to the local
economy. However, we have been unable to establish substantial deposit
relationships with most of these seasonal home borrowers, so consequently we
borrowed funds from the FHLB to support this lending activity. In Clayton, our
residential mortgage loan portfolio grew $4.3 million from $8.3 million to $12.6
million, while in Alexandria Bay we increased residential mortgage loans $7.3
million, from $25.1 million to $32.4 million from September 30, 2004 to
September 30, 2005. The Bank's main office in Gouverneur increased residential
mortgage loans by $3.4 million from $30.2 million to $33.6 million over the same
period. Total real estate loans, including commercial mortgages, increased to
$85.1 million, or 87.9% of total loans this year from $67.7 million, or 84.4%
last year, an increase of 3.5%.

     The Company's portfolio of other consumer loans, for the most part auto
loans, increased by $1.6 million from last year's total of $8.9 million to $10.5
million this year, as automobile loans increased by $1.1 million and other
consumer loans increased by $0.5 million. The increase in automobile loans was
mainly due to indirect business generated with a dealer through our Clayton
office and an increase in used car business. Consumer loans represent 10.8% of
total loans this year versus 11.1% last year. The Company's ratio of net loans
to total assets increased from 76.9% September 30, 2004 to 79.1% at September
30, 2005.

                                       4
<PAGE>

     Our hiring of an experienced commercial lending officer in 2004 has enabled
us to pursue more aggressively local commercial lending opportunities and
capture more of that business. At the same time, we decided to sell the United
States Department of Agriculture (USDA") guaranteed loan portfolio, which
totaled $3.0 million of the other commercial loan portfolio at September 30,
2004. The net result of increasing the local commercial portfolio and reducing
the USDA loans was to maintain the level of commercial loans at $7.7 million at
both September 30, 2004 and 2005. Specifically, at September 30, 2005 we had
$6.5 million in commercial mortgages and $1.2 million in other commercial loans,
as compared to $4.1 million and $3.6 million, respectively at September 30,
2004. During the 2005 fiscal year, we booked $31,000 in losses on sales of the
USDA loans, but we will book a gain of $7,000 in fiscal 2006 on the $1.2 million
of USDA loans, which were classified as held for sale at year-end, and were
closed in October 2005. In fiscal 2006, we intend to continue to develop and
manage the commercial lending business.

     Interest rates earned on the Company's loans are affected by the demand for
loans, the supply of money available for lending and the rates offered by
competitors. These factors are in turn affected by, among other things, economic
conditions, monetary and budgetary policies of the federal government, and
legislative tax policies.

                                       5
<PAGE>

Loan Portfolio Composition

     The following table sets forth the composition of the Company's mortgage
and other loan portfolios in dollar amounts and in percentages at the dates
indicated.

<TABLE>
<CAPTION>
                                                              At September 30,
                              ---------------------------------------------------------------------------------
                                        2005                       2004                        2003
                              ------------------------    ------------------------    ------------------------
                                             Percent                     Percent                     Percent
                                Amount       of total       Amount       of total       Amount       of total
                              ----------    ----------    ----------    ----------    ----------    ----------
                                                           (dollars in thousands)
<S>                           <C>               <C>       <C>               <C>       <C>               <C>
Real estate loans:
  Residential mortgages
    including home equities
    and construction loans.   $   78,616         81.24%   $   63,580         79.26%   $   48,660         74.98%
  Commercial mortgages ....        6,472          6.69%        4,108          5.12%        3,624          5.58%
                              ----------    ----------    ----------    ----------    ----------    ----------

Total real estate loans ...       85,088         87.93%       67,688         84.38%       52,284         80.56%

Other loans:
Consumer other ............       10,489         10.84%        8,909         11.11%        9,234         14.23%
Commercial other ..........        1,188          1.23%        3,618          4.51%        3,378          5.21%
                              ----------    ----------    ----------    ----------    ----------    ----------

Total other loans .........       11,677         12.07%       12,527         15.62%       12,612         19.44%
                              ----------    ----------    ----------    ----------    ----------    ----------

Total loans ...............       96,765        100.00%       80,215        100.00%       64,896        100.00%
                              ----------                  ----------                  ----------

Deferred loan costs (fees),
   Net ....................          844                         699                         497
Allowance for loan losses .         (869)                       (755)                       (655)
                              ----------                  ----------                  ----------

Loans, net ................   $   96,740                  $   80,159                  $   64,738
                              ==========                  ==========                  ==========

<CAPTION>

                                                 At September 30,
                              ----------------------------------------------------
                                       2002                        2001
                              ------------------------    ------------------------
                                             Percent                     Percent
                                Amount       of total       Amount       of total
                              ----------    ----------    ----------    ----------
                                             (dollars in thousands)
<S>                           <C>               <C>       <C>               <C>
Real estate loans:
  Residential mortgages
    including home equities
    and construction loans.   $   39,055         71.52%   $   39,223         70.02%
  Commercial mortgages ....        3,951          7.24%        4,482          8.00%
                              ----------    ----------    ----------    ----------

Total real estate loans ...       43,006         78.76%       43,705         78.02%

Other loans:
Consumer other ............       10,350         18.95%       10,746         19.18%
Commercial other ..........        1,248          2.29%        1,570          2.80%
                              ----------    ----------    ----------    ----------

Total other loans .........       11,598         21.24%       12,316         21.98%
                              ----------    ----------    ----------    ----------

Total loans ...............       54,604        100.00%       56,021        100.00%
                              ----------                  ----------

Deferred loan costs (fees),
   Net ....................          412                         413
Allowance for loan losses .         (671)                       (655)
                              ----------                  ----------

Loans, net ................   $   54,345                  $   55,779
                              ==========                  ==========
</TABLE>

                                       6
<PAGE>

                           Residential Mortgage Loans

     Residential - First lien. Approximately 56% of the Company's residential
mortgage loan portfolio is first lien, fixed-rate mortgage loans with terms up
to 25 years, but predominantly for 15 to 20 years. The Company also offers
adjustable-rate mortgage loans. The adjustable-rate residential mortgage
portfolio was $31.2 million at year-end, or 39.7% of the Company's $78.6 million
in residential mortgage loans, compared to September 30, 2004 when $26.5
million, or 41.7% of the $63.6 million in residential loans were adjustable rate
loans. Customer preference has strongly favored fixed rate mortgage loans. Now,
we are adding more adjustable rate loans with fixed rates for the first five
years of the loan term, which then re-price annually. While we have decided not
to compete with the secondary fixed rate mortgage market, we have been able to
compete with the adjustable rate market and increase our residential mortgage
loan portfolio.

     When underwriting residential mortgage loan applications, the Company
considers the income and assets of the borrower, the borrower's prior credit
history and the value of the collateral security for the loan. In light of the
nature of the local market and competitive considerations, the Company
occasionally waives adverse credit information related to the borrower if the
loan is generally considered to be sound. The Company believes it has adopted
prudent policies and procedures for underwriting and generally experiences a
declination rate between twenty-five and thirty percent on all residential
mortgage applications.

     The Company obtains independent appraisals on all residential first
mortgage loans and attorneys' opinions of title are required at closing. Current
surveys are generally not required because the Company believes that the cost of
obtaining a survey in the local market is not justified by the minimal risks
involved. In most cases, the Company accepts the attorney's title opinion rather
than requiring title insurance on residential mortgage loans. This practice has
not resulted in losses. Private mortgage insurance is required on loans with a
loan to value ratio in excess of 85%. We require real estate tax escrows on
first-lien mortgage loans.

     Although fixed-rate mortgage loans may adversely affect the Company's net
interest income in periods of rising interest rates, the Company originates such
loans to satisfy customer demand. Such loans are generally originated at higher
interest rates than those offered on adjustable rate mortgage loans originated.
Therefore, during periods of level or declining interest rates, these loans tend
to provide higher yields than adjustable loans. Since we hold in our portfolio
all of the fixed rate mortgage loans we originate, we price them higher than
fixed rate mortgage loans sold in the secondary market. Selling the loans in the
secondary market eliminates the interest rate risk and credit risk associated
with those loans. We retain those risks and price the loans accordingly. This
pricing policy makes the adjustable rate loans more attractive to the customer
and has helped to increase the size of that portfolio, although it fell from
41.7% of the residential mortgage portfolio at September 30, 2004 to 39.7% at
September 30, 2005. Fixed-rate residential mortgage loans originated by the
Company generally include due-on-sale clauses permitting the Company to demand
payment in full if the borrower sells the property without the Company's
consent. Due-on-sale clauses are an important means of adjusting the rates of
the Company's fixed-rate mortgage loan portfolio, and the Company has generally
exercised its rights under these clauses.

     Adjustable rate mortgage loans are offered with interest rates that adjust
annually based on the one-year treasury bill index, plus 2.75%. Most of these
loans have initial five-year periods with a fixed interest rate, after which the
rate adjusts annually. Interest rate adjustments are generally limited to 2% per
year for one-year adjustable loans. There is normally a lifetime maximum
interest rate adjustment, measured from the initial interest rate, of 6%. Credit
risks on adjustable rate loans are somewhat greater than on fixed-rate loans
primarily because, as interest rates rise, so do borrowers' payments, increasing
the potential for default.

     The Company has enrolled in FHLB's Mortgage Partnership Funding program.
This is a secondary market program similar to the Federal Home Loan Mortgage
Corporation ("Freddie Mac") and Federal National Mortgage Association ("Fannie

                                       7
<PAGE>

Mae") programs. We are under no obligation to sell existing mortgages, and have
not sold any loans to date. However, we do want to position the Company to
compete with other lenders in our market area and may use this program to offer
longer-term lower rate mortgages. Management intends to continue to emphasize
the origination of mortgage loans secured by one-to-four family residences while
at the same time seeking to expand the Company's portfolio of other loan types.

     Home Equity Loans. The Company offers a home equity line of credit secured
by a residential one-to-four family mortgage, usually a second lien. The Company
has sought to increase its volume of these revolving credit loans because the
adjustable rates help improve the interest rate sensitivity of the Company's
assets. These loans, which are offered at prime rate, provide for an initial
advance period of ten years, during which the borrower pays 1/240th of the
outstanding principal balance, plus interest, each month, and can borrow, repay,
and re-borrow the principal balance. This is followed by a repayment period of
ten years, during which the balance of the loan is repaid in principal and
interest installments.

     The Company also offers home equity junior mortgage loans that are fully
advanced at closing and repayable in monthly principal and interest installments
over a period generally not to exceed 10 years.

     The maximum loan to value ratio, including prior liens, is 80% for junior
mortgage loans. At September 30, 2005, the Company had $7.2 million in
outstanding advances on home equity lines of credit, $3.2 million of unused home
equity lines of credit and $0.1 million in regular amortizing home equity loans,
as compared to $5.5 million, $2.5 million and $0.2 million, respectively, at
September 30, 2004.

     Construction Loans. The company offers residential single-family
construction loans primarily to persons who intend to occupy the property upon
completion of construction. The loans automatically convert to regular
amortizing loans after construction is complete. Proceeds of the construction
loan are advanced in stages as construction is completed. The loans generally
provide for a construction period of not more than twelve months during which
the borrower pays interest only. In recognition of the risks involved in such
loans, the Company carefully monitors the construction through regular
inspections. At September 30, 2005, the Company had $3.6 million of construction
loans. Construction loan levels tend to increase during the summer because of
the seasonal nature of residential construction, but even during the summer
these loans generally do not represent more than 3% of the Company's loan
portfolio. Occasionally, the Company makes construction loans for purposes other
than the construction of the borrower's residence when appropriate opportunities
arise.

                            Commercial Mortgage Loans

     The Company has been offering commercial mortgage loans to diversify risk
and obtain the higher yield normally associated with this type of loan as
compared with residential mortgage loans. The Bank has hired a commercial loan
officer and will now look to develop this portfolio, which involves greater
risk, more complex underwriting and more administration than residential real
estate loans.

     The Company offers commercial mortgage loans with loan-to value ratios up
to 70%. The Company offers both fixed and adjustable rate commercial mortgage
loans, with 60.3% of the Company's commercial mortgage loan balances at
September 30, 2005 having fixed interest rates, an increase from last year's
26.1%. However, a number of the loans are five-year balloon mortgages. This
results in a weighted average life for the fixed rate portfolio of approximately
7.2 years.

     The Company generally requires a debt service coverage ratio of at least
120% and the personal guarantee of the principals of the borrower as additional
security. The Company also requires an appraisal by an independent appraiser.

                                       8
<PAGE>

     Loans secured by commercial properties generally involve a greater degree
of risk than one-to-four family residential mortgage loans. Because payments on
such loans are often dependent on successful operation or management of the
properties, repayment may be subject to a greater extent to adverse conditions
in the real estate market or the economy. We feel that the additional risk
associated with this type of lending is acceptable since the Bank's strong
capital position is more than sufficient to absorb losses, and because we seek
to minimize these risks through our underwriting policies. The Company evaluates
the qualifications and financial condition of the borrower, including credit
history, profitability and expertise, as well as the value and condition of the
underlying property. The factors considered by the Company include net operating
income; the debt coverage ratio (the ratio of cash net income plus interest to
debt service); and the loan to value ratio. When evaluating the borrower, the
Company considers the financial resources and income level of the borrower, the
borrower's experience in owning or managing similar property and the Company's
lending experience with the borrower. The Company's policy requires borrowers to
present evidence of the ability to repay the loan without having to resort to
the sale of the mortgaged property.

                              Other Consumer Loans

     Automobile Loans. The Company has tried to increase its level of automobile
loans in order to increase the interest rate sensitivity of its assets and
expand its customer base. Auto loans are originated both through direct contact
between the Company and the borrower and indirectly through auto dealers who
refer the borrowers to the Company. However, the Company underwrites the loans
itself and the loan is originated in the name of the Company. The dealer is paid
a flat fee for each successful referral.

     The Company offers auto loans for both new and used cars. The loans have
fixed rates with maturities of not more than five and a half years. At September
30, 2005, the Company had $7.1 million of auto loans, 18.3% higher than the
level one year earlier. This was mainly due to increased indirect business
generated with a dealer through our Clayton office and an increase in used car
business. Principal is repaid quickly on auto loans because the maximum term is
66 months. That makes it necessary to add new loans to maintain portfolio level.
Auto loans are offered in amounts up to 100% of the purchase price of the car.
The Company evaluates the credit and repayment ability of the borrower as well
as the value of the collateral in determining whether to approve a loan.

     Other Consumer Loans. The Company also makes fixed-rate consumer loans
either unsecured or secured by savings accounts or other consumer assets.
Consumer loans generally have terms not exceeding five years. Other consumer
loans, not including automobile loans, totaled $3.4 million at September 30,
2005, up $0.5 million from $2.9 million at September 30, 2004. Other consumer
loans generally have higher interest rates than mortgage loans. The shorter
terms to maturity are helpful in managing the Company's interest rate risk.
Applications for these loans are evaluated based upon the borrower's ability to
repay and the value of any collateral.

                             Other Commercial Loans

     The Company offers commercial non-mortgage loans to local businesses for
working capital, machinery and equipment purchases, expansion, and other
business purposes. These loans generally have higher yields than mortgages
loans, and include installment equipment financing with terms that generally do
not exceed seven years, short-term working capital loans, and commercial lines
of credit with annual reviews. The Company has $1.2 million of such loans
September 30, 2005, compared to $3.6 million on September 30, 2004, of which
$3.0 million were purchased USDA guaranteed loans.

     Applications for these loans are generally evaluated based up the
borrower's ability to repay the loan from ongoing operations. The loans normally
present greater risks than mortgage loans because the collateral, if any, is
often rapidly depreciable, easier to conceal and of limited value to other
companies. Furthermore, changes in economic conditions and other factors outside

                                       9
<PAGE>

the control of the Company, and often outside the control of the commercial
borrowers, can often have a substantial effect on delinquencies. Therefore, the
Company monitors these accounts on an ongoing basis after making the loan to be
able to address any credit problems promptly if they occur.

     Prior to hiring a commercial loan officer, the Company purchased the USDA
and SBA guaranteed portion of commercial loans originated by other financial
institutions. These loans were either fixed or variable rate and either split
into pieces or purchased in full. During 2005 we sold all of these loans to
provide funding for the growth of our local commercial loan portfolio. The $1.2
million remaining balance of the portfolio of these loans was classified as held
for sale at year-end and the sales were concluded in October, resulting in a
gain of $7,000 for fiscal 2006.

     Origination of loans. Loan originations come from a number of sources.
Residential loan originations develop from depositors, retail customers,
telephone inquiries, advertising, the efforts of the Company's loan officers,
and referrals from other borrowers, real estate brokers and builders. The
Company originates loans through its own efforts and does not use mortgage
brokers, mortgage bankers or other non-employee fee paid loan finders except for
the referral of auto loans from local dealers.

     All of the Company's lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the
Company's Board of Directors. Loan officers have individual authority to make
secured and unsecured loans up to amounts set by the Board. Loans in excess of
$200,000, up to $400,000 require loan committee approval. Loans exceeding
$400,000 must be approved by the Executive Committee of the Board of Directors.

     Under federal law and applicable OTS regulations, the Bank may not lend
more than 15% of the Bank's capital to any one borrower, with additional loans
up to 10% of capital being permitted if the additional loans are secured by
readily marketable collateral. At September 30, 2005, the Company's largest loan
was a commercial mortgage loan located in the company's market area with a loan
balance of $2,456,000. This customer also had the largest loan relationship with
the company, combining all loans to a single borrower or related group of
borrowers, at $2,531,000, below the Bank's regulatory loan limit to one borrower
of $2.7 million. At September 30, 2005, both loans for this customer were
current and performing in accordance with their terms.

     The Company has not purchased loan-servicing rights but may engage in such
activities in the future.

     The following table shows the contractual maturity of the Company's loan
portfolio at September 30, 2005. Loans are shown as due based on their
contractual terms to maturity. Adjustable rate loans are shown as maturing when
the final loan payment is due without regard to rate adjustments. The table does
not show the effects of loan amortization, possible prepayments or enforcement
of due-on-sale clauses. Non-performing loans are shown as being due based upon
their contractual maturity without regard to acceleration due to default.

                                       10
<PAGE>

<TABLE>
<CAPTION>
                       Residential     Commercial      Consumer      Commercial
                         mortgage       mortgage        other          other           Total
                       ------------   ------------   ------------   ------------   ------------
                                                    (in thousands)
<S>                    <C>            <C>            <C>            <C>            <C>
 Amount due:
Within 1 year          $      3,784   $        393   $        508   $        203   $      4,888
1 to 2 years                    199             23            923             17          1,162
2 to 3 years                    313             29          1,876            139          2,357
3 to 5 years                  2,473          2,601          6,213            599         11,886
5 to 10 years                 9,486          2,203            968            181         12,838
over 10 years                62,361          1,223              1             49         63,634
                       ------------   ------------   ------------   ------------   ------------
   Total loans         $     78,616   $      6,472   $     10,489   $      1,188   $     96,765
                       ============   ============   ============   ============   ============
</TABLE>

     The following table shows, as of September 30, 2005, the amount of loans
due after September 30, 2006, and whether they have fixed interest rates or
adjustable interest rates.

                               Fixed        Adjustable
                               Rates          Rates           Total
                            ------------   ------------   ------------
                                          (In thousands)

Residential mortgage        $     43,686   $     31,146   $     74,832
Commercial mortgage                3,890          2,189          6,079
Consumer other                     9,610            371          9,981
Commercial other                     573            412            985
                            ------------   ------------   ------------
         Total              $     57,759   $     34,118   $     91,877
                            ============   ============   ============

Asset Quality

     Delinquency Procedures. When a borrower fails to make a required payment on
a mortgage loan, the Company attempts to cure the deficiency by contacting the
borrower. Late notices are sent when a payment is more than fifteen days past
due and a late charge is generally assessed at that time. The Company attempts
to contact personally any borrower who is more than 30 days past due. When a
mortgage loan is 90 days past due the Company sends a 30 days notice of
acceleration and if the loan is not brought current by the end of that period,
the loan is turned over to an attorney for collection, with foreclosure
generally commenced within 30 to 60 days thereafter. A foreclosure action, if
the default is not cured, generally leads to a judicial sale of the mortgaged
real estate. If the borrower files a bankruptcy petition, the judicial sale is
delayed and the foreclosure action cannot be continued until the Company obtains
relief from the automatic stay provided by the bankruptcy code. The Company has
experienced losses due to delays caused by borrower bankruptcy filings.

     If the Company acquires the mortgaged property at foreclosure sale or
accepts a voluntary deed in lieu of foreclosure, the acquired property is then
classified as foreclosed real estate. At September 30, 2005, the Company had no
foreclosed real estate. The Company seeks to dispose of these properties through
real estate brokers. Due to adverse local economic conditions in the residential
housing market, the disposition of foreclosed real estate can take six months or
more. When real estate is acquired in full or partial satisfaction of a loan, it
is initially recorded at the fair value less estimated costs to sell at the date
of foreclosure, establishing a new cost basis. Write-downs from the unpaid loan
balance to fair value at the time of foreclosure are charged to the allowance

                                       11
<PAGE>

for loan losses. Subsequent revenue and expenses from operations and changes in
the valuation allowance are charged to other expense. The Company is permitted
to finance sales of foreclosed real estate by "loans to facilitate", which may
involve a lower down payment or a longer repayment term or other more favorable
features than generally would be granted under the Company's underwriting
guidelines. At September 30, 2005, the Company has $481,000 of "loans to
facilitate," with each loan current in accordance with its terms.

     Late notices are sent on all consumer loans when a payment is more than 10
days past due. When an automobile loan becomes 60 past due, the Company seeks to
repossess the collateral. If the default is not cured, then upon repossession
the Company sells the automobile as soon as practicable by public notice and
auction. The remaining balance of the loan is fully charged off when the loan is
120 days past due. When other types of non-mortgage loans become past due, the
Company takes measures to cure defaults through contacts with the borrower and
takes appropriate action, depending upon the borrower and the collateral, to
obtain repayment of the loan. The Company had two repossessed assets totaling
$6,000 at September 30, 2005.

     The following table sets forth the Company's loan delinquencies by type, by
amount and by percentage of each loan category at September 30, 2005.

<TABLE>
<CAPTION>
                                                             Loans Delinquent For:
                       --------------------------------------------------------------------------------------------------
                                 60-89 Days                   90 Days or More (1)              Total Delinquent Loans
                       ------------------------------    ------------------------------    ------------------------------
                                             Percent                           Percent                           Percent
                                             of loan                           of loan                           of loan
                          No.      Amount    category       No.      Amount    category      No.       Amount    category
                       --------   --------   --------    --------   --------   --------    --------   --------   --------
<S>                          <C>  <C>            <C>            <C> <C>            <C>           <C>  <C>            <C>
Residential mortgage         25   $    948       1.20%          5   $    115       0.15%         30   $  1,063       1.35%
Commercial mortgage           5        137       1.58%          2        275       3.16%          7        412       4.74%
Consumer other               57        300       2.86%          2          3       0.03%         59        303       2.89%
Commercial other              1          8       0.33%         --         --       0.00%          1          8       0.33%
                       --------   --------               --------   --------               --------   --------
     Total                   88   $  1,393       1.39%          9   $    393       0.39%         97   $  1,786       1.78%
                       ========   ========               ========   ========               ========   ========
</TABLE>

(1) These loans are included as non-accrual loans in the following table on
non-performing assets.

     The following table presents information with respect to the Company's
non-performing assets (which generally include loans that are delinquent for 90
days or more, restructured loans and foreclosed real estate) at the dates
indicated.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                              At September 30,
                                         --------------------------------------------------------
                                           2005        2004        2003        2002        2001
                                         --------    --------    --------    --------    --------
                                                          (Dollars in thousands)
<S>                                      <C>         <C>         <C>         <C>         <C>
Non-accrual loans:
Residential mortgage                     $    115    $    247    $    198    $    282    $     48
Commercial mortgage                           275          --          83          41          73
Consumer other                                  3           5          85          12          63
Commercial other                               --          --         112          84         253
                                         --------    --------    --------    --------    --------
     Total non-accrual loans                  393         252         478         419         437

Restructured commercial mortgage               --         104         225          --          --
Restructured commercial other                  --          24          --         261          --
                                         --------    --------    --------    --------    --------
     Total non-performing loans               393         380         703         680         437

Foreclosed real estate                         --          53          92          25         182
Other repossessed assets                        6           9          29          46          38
                                         --------    --------    --------    --------    --------

     Total non-performing assets         $    399    $    442    $    824    $    751    $    657
                                         ========    ========    ========    ========    ========

Non-performing loans as a percent
of total loans                               0.39%       0.47%       1.08%       1.23%       0.78%

Non-performing loans as a percent
of total assets                              0.32%       0.36%       0.92%       0.88%       0.79%

Allowance for loan losses as a percent
of non-performing loans                    221.12%     198.68%      93.71%      98.68%     149.89%
</TABLE>

     The Company had no loans more than 90 days delinquent and accruing interest
at September 30, 2005, 2004, 2003, 2002 or 2001.

     During fiscal 2005, the Bank's non-performing assets decreased from
$442,000 to $399,000. Non-performing loans increased by $13,000 to $393,000 at
September 30, 2005 from $380,000 at September 30, 2004, but represented only
0.39% of total loans versus 0.47% a year earlier. During fiscal 2005, we
incurred $4,000 of losses associated with the $380,000 of non-performing loans
at September 30, 2004. Currently, one of the six residential non-accrual
mortgages and both commercial non-accrual mortgages are in foreclosure
proceedings.

     Management believes that these non-performing loans are adequately secured
by collateral. Further, management is not aware of any factors common to these
loans, which caused their non-performance or any developments that suggest an
upward trend in delinquencies. Management has determined that a $140,000
increase in the loan loss allowance is appropriate at this time due to the
general growth of the loan portfolio and specifically the residential mortgage
loan portfolio by $15.0 million.

     At September 30, 2005, there were no loans other than those included in the
table above with regard to which management had information about possible
credit problems of the borrower that caused management to seriously doubt the

                                       13
<PAGE>

ability of the borrower to comply with the present loan repayment terms. The
Bank's ratio of non-performing assets to total assets was below 1% for the
eighth straight year.

     It is the Company's policy to discontinue accruing interest on a loan when
its fourth monthly payment is due and unpaid, unless the Company determines that
the nature of the delinquency and the collateral are such that collection of the
principal and interest on the loan is reasonably assured. When the accrual of
interest is discontinued, all accrued but unpaid interest is charged against
current period income. Generally, once the accrual of interest is discontinued,
the Company records interest as and when received until the loan is restored to
accruing status. However, if there is substantial doubt as the collectibility of
the loan, amounts received are recorded as a reduction of principal until the
loan is returned to accruing status.

     The amount of additional interest income that would have been recorded on
non-accrual loans had those loans been performing in accordance with their terms
was approximately $15,000 for fiscal 2005 and $10,000 for fiscal 2004.

     Classified Assets. OTS regulations require that the Company classify its
assets on a regular basis and establish prudent valuation allowances based on
such classifications. In addition, in connection with examinations, OTS
examiners have the authority to identify problem assets and, if appropriate,
require that they be classified. There are three adverse classifications for
problem assets: Substandard, Doubtful and Loss. Substandard assets have one or
more defined weaknesses and are characterized by the distinct possibility that
the Company will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets, with the additional
characteristics that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is a high probability of loss. An asset classified as Loss is considered
not collectible and of such little value that its continuance as an asset on the
financial statements of the Company is not warranted.

     Assets classified as Substandard or Doubtful require the Company to
establish prudent valuation allowances. If an asset or portion thereof is
classified as Loss, the Company must either establish a specific allowance for
loss equal to 100% of the portion of the asset classified Loss or charge off
such amount. If the Company does not agree with an examiner's classification of
an asset it may appeal this determination. On the basis of management's review
of its loans and other assets at September 30, 2005, the Company had $585,000 of
assets classified as Substandard, none classified as Doubtful and $10,000
classified as Loss.

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

     The analysis of the adequacy of the allowance is reported to and reviewed
by the Board of Directors quarterly. Management believes it uses a reasonable
and prudent methodology to project losses in the loan portfolio, and hence
assess the adequacy of the allowance for loan losses. However, any such
assessment is only an informed estimate and future adjustments may be necessary
if economic conditions or the Company's actual experience differ substantially

                                       14
<PAGE>

from the assumptions upon which the evaluation of the allowance was based.
Furthermore, state and federal regulators, in reviewing the Company's loan
portfolio as part of a future regulatory examination, may request the Company to
increase its allowance for loan losses, thereby negatively affecting the
Company's financial condition and earnings at that time. Moreover, future
additions to the allowance may be necessary based on changes in economic and
real estate market conditions, new information regarding existing loans,
identification of additional problem loans and other factors, both within and
outside of management's control.

     The following table analyzes activity in the Company's allowance for loan
losses during the periods indicated. Loans in the consumer other category are
primarily automobile loans.

<TABLE>
<CAPTION>
                                                            At September 30,
                                        --------------------------------------------------------
                                          2005        2004        2003        2002        2001
                                        --------    --------    --------    --------    --------
                                                         (Dollars in thousands)
<S>                                     <C>         <C>         <C>         <C>         <C>
Allowance, beginning of period          $    755    $    655    $    671    $    655    $    663
Provision for loan losses                    140         135          95          85          80
Charge-offs:
   Residential mortgage & home equity         15          --          33          47          26
   Commercial mortgage                        --          --          18          --          --
   Consumer other                             58          63          85          80         103
   Commercial other                            6          58          52          --           6
                                        --------    --------    --------    --------    --------
      Total charge-offs                       79         121         188         127         135
Recoveries:
   Residential mortgage & home equity         15           9          16           8           6
   Commercial mortgage                        --          --          --          --          --
   Consumer other                             38          18          51          50          40
   Commercial other                           --          59          10          --           1
                                        --------    --------    --------    --------    --------
      Total recoveries                        53          86          77          58          47
                                        --------    --------    --------    --------    --------
Net charge-offs                               26          35         111          69          88
                                        --------    --------    --------    --------    --------

Allowance, end of period                $    869    $    755    $    655    $    671    $    655
                                        ========    ========    ========    ========    ========

Allowance as a percent of total loans       0.87%       0.94%       1.01%       1.23%       1.17%

Ratio of net charge-offs to average
loans outstanding                           0.03%       0.05%       0.19%       0.13%       0.16%
</TABLE>

     The following table analyzes the allocation of the Company's allowance for
loan losses to specific loan categories during the periods indicated. In 2005
categories were added for commercial mortgages and commercial other loans. For
prior years, the amount allocated to consumer other loans included both
categories of commercial loans.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                   At September 30,
                                 --------------------------------------------------
                                          2005                       2004
                                 -----------------------    -----------------------
                                              Percent of                 Percent of
                                               Loans to                   Loans to
                                   Amount     Total Loans     Amount     Total Loans
                                 ----------   ----------    ----------   ----------
                                                 (Dollars in thousands)
<S>                              <C>              <C>       <C>              <C>
Allowance allocated to:
Residential mortgages            $      440        78.46%   $      446        84.38%
Commercial mortgages                    139         8.66%           --         0.00%
Consumer other                          252        10.47%          309        15.62%
Commercial other                         38         2.41%           --         0.00%
                                 ----------   ----------    ----------   ----------
   Total allowance               $      869       100.00%   $      755       100.00%
                                 ==========   ==========    ==========   ==========


<CAPTION>
                                                               At September 30,
                                 -----------------------------------------------------------------------------
                                          2003                       2002                       2001
                                 -----------------------    -----------------------    -----------------------
                                              Percent of                 Percent of                 Percent of
                                               Loans to                   Loans to                   Loans to
                                   Amount     Total Loans     Amount     Total Loans     Amount     Total Loans
                                 ----------   ----------    ----------   ----------    ----------   ----------
                                                           (Dollars in thousands)
<S>                              <C>              <C>       <C>              <C>       <C>              <C>
Allowance allocated to:
Residential mortgages            $      382        80.56%   $      294        78.76%   $      317        78.02%
Commercial mortgages                     --         0.00%           --         0.00%           --         0.00%
Consumer other                          273        19.44%          377        21.24%          338        21.98%
Commercial other                         --         0.00%           --          0.0%           --          0.0%
                                 ----------   ----------    ----------   ----------    ----------   ----------
   Total allowance               $      655       100.00%   $      671       100.00%   $      655       100.00%
                                 ==========   ==========    ==========   ==========    ==========   ==========
</TABLE>


Environmental Issues

     The Company encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on property securing
their loans. In addition, the presence of hazardous materials may have a
substantial adverse effect on the value of such property as collateral and may
cause economic difficulties for the borrower, causing the loan to go into
default. Although environmental risks are usually associated with loans secured
by commercial real estate, risks may also exist for loans secured by residential
real estate if, for example, there is nearby commercial contamination or if the
residence was constructed on property formerly used for commercial purposes. The
Company attempts to control its risk by requiring a phase one environmental
assessment by a Company approved engineer as part of its underwriting review for
commercial mortgage loans when management deems such review to be necessary
based on the history of the property.

                                       16
<PAGE>

     The Company believes its procedures regarding the assessment of
environmental risk are adequate. As of September 30, 2005, the Company was
unaware of any environmental issues with respect to any of its mortgage loans
that would subject it to any material liability. Hidden or future environmental
contamination could adversely affect the values of properties securing loans in
the Company's portfolio.

Investment Activities

     General. The Company develops an annual investment plan approved by the
Board of Directors. The Company recognizes that imbedded in the mortgage
portfolio are inherent prepayment and extension risks. Among the goals of the
investment plan are to develop a securities portfolio that may offset some of
the risks of the loan portfolio. Investments are well diversified and are of
high quality. The price risk of the investment portfolio is governed by
parameters of the investment plan. In addition to price risk, the plan also
develops goals for portfolio yield and cash flow. Individual security purchases
are analyzed in terms of how they fit with the goals of the investment plan. The
Company's President implements the investment plan. All security purchases and
sales are reported to the Board of Directors each month. An update of the
progress made versus the investment plan is also reported to the Board's Asset
Liability Committee on a quarterly basis, at which time recommendations may be
made to alter the plan if conditions warrant.

     The Company primarily employs a strategy of investing in short and
intermediate term fixed rate securities and may from time to time invest in
longer-term fixed rate securities. The Company has de-emphasized investments in
adjustable rate securities because of the high level of adjustable rate loans in
its mortgage portfolio. The Company may elect to increase or decrease its
interest rate sensitivity depending upon, among other things, the level of
interest rates. The investment portfolio would change based upon the Company's
desired interest rate risk position.

     As required by Statement of Financial Accounting Standards ("SFAS") 115,
securities are classified into three categories: trading, held-to-maturity and
available-for-sale. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value with unrealized gains and losses included in
trading account activities in the statement of income. Securities that the
Company has the positive intent and ability to hold to maturity are classified
as held-to-maturity and reported at amortized cost. All other securities are
classified as available-for-sale. Available-for-sale securities are reported at
fair value with unrealized gains and losses included, on an after-tax basis, as
a separate component of accumulated other comprehensive income. The Company does
not have a trading securities portfolio and has no current plans to maintain
such a portfolio in the future. The Company classifies each security in either
the available-for-sale or the held-to-maturity categories when the security is
purchased.

     Investment Securities. The Company's investment securities totaled $11.1
million at September 30, 2005, including $11.0 million classified as
available-for-sale and $0.1 million classified as held-to maturity. The Company
invests primarily in debt securities issued by the United States Government and
its agencies ($5.0 million at September 30, 2005) and mortgage-backed securities
issued or guaranteed by government-sponsored enterprises ($4.1 million at
September 30, 2005). For the past few years, the Company has classified all
recent purchases of investment securities as available-for-sale in order to
maintain flexibility in managing its investments. Investment securities are
purchased in order to invest funds that many may be needed to make loans in the
future, to provide a source of liquidity if the need for funds arises, to manage
interest rate sensitivity, and to take advantage of acceptable after tax yields
that are available when purchasing certain tax-exempt municipal securities. The
Company purchases only investment grade debt securities and at September 30,
2005, none of its investment securities were in default or otherwise classified.

     The Company invests in mortgage-backed securities to supplement the yields
on its loan portfolio and to help satisfy our Qualified Thrift Lender ("QTL")
test, as described on page 23 of this report. More than ninety percent of the

                                       17
<PAGE>

mortgage-backed securities were issued, and are insured or guaranteed by Fannie
Mae, Freddie Mac or the Government National Mortgage Association ("Ginnie Mae").
At September 30, 2005, the Company's mortgage-backed securities portfolio
contained $4.1 million classified as available-for-sale and $0.1 million
classified as held-to maturity.

     The Company employs a strategy of investing in short-term balloon and
one-year adjustable mortgage-backed securities rather than longer term fixed
rate securities. This helps the Company to manage cash flow and mitigate
interest rate sensitivity, but may result in slightly lower average yield.

     Mortgage-backed securities are more liquid than individual mortgage loans
and may be used to collateralize borrowings of the Company. However, these
securities generally yield less than the loans that underlie them because of the
cost of payment guarantees or credit enhancements that reduce credit risk.
Mortgage-backed securities of the type held by the Company are generally
weighted at 20%, rather than the 50% weighting for performing residential
one-to-four family mortgage loans, in determining risk-based capital ratios.

     Investment securities carry a reduced credit risk as compared to loans.
However, investment securities classified as available-for-sale are subject to
the risk that a fluctuating interest rate environment could cause a material
decline in the carrying value of such securities. In addition, interest rate
fluctuations, real estate market changes and changes in economic conditions may
alter the prepayment rates on the mortgage loans underlying the mortgage-backed
securities and thus affect the value of such securities resulting in a decline
in shareholders' equity.

     At September 30, 2005, the Company had unrealized losses of $103,000 on
available for sale securities and none on held to maturity securities. In
management's opinion, the unrealized losses primarily reflect changes in
interest rates subsequent to the acquisition of the securities rather than a
deterioration of the issuer's ability to repay the debt, and as such, are
considered to be a temporary impairment of the securities.

     Equity Securities. At September 30, 2005 the Company had $503,000 in fair
market value of corporate equity securities represented by Freddie Mac preferred
stock with a cost of $9,000.

     At September 30, 2005, the Bank also had $1,838,000 of stock in the FHLB,
up from $1,150,000 at September 30, 2004, that was necessary for the Bank to
maintain its membership in the FHLB system. The stock is redeemable at par. The
Bank is required to hold FHLB stock equal to 5% of advances from FHLB. The yield
on this stock was 3.74% (annualized) for the year ended September 30, 2005.

     The following table sets forth certain information regarding the carrying
values of the Company's available for sale and held to maturity portfolios at
the dates indicated.

                                       18
<PAGE>

<TABLE>
<CAPTION>
                                                             At September 30,
                                               ------------------------------------------
                                                   2005           2004           2003
                                               ------------   ------------   ------------
                                                 Carrying       Carrying        Carrying
                                                  Value          Value           Value
                                               ------------   ------------   ------------
                                                           (Dollars in thousands)
<S>                                            <C>            <C>            <C>
         Securities Available for Sale:
            U.S. Government and
               federal agency securities       $      4,968   $      6,385   $      8,876
            Mortgage-backed securities                4,123          5,304          5,562
            Municipal securities                      1,276          1,286            531
                                               ------------   ------------   ------------
               Total debt securities                 10,367         12,975         14,969

            Corporate securities                        503            680            636
            Mutual funds and other securities           122            142          1,868
                                               ------------   ------------   ------------
               Total available for sale              10,992         13,797         17,473
                                               ------------   ------------   ------------

         Securities Held to Maturity:
            Mortgage-backed securities                  109            251            399
            Other securities                             --             --             57
                                               ------------   ------------   ------------
               Total held to maturity                   109            251            456

                  Total Securities             $     11,101   $     14,048   $     17,929
                                               ============   ============   ============
</TABLE>

     The table below sets forth certain information regarding the carrying
value, weighted average yields and stated maturity of the Company's securities
at September 30, 2005. There were no securities (exclusive of obligations of the
U.S. Government and federal agencies) issued by any one entity with the total
carrying value in excess of 10% of the Company's shareholders' equity at that
date.

<TABLE>
<CAPTION>
                        One year             From one             From five            More than
                       Or less (1)        to five years         to ten years           ten years        Total securities
                   ------------------   ------------------   ------------------   ------------------   ------------------
                   Carrying     Ave.    Carrying     Ave.    Carrying     Ave.    Carrying     Ave.    Carrying     Ave.     Fair
                     Value     Yield      Value     Yield      Value     Yield      Value     Yield      Value     Yield     Value
                   --------  --------   --------  --------   --------  --------   --------  --------   --------  --------   --------
                                                                (Dollars in thousands)
<S>                <C>           <C>    <C>           <C>    <C>           <C>    <C>           <C>    <C>           <C>    <C>
U.S. Gov't sec     $     --      0.00%  $  1,016      5.10%  $    494      4.44%  $  3,458      3.89%  $  4,968      4.19%  $  4,968
Mortgage-back sec        16      5.40%       393      3.68%       377      3.35%     3,446      4.60%     4,232      4.41%     4,233
Municipal sec            --      0.00%       524      3.44%       752      3.60%        --      0.00%     1,276      3.53%     1,276
Other sec               625      2.72%        --      0.00%        --      0.00%        --      0.00%       625      2.72%       625
                   --------             --------             --------             --------             --------             --------
   Total           $    641      2.78%  $  1,933      4.36%  $  1,623      3.80%  $  6,904      4.25%  $ 11,101      4.12%  $ 11,102
                   ========             ========             ========             ========             ========             ========
</TABLE>

(1)  Includes equity securities and mutual funds, which have no maturity.

Sources of Funds

     General. The Company's primary source of funds is deposits. The Company has
incurred borrowings to fund additional loans and investments, and may do so
again in the future. In addition, the Company derives funds for loans and
investments from loans and security repayments and prepayments and revenues from
operations. Scheduled payments on loans and mortgage-backed and investment
securities are relatively stable sources of funds, while savings inflows and
outflows and loan and mortgage-backed and investment securities prepayments are
significantly influenced by general interest rates and money market conditions.
In general, the Company expects that it will continue to offer the same types of
deposit products but also expects that it will continue to use FHLB advances as
a source of funds to maximize the return on the Company's common stock.

     Deposits. The Company offers several types of deposit programs to its
customers, including savings accounts, NOW accounts, money market deposit
accounts, checking accounts and certificates of deposit. Deposit account terms
vary according to the minimum balance required, the time periods the funds must
remain on deposit and the interest rate, among other factors. The Company's
deposits are obtained predominantly from its primary market area. The Company
relies primarily on customer service and long-standing relationships with
customers to attract and retain these savings deposits; however, market interest

                                       19
<PAGE>

rates and rates offered by competing financial institutions significantly affect
the Company's ability to attract and retain savings deposits. The Company has
not used brokers to obtain deposits and has no brokered deposits. At September
30, 2005, the Company had $64.0 million of deposits.

     We generally price our deposit rates to be competitive with other
institutions in our market area. Pricing determinations are made weekly by a
committee of officers.

     The following table sets forth the distribution of the Company's deposit
accounts at the dates indicated. The interest rates shown for non-time accounts
are the rates in effect at September 30, 2005.

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                At September 30,
                                  -----------------------------------------------------------------------------
                                           2005                       2004                       2003
                                  -----------------------    -----------------------    -----------------------
                                                Percent                    Percent                    Percent
                                    Amount      of total       Amount      of total       Amount      of total
                                  ----------   ----------    ----------   ----------    ----------   ----------
                                                              (Dollars in thousands)
<S>                               <C>              <C>       <C>              <C>       <C>              <C>
Non-time accounts:
   Savings and club accounts
      (1.05%)                     $   19,101        29.86%   $   20,038        32.53%   $   19,157        32.79%
   NOW and money market
      accounts (0.49 - 2.49%)         11,956        18.69%       10,710        17.39%        9,409        16.10%
   Non-interest bearing
      Demand accounts                  2,043         3.19%        1,327         2.15%          806         1.38%
                                  ----------   ----------    ----------   ----------    ----------   ----------
        Total non-time deposits       33,100        51.74%       32,075        52.07%       29,372        50.27%

Time accounts:
   1.00 - 1.99%                        2,786         4.36%       11,037        17.92%       10,757        18.41%
   2.00 - 2.99%                        9,903        15.48%       10,158        16.49%        6,576        11.26%
   3.00 - 3.99%                       12,777        19.98%        3,622         5.88%        5,547         9.50%
   4.00 - 4.99%                        5,398         8.44%        4,441         7.21%        5,611         9.60%
   5.00 - 5.99%                           --         0.00%          265         0.43%          560         0.96%
                                  ----------   ----------    ----------   ----------    ----------   ----------
      Total time deposits             30,864        48.26%       29,523        47.93%       29,051        49.73%
                                  ----------   ----------    ----------   ----------    ----------   ----------

Total deposits                    $   63,964       100.00%   $   61,598       100.00%   $   58,423       100.00%
                                  ==========   ==========    ==========   ==========    ==========   ==========
</TABLE>

     At September 30, 2005, the Company had $5,910,000 in certificates of
deposit with balances of $100,000 or more ("jumbo deposits"), representing 9.23%
of all deposits.

     The following table sets forth the amount of certificates of deposit in
denominations of $100,000 at September 30, 2005, and the remaining period to
maturity of such deposits.

                            Amount Due (in thousands)

                   In More Than   In More Than
    In 3 Months     3 up to 6      6 up to 12    In More Than
      Or Less         Months         Months        12 Months        Total
    ------------   ------------   ------------   ------------   ------------
    $        522   $        222   $      1,746   $      3,420   $      5,910

     Borrowings. During fiscal 2005, we incurred $13.8 million new borrowings.
All outstanding advances are from the FHLB and generally have terms of one to
ten years with the entire principal balance repayable at the earlier of call
date or maturity. The average balance of FHLB outstanding advances payable
during 2005 was $29.5 million and the weighted average cost was 3.63%. The
highest balance outstanding during the year was $36.8 million and the balance at
September 30, 2005 was $36.8 million. In 2004, the average balance of loans
payable to FHLB was $17.3 million at a weighted average cost of 3.70%. The
highest outstanding balance during the 2004 fiscal year was $23.0 million and
the balance at September 30, 2004 was $23.0 million.

                                       21
<PAGE>

Subsidiary Activities

     The Company is permitted to own subsidiaries for certain limited purposes,
as permitted under OTS regulations. The Company has no subsidiaries except for
the Bank.

Personnel

     At September 30, 2005, the Company had thirty-three full-time and one
part-time employee, as compared to thirty-three full-time and no part-time
employees on September 30, 2004. A collective bargaining unit does not represent
employees, and the Company considers its relationship with its employees to be
good.

Regulation

General

     The Bank is a federal savings association subject to extensive regulation,
examination, and supervision by the OTS, as its primary federal regulator and by
the FDIC as its deposit insurer. The Bank's deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund of the FDIC, and the
Bank is a member of the FHLB. The OTS regulates the Company and Cambray MHC as
savings and loan holding companies. The following discussion is not, and does
not purport to be, a complete description of the laws and regulation applicable
to the Company and the Bank. Any change in such laws or regulations by the OTS,
the FDIC or congress could materially adversely affect the Company and the Bank.

Regulation of Federal Savings Association

     Business Activities. The Bank's lending investment and deposit powers come
from the Home Owners' Loan Act, as amended (the "HOLA") and OTS regulations.
These powers are also governed to some extent, by the FDIC under the Federal
Deposit Insurance Act and FDIC regulations. The Bank may make residential and
commercial mortgage loans, commercial loans and consumer loans, and may invest
in certain types of debt securities, and other assets. The HOLA and OTS
regulations limit the amounts that the Bank may invest in various categories of
loans, securities and other investments and such limits are generally calculated
as percentages of the Bank's assets or capital. The Bank may offer a variety of
deposit accounts, including savings, certificate (time), demand and NOW
accounts. The Bank may also establish subsidiaries to engage in financially
related activities such as insurance and securities brokerage.

     Branching. Subject to certain limitations, HOLA and OTS regulations permit
federally-chartered savings associations to establish branches in any state of
the United States. This authority preempts any state law purporting to regulate
branching by federal savings associations.

     Loans to One Borrower. Under the HOLA, federal savings associations are
subject to the limits applicable to national banks on loans to a single borrower
or a related group of borrowers. The Bank generally may not make a loan or
extend credit to a single or related group of borrowers in excess of 15% of its
unimpaired capital and surplus. Up to an additional 10% of unimpaired capital
and surplus can be lent if the additional amount is fully secured by readily
marketable collateral. At September 30, 2005, the Bank's regulatory limit on
loans to one borrower was in excess of $2.7 million. At that date, the Bank's
largest aggregate of loans to one borrower was $2,531,000.

     QTL Test. The HOLA requires the Bank to meet a "QTL" test. Under the QTL
test the Bank must maintain at least 65% of its assets, after certain
adjustments, in various types of loans made for residential and housing
purposes, related investments, education, small business and credit card loans,

                                       22
<PAGE>

and consumer loans and certain other loan and investments. The Bank satisfies
the QTL test and the Bank anticipates that it will continue to satisfy the test
in the future. If the Bank fails to satisfy the QTL test it will have to either
restrict its activities or convert to commercial bank charter.

     Capital Requirements. OTS regulations require that the Bank maintain
tangible capital equal to 1.5% of total assets as adjusted under the OTS
regulations, core capital equal to 3% of such adjusted total assets and total
capital (core capital plus supplementary capital) equal to 8% of risk-weighted
assets. The Bank's capital ratios at September 30, 2005 all substantially
exceeded OTS minimum capital requirements.

     Limitations on Capital Distributions. OTS regulates the amount of dividends
and other capital distributions that the Bank may pay to the Company. In
general, if the Bank will satisfy all OTS capital requirements both before and
after the distribution, the Bank may make capital distributions to the Company
in any year equal to the current year's net income plus retained net income for
the preceding two years. However, because it is a savings and loan holding
company subsidiary, the Bank must notify the OTS of the distribution and the OTS
may object on safety and soundness grounds.

     If any capital distribution will exceed these limits, or if the OTS either
considers the Bank a troubled or problem institution or gives the Bank a rating
in less than the two highest rating categories, then the Bank must get OTS
approval before making a capital distribution. The Bank is not currently
required to obtain OTS approval unless it exceeds the dollar limits, and the
Bank has never paid a dividend to the Company that exceeds the dollar limits.
Therefore, the Company does not believe that the OTS capital distribution
regulations will have a material affect on its operations or its ability to pay
dividends to its stockholders.

     Community Reinvestment Act and Fair Lending Laws. Under the federal
Community Reinvestment Act (the "CRA"), the Bank, consistent with its safe and
sound operation, must help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The OTS periodically assesses
the Bank's compliance with CRA requirements. The Bank received a "satisfactory"
CRA rating in its most recent OTS examination. The Bank must also comply with
the Equal Credit Opportunity Act, which prohibits creditors from discrimination
in their lending practices on bases specified in these statutes. The OTS and the
Justice Department may take enforcement action against institutions that fail to
comply with Fair Lending Laws.

     Transactions With Related Parties. The Bank is authorized by federal law to
engage in transactions with its affiliates. In general, an affiliate of the Bank
is any company that controls the Bank or any other company that is controlled by
a company that controls the Bank, excluding the Bank's subsidiaries other than
those that are insured depository institutions. The Bank may not (a) lend to any
of its affiliates that is engaged in activities that are not permissible for
bank holding companies and (b) purchase the securities of any affiliate other
than a subsidiary. Transactions with any individual affiliate may not exceed 10%
of the capital and surplus of the Bank and aggregate transactions with all
affiliates may not exceed 20%. These restrictions do not impose material limits
on the Bank's business activities.

     The Bank's loans to insiders must be made on terms that are substantially
the same as, and follow credit underwriting procedures that are not less
stringent than, those prevailing for comparable transactions with unaffiliated
persons and that do not involve more than the normal risk of repayment or
present other unfavorable features. The loans are also subject to maximum dollar
limits and must generally be approved by the Board of Directors. The Bank may
make loans to insiders on preferential terms as part of a benefit or
compensation program that is widely available to employees. The Bank has no such
benefit or compensation programs.

     Enforcement. The OTS has primary enforcement responsibility over federal
savings associations. This enforcement authority includes, among other things,
the ability to assess civil money penalties, to issue cease and desist orders

                                       23
<PAGE>

and to remove directors and officers. In general, these enforcement actions may
be initiated in response to violations of laws and regulations and to unsafe or
unsound practices.

     Standards for Safety and Soundness. The OTS has adopted guidelines
prescribing safety and soundness standards. These guidelines establish general
standards relating to internal controls and information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, asset quality, earnings standards, compensation, fees and benefits. In
general, the guidelines require appropriate systems and practices to identify
and manage the risks and exposures specified in the guidelines. The OTS may
order an institution that has been given notice that it is not satisfying these
safety and soundness standards to submit a compliance plan and if an institution
fails to do so, the OTS may issue an order directing action to correct the
deficiency and may issue an order directing other action. If an institution
fails to comply with such an order, the OTS may seek to enforce such order in
judicial proceedings and to impose civil money penalties.

     Real Estate Lending Standards. OTS regulations generally require each
savings association to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying OTS guidelines, which include loan-to-value ratios for the
different types of real estate loans.

     Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, savings associations are categorized as well-capitalized,
adequately capitalized, undercapitalized, or critically undercapitalized. The
OTS may, and in some cases must, take supervisory action against
undercapitalized savings associations. At September 30, 2005, the Bank met the
criteria for being considered well-capitalized.

     Federal Reserve System. The Bank is subject to provisions of the Federal
Reserve Act ("FRA") and the regulations of the Board of Governors of the Federal
Reserve System ("FRB") pursuant to which depositary institutions may be required
to maintain non-interest-earning reserves against their deposit accounts and
certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The Bank
complies with these requirements. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements
imposed by the OTS. FHLB System members are also authorized to borrow from the
Federal Reserve discount window, but FRB regulations require such institutions
to exhaust all FHLB sources before borrowing from a Federal Reserve Bank.

     Privacy Regulations. OTS regulations generally require the Bank to disclose
its privacy policy, including identifying with whom it shares a customer's
"non-public personal information," to customers at the time of establishing the
customer relationship and annually thereafter. In addition we must provide our
customers with the ability to "opt-out" of having their personal information
shared with unaffiliated third parties and not to disclose account numbers or
access codes to non-affiliated third parties for marketing purposes. We believe
that the Bank's privacy policy complies with the regulations.

     The USA PATRIOT Act. The Bank is subject to the USA PATRIOT Act, which
gives the federal government new powers to address terrorist threats through
enhanced domestic security measures, expanded surveillance powers, increased
information sharing, and broadened anti-money laundering requirements. The USA
PATRIOT Act imposes affirmative obligations on financial institutions, including
the Bank, which include establishing anti-money laundering programs providing
for: (i) internal policies, procedures and controls; (ii) designation of an
anti-money laundering compliance officer; (iii) ongoing employee training
programs; and (iv) an independent audit function to test the anti-money
laundering program. The OTS must consider the Bank's effectiveness in combating
money laundering when ruling merger and other applications.

                                       24
<PAGE>

     Prohibitions Against Tying Arrangements. Federal savings associations are
prohibited, subject to some exceptions, from extending credit to or offering any
other service, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or its affiliates or not obtain services of a
competitor of the institution.

     Insurance of Deposit Accounts. The Bank pays deposit insurance premiums to
the FDIC. The amount of the premium depends upon the Bank's capital ratios and
supervisory rating category. At present the Bank's capital ratios and
supervisory rating are high enough that the Bank pays no regular deposit
insurance premiums. However, the Bank must pay a share of the cost of the bonds
issued in the late 1980s to recapitalize the now defunct Federal Savings and
Loan Insurance Corporation, currently equal to approximately 0.01% of its
insured deposits per year.

     Federal Home Loan Bank System. The Bank is a member of the FHLB and uses it
as a source for borrowing funds. The Company must own stock in the FHLB at least
equal to the greater of 1% of the principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year or 5% of
its advances from the FHLB. At September 30, 2005, we had $1,838,000 of capital
stock of the FHLB, which satisfied this requirement and we had FHLB borrowings
totaling $36.8 million.

     Holding Company Regulation

     General Powers. The Company is a unitary savings and loan holding company
within the meaning of the HOLA. As such, the Company is registered with the OTS
and is subject to OTS regulation, examination, supervision and reporting
requirements. The OTS has enforcement authority over the Company and any
non-savings institution subsidiaries it may form or acquire. Among other things,
this authority permits the OTS to restrict or prohibit activities that it
determines may pose a serious risk to the Bank. As a unitary savings and loan
holding company, the Company is not restricted as to the types of business
activities in which it may engage, provided that the Bank continues to meet the
qualified thrift lender QTL test. Upon any non-supervisory acquisition by the
Company of another savings association or savings bank, the Company would become
a multiple savings and loan holding company (if the acquired institution is held
as a separate subsidiary) and would be limited primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, subject to the prior approval of the OTS, and activities authorized
by OTS regulation.


     Waivers of dividends by the Mutual Holding Company. Cambray MHC owns 57.4%
of the stock of the Company. If Cambray MHC decides to waive its share of any
dividend that the Bank is paying to its stockholders, Cambray MHC must notify
the OTS. The OTS reviews dividend waiver notices on a case-by-case basis, and,
in general, does not object to any such waiver if: (i) the mutual holding
company board of directors determines that such waiver is consistent with such
directors' fiduciary duties to the mutual holding company's members, (ii) for as
long as the savings association subsidiary is controlled by the mutual holding
company, the dollar amount of dividends waived by the mutual holding company are
considered as a restriction to the retained earnings of the savings association,
which restriction, if material, is disclosed in the public financial statements
of the savings association as a note to the financial statements; (iii) the
amount of any dividend waived by the mutual holding company is available for
declaration as a dividend solely to the mutual holding company, and, in
accordance with SFAS 5, where the savings association determines that the
payment of such dividend to the mutual holding company is probable, an
appropriate dollar amount is recorded as a liability. Cambray MHC has elected to
waive the dividends totaling $1,114,000 as of September 30, 2005.

     Conversion of the Mutual Holding Company to Stock Form. OTS regulations
permit the Mutual Holding Company to convert from the mutual to the capital
stock form of organization. The Board of Directors has no current intention or

                                       25
<PAGE>

plans for such a transaction. In general, if such a transaction is undertaken, a
new company would be formed to replace the Company and 57.4% of its stock would
be offered to the depositors of the Bank and to the public. The other current
stockholders of the Company would be entitled to receive 42.6% of the stock of
the new company in exchange for the stock of the Company.

Federal Securities Law

     The common stock of the Company is registered with the SEC under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company is subject to
the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.

Sarbanes Oxley Act of 2002

     The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), enacted on July
30, 2002, represents a comprehensive revision of laws affecting corporate
governance, accounting obligations and corporate reporting. Specifically, the
Sarbanes-Oxley Act: (i) creates a new federal accounting oversight body; (ii)
revamps auditor independence rules; (iii) enacts new corporate responsibility
and governance measures; (iv) enhances disclosures by public companies, their
directors and executive officers; (v) strengthens the powers and resources of
the SEC; and (vi) imposes new criminal and civil penalties for securities fraud
and related wrongful conduct. The Company is subject to the Sarbanes-Oxley Act.

     The SEC has adopted regulations to implement the Sarbanes-Oxley Act,
including: new standards of independence for directors who serve on the
Company's Audit Committee; disclosure requirements as to whether at least one
member of the Company's Audit Committee qualifies as a "financial expert" as
defined in the SEC regulations and whether the Company has adopted a code of
ethics applicable to its chief executive officer, chief financial officer or
those persons performing similar functions; and disclosure requirements
regarding the operations of board nominating committees and the means, if any,
by which security holders may communicate with directors. We have incurred, and
expect that we will continue to incur, increased professional fees and other
expenses associated with compliance with the Sarbanes-Oxley Act.

Item 2. Description of Properties

     The Company conducts its business through its headquarters at 42 Church
Street and an adjacent building at 26 John Street in the Town and Village of
Gouverneur and a full service branch office in the Town of Alexandria. The net
book value of these three premises is $1,038,000. The Bank has purchased two
separate parcels of land adjacent to its headquarters at 42 Church Street in the
Town and Village of Gouverneur. Both structures have been razed and removed. The
plan is to build on those properties, beginning in the spring of 2006, a
separate building close to the current Bank building, to provide additional
office space to allow for future growth, as well as expand and improve our drive
up facilities. Some modifications will be made to the current Bank building to
house executive offices and back office support personnel. The Company currently
operates a loan production office out of rented space in Clayton, New York. The
book value of that premises is zero.

Item 3.  Legal Proceedings

     The Bank is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Bank in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Bank's or the Registrant's results of operations and financial
condition. The Registrant is not a party to any litigation.

                                       26
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders

     No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
2005.

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     Information contained under the caption "Common Stock" in the 2005 Annual
Report to Stockholders included as Exhibit 13 hereto is herein incorporated by
this reference.

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

     Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the 2005 Annual
Report to Stockholders included as Exhibit 13 hereto is herein incorporated by
this reference.

Item 7.  Financial Statements

     The following information appearing in the 2005 Annual Report to
Stockholders included as Exhibit 13 hereto is herein incorporated by this
reference.

     Report of Independent Registered Public Accounting Firm
     Consolidated Statements of Financial Condition as of September 30, 2005 and
     2004.
     Consolidated Statements of Income for the Years Ended September 30, 2005
     and 2004.
     Consolidated Statements of Shareholders' Equity for the Years Ended
     September 30, 2005 and 2004.
     Consolidated Statements of Cash Flows for the Years Ended September 30,
     2005 and 2004.
     Notes to Consolidated Financial Statements

     With the exception of the information expressly incorporated herein by
reference, the Company's Annual Report to Stockholders for the year ended
September 30, 2005, is not deemed filed as part of this Annual Report on Form
10-KSB.

Item 8.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure:

     None


Item 8A.  Control and Procedures

     (a) Evaluation of Disclosure Controls and Procedures. The term "disclosure
controls and procedures" is defined in Rule 13a - 14(c) of 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 September 30, 2005, and they have concluded that as of that
date, our disclosure controls and procedures were effective at ensuring that
required information will be disclosed on a timely basis in our reports filed
under the Exchange Act.

                                       27
<PAGE>

     (b) Changes in Internal Controls. There were no significant changes to our
internal controls or other factors that could significantly affect our internal
controls during the quarter ended September 30, 2005, including any corrective
actions with regard to significantly deficiencies and material weaknesses.

Item 8B.  Other Information

     None

PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

Directors

     Information contained under the caption "The Election of Directors
(introduction);" "The Election of Directors - The Board of Directors and
Nominees;" "The Election of Directors - Nominees;" "The Election of Directors -
Continuing Directors;" and "The Election of Directors - Meetings of the Board of
Directors and Certain Committees" in the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on February 13, 2006, to be filed with
the Commission within 120 days after the end of the fiscal year covered by this
report is incorporated herein by this reference.

Executive Officers

     Information contained under the caption "The Election of Directors -
Continuing Directors;" and "The Election of Directors - Executive Officers Who
Are Not Directors" in the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on February 13, 2006, to be filed with the Commission
within 120 days after the end of the fiscal year covered by this report, is
incorporated herein by this reference.

Compliance with Section 16(a)

     To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 2005, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.

Code of Ethics

     The Company had adopted a Code of Ethics for adherence by its chief
executive officer, chief financial officer and treasurer to promote honest and
ethical conduct; full, fair and proper disclosure of financial information in
the Company's periodic reports; and compliance with applicable laws, rules, and
regulations. The text of the Company's Code of Ethics was previously filed as an
exhibit, and is incorporated by reference herein.

     We will provide to any person without charge, upon request, a copy of our
Code of Ethics. Any such request should be directed to our corporate secretary,
Gouverneur Bancorp, Inc., 42 Church Street, Gouverneur, New York 13642.

                                       28
<PAGE>

Item 10.  Executive Compensation

     Information contained under the caption "Compensation" in the definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on February
13, 2006, to be filed with the Commission within 120 days after the end of the
fiscal year covered by this report, is incorporated herein by this reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

     Information contained under the caption "Principal Owners of Our Common
Stock" in the definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on February 13, 2006, to be filed with the Commission within 120 days
after the end of the fiscal year covered by this report is incorporated herein
by this reference.

Item 12.  Certain Relationships and Related Transactions

     Information contained under the caption "Compensation - Transactions With
Directors and Officers" in the definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on February 13, 2006, to be filed with the Commission
within 120 days after the end of the fiscal year covered by this report, is
incorporated herein by this reference.

Item 13.  Exhibits

     See Index to Exhibits.

Item 14.  Principal Accountant Fees and Services

     Information contained under the caption "Independent Auditors' Fees - Audit
Fees"; "Independent Auditors' Fees - Audit-Related Fees"; "Independent Auditors'
Fees - Tax Fees"; and "Independent Auditors' Fees - All other Fees" in the
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
February 13, 2006, to be filed with the Commission within 120 days after the end
of the fiscal year covered by this report, is incorporated herein by this
reference.

     Information contained under the caption "Report of the Audit Committee -
Pre-Approval Policies and Procedures" in the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on February 13, 2006, to be filed with
the Commission within 120 days after the end of the fiscal year covered by this
report, is incorporated herein by this reference.

                                       29
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.

                                           Gouverneur Bancorp, Inc.

Date:  December 19, 2005               By: /s/ RICHARD F. BENNETT
                                           -------------------------------------
                                           Richard F. Bennett, President
                                           (Duly authorized representative)

In accordance with the Exchange Act this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

Date:

December 19, 2005                          /s/ FRANK LANGEVIN
                                           -------------------------------------
                                           Frank Langevin, Chairman of the Board

December 19, 2005                          /s/ RICHARD F. BENNETT
                                           -------------------------------------
                                           Richard F. Bennett, President, Chief
                                           Executive Officer and Director

December 19, 2005                          /s/ ROBERT J. TWYMAN
                                           -------------------------------------
                                           Robert J. Twyman, Vice President and
                                           Chief Financial Officer, principal
                                           financial and accounting officer

December 19, 2005                          /s/ CHARLES VANVLEET
                                           -------------------------------------
                                           Charles VanVleet, Sr. Vice President
                                           and Secretary

December 19, 2005                          /s/ RICHARD JONES
                                           -------------------------------------
                                           Richard Jones, Director

December 19, 2005                          /s/ ROBERT LEADER
                                           -------------------------------------
                                           Robert Leader, Director

December 19, 2005                          /s/ TIMOTHY MONROE
                                           -------------------------------------
                                           Timothy Monroe, Director

December 19,2005                           /s/ F. TOBY MORROW
                                           -------------------------------------
                                           F. Toby Morrow, Director

December 19, 2005                          /s/ JOSEPH PISTOLESI
                                           -------------------------------------
                                           Joseph Pistolesi, Director

December 19, 2005                          /s/ LARRY STRAW
                                           -------------------------------------
                                           Larry Straw, Director

                                       30
<PAGE>

INDEX TO EXHIBITS

Exhibit Number         Document                    Reference to Previous Filing,
--------------         --------                    if applicable.
                                                   -------------

    3(1)               Certificate of Incorporation             **

    3(11)              Bylaws                                   **

    4                  Form of Stock Certificate                *

    10.1               Employee Stock Ownership Plan            *

    10.2               Stock Option Plan                        ***

    10.3               Management Recognition Plan              ***

    13                 2005 Annual Report to Stockholders

    14                 Code of Ethics for the President         ****
                       and Chief Executive Officer, Chief
                       Financial Officer, and Treasurer

    21                 Subsidiaries of Registrant

    31.1               Certification of Principal Executive
                       Officer pursuant to Exchange Act Rules
                       13a - 15(e) and 15(d) - 15(e)

    31.2               Certification of Principal Financial
                       Officer pursuant to Exchange Act Rules
                       13a - 15(e) and 15(d) - 15(e)

    32.1               Certification of Principal Executive
                       Officer pursuant to Section 1350

    32.2               Certification of Principal Financial
                       Officer pursuant to Section 1350

     *Filed as exhibits to the Company's Form S-1 registration statement filed
with the Commission on June 26, 1998 (File No.333-57845). All of such previously
filed documents are hereby incorporated herein by reference in accordance with
Item 601 of Regulation S-K.

     **Filed as exhibits to the Company's Pre-effective Amendment No. One to
Form S-1 filed with the Commission on August 5, 1999, 1998 (File No. 333-57845).
All of such previously filed documents are hereby incorporated herein by
reference in accordance with Item 601 of Regulation S-K.

     ***Filed as exhibits to the Company's Definitive Proxy Statement on Form
14A filed with the Commission on September 9, 1999. All of such previously filed
documents are hereby incorporated herein by reference in accordance with Item
601 of Regulation S-K.

     ****Filed as an exhibit to the Company's Form 10-KSB for the year ended
September 30, 2003, as filed with the Commission on December 23, 2003. The
previously filed document is hereby incorporated by reference in accordance with
Item 601 of Regulation S-K.

                                       31