Exhibit 13

                               President's Message





To Our Stockholders:

     On behalf of the Board of Directors, officers and employees of Gouverneur
Bancorp, Inc and its subsidiary, Gouverneur Savings and Loan Association, I am
pleased to present to you our 2005 annual report.

     Our Bank continued to grow and improve its profits in fiscal 2005. Total
assets grew by $18.0 million, or 17.27%, as compared with fiscal 2004, primarily
through growth in our residential and commercial loan portfolios. Our branch
office in Alexandria Bay and our lending office in Clayton, as well as our main
office, all contributed to this success. Stockholders equity increased from
$18.0 million to $18.7 million, a 4.04% increase over fiscal 2004, and book
value increased from $7.86 per common share at year end in 2004 to $8.17 per
common share at September 30, 2005.

     We increased our net income by 20%, to $1,032,000, and this in turn
improved the Bank's return on average assets from 0.89% to 0.91%. The net income
gain also boosted diluted earnings per share from $0.38 in fiscal 2004 to $0.46
in fiscal 2005, and enabled us to increase our dividend per share from $0.26 to
$0.28, while adding $760,000 to our retained earnings. I am pleased to report
that we have achieved these results while maintaining very high asset quality,
as evidenced by the Bank's ratio of non-performing loans to total loans

     In fiscal 2006, we plan to continue our commercial lending business, which
yields higher rates than residential lending and can drive profitability. This
is consistent with our strategic plan to prudently deploy and leverage our
capital to enhance stockholder return. As always, your Board of Directors and
management are alert to other opportunities as they arise, including additional
branching, new lines of products and services, business combinations and other
transactions to strengthen our franchise and better serve our customers.

     I extend my sincere appreciation to you, our stockholders, for your
continued support of our endeavors, and I especially want to thank the Board of
Directors and staff who have worked diligently with me to achieve our success.
We look forward to our continued success.



                                       /s/ RICHARD F. BENNETT

                                       Richard F. Bennett
                                       President and Chief Executive Officer
<PAGE>

                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

Selected Financial Condition Data:
<TABLE>
<CAPTION>
                                                       At September 30,
                                     ----------------------------------------------------
                                       2005       2004       2003       2002       2001
                                     --------   --------   --------   --------   --------
                                                    (Dollars in thousands)
<S>                                  <C>        <C>        <C>        <C>        <C>
     Total Assets                    $122,226   $104,169   $ 89,956   $ 85,058   $ 82,863
     Loans (1)                         97,609     80,914     65,393     55,016     56,434
     Allowance for loan losses            869        755        655        671        655
     Securities available-for-sale     10,992     13,797     17,473     22,964     19,017
     Securities held-to-maturity          109        251        399      1,341      2,651
     Foreclosed real estate                --         53         92         25        182
     Deposits                          63,964     61,598     58,423     52,761     47,683
     Borrowings                        36,750     23,000     12,200     13,400     16,400
     Total shareholders' equity      $ 18,675   $ 17,950   $ 17,557   $ 17,228   $ 16,656

<CAPTION>
Selected Operations Data:
                                                For the year ended September 30,
                                     ----------------------------------------------------
                                                     (Dollars in thousands)
<S>                                  <C>        <C>        <C>        <C>        <C>
     Interest income                 $  6,441   $  5,403   $  5,223   $  5,612   $  5,955
     Interest expense                   2,197      1,648      1,906      2,281      2,951
                                     --------   --------   --------   --------   --------
       Net interest income              4,244      3,755      3,317      3,331      3,004
     Provision for loan losses            140        135         95         85         80
                                     --------   --------   --------   --------   --------
       Net interest income after
         Provision for loan losses      4,104      3,620      3,222      3,246      2,924
     Non-interest income                  558        463        350        293        329
     Non-interest expense               3,125      2,667      2,619      2,240      2,020
                                     --------   --------   --------   --------   --------
     Income before income taxes         1,537      1,416        953      1,299      1,233
     Income tax expense                   505        556        361        524        467
                                     --------   --------   --------   --------   --------
     Net income                      $  1,032   $    860   $    592   $    775   $    766
                                     ========   ========   ========   ========   ========

<CAPTION>
Per Common Share:

     Net Income
<S>                               <C>         <C>         <C>         <C>         <C>
        Basic                     $   0.46    $   0.39    $   0.27    $   0.35    $   0.35
        Diluted                       0.46        0.38        0.26        0.35        0.35
        Book value                    8.17        7.86        7.71        7.57        7.32
        Cash dividends declared       0.28        0.26        0.26        0.22        0.16
        Dividend payout ratio *      60.87%      66.67%      96.30%      62.86%      45.71%
</TABLE>

*Cambray Mutual Holding Company waived its right to dividends declared in 2005,
2003, 2002, and 2001 amounting to $367,000, $341,000, $288,000 and $118,000,
respectively. The dividend payout ratio, excluding waived dividends, was 26.40%
in 2005, 42.57% in 2003, 27.42% in 2002 and 32.11% in 2001.


Notes appear on the following page.

                                       2
<PAGE>

<TABLE>
<CAPTION>
                                                        At or for the Year Ended September 30,
                                             --------------------------------------------------------
                                               2005        2004        2003        2002        2001
                                             --------    --------    --------    --------    --------
<S>                                            <C>         <C>         <C>         <C>         <C>
Performance Ratios:

  Return on average assets (net
   income to average total assets)               0.91%       0.89%       0.68%       0.93%       0.96%
  Return on average equity (net
   income to average equity)                     5.62%       4.82%       3.40%       4.56%       4.69%
  Average interest-earning assets to
   average interest-bearing liabilities        114.73%     117.39%     122.00%     123.40%     125.08%
  Net interest rate spread (3)                   3.76%       3.89%       3.51%       3.53%       2.97%
  Net interest margin (4)                        4.07%       4.21%       4.01%       4.21%       3.93%
  Net interest income after provision
   for loan losses to total other expenses      1.31x       1.36x       1.23x       1.45x       1.45x


Capital and Asset Quality Ratios (2)

  Average equity to average total assets        16.24%      18.47%      19.88%      20.41%      20.55%
  Total equity to assets end of period          15.28%      17.23%      19.52%      20.25%      20.10%
  Non-performing assets to total assets          0.33%       0.42%       0.92%       0.88%       0.79%
  Non-performing loans to total loans            0.39%       0.47%       1.08%       1.23%       0.78%
  Allowance for loan losses to total loans       0.87%       0.94%       1.01%       1.21%       1.17%
  Allowance for loan losses to
    non-performing loans                       221.12%     198.68%      93.17%      98.68%     149.89%


Other Data:

  Number of real estate loans outstanding       1,674       1,605       1,467       1,393       1,456
  Number of deposit accounts                    6,938       7,409       7,639       7,216       6,989
  Full service offices                              2           2           2           2           1
</TABLE>

(1)  Shown net of deferred fees and costs.
(2)  Capital and asset quality ratios are at end of period. All other ratios are
     based on average daily balances.
(3)  The net interest rate spread represents the difference between the weighted
     average yield on interest-earning assets and the weighted average cost of
     interest-bearing liabilities.
(4)  The net interest margin, also known as the net yield on average
     interest-earning assets, represents net interest income as a percentage of
     average interest-earning assets.

                                       3
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

         During 2005, our subsidiary, Gouverneur Savings and Loan Association
(the "Bank"), increased its assets by $18.1 million, through mortgage portfolio
growth, while remaining well capitalized, with strong asset quality.

         The Bank has been and continues to be a community oriented financial
institution offering a variety of financial services. The Bank attracts deposits
from the general public and uses those deposits, together with other funds, to
make loans and other investments. Most of the loans are mortgages secured by
one-to-four family residences (including home equity lines of credit). The Bank
also makes consumer, commercial and multi-family real estate and other loans.
Most of the loans are in the Bank's primary market area, southern St. Lawrence
and northern Jefferson and Lewis counties in New York State. The Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC")
insures the Bank's deposit accounts, and the FDIC and the Office of Thrift
Supervision ("OTS") both regulate the Bank.

         Our profitability depends, to a large extent, on our net interest
income, which is the difference between the interest we receive on our interest
earning assets, such as loans and investments, and the interest we pay on
interest bearing liabilities, primarily deposits. Other categories of expenses
generally include the provision for loan losses, salaries and employee benefit
costs, net expenses on foreclosed real estate and various other categories of
operational expenses. External factors, such as general economic and competitive
conditions, particularly changes in interest rates, government policies and
actions of regulatory authorities, can have a substantial effect on
profitability.

         Loans are our highest yielding asset category. We are faced with
increasing competition from other financial institutions, loan brokers, mortgage
bankers, insurance companies, brokerage firms and other companies that are
competing for a limited number of loan opportunities. Three years ago, in order
to meet the challenge of competition and increase our earning assets, we:

               o    opened a new full service branch office in Alexandria Bay,
                    NY to replace the lending office in that community to allow
                    us to fully service current customers in that market area
                    and create new loan opportunities, and
               o    opened a new lending office in Clayton, NY, ten miles west
                    of Alexandria Bay, to generate additional loan opportunities
                    along the St. Lawrence River in conjunction with the new
                    branch office.

         This year, we have increased loans at the Alexandria Bay office by $8.9
million, or 30.7%, from $29.6 million on September 30, 2004 to $38.5 million, on
September 30, 2005. The Clayton lending office has increased its loan portfolio
$4.9 million, or 52.7%, from $9.3 million to $14.2 million, while the Gouverneur
office contributed growth of $5.8 million, or 15.1%, from $38.3 million to
$44.1million over the same period. These gains, combined with a reduction of
$3.0 million in purchased government guaranteed loans, resulted in an overall
increase of $16.6 million in the Bank's net loans, from $80.2 million at the end
of the 2004 fiscal year to $96.8 million at the end of the 2005 fiscal year.

         During fiscal year 2005, our deposits increased by $2.4 million, or
3.9%. Deposits decreased $0.9 million in savings and club accounts, but this
decrease was offset by increases of $1.3 million in NOW and money market
accounts, $0.7 million in demand deposits and $1.3 million in time certificates.
Deposits at the Alexandria Bay branch office grew by $2.4 million, or 35.8%,
from $6.7 million on September 30, 2004 to $9.1 million on September 30, 2005.
The growth in deposits in Alexandria Bay benefited from new commercial loan
production and the establishment of deposit relationships with those accounts.
We expect that office will continue to provide additional deposit growth
opportunities for the Bank. Our borrowings from the Federal Home Loan Bank of
New York ("FHLB"), consisting of advances and securities repurchase obligations,
were $36.8 million on September 30, 2005 compared to $23.0 million on September
30, 2004. The increase of $13.8 million, or 60.0%, is consistent with
management's strategy to fund loans when our deposit base is not sufficient.
However, the balance of our borrowings may reach a level where management will
no longer use borrowings to fund loan growth. In that case, it will be necessary
to reduce the growth of the loan portfolio or increase deposits to a level that
will support the loan growth. Competition for deposits remains strong among

                                       4
<PAGE>

local financial institutions, many of which have greater financial and marketing
resources, making it difficult to increase market share. We are investigating
brokered deposits as a possible source of additional funds.

Introduction to Financial Information and Comparisons

         Our current financial statements combine the assets, liabilities,
income and expenses of Gouverneur Bancorp, Inc., with those of Gouverneur
Savings and Loan Association.

Critical Accounting Policies

         Note 2 to Gouverneur Bancorp, Inc.'s consolidated financial statements
lists significant accounting policies used in the development and presentation
of its financial statements. This discussion and analysis, the significant
accounting policies, and other financial statement disclosures identify and
address key variables and other qualitative and quantitative factors that are
necessary for an understanding and evaluation of Gouverneur Bancorp, Inc. and
its results of operations.

         The reporting of the Company's financial condition and results of
operations is impacted by the application of accounting policies by management.
Certain accounting policies are particularly sensitive and require significant
judgments, estimates and assumptions to be made by management in matters that
are inherently uncertain.

         The Company's provision for loan losses and the level of the allowance
for loan losses involve significant estimates by management in evaluating the
adequacy of the allowance for loan losses. Management's evaluation is based on
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay
(including the timing of future payments), the estimated value of any underlying
collateral, composition of the loan portfolio, current economic conditions and
other relevant factors. While management uses available information to make such
evaluations, future adjustments to the allowance may be necessary if economic
conditions or loan credit quality differ substantially from the assumptions used
in making the evaluation.

         As permitted by SFAS No. 123, the Company accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion (APB) No.
25. Under APB No. 25, no compensation expense is recognized in the income
statement related to any options granted under the Company's stock option plans.
The pro forma impact to net income and earnings per share that would occur if
compensation expense as recognized, based on the estimated fair value of the
options on the date of grant, is disclosed in note 2 to the consolidated
financial statements. The Company intends to continue to account for stock-based
compensation in this manner until the Company is required to comply with FAS
123(R) in the first quarter of its fiscal year ending September 30, 2007, which
will require compensation expense to be recognized in the income statement on
any unvested stock options and new grants.

Analysis of Net Interest Income

         Net interest income, our primary income source, depends principally
upon: (i) the amount of interest earning assets that we can maintain based upon
our funding sources; (ii) the relative amounts of interest-earning assets versus
interest-bearing liabilities; and (iii) the difference between the yields earned
on those assets and the rates paid on those liabilities. Non-performing loans
adversely affect net interest income because they are funded by interest-bearing
liabilities, but they do not provide interest income. Furthermore, when we
designate an asset as non-performing, all interest that we have already accrued
but not actually received is deducted from current period income, further
reducing net interest income.

Average Balances, Interest Rates and Yields

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

                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                                        For the Year Ended September 30,
                                            ---------------------------------------------------------------------------------------
                                                       2005                          2004                          2003
                                            ---------------------------   ---------------------------   ---------------------------
                                                                               ($ in thousands)

                                            Average              Yield/   Average              Yield/   Average              Yield/
                                            Balance  Interest   Cost(6)   Balance  Interest   Cost(6)   Balance  Interest   Cost(6)
                                           --------   -------   -------   -------   -------   -------   -------   -------   -------
<S>                                        <C>        <C>          <C>    <C>       <C>          <C>    <C>       <C>          <C>
Loans, net (1)                             $ 89,832   $ 5,901      6.57%  $72,142   $ 4,836      6.70%  $57,312   $ 4,413      7.70%
Securities (2)                               13,277       508      3.83%   15,245       551      3.61%   23,194       788      3.40%
Other short-term investments                  1,293        32      2.47%    1,773        16      0.90%    2,188        22      1.01%
                                           --------   -------             -------   -------             -------   -------
   Total interest-earning assets            104,402     6,441      6.17%   89,160     5,403      6.06%   82,694     5,223      6.32%
                                                      -------                       -------                       -------
Non-interest-earning assets                   8,660                         7,389                         4,869
                                           --------                       -------                       -------
   Total assets                            $113,062                       $96,549                       $87,563
                                           ========                       =======                       =======

Savings and club accounts (3)              $ 20,071   $   206      1.03%  $20,023   $   206      1.03%  $17,968   $   321      1.79%
Time certificates                            29,640       808      2.73%   28,741       740      2.57%   28,749       907      3.15%
NOW and money market accounts                11,790       111      0.94%    9,904        62      0.63%    8,296        73      0.88%
Borrowings                                   29,498     1,072      3.63%   17,282       640      3.70%   12,766       605      4.74%
                                           --------   -------             -------   -------             -------   -------
   Total interest-bearing liabilities        90,999     2,197      2.41%   75,950     1,648      2.17%   67,779     1,906      2.81%
                                                      -------                       -------                       -------
Non-interest-bearing liabilities              3,706                         2,765                         2,378
                                           --------                       -------                       -------
   Total liabilities                         94,705                        78,715                        70,157
Shareholders' equity                         18,357                        17,834                        17,406
                                           --------                       -------                       -------
   Total liabilities and
     shareholders' equity                  $113,062                       $96,549                       $87,563
                                           ========                       =======                       =======

Net interest income/spread (4)                        $ 4,244      3.76%            $ 3,755      3.89%            $ 3,317      3.51%
                                                      =======   =======             =======   =======             =======   =======

Net earning assets/net interest
   margin (5)                              $ 13,403                4.07%  $13,210                4.21%  $14,915                4.01%
                                           ========             =======   =======             =======   =======             =======
Ratio of average interest-earning assets
   To average interest-bearing liabilities     1.15x                         1.17x                         1.22x
                                           ========                       =======                       =======
</TABLE>

Notes appear on following page

                                       6
<PAGE>

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

Rate Volume Analysis of Net Interest Income

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

<TABLE>
<CAPTION>
                                                                    Year Ended September 30,
                                        --------------------------------------------------------------------------------
                                                   2005 vs. 2004                               2004 vs. 2003
                                        --------------------------------------    --------------------------------------
                                             Increase (Decrease) Due To:               Increase (Decrease) Due To:
                                        --------------------------------------    --------------------------------------
                                          Volume         Rate         Total         Volume        Rate          Total
                                        ----------    ----------    ----------    ----------    ----------    ----------
                                                                      (Dollars in thousands)
Interest-earning assets:
<S>                                     <C>           <C>           <C>           <C>           <C>           <C>
 Loans                                  $    1,160    $      (95)   $    1,065    $    1,044    $     (621)   $      423
 Securities                                    (75)           32           (43)         (283)           46          (237)
 Other short-term investments                   (5)           21            16            (4)           (2)           (6)
                                        ----------    ----------    ----------    ----------    ----------    ----------
   Total interest-earning assets             1,080           (42)        1,038           757          (577)          180
                                        ----------    ----------    ----------    ----------    ----------    ----------

Interest-bearing liabilities:

 Savings and club accounts                      --            --            --            34          (149)         (115)
 Time certificates                              23            45            68            --          (167)         (167)
 NOW and money market accounts                  14            35            49            12           (23)          (11)
 Borrowings                                    444           (12)          432           185          (150)           35
                                        ----------    ----------    ----------    ----------    ----------    ----------
   Total interest-bearing liabilities          481            68           549           231          (489)         (258)
                                        ----------    ----------    ----------    ----------    ----------    ----------

 Net change in net interest income      $      599    $     (110)   $      489    $      526    $      (88)   $      438
                                        ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

The following discussion of our financial condition and results of operations
shows the effect of our efforts in fiscal 2005.

                                       7
<PAGE>

         Comparison of Financial Condition at September 30, 2005 and 2004

         The Company's total assets amounted to $122.2 million at September 30,
2005, which was $18.0 million, or 17.27%, higher than our total assets of $104.2
million one year earlier. The increase was funded mostly by an increase of $13.8
million in advances with FHLB and growth in deposits of $2.4 million.

         Cash and due from banks, interest bearing deposits and investment
securities decreased by $3.0 million, or 17.86%, to a total of $13.8 million at
September 30, 2005 compared to $16.8 million at September 30, 2004.
Available-for-sale securities decreased during the year by $2.8 million. The
decrease in the balances of the available-for-sale portfolio was mainly due to
not replacing the maturing bond and scheduled principal repayments in the
portfolio.

         Net loans were $96.8 million at September 30, 2005, an increase of
$16.6 million, or 20.70%, compared to $80.2 million one year ago. This increase
was the result of refinancing activity due to historically low interest rates
combined with an active real estate market in the Thousands Islands region
affecting both Alexandria Bay and Clayton. The increase was also the result of
offering competitive adjustable rate mortgage products. At September 30, 2005
$3.4 million of commercial loans were classified as held for sale.

         Total deposits increased by $2.4 million, or 3.90%, from $61.6 million
at September 30, 2004 to $64.0 million at September 30, 2005. We experienced a
decrease in saving and club account deposits of $0.9 million, but NOW and money
market deposits, demand deposits and time deposits increased by $1.3 million,
$0.7 million and $1.3 million, respectively. Based on the movement of funds from
saving accounts to time deposits, it appears deposits are becoming more rate
sensitive as interest rates rise in response to actions by the Federal Reserve
Bank ("FRB") discussed below. Deposits grew by $2.4 million, or 35.8%, at the
Alexandria Bay office from $6.7 million on September 30, 2004 to $9.1 million on
September 30, 2005. Of the deposit growth in Alexandria Bay, $1.8 million is
attributed to deposit relationships, both money market and business checking
accounts, established in relation to commercial loan growth in that office. We
expect that office will continue to provide additional deposit growth
opportunities for the Bank.

         Borrowed funds increased by $13.8 million, from $23.0 million at
September 30, 2004 to $36.8 million at September 30, 2005 as discussed earlier.

         Shareholders' equity totaled $18.7 million at September 30, 2005, an
increase of $0.7 million, or 3.9%, over the balance of $18.0 million at
September 30, 2004. The increase primarily resulted from net income of
$1,032,000 and increases due to the allocation of Employee Stock Ownership Plan
("ESOP") shares and the amortization of Management Recognition Plan ("MRP")
shares totaling $137,000, offset by $272,000 paid in dividends on common stock
and a $179,000 decrease in unrealized gains on securities available for sale,
net of reclassification adjustment and tax effects.

         Comparison of Operating Results for the Years Ended September 30, 2005
and 2004

         Net Income. Net income for the year ended September 30, 2005 was
$1,032,000 compared to net income of $860,000 the previous year. The $172,000
increase in net income represents a 20.0% increase from fiscal 2004. Income
before income taxes increased by $121,000, or 8.6%, as a result of increases of
$489,000 in net interest income and $95,000 in other income more than offsetting
increases of $458,000 in non-interest expenses and a $5,000 increase in the
provision for loan losses. Income taxes decreased $51,000, in part due to
increased tax-exempt income on bank owned life insurance and municipal
investments resulting in an increase in net income by $172,000.

         Interest Income. Interest rates have remained low, but increased
throughout the fiscal year and since September 30, 2005. The average yield on
interest earning assets increased, although average yield on the loan portfolio
fell. During 2005, the FRB continued to tighten interest rates at a measured
pace. Seven increases of 0.25% each since December 2004 have raised the fed

                                       8
<PAGE>

funds rate, the interest rate at which banks lend to each other overnight from
2.25% to 4.00% on November 1, 2005. Some experts believe that there will be at
least two more such increases before the FRB reaches a "neutral position" and
pauses from making increases. It is uncertain whether the economy is growing
fast enough to support any further rate increases, but the Federal Reserve sees
inflationary pressures and has decided to raise interest rates to fight the
problem.

         The increases have affected short-term rates, while long-term rates
have edged lower in some cases. The yield curve has flattened as short-term
interest rates have been increased. On December 3, 2005, the spread between the
2-year treasury at 4.424%, and the 10-year treasury at 4.515%, was only 0.091%,
or 91 basis points. Our deposit and FHLB borrowing costs continue to increase as
maturities re-price, while mortgage rates, our primary source of lending, are
not adjusting upward. The rate volume analysis shows that interest rate spread
decreased by 13 basis points from 2004 to 2005. We expect the contraction of
interest spread will continue during the coming year as interest rates rise more
quickly on deposits and borrowings than on loans and investments.

         A summary of the information shown previously in the Average Balances,
Interest Rates and Yields table and in the Interest-earning assets section of
the Rate Volume Analysis of Net Interest Income table follows:

         1.   Results for the 2005 fiscal year show that interest income
              increased by $1,038,000 from $5,403,000 last year to $6,441,000.
              Interest income increased $1,080,000 due to an increase in the
              average balance of interest-earning assets, from $89.2 million to
              $104.4 million, while interest income fell $42,000 due to changes
              in the average rate earned on interest-earning assets, from 6.06%
              to 6.17%.

         2.   Growth of the loan portfolio fueled an increase in interest income
              on loans of $1,065,000 as the average balance of loans increased
              by $17.7 million, resulting in a $1,160,000 increase in interest
              income, while the decrease in the average rate on loans from 6.70%
              to 6.57% resulted in a $95,000 decrease in interest income.

         3.   Interest income on securities and other short-term investments
              fell by $27,000 as a reduction in the average balances of
              securities and other short-term investments by $2.4 million from
              $17.0 million in fiscal 2004 to $14.6 million in fiscal 2005.
              Interest income decreased by $80,000 due to the lower average
              balance, but increased by $53,000 as a result of the higher
              average rate earned on securities and other short-term
              investments. Interest rates averaged 3.33% for the year ended
              September 30, 2004, as compared to 3.71% for the year ended
              September 30, 2005.

         Interest Expense. A summary of the information shown previously in the
Average Balances, Interest Rates and Yields table and in the Interest-bearing
liabilities section of the Rate Volume Analysis of Net Interest Income table
follows:

         1.   Interest expense increased by $549,000 from $1,648,000 for fiscal
              2004 to $2,197,000 for fiscal 2005. The increase in the average
              balance of interest-bearing liabilities from $76.0 million in
              fiscal 2004 to $91.0 million in fiscal 2005 resulted in an
              increase of $481,000 in interest expense, while an increase in
              the average interest rate from 2.17% for fiscal 2004 to 2.41% for
              fiscal 2005 resulted in a $68,000 increase in interest expense.

         2.   Increases in the average balances of time certificates from $28.7
              million to $29.6 million, money market and NOW accounts from $9.9
              million to $11.8 million, and borrowings from FHLB from $17.3
              million to $29.5 million increased interest expense by $23,000,
              $14,000 and $444,000 respectively. Increases in the average
              interest rate paid on time certificates from 2.57% to 2.73% and
              on NOW and money market accounts from 0.63% to 0.94% resulted in
              increases to interest expense of $45,000 and $35,000
              respectively. A decrease on the cost of borrowings from FHLB from
              3.70% to 3.63% decreased interest expense by $12,000.

         Net Interest Income. Net interest income increased by $489,000 in
fiscal 2005. The increase was attributable to a $1,038,000 increase in interest

                                       9
<PAGE>

income combined with an increase of $549,000 in interest expense as explained
above. The increase in interest rates resulted in a 13 basis point decrease in
our spread, the difference between the average yield earned on our
interest-earning assets and the average rate paid on our interest-bearing
liabilities, from 3.89% to 3.76%.

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

         We increased our provision for loan losses from $135,000 in 2004 to
$140,000 in 2005. At September 30, 2005, the ratios of the allowance for loan
losses to total loans and the allowance for loan losses to non-performing loans
were 0.87% and 221.12% respectively, as compared to 0.94% and 198.68% at
September 30, 2004. The allowance at the beginning of the year was $755,000 and
we determined at the end of the year that the appropriate level for the
allowance was $869,000. We had charge-offs during the year of $79,000 and
recoveries of $53,000, so a $140,000 provision was necessary to reach the
desired level for the allowance.

         Non-interest income. Non-interest income increased $95,000 from
$463,000 in fiscal year 2004 to $558,000 in fiscal 2005. Service charge income
increased $23,000 from $182,000 last year to $205,000 this year and other
non-interest income items increased by $103,000 (including increases of $53,000
from earnings on bank owned life insurance ("BOLI") and $16,000 in gains on the
sales on securities). Service charge income increased consistent with the growth
in deposits and new accounts, while the increase in BOLI income resulted form
holding the investment for a full twelve months in this fiscal year. A loss of
$31,000 on the sales of loans reduced other income.

         Non-interest expenses. Non-interest expenses increased $458,000 from
$2,667,000 in fiscal 2004 to $3,125,000 in fiscal 2005. Non-interest expenses
include most categories of expense other than interest we pay on deposits and
borrowed funds and income tax expense. The largest category of non-interest
expenses is salaries and employee benefits, followed by other expense, building,
occupancy and equipment and professional fees.

         The increase was principally due to increased costs of $271,000 in
salaries and employee benefits expense, $55,000 in building, occupancy and
equipment, $39,000 in other expenses, $49,000 in directors fees and $44,000 in
professional fees. The additional salaries and employee benefits expense
resulted from performance increases to our employees, having both a commercial
loan officer and an assistant treasurer for a full year and the additional costs
of health care benefits. Building, occupancy and equipment expenses increased as
a result of increases in equipment maintenance contracts, building maintenance
contracts, insurance costs and real estate taxes. Other expense increases
included contributions, officers expense and meal expense, ATM card expenses,
subscriptions and publications, armored car and cash letter courier services and
Federal Reserve Bank service charges. Directors fees increased as a result of
increases in meeting fees and an increase in the number of loan committee
meetings.

         Income Tax Expense. Our income tax expense decreased from $556,000 in
fiscal 2004 to $505,000 in fiscal 2005, or 9.2%. The effective income tax rate
was 32.9% in 2005 and 39.3% in 2004. The decrease was principally the result of
increased tax-exempt income from both the investment in bank owned life
insurance and municipal bonds.

         Liquidity and Capital Resources

         Our primary sources of funds are deposits, borrowings from FHLB and
proceeds from the principal and interest payments on loans and securities.
Maturities and scheduled principal payments on loans and securities are
predictable sources of funds. However, general economic conditions and interest
rate conditions can cause increases or decreases in deposit outflows and loan

                                       10
<PAGE>

pre-payments thereby affecting the level of funds we have available for
investment. Our level of borrowed funds is generally at our own discretion,
based upon our need for funds and the cost of deposits as an alternative source
of funds.

         In general, we manage our liquidity by maintaining a sufficient level
of short-term investments so that funds are normally available for investment in
loans when needed. During the year ended September 30, 2005, we decreased our
cash and cash equivalents by $49,000. The decrease was the net result of the
combination of all our sources and uses of funds. We originated $42.2 million of
new loans and sold $1.7 million in USDA and SBA guaranteed loans during fiscal
2005, as compared to originations of $32.2 million and purchases of $0.6 million
in USDA and SBA guaranteed loans in fiscal 2004. However, loans, net, after
payments, charge-offs and transfers to foreclosed assets, increased by $20.0
million this year after increasing by $15.7 million last year.

         Deposits increased by $2.4 million during fiscal 2005. We believe the
increase is attributable to competitive rates we paid on deposits and the growth
in commercial deposits in conjunction with local commercial loans. In addition
to factors within our control, such as our deposit pricing strategies and our
marketing efforts, deposit flows are affected by factors outside our control,
such as the level of general market interest rates, the availability of
alternate investment opportunities and general economic conditions.

         We monitor our liquidity regularly. Excess liquidity is invested in
overnight federal funds sold and other short-term investments. If we need
additional funds, we can borrow those funds, although the cost of borrowing
money is normally higher than the average cost of deposits. As a member of the
FHLB, the Bank can arrange to borrow in excess of $49.2 million, of which $36.8
million was outstanding at September 30, 2005, but to do so it must provide
appropriate collateral and satisfy other requirements for FHLB borrowings. We
have not needed to use borrowings to fund unanticipated deposits outflows.
However, as per management's strategy, we are using borrowings to help us fund
our loan growth. In addition to borrowings, we believe that, if we need to do
so, we can attract additional deposits by increasing the rates we offer.

         During the upcoming year, we anticipate that loan originations may
exceed the amount of cash available from the net increase, if any, in deposits,
loan repayments and prepayments and the proceeds from the maturity, payment or
disposition of securities. If that occurs, we may obtain additional funds to
increase our loan portfolio through a variety of strategies, including reducing
securities as a percentage of total assets, borrowing funds, or the use of
wholesale or brokered deposits. At September 30, 2005, we have $17.9 million of
time certificates scheduled to mature within in one year. We anticipate that we
can retain substantially all of those deposits if we need to do so to fund loans
and other investments as part of our efforts to grow and leverage our capital.

         Plans are being finalized for the construction of a new bank building
in Gouverneur, adjacent to the current location. This building will house Bank
customer contact personnel, including teller operations and both deposit and
lending personnel. An improved drive-up facility is included with the plans. In
addition, minor remodeling will be done to the current facility to accommodate
executive, accounting, loan servicing and credit personnel. The current
executive offices will be vacated and possibly be leased as office space. The
total project is expected to cost between $1.5 million and $2.0 million.

         The OTS has minimum capital ratio requirements, which apply to the
Bank, but there are no comparable minimum capital requirements that apply to us
as a savings and loan holding company. At September 30, 2005, the Bank
substantially exceeded all regulatory capital requirements of the OTS applicable
to it, and the OTS minimum capital requirements had no material adverse affect
on the Bank. The Bank was classified as "well capitalized" at September 30, 2005
under OTS regulations.

         We measure liquidity on a monthly basis and want to maintain a
liquidity ratio between 5% and 15%. At September 30, 2005 the ratio is 6.5%.

                                       11
<PAGE>

         Off Balance Sheet Arrangements

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

         We had $4.3 million in outstanding commitments to make loans at
September 30, 2005, along with $3.7 million of unused home equity, commercial
and overdraft lines of credit. We anticipate that we have enough liquid funds to
meet our current loan commitments, purchase commitments and to fund draws on
lines of credit through the normal turnover of our loan and securities
portfolios.



         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 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 or 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, development
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 market interest rates 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, but not limiting to
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 that occur after the
statements are made.

                                       12
<PAGE>

SHAREHOLDER INFORMATION
-----------------------

Corporate Offices
-----------------
Gouverneur Bancorp, Inc.
42 Church Street
Gouverneur, New York 13642
(315) 287-2600

Annual Meeting of Shareholders
------------------------------
The annual meeting of Gouverneur Bancorp, Inc. will be held February 13, 2006 at
10:00 am at the Executive Offices of Gouverneur Savings & Loan Association, 26
John Street, Gouverneur, New York 13642.

Annual Report on Form 10-KSB
----------------------------
For the 2005 fiscal year, Gouverneur Bancorp, Inc. has filed an Annual Report on
Form 10-KSB with the Securities and Exchange Commission. The Form 10-KSB is
available on the World Wide Web as part of the SEC EDGAR database at
www.sec.gov.
------------
Shareholders may also obtain a copy free of charge by writing to Gouverneur
Bancorp, Inc., 42 Church Street, Gouverneur, New York 13642, Attention:
Corporate Secretary.

Stock Transfer Agent & Registrar
--------------------------------
Shareholders wishing to change name, address or ownership of stock, or to report
lost certificates or to consolidate accounts should contact the Company's stock
registrar and transfer agent directly at:

Registrar & Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948

Counsel
-------
Hinman, Howard & Kattell, LLP
106 Corporate Park Drive, Suite 317
White Plains, New York 10604

Independent Auditors
--------------------
Beard Miller Company LLP
320W Market Street
Harrisburg, Pennsylvania 17108

Market Information for Common Stock
-----------------------------------
The Common Stock of Gouverneur Bancorp, Inc. trades on the American Stock
Exchange under the symbol "GOV". At December 12, 2005, there were approximately
318 shareholders of record, not including the number of persons or entities
holding stock in nominee or street names through various brokers and banks.

Gouverneur Bancorp, Inc. common stock was issued at $5.00 per share in
connection with the Company's initial public offering completed on March 23,
1999. The following table shows the range of high and low sale prices for each
full quarterly period for the past two fiscal years.

                                                          Cash
                                                         Dividend
Quarter Ended                       High        Low      Declared
-------------                      -------    -------    --------

Fiscal 2005
-----------
September 30, 2005                 $ 13.60    $ 12.35    $  0.14
June 30, 2005                      $ 13.90    $ 13.40    $  0.00
March 31, 2005                     $ 15.15    $ 13.75    $  0.14
December 31, 2004                  $ 16.50    $ 13.88    $  0.00

Fiscal 2004
-----------
September 30, 2004                 $ 14.00    $ 11.50    $  0.13
June 30, 2004                      $ 14.00    $ 11.88    $  0.00
March 31, 2004                     $ 13.90    $ 11.59    $  0.13
December 31, 2003                  $ 12.95    $ 11.10    $  0.00


DIRECTORS AND OFFICERS
Gouverneur Bancorp, Inc.

Board of Directors
Frank Langevin: Chairman of the Board, retired contractor
Richard F. Bennett: President & Chief Executive Officer, Gouverneur Bancorp,
Inc.
Richard E. Jones: Retired feed & farm store owner
Robert J. Leader: Principal, Case & Leader LLP, Attorneys at Law
Timothy J. Monroe: Veterinarian, President, Northland Veterinarian Hospital
F. Toby Morrow:  Retired Certified Public Accountant
Joseph C. Pistolesi: Owner, Clearview Motel
Larry Straw: Project Manager, Cives Steel Co., Northern Division, steel
fabricator

Directors of Gouverneur Bancorp, Inc. also serve as Directors of Gouverneur
Savings & Loan Association

Officers
Richard F. Bennett: President & Chief Executive Officer
Charles VanVleet: Sr. Vice President & Secretary
Robert Twyman: Vice President & Chief Financial Officer
Kathleen McIntosh: Treasurer

                                       13
<PAGE>





                            GOUVERNEUR BANCORP, INC.

                          CONSOLIDATED FINANCIAL REPORT


                               SEPTEMBER 30, 2005

<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
TABLE OF CONTENTS


                                                                        PAGE NO.

CONSOLIDATED FINANCIAL STATEMENTS:

     Report of Independent Registered Public Accounting Firm               1

     Consolidated Statements of Financial Condition                        2

     Consolidated Statements of Income                                     3

     Consolidated Statements of Shareholders' Equity                       4

     Consolidated Statements of Cash Flows                                 5

     Notes to Consolidated Financial Statements                            6
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders
Gouverneur Bancorp, Inc.
Gouverneur, New York


         We have audited the accompanying consolidated statements of financial
condition of Gouverneur Bancorp, Inc. and its subsidiary as of September 30,
2005 and 2004, and the related consolidated statements of income, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

         We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gouverneur
Bancorp, Inc. and its subsidiary as of September 30, 2005 and 2004, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.


                                          /s/ BEARD MILLER COMPANY LLP



Harrisburg, Pennsylvania
November 4, 2005

<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                               September 30,
                                                                                         ------------------------
                                                                                            2005          2004
                                                                                         ----------    ----------
                                                                                          (Dollars In Thousands,
                                                                                         Except Per Share Amounts)
                                     ASSETS
<S>                                                                                      <C>           <C>
   Cash and due from banks                                                               $    2,210    $    1,817
   Interest bearing deposits with banks                                                         456           898
                                                                                         ----------    ----------

       Cash and Cash Equivalents                                                              2,666         2,715

   Securities available for sale                                                             10,992        13,797
   Securities held to maturity, fair value 2005 $110; 2004 $248                                 109           251
   Loans held for sale                                                                        3,436            --
   Loans receivable, net of allowance for loan losses 2005 $869; 2004 $755                   96,740        80,159
   Investment in FHLB stock, at cost                                                          1,838         1,150
   Investment in life insurance                                                               3,717         3,582
   Bank premises and equipment, net                                                           1,547         1,493
   Accrued interest receivable and other assets                                               1,181         1,022
                                                                                         ----------    ----------

       Total Assets                                                                      $  122,226    $  104,169
                                                                                         ==========    ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

   Deposits:
      Non-interest bearing demand                                                        $    2,043    $    1,327
      NOW and money market                                                                   11,956        10,710
      Savings                                                                                19,101        20,038
      Time                                                                                   30,864        29,523
                                                                                         ----------    ----------

       Total Deposits                                                                        63,964        61,598

   Advances from Federal Home Loan Bank                                                      36,750        23,000
   Accrued interest payable and other liabilities                                             2,837         1,621
                                                                                         ----------    ----------

       Total Liabilities                                                                    103,551        86,219
                                                                                         ----------    ----------

SHAREHOLDERS' EQUITY

   Preferred stock, par value $.01 per share; authorized 1,000,000 shares; none issued           --            --
   Common stock, par value $.01 per share; authorized 9,000,000 shares;
      issued 2,384,040 shares                                                                    24            24
   Paid-in capital                                                                            4,739         4,642
   Retained earnings                                                                         14,392        13,632
   Treasury stock, at cost, 2005 98,606 shares; 2004 100,931 shares                            (499)         (511)
   Accumulated other comprehensive income                                                       272           451
   Unearned common stock held by management recognition plan                                    (67)          (57)
   Unallocated common stock held by employee stock ownership plan                              (186)         (231)
                                                                                         ----------    ----------

       Total Shareholders' Equity                                                            18,675        17,950
                                                                                         ----------    ----------

       Total Liabilities and Shareholders' Equity                                        $  122,226    $  104,169
                                                                                         ==========    ==========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        2
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                             Years Ended September 30,
                                                             ------------------------
                                                                2005          2004
                                                             ----------    ----------
                                                        (In Thousands, Except Per Share Data)
<S>                                                          <C>           <C>
INTEREST INCOME
   Loans receivable, including fees                          $    5,901    $    4,836
   Securities:
      Taxable                                                       460           513
      Tax-exempt                                                     48            38
   Other                                                             32            16
                                                             ----------    ----------

       Total Interest Income                                      6,441         5,403
                                                             ----------    ----------

INTEREST EXPENSE
   Deposits                                                       1,125         1,008
   Borrowings:
      Short term                                                    383            60
      Long term                                                     689           580
                                                             ----------    ----------

       Total Interest Expense                                     2,197         1,648
                                                             ----------    ----------

       Net Interest Income                                        4,244         3,755

PROVISION FOR LOAN LOSSES                                           140           135
                                                             ----------    ----------

       Net Interest Income after Provision for Loan Losses        4,104         3,620
                                                             ----------    ----------

OTHER INCOME
   Service charges and fees                                         205           182
   Net realized gains on sales of securities                         96            80
   Net realized losses on sales of loans                            (31)           --
   Earnings on investment in life insurance                         135            82
   Other                                                            153           119
                                                             ----------    ----------

       Total Other Income                                           558           463
                                                             ----------    ----------

OTHER EXPENSES
   Salaries and employee benefits                                 1,686         1,415
   Directors' fees                                                  141            92
   Occupancy and equipment                                          402           347
   Data processing                                                  137           135
   Postage and supplies                                             106            98
   Professional fees                                                202           158
   Other                                                            451           422
                                                             ----------    ----------

       Total Other Expenses                                       3,125         2,667
                                                             ----------    ----------

       Income before Income Taxes                                 1,537         1,416

INCOME TAX EXPENSE                                                  505           556
                                                             ----------    ----------

       Net Income                                            $    1,032    $      860
                                                             ==========    ==========

EARNINGS PER SHARE
   Basic                                                     $     0.46    $     0.39
                                                             ==========    ==========

   Diluted                                                   $     0.46    $     0.38
                                                             ==========    ==========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        3
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended September 30, 2005 and 2004

<TABLE>
<CAPTION>
                                                                                   Accumulated    Unearned
                                                                                      Other        Common    Unallocated
                                       Common    Paid-in    Retained    Treasury  Comprehensive  Stock Held  Common Stock
                                       Stock     Capital    Earnings     Stock        Income       by MRP    Held by ESOP   Total
                                      --------   --------   --------    --------     --------     --------     --------    --------
                                                                        (In Thousands)
<S>                                   <C>        <C>        <C>         <C>          <C>          <C>          <C>         <C>
BALANCE - SEPTEMBER 30, 2003          $     24   $  4,577   $ 13,365    $   (537)    $    487     $    (85)    $   (274)   $ 17,557
                                                                                                                           --------
Comprehensive income:
   Net income                               --         --        860          --           --           --           --         860
   Change in unrealized gains
      on securities available for
      sale, net of reclassification
      adjustment and tax effects            --         --         --          --          (36)          --           --         (36)
                                                                                                                           --------

   Total Comprehensive Income                                                                                                   824
                                                                                                                           --------

   Cash dividends declared, $0.26
      per share                             --         --       (593)         --           --           --           --        (593)
   Allocation of ESOP shares,
      8,396 shares                          --         65         --          --           --           --           43         108
   Amortization of MRP                      --         --         --          --           --           28           --          28
   Exercise of stock options,
      5,225 shares                          --         --         --          26           --           --           --          26
                                      --------   --------   --------    --------     --------     --------     --------    --------

BALANCE - SEPTEMBER 30, 2004                24      4,642     13,632        (511)         451          (57)        (231)     17,950
                                                                                                                           --------
Comprehensive income:
   Net income                               --         --      1,032          --           --           --           --       1,032
   Change in unrealized gains
      on securities available for
      sale, net of reclassification
      adjustment and tax effects            --         --         --          --         (179)          --           --        (179)
                                                                                                                           --------

   Total Comprehensive Income                                                                                                   853
                                                                                                                           --------

   Cash dividends declared, $0.28
      per share                             --         --       (272)         --           --           --           --        (272)
   Allocation of ESOP shares,
      9,046 shares                          --         81         --          --           --           --           45         126
   Amortization of MRP                      --         14         --          --           --           (4)          --          10
   Transfer from treasury to MRP,
      1,200 shares                          --         --         --           6           --           (6)          --          --
   Exercise of stock options,
      1,125 shares                          --          2         --           6           --           --           --           8
                                      --------   --------   --------    --------     --------     --------     --------    --------

BALANCE - SEPTEMBER 30, 2005          $     24   $  4,739   $ 14,392    $   (499)    $    272     $    (67)    $   (186)   $ 18,675
                                      ========   ========   ========    ========     ========     ========     ========    ========
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        4
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                         Years Ended September 30,
                                                                                       ----------------------------
                                                                                           2005            2004
                                                                                       ------------    ------------
                                                                                              (In Thousands)
<S>                                                                                    <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                          $      1,032    $        860
   Adjustments to reconcile net income to net cash provided by operating activities:
      Provision for loan losses                                                                 140             135
      Depreciation                                                                              126             125
      Deferred income taxes                                                                     (56)            (45)
      Net amortization of securities premiums and discounts                                      22              64
      Net realized gains on sales of securities                                                 (96)            (80)
      Net realized losses on sales of loans                                                      31              --
      Earnings on investment in life insurance                                                 (135)            (82)
      Allocated and earned shares of ESOP and MRP                                               136             136
      Net realized gains on sale of foreclosed assets                                           (16)             --
      (Increase) decrease in accrued interest receivable and other assets                       (64)             98
      Increase (decrease) in accrued interest payable and other liabilities                   1,391             (86)
                                                                                       ------------    ------------

         Net Cash Provided by Operating Activities                                            2,511           1,125
                                                                                       ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Securities available for sale:
      Proceeds from sales                                                                       211           7,080
      Proceeds from maturities and principal reductions                                       2,464           5,526
      Purchases                                                                                 (94)         (8,974)
   Securities held to maturity, proceeds from maturities                                        142             147
   Increase in investment in FHLB stock                                                        (688)           (540)
   Loans purchased                                                                               --            (609)
   Proceeds from sales of loans                                                               1,631              --
   Net increase in loans                                                                    (21,898)        (15,102)
   Purchase of investment in life insurance                                                      --          (3,500)
   Purchase of bank premises and equipment                                                     (180)           (134)
                                                                                       ------------    ------------

         Net Cash Used in Investing Activities                                              (18,412)        (16,106)
                                                                                       ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits                                                                   2,366           3,175
   Proceeds from borrowings                                                                  20,750          12,500
   Repayment of borrowings                                                                   (7,000)         (1,700)
   Exercise of stock options                                                                      8              26
   Cash dividends paid                                                                         (272)           (593)
                                                                                       ------------    ------------

         Net Cash Provided by Financing Activities                                           15,852          13,408
                                                                                       ------------    ------------

         Net Decrease in Cash and Cash Equivalents                                              (49)         (1,573)

CASH AND CASH EQUIVALENTS - BEGINNING                                                         2,715           4,288
                                                                                       ------------    ------------

CASH AND CASH EQUIVALENTS - ENDING                                                     $      2,666    $      2,715
                                                                                       ============    ============

SUPPLEMENTAL CASH FLOWS INFORMATION
   Interest paid                                                                       $      2,105    $      1,633
                                                                                       ============    ============

   Income taxes paid                                                                   $        535    $        629
                                                                                       ============    ============

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
   Additions to foreclosed assets                                                      $         79    $        155
                                                                                       ============    ============
</TABLE>

See notes to consolidated financial statements.
--------------------------------------------------------------------------------
                                        5
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - NATURE OF OPERATIONS

Gouverneur Bancorp, Inc. (the Company) is a savings and loan holding company.
Its only subsidiary is Gouverneur Savings and Loan Association (the Bank). On
March 23, 1999, the Bank reorganized into the mutual holding company form of
organization as a wholly-owned subsidiary of the Company, a mid-tier stock
holding company that became the majority-owned subsidiary of Cambray Mutual
Holding Company.

Cambray Mutual Holding Company, a mutual holding company whose activity is not
included in the accompanying consolidated financial statements, owns 57.4% of
the outstanding common stock of the Company as of September 30, 2005.

The Bank provides financial services to individuals and businesses primarily in
St. Lawrence, Jefferson and Lewis Counties in New York State. The Bank is
subject to regulation by the Office of Thrift Supervision (OTS).


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES

Principles of Consolidation

     The consolidated financial statements include the accounts of the Company
     and its wholly-owned subsidiary, the Bank. All intercompany accounts and
     transactions have been eliminated in consolidation.

Estimates

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates. Material estimates that are
     particularly susceptible to significant change in the near term relate to
     the determination of the allowance for loan losses.

Significant Group Concentrations of Credit Risk

     The Bank operates primarily in St. Lawrence, Jefferson and Lewis Counties,
     New York and, accordingly, has extended credit primarily to commercial
     entities and individuals in this area whose ability to honor their
     contracts is influenced by the region's economy. These customers are also
     the primary depositors of the Bank. The Bank is limited in extending credit
     by legal lending limits to any single borrower or group of borrowers. Note
     3 discusses the types of securities the Bank invests in and Note 4
     discusses the types of lending the Bank engages in.

Securities

     Securities classified as available for sale are those securities that the
     Company intends to hold for an indefinite period of time but not
     necessarily to maturity. Any decision to sell a security classified as
     available for sale would be based on various factors, including significant
     movement in interest rates, changes in maturity mix of the Company's assets
     and liabilities, liquidity needs, regulatory capital considerations and
     other similar factors. Securities available for sale are carried at fair
     value. Unrealized gains and losses are reported in other comprehensive
     income, net of the related deferred tax effect. Realized gains or losses,
     determined on the basis of the cost of the specific securities sold, are
     included in earnings. Premiums and discounts are recognized in interest
     income using a method which approximates the interest method over the terms
     of the securities.

--------------------------------------------------------------------------------
                                        6
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Securities (Continued)

     Securities classified as held to maturity are those debt securities the
     Company has both the intent and ability to hold to maturity regardless of
     changes in market conditions, liquidity needs or changes in general
     economic conditions. These securities are carried at cost adjusted for the
     amortization of premium and accretion of discount, computed by the interest
     method over the terms of the securities.

     Declines in the fair value of held-to-maturity and available-for-sale
     securities below their cost that are deemed to be other than temporary are
     reflected in earnings as realized losses. In estimating other than
     temporary impairment losses, management considers (1) the length of time
     and the extent to which the fair value has been less than cost, (2) the
     financial condition and near-term prospects of the issuer, and (3) the
     intent and ability of the Company to retain its investment in the issuer
     for a period of time sufficient to allow for any anticipated recovery in
     fair value.

     Management determines the appropriate classification of debt securities at
     the time of purchase and re-evaluates such designation as of each balance
     sheet date.

     Federal law requires a member institution of the Federal Home Loan Bank
     system to hold stock of its district Federal Home Loan Bank according to a
     predetermined formula. This restricted stock is carried at cost.

Loans Receivable

     Loans receivable that management has the intent and ability to hold for the
     foreseeable future or until maturity or payoff are stated at their
     outstanding unpaid principal balances, net of an allowance for loan losses
     and any deferred fees and costs. Interest income is accrued on the unpaid
     principal balance. Loan origination fees, net of certain direct origination
     costs, are deferred and recognized as an adjustment of the yield (interest
     income) of the related loans. The Company is generally amortizing these
     amounts over the contractual life of the loan.

     The accrual of interest is generally discontinued when the contractual
     payment of principal or interest has become 90 days past due or management
     has serious doubts about further collectibility of principal or interest,
     even though the loan is currently performing. A loan may remain on accrual
     status if it is in the process of collection and is either guaranteed or
     well secured. When a loan is placed on nonaccrual status, unpaid interest
     credited to income in the current year is reversed and unpaid interest
     accrued in prior years is charged against the allowance for loan losses.
     Interest received on nonaccrual loans generally is either applied against
     principal or reported as interest income, according to management's
     judgment as to the collectibility of principal. Generally, loans are
     restored to accrual status when the obligation is brought current, has
     performed in accordance with the contractual terms for a reasonable period
     of time and the ultimate collectibility of the total contractual principal
     and interest is no longer in doubt.

--------------------------------------------------------------------------------
                                        7
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Allowance for Loan Losses

     The allowance for loan losses is established through provisions for loan
     losses charged against income. Loans deemed to be uncollectible are charged
     against the allowance for loan losses, and subsequent recoveries, if any,
     are credited to the allowance.

     The allowance for loan losses is maintained at a level considered adequate
     to provide for losses that can be reasonably anticipated. Management's
     periodic evaluation of the adequacy of the allowance is based on the
     Company's past loan loss experience, known and inherent risks in the
     portfolio, adverse situations that may affect the borrower's ability to
     repay, the estimated value of any underlying collateral, composition of the
     loan portfolio, current economic conditions and other relevant factors.
     This evaluation is inherently subjective as it requires material estimates
     that may be susceptible to significant change, including the amounts and
     timing of future cash flows expected to be received on impaired loans.

     The allowance consists of specific, general and unallocated components. The
     specific component relates to loans that are classified as either doubtful,
     substandard or special mention. For such loans that are also classified as
     impaired, an allowance is established when the discounted cash flows (or
     collateral value or observable market price) of the impaired loan is lower
     than the carrying value of that loan. The general component covers
     non-classified loans and is based on historical loss experience adjusted
     for qualitative factors. An unallocated component is maintained to cover
     uncertainties that could affect management's estimate of probable losses.
     The unallocated component of the allowance reflects the margin of
     imprecision inherent in the underlying assumptions used in the
     methodologies for estimating specific and general losses in the portfolio.

     A loan is considered impaired when, based on current information and
     events, it is probable that the Company will be unable to collect the
     scheduled payments of principal or interest when due according to the
     contractual terms of the loan agreement. Factors considered by management
     in determining impairment include payment status, collateral value and the
     probability of collecting scheduled principal and interest payments when
     due. Loans that experience insignificant payment delays and payment
     shortfalls generally are not classified as impaired. Management determines
     the significance of payment delays and payment shortfalls on a case-by-case
     basis, taking into consideration all of the circumstances surrounding the
     loan and the borrower, including the length of the delay, the reasons for
     the delay, the borrower's prior payment record and the amount of the
     shortfall in relation to the principal and interest owed. Impairment is
     measured on a loan by loan basis for commercial and construction loans by
     either the present value of expected future cash flows discounted at the
     loan's effective interest rate, the loan's obtainable market price or the
     fair value of the collateral if the loan is collateral dependent.

     Large groups of smaller balance homogeneous loans are collectively
     evaluated for impairment. Accordingly, the Company does not separately
     identify individual consumer and residential real estate loans for
     impairment disclosures, unless such loans are the subject of a
     restructuring agreement.

Premises and Equipment

     Premises and equipment are stated at cost less accumulated depreciation.
     Depreciation expense is calculated principally on the straight-line method
     over the respective assets estimated useful lives.

--------------------------------------------------------------------------------
                                       8
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Foreclosed Real Estate

     Real estate properties acquired through, or in lieu of, loan foreclosure
     are to be sold and are initially recorded at fair value less cost to sell
     at the date of foreclosure establishing a new cost basis. After
     foreclosure, valuations are periodically performed by management and the
     real estate is carried at the lower of its carrying amount or fair value
     less cost to sell. Revenue and expenses from operations and changes in the
     valuation allowance are included in other expenses. Foreclosed real estate
     is included in other assets.

Transfers of Financial Assets

     Transfers of financial assets are accounted for as sales, when control over
     the assets has been surrendered. Control over transferred assets is deemed
     to be surrendered when (1) the assets have been isolated from the Company,
     (2) the transferee obtains the right (free from conditions that constrain
     it from taking advantage of that right) to pledge or exchange the
     transferred assets, and (3) the Company does not maintain effective control
     over the transferred assets through an agreement to repurchase them before
     maturity.

Income Taxes

     Deferred income tax assets and liabilities are determined based on the
     differences between financial statement carrying amounts and the tax basis
     of existing assets and liabilities. These differences are measured at the
     enacted tax rates that will be in effect when these differences reverse.
     Deferred tax assets are reduced by a valuation allowance when, in the
     opinion of management, it is more likely than not that some portion of the
     deferred tax assets will not be realized. As changes in tax laws or rates
     are enacted, deferred tax assets and liabilities are adjusted through the
     provision for income taxes. The Company and its subsidiary file a
     consolidated federal income tax return.

Advertising Costs

     The Company follows the policy of charging the costs of advertising to
     expense as incurred. Advertising expense was $53,000 and $54,000 in 2005
     and 2004, respectively.

Earnings per Common Share

     Basic earnings per common share represents income available to common
     shareholders divided by the weighted average number of common shares
     outstanding during the period. Unallocated shares held by the Company's
     ESOP and MRP are not included in the weighted average number of shares
     outstanding. Diluted earnings per share reflects additional common shares
     that would have been outstanding if dilutive potential common shares had
     been issued, as well as any adjustment to income that would result from the
     assumed issuance. Potential common shares that may be issued by the Company
     relate solely to outstanding stock options and are determined using the
     treasury stock method.

--------------------------------------------------------------------------------
                                       9
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Earnings per Common Share (Continued)

     The following table sets forth the computations of basic and diluted
earnings per common share:

<TABLE>
<CAPTION>
                                                                     Years Ended September 30,
                                                                    ---------------------------
                                                                        2005           2004
                                                                    ------------   ------------
                                                                (In Thousands, Except Per Share Data)
<S>                                                                 <C>            <C>
            Numerator, net income                                   $      1,032   $        860
                                                                    ============   ============

            Denominator:
                 Denominator for basic earnings per common share,
                     weighted average shares                               2,229          2,214
                 Effect of dilutive options                                   34             32
                                                                    ------------   ------------

            Denominator for diluted earnings per common share,
                 adjusted weighted average shares                          2,263          2,246
                                                                    ============   ============

            Basic earnings per common share                         $       0.46   $       0.39
                                                                    ============   ============

            Diluted earnings per common share                       $       0.46   $       0.38
                                                                    ============   ============
</TABLE>

Cash Flow Information

     For the purposes of reporting cash flows, cash and cash equivalents include
     cash on hand, amounts due from banks and interest-bearing deposits with
     banks.

Off-Balance Sheet Financial Instruments

     In the ordinary course of business, the Company has entered into
     off-balance sheet financial instruments consisting of commitments to extend
     credit. Such financial instruments are recorded in the statements of
     financial condition when they become payable.

Employee Stock Ownership Plan

     The Company sponsors a non-contributory Employee Stock Ownership Plan
     (ESOP) covering substantially all employees. Employer contributions are
     discretionary and there is no guarantee that a contribution will be made
     during any particular year. However, the Company will make annual
     contributions sufficient to cover principal and interest due under the
     contractual terms of the ESOP loan agreement. Contributions will be in the
     form of cash or Gouverneur Bancorp, Inc. securities. The number of shares
     allocable to Plan participants is based on employee compensation levels.
     Accordingly, as shares are committed to be released to participants, the
     Company reports compensation expense equal to the current market price of
     the shares and the shares become outstanding for earnings per share
     computations. Dividends paid on allocated shares are credited to
     participants' accounts.

--------------------------------------------------------------------------------
                                       10
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Stock Compensation Plans

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

     The following table illustrates the effect on net income and earnings per
     share if the Company had applied the fair value recognition provisions of
     SFAS No. 123, "Accounting for Stock-Based Compensation," to the stock
     option plan.

<TABLE>
<CAPTION>
                                                                                       Years Ended
                                                                                      September 30,
                                                                              ----------------------------
                                                                                  2005            2004
                                                                              ------------    ------------
                                                                          (In Thousands, Except Per Share Data)
<S>                                                                           <C>             <C>
            Net income, as reported                                           $      1,032    $        860
                 Total stock-based employee compensation expense
                     determined under fair value based method for all
                     awards, net of related taxes                                      (13)            (40)
                 Compensation expense recorded in statements of income, net
                     of related taxes                                                    6              16
                                                                              ------------    ------------

            Pro forma net income                                              $      1,025    $        836
                                                                              ============    ============

            Basic earnings per common share:
                 As reported                                                  $       0.46    $       0.39
                 Pro forma                                                    $       0.46    $       0.38

            Diluted earnings per common share:
                 As reported                                                  $       0.46    $       0.38
                 Pro forma                                                    $       0.45    $       0.37
</TABLE>

--------------------------------------------------------------------------------
                                       11
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

Comprehensive Income

     Accounting principles generally require that recognized revenue, expenses,
     gains and losses be included in net income. Although certain changes in
     assets and liabilities, such as unrealized gains and losses on available
     for sale securities, are reported as a separate component of the equity
     section of the statement of financial condition, such items, along with net
     income, are components of comprehensive income.

     The components of other comprehensive income and related tax effects are as
     follows:

<TABLE>
<CAPTION>
                                                                                          Years Ended
                                                                                         September 30,
                                                                                 ----------------------------
                                                                                     2005            2004
                                                                                 ------------    ------------
                                                                                        (In Thousands)
<S>                                                                              <C>             <C>
            Unrealized holding gains (losses) on available for sale securities   $       (202)   $         21
            Reclassification adjustment for gains realized in income                      (96)            (80)
                                                                                 ------------    ------------

                   Net Unrealized Losses                                                 (298)            (59)

            Income tax                                                                    119              23
                                                                                 ------------    ------------

                     Net of Tax Amount                                           $       (179)   $        (36)
                                                                                 ============    ============
</TABLE>

Segment Reporting

     The Company acts as an independent community financial service provider and
     offers traditional banking and related financial services to individual and
     business customers. Through its branch and automated teller machine
     network, the Company offers a full array of commercial and retail financial
     services, including the taking of time, savings and demand deposits; the
     making of commercial, consumer and mortgage loans; and the providing of
     safe deposit services.

     Management does not separately allocate expenses, including the cost of
     funding loan demand, between the commercial and retail operations of the
     Company. As such, discrete information is not available and segment
     reporting would not be meaningful.

--------------------------------------------------------------------------------
                                       12
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

New Accounting Standards

     EITF 03-1

     In January 2003, the FASB's Emerging Issues Task Force (EITF) issued EITF
     Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
     Application to Certain Investors" ("EITF 03-1"), and in March 2004, the
     EITF issued an update. EITF 03-1 addresses the meaning of
     other-than-temporary impairment and its application to certain debt and
     equity securities. EITF 03-1 aids in the determination of impairment of an
     investment and gives guidance as to the measurement of impairment loss and
     the recognition and disclosures of other-than-temporary investments. EITF
     03-1 also provides a model to determine other-than-temporary impairment
     using evidence-based judgment about the recovery of the fair value up to
     the cost of the investment by considering the severity and duration of the
     impairment in relation to the forecasted recovery of the fair value. In
     July 2005, the FASB adopted the recommendation of its staff to nullify the
     guidance on the determination of whether an investment is impaired as set
     forth in paragraphs 10-18 of Issue 03-1 and not to provide additional
     guidance on the meaning of other-than-temporary impairment. Instead, the
     staff recommends entities recognize other-than-temporary impairments by
     applying existing accounting literature such as paragraph 16 of SFAS No.
     115. The implementation of this guidance had no impact on the Company's
     financial statements.

     FASB Exposure Draft  - Interpretation of FAS 109

     In July 2005, the FASB issued a proposed interpretation of SFAS No. 109,
     "Accounting for Income Taxes", to clarify certain aspects of accounting for
     uncertain tax positions, including issues related to the recognition and
     measurement of those tax positions. If adopted as proposed, the
     interpretation would be effective in the fourth quarter of 2005, which
     would be the first quarter of fiscal year 2006 for the Company, and any
     adjustments required to be recorded as a result of adopting the
     interpretation would be reflected as a cumulative effect from a change in
     accounting principle. The Company is in the process of determining the
     impact of adoption of the interpretation as proposed on its financial
     position and results of operations.

     FAS 123(R)

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

     On April 14, 2005, the Securities and Exchange Commission ("SEC") adopted a
     new rule that amends the compliance dates for Statement No. 123(R). Under
     the new rule, the Company is required to adopt SFAS No. 123(R) in the first
     annual period beginning after December 15, 2005. The Company has not yet
     determined the method of adoption or the effect of adopting SFAS No.
     123(R), and it has not determined whether the adoption will result in
     amounts that are similar to the current pro forma disclosures under SFAS
     No. 123.

--------------------------------------------------------------------------------
                                       13
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - SECURITIES

The amortized cost and fair value of securities were as follows:

<TABLE>
<CAPTION>
                                                      September 30, 2005
                                  -----------------------------------------------------------
                                                                    Gross           Gross
                                   Amortized      Unrealized      Unrealized        Fair
                                      Cost          Gains           Losses          Value
                                  ------------   ------------    ------------    ------------
                                                       (In Thousands)
<S>                               <C>            <C>             <C>             <C>
AVAILABLE FOR SALE
     U.S. Government agencies     $      4,990   $         29    $        (51)   $      4,968
     Mortgage-backed securities          4,145             22             (44)          4,123
     Municipal securities                1,272             12              (8)          1,276
                                  ------------   ------------    ------------    ------------
                                        10,407             63            (103)         10,367

     Equity securities                       9            494              --             503
     Mutual funds                          122             --              --             122
                                  ------------   ------------    ------------    ------------

                                  $     10,538   $        557    $       (103)   $     10,992
                                  ============   ============    ============    ============

HELD TO MATURITY
     Mortgage-backed securities   $        109   $          1    $         --    $        110
                                  ============   ============    ============    ============


                                                      September 30, 2004
                                  -----------------------------------------------------------

AVAILABLE FOR SALE
     U.S. Government agencies     $      6,335   $         78    $        (28)   $      6,385
     Mortgage-backed securities          5,282             43             (21)          5,304
     Municipal securities                1,276             19              (9)          1,286
                                  ------------   ------------    ------------    ------------
                                        12,893            140             (58)         12,975

     Equity securities                      10            670              --             680
     Mutual funds                          142             --              --             142
                                  ------------   ------------    ------------    ------------

                                  $     13,045   $        810    $        (58)   $     13,797
                                  ============   ============    ============    ============

HELD TO MATURITY
     Mortgage-backed securities   $        251   $         --    $         (3)   $        248
                                  ============   ============    ============    ============
</TABLE>

--------------------------------------------------------------------------------
                                       14
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - SECURITIES (CONTINUED)

The amortized cost and fair value of securities as of September 30, 2005 by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                             Available for Sale              Held to Maturity
                                         ---------------------------   ---------------------------
                                          Amortized        Fair         Amortized        Fair
                                            Cost           Value          Cost           Value
                                         ------------   ------------   ------------   ------------
                                                              (In Thousands)
<S>                                      <C>            <C>            <C>            <C>
Due after one year through five years    $      1,520   $      1,540   $         --   $         --
Due after five years through ten years          1,237          1,246             --             --
Due after ten years                             3,505          3,458             --             --
                                         ------------   ------------   ------------   ------------
                                                6,262          6,244             --             --

Mortgage-backed securities                      4,145          4,123            109            110
Mutual funds                                      122            122             --             --
Equity securities                                   9            503             --             --
                                         ------------   ------------   ------------   ------------

                                         $     10,538   $     10,992   $        109   $        110
                                         ============   ============   ============   ============
</TABLE>

Gross realized gains on sales of securities available for sale were $96,000 in
2005 and $90,000 in 2004. Gross realized losses on sales of securities available
for sale were $-0- in 2005 and $10,000 in 2004. The income tax provision
includes $38,000 and $32,000 for the years ended September 30, 2005 and 2004,
respectively, of income tax expense on net realized securities gains and losses.

Information pertaining to securities with gross unrealized losses at September
30, 2005, aggregated by investment category and length of time that individual
securities have been in a continuous loss position, follows:

<TABLE>
<CAPTION>
                                  Less than Twelve Months          Over Twelve Months                 Total
                                ---------------------------   ---------------------------   ---------------------------
                                   Gross                         Gross                         Gross
                                 Unrealized       Fair         Unrealized       Fair         Unrealized       Fair
                                   Losses         Value          Losses         Value          Losses         Value
                                ------------   ------------   ------------   ------------   ------------   ------------
                                                                     (In Thousands)
<S>                             <C>            <C>            <C>            <C>            <C>            <C>
Securities Available for Sale
     U.S. Government agencies   $         31   $      2,470   $         20   $      1,488   $         51   $      3,958
     Mortgage-backed                      15          1,433             29            749             44          2,182
     Municipal                            --             --              8            444              8            444
                                ------------   ------------   ------------   ------------   ------------   ------------

                                $         46   $      3,903   $         57   $      2,681   $        103   $      6,584
                                ============   ============   ============   ============   ============   ============
</TABLE>

In management's opinion, the unrealized losses primarily reflect changes in
interest rates subsequent to the acquisition of specific securities. At
September 30, 2005, the Company had 13 securities in an unrealized loss
position. None of the losses exceeds 5% of the amortized cost of the related
security. The Company has the intent and the ability to hold such securities
until maturity or market price recovery. Management believes that the unrealized
losses represent temporary impairment of the securities.

--------------------------------------------------------------------------------
                                       15
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The components of loans receivable at September 30 were as follows:

                                              2005            2004
                                          ------------    ------------
                                                 (In Thousands)

            Real estate:
                 Residential              $     66,911    $     55,488
                 Commercial                      6,472           4,108
                 Construction                    4,330           2,414
            Commercial and agricultural          1,188           3,618
            Automobile                           7,062           6,042
            Home equity                          7,375           5,678
            Passbook                               451             408
            Other                                2,976           2,459
                                          ------------    ------------

                                                96,765          80,215
            Deferred fees and costs                844             699
            Allowance for loan losses             (869)           (755)
                                          ------------    ------------

                                          $     96,740    $     80,159
                                          ============    ============

The following presents changes in the allowance for loan losses:

                                                     Years Ended
                                                    September 30,
                                             ----------------------------
                                                 2005            2004
                                             ------------    ------------
                                                    (In Thousands)

            Balance, beginning               $        755    $        655
                 Provision for loan losses            140             135
                 Recoveries                            53              86
                 Loans charged off                    (79)           (121)
                                             ------------    ------------

            Balance, ending                  $        869    $        755
                                             ============    ============

The recorded investment in impaired loans requiring an allowance for loan losses
was $258,000 and $607,000 at September 30, 2005 and 2004, respectively. The
related allowance for loan losses associated with these loans was $52,000 and
$55,000 at September 30, 2005 and 2004, respectively. For the years ended
September 30, 2005 and 2004, the average recorded investment in these impaired
loans was $263,000 and $661,000, respectively. The interest income recognized on
these impaired loans was not significant for the years ended September 30, 2005
and 2004.

Loans on which the accrual of interest has been discontinued amounted to
$393,000 and $252,000 at September 30, 2005 and 2004, respectively. The interest
income foregone on nonaccruing loans was approximately $15,000 and $10,000
during the years ended September 30, 2005 and 2004, respectively. Loan balances
past due 90 days or more and still accruing interest, but which management
expects will eventually be paid in full, amounted to $-0- at September 30, 2005
and 2004.

--------------------------------------------------------------------------------
                                       16
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 - PREMISES AND EQUIPMENT

Components of premises and equipment at September 30 are as follows:

                                             2005            2004
                                         ------------    ------------
                                                (In Thousands)

            Land                         $        561    $        422
            Buildings and improvements          1,269           1,262
            Furniture and equipment               801             767
                                         ------------    ------------

                                                2,631           2,451
            Accumulated depreciation           (1,084)           (958)
                                         ------------    ------------

                                         $      1,547    $      1,493
                                         ============    ============

Depreciation expense for the years ended September 30, 2005 and 2004 amounted to
$126,000 and $125,000, respectively.


NOTE 6 - DEPOSITS

Aggregate time deposits in denominations of $100,000 or more were $5,910,000 and
$5,228,000 at September 30, 2005 and 2004, respectively.

At September 30, 2005, the scheduled maturities of time deposits are as follows
(in thousands):

            2006                                     $  17,930
            2007                                         9,360
            2008                                         2,446
            2009                                         1,128
                                                     ---------

                                                     $  30,864
                                                     =========

A summary of interest expense is as follows:

                                           Years Ended
                                          September 30,
                                   ---------------------------
                                       2005           2004
                                   ------------   ------------
                                         (In Thousands)

            Savings                $        206   $        206
            Time                            808            740
            NOW and money market            111             62
                                   ------------   ------------

                                   $      1,125   $      1,008
                                   ============   ============

--------------------------------------------------------------------------------
                                       17
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - BORROWED FUNDS

Borrowed funds from the Federal Home Loan Bank of New York at September 30 are
summarized as follows:

<TABLE>
<CAPTION>
                                                             2005                            2004
                                                 ----------------------------    ----------------------------
                                                                   Weighted                        Weighted
                                                                   Average                         Average
                                                                   Interest                        Interest
                                                    Amount           Rate           Amount           Rate
                                                 ------------    ------------    ------------    ------------
                                                                      (Dollars in Thousands)
<S>                                              <C>                     <C>     <C>                     <C>
Securities sold under agreements to repurchase   $      6,000            4.19%   $      6,000            4.19%
Fixed term advances                                    30,750            3.93%         17,000            3.24%
                                                 ------------                    ------------

                                                 $     36,750            3.97%   $     23,000            3.49%
                                                 ============                    ============
</TABLE>

Future contractual maturities of the securities sold under agreements to
repurchase and advances from the Federal Home Loan Bank of New York (FHLBNY) are
as follows (in thousands):

         Years ending September 30:
                  2006                                $  19,250
                  2007                                    3,500
                  2008                                    3,000
                  2009                                    1,000
                  2011                                   10,000
                                                      ---------

                                                      $  36,750
                                                      =========

The securities sold under agreements to repurchase are secured by
mortgage-backed securities and agency securities. The collateral underlying the
securities sold under agreements to repurchase had a carrying value of
$6,514,000 and a fair value of $6,514,000 at September 30, 2005 and a carrying
value of $6,372,000 and a fair value of $6,370,000 at September 30, 2004. The
securities sold under agreements to repurchase have fixed interest rates.

The Company utilizes advance programs offered by the FHLBNY including a line of
credit agreement with an available limit of $12,484,000 at September 30, 2005.
Under terms of a blanket collateral agreement with the FHLBNY, outstanding
advances are secured by certain qualifying assets not otherwise pledged. The
advances from the FHLBNY have fixed interest rates.


NOTE 8 - EMPLOYEE BENEFIT PLANS

401(k) Plan

     The Company has a defined contribution 401(k) Retirement Plan (Plan) for
     all eligible salaried employees. Employees are permitted to contribute up
     to 15% of base pay to the Plan, subject to certain limitations. The Company
     contributes 3% of each eligible employee's salary. Additional Company
     contributions to the Plan are determined annually by the Board of
     Directors. For the years ended September 30, 2005 and 2004, expense for the
     Plan amounted to $42,000 and $28,000, respectively.

--------------------------------------------------------------------------------
                                       18
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - EMPLOYEE BENEFIT PLANS (CONTINUED)

Deferred Compensation Plan

     The Company has a nonqualified deferred compensation plan for directors,
     under which directors may elect to defer all or part of their director
     fees, and a nonqualified deferred compensation plan for the President. At
     September 30, 2005 and 2004, deferred compensation included in other
     liabilities aggregated approximately $388,000 and $310,000, respectively.
     Deferred compensation expense for the years ended September 30, 2005 and
     2004 amounted to $53,000 and $38,000, respectively.

Supplemental Retirement Plans

     In 2004, the Company adopted supplemental retirement and life insurance
     plans for the benefit of certain officers and directors. At September 30,
     2005 and 2004, other liabilities include approximately $162,000 and $67,000
     accrued under these plans, respectively. The expense was $95,000 and
     $67,000 relating to the supplemental retirement plans for 2005 and 2004,
     respectively.

     To fund the benefits under these plans, the Company is the owner of single
     premium life insurance policies on participants in the non-qualified
     retirement plans. At September 30, 2005 and 2004, the cash value of the
     policies were $3,717,000 and $3,582,000, respectively.

Employee Stock Ownership Plan

     The Company sponsors a non-contributory Employee Stock Ownership Plan
     (ESOP) covering substantially all employees. In connection with
     establishing the Employee Stock Ownership Plan (ESOP) in 1999, the ESOP
     borrowed $429,000 from the Company to purchase 85,825 common shares of the
     Company's stock. The loan is being repaid in ten equal annual installments
     through 2009. The loan bears interest at 7.75%. Compensation expense for
     the ESOP was $126,000 and $108,000 for the years ended September 30, 2005
     and 2004, respectively.

The status of the ESOP shares at September 30 is as follows:

                                                  2005           2004
                                              ------------   ------------

            Shares released for allocation          48,555         39,509
            Unreleased shares                       37,270         46,316
                                              ------------   ------------

                   Total ESOP Shares                85,825         85,825
                                              ============   ============

            Fair value of unreleased shares   $    460,000   $    648,000
                                              ============   ============

--------------------------------------------------------------------------------
                                       19
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - INCOME TAXES

The components of the provision for income taxes are as follows:

                                            Years Ended
                                           September 30,
                                   ----------------------------
                                       2005            2004
                                   ------------    ------------
                                          (In Thousands)

            Federal:
                 Current           $        454    $        477
                 Deferred                   (45)            (37)
                                   ------------    ------------

                                            409             440
                                   ------------    ------------
            State:
                 Current                    107             124
                 Deferred                   (11)             (8)
                                   ------------    ------------

                                             96             116
                                   ------------    ------------

                                   $        505    $        556
                                   ============    ============

A reconciliation of the statutory federal income tax at a rate of 34% to the
income tax expense included in the statements of income for the years ended
September 30, 2005 and 2004 is as follows:

<TABLE>
<CAPTION>
                                                                   2005                             2004
                                                       ----------------------------    -----------------------------
                                                                           % of                             % of
                                                                          Pretax                           Pretax
                                                          Amount          Income          Amount           Income
                                                       ------------    ------------    ------------     ------------
                                                                             (Dollars in Thousands)
<S>                                                    <C>                     <C>     <C>                      <C>
            Federal income tax at statutory rate       $        522            34.0%   $        481             34.0%
            State tax, net of federal benefit                    63             4.1              77              5.4
            Earnings on investment in life insurance            (46)           (3.0)            (28)            (2.0)
            Tax-exempt interest income                          (15)           (1.0)            (12)            (0.8)
            Other                                               (19)           (1.2)             38              2.7
                                                       ------------    ------------    ------------     ------------

                                                       $        505            32.9%   $        556             39.3%
                                                       ============    ============    ============     ============
</TABLE>

--------------------------------------------------------------------------------
                                       20
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - INCOME TAXES (CONTINUED)

The net deferred tax asset (liability) included in the accompanying statements
of financial condition includes the following amounts of deferred tax assets and
liabilities:

<TABLE>
<CAPTION>
                                                            2005           2004
                                                        ------------   ------------
                                                              (In Thousands)
<S>                                                     <C>            <C>
            Deferred tax assets:
                 Allowance for loan losses              $        338   $        294
                 Deferred compensation                           222            148
                 Other                                            38             42
                                                        ------------   ------------

                   Total Deferred Tax Assets                     598            484
                                                        ------------   ------------

            Deferred tax liabilities:
                 Net unrealized gains on securities              182            301
                 Premises and equipment                           24             35
                 Net deferred loan costs                         329            273
                 Other                                            27             15
                                                        ------------   ------------

                   Total Deferred Tax Liabilities                562            624
                                                        ------------   ------------

                   Net Deferred Tax Asset (Liability)   $         36   $       (140)
                                                        ============   ============
</TABLE>

Retained earnings include $1,274,000 at September 30, 2005 and 2004, for which
no provision for federal income tax has been made. These amounts represent
deductions for bad debt reserves for tax purposes which were only allowed to
savings institutions which met certain definitional tests prescribed by the
Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act
of 1996 eliminated the special bad debt deduction granted solely to thrifts.
Under the terms of the Act, there would be no recapture of the pre-1988 (base
year) reserves. However, these pre-1988 reserves would be subject to recapture
under the rules of the Internal Revenue Code if the Company itself pays a cash
dividend in excess of earnings and profits, or liquidates. The Act also provides
for the recapture of deductions arising from "applicable excess reserve" defined
as the total amount of reserve over the base year reserve. The Company's total
reserve exceeds the base year reserve and deferred taxes have been provided for
this excess.


NOTE 10 - TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS

Certain directors and executive officers of the Company, their families and
their affiliates are customers of the Bank. Any transactions with such parties,
including loans and commitments, were in the ordinary course of business at
normal terms, including interest rates and collateralization, prevailing at the
time and did not represent more than normal risks. At September 30, 2005 and
2004, such loans amounted to $494,000 and $321,000, respectively. During 2005,
new loans to such related parties totaled $268,000 and repayments aggregated
$95,000.

--------------------------------------------------------------------------------
                                       21
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - REGULATORY MATTERS

The Company and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material affect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company's and the Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of September 30, 2005, that the Company and the Bank meets all
capital adequacy requirements to which they are subject.

As of September 30, 2005, the most recent notification from the regulators has
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's category.

The Bank's actual capital amounts and ratios are presented in the table:

<TABLE>
<CAPTION>
                                                                                                       To be Well
                                                                                                    Capitalized under
                                                                         For Capital Adequacy       Prompt Corrective
                                                      Actual                  Purposes              Action Provisions
                                               --------------------      -------------------       --------------------
                                               Amount        Ratio        Amount      Ratio         Amount       Ratio
                                               -------      -------      --------    -------       --------     -------
                                                                        (Dollars in Thousands)
<S>                                            <C>             <C>       <C>           <C>         <C>           <C>
As of September 30, 2005:
     Total risk-based capital                  $19,042         26.7%     $=>5,695      =>8.0%      $=>7,119      =>10.0%
     Core capital (to risk-weighted
     assets)                                    18,183         25.5       =>2,848      =>4.0        =>4,271      => 6.0
     Core capital (to adjusted total
     assets)                                    18,183         14.9       =>3,662      =>3.0        =>6,103      => 5.0
     Tangible capital (to adjusted total
         assets)                                18,183         14.9       =>1,831      =>1.5            N/A       N/A

As of September 30, 2004:
     Total risk-based capital                  $18,274         31.0%     $=>4,713      =>8.0%      $=>5,892      =>10.0%
     Core capital (to risk-weighted
     assets)                                    17,262         29.3       =>2,357      =>4.0        =>3,535      => 6.0
     Core capital (to adjusted total
     assets)                                    17,262         16.6       =>3,114      =>3.0        =>5,191      => 5.0
     Tangible capital (to adjusted total
         assets)                                17,262         16.6       =>1,557      =>1.5            N/A       N/A
</TABLE>

The Company's ratios do not differ significantly from the Bank's ratios
presented above.

The Bank is required to maintain average cash reserve balances in vault cash or
with the Federal Reserve Bank. The amount of these restricted cash reserve
balances at September 30, 2005 and 2004 was approximately $331,000 and $321,000,
respectively.

--------------------------------------------------------------------------------
                                       22
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - STOCK OPTION AND MANAGEMENT RECOGNITION PLANS

The Stock Option Plan provides for awards in the form of stock options,
representing a right to purchase up to 107,281 shares of common stock. All
options have a ten-year term and vest ratably over a five-year period.

A summary of the Company's stock option activity and related information for the
years ended September 30 follows:

<TABLE>
<CAPTION>
                                                         2005                           2004
                                             ----------------------------   ----------------------------
                                                               Weighted                       Weighted
                                                               Average                        Average
                                                               Exercise                       Exercise
                                               Options          Price         Options          Price
                                             ------------    ------------   ------------    ------------
<S>                                                <C>       <C>                  <C>       <C>
            Outstanding, beginning of year         57,400    $       5.50         62,625    $       5.48
                 Exercised                         (1,125)           4.75         (5,225)           5.19
                                             ------------    ------------   ------------    ------------

            Outstanding, end of year               56,275    $       5.52         57,400    $       5.50
                                             ============    ============   ============    ============

            Exercisable, at end of year            52,275    $       5.23
                                             ============    ============
</TABLE>

Exercise prices for options outstanding as of September 30, 2005 ranged from
$4.75 to $9.30 per share. The weighted average remaining contractual life is 4.5
years. Options available for grant at September 30, 2005 were 43,531. No options
were granted in the years ended September 30, 2005 and 2004.

The Company awarded 13,100 shares of stock under the MRP during the year ended
September 30, 2005. The Company did not award any shares of stock under the MRP
during the year ended September 30, 2004. Compensation expense for MRP shares
granted in this year and prior years was $10,000 and $28,000 for the years ended
September 30, 2005 and 2004, respectively.


NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and to sell loans.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statements of financial
condition.

The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.

--------------------------------------------------------------------------------
                                       23
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS (CONTINUED)

A summary of the Bank's financial instrument commitments is as follows:

                                                              September 30,
                                                         -----------------------
                                                            2005         2004
                                                         ----------   ----------
                                                               (In Thousands)

            Commitments to grant loans                   $    4,277   $    6,516
            Unfunded commitments under lines of credit        3,704        2,751
            Commitments to sell loans                         3,346           --

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation of the customer and generally consists of real estate.


NOTE 14 - RETAINED EARNINGS

Cambray Mutual Holding Company (Cambray) waived receipt of its March and
September 2005 dividends in the amount of $367,000 from the Company. The total
dividends waived by Cambray were $1,114,000 as of September 30, 2005. The
dividends waived by Cambray are considered as a restriction on the retained
earnings of the Company.

--------------------------------------------------------------------------------
                                       24
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Company's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates herein are not necessarily indicative of the amounts the Company
could have realized in a sales transaction on the dates indicated. The estimated
fair value amounts have been measured as of their respective year ends and have
not been re-evaluated or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.

The following information should not be interpreted as an estimate of the fair
value of the entire Company since a fair value calculation is only provided for
a limited portion of the Company's assets and liabilities. Due to a wide range
of valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Company's disclosures and those of other
companies may not be meaningful. The following methods and assumptions were used
to estimate the fair values of the Company's financial instruments at September
30, 2005 and 2004:

     o    For cash and due from banks and interest-bearing deposits with banks,
          the carrying amount is a reasonable estimate of fair value.

     o    For securities, fair value equals quoted market price, if available.
          If a quoted market price is not available, fair value is estimated
          using quoted market prices for similar securities.

     o    The fair value of loans is estimated by discounting the future cash
          flows using the current rates at which similar loans would be made to
          borrowers with similar credit ratings and for the same remaining
          maturities.

     o    The fair value of the investment in FHLB stock is the carrying amount.

     o    The fair value of accrued interest receivable and accrued interest
          payable is the carrying amount.

     o    The fair value of demand deposits, savings accounts, NOW and money
          market accounts is the amount payable on demand at the reporting date.
          The fair value of fixed-maturity certificates of deposit is estimated
          by discounting the future cash flows using the rates currently offered
          for deposits of similar remaining maturities.

     o    The fair value of securities sold under agreements to repurchase and
          advances from the Federal Home Loan Bank are estimated using
          discounted cash flow analyses based upon rates currently available to
          the Bank for similar types of borrowing arrangements.

     o    The fair value of off-balance sheet financial instruments is estimated
          using the fees currently charged to enter into similar agreements.

--------------------------------------------------------------------------------
                                       25
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                                        September 30, 2005             September 30, 2004
                                                    ---------------------------   ---------------------------
                                                      Carrying        Fair          Carrying        Fair
                                                       Amount         Value          Amount         Value
                                                    ------------   ------------   ------------   ------------
                                                                          (In Thousands)
<S>                                                 <C>            <C>            <C>            <C>
Financial assets:
     Cash and due from banks and interest-bearing
         deposits with banks                        $      2,666   $      2,666   $      2,715   $      2,715
     Securities                                           11,101         11,102         14,048         14,045
     Loans receivable, net                                96,740         97,313         80,159         81,802
     Investment in FHLB stock                              1,838          1,838          1,150          1,150
     Accrued interest receivable                             504            504            458            458

Financial liabilities:
     Deposits                                             63,964         63,810         61,598         61,689
     Borrowed funds                                       36,750         37,038         23,000         23,649
     Accrued interest payable                                205            205            113            113

Off-balance sheet financial instruments                       --             --             --             --
</TABLE>


NOTE 16 - GOUVERNEUR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION

CONDENSED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                              September 30,
                                                       ---------------------------
                                                           2005           2004
                                                       ------------   ------------
                                                             (In Thousands)

                                     ASSETS
<S>                                                    <C>            <C>
            Cash                                       $         66   $        102
            Investment in bank subsidiary                    18,456         17,713
            Other assets                                        153            135
                                                       ------------   ------------

                                                       $     18,675   $     17,950
                                                       ============   ============

                              SHAREHOLDERS' EQUITY

            Shareholders' equity                       $     18,675   $     17,950
                                                       ============   ============
</TABLE>

--------------------------------------------------------------------------------
                                       26
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 16 - GOUVERNEUR BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
   (CONTINUED)

CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                           Years Ended
                                                                                          September 30,
                                                                                  ----------------------------
                                                                                      2005            2004
                                                                                  ------------    ------------
                                                                                         (In Thousands)
<S>                                                                               <C>             <C>
            Income:
                 Dividends from subsidiary                                        $        280    $        600
                 Interest                                                                   22              25
            Other expenses                                                                (109)            (74)
                                                                                  ------------    ------------

                   Income before Equity in Undistributed Earnings of Subsidiary            193             551

            Equity in undistributed earnings of subsidiary                                 839             309
                                                                                  ------------    ------------

                   Net Income                                                     $      1,032    $        860
                                                                                  ============    ============

CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>

                                                                                        Years Ended
                                                                                       September 30,
                                                                               ----------------------------
                                                                                   2005            2004
                                                                               ------------    ------------
                                                                                      (In Thousands)
<S>                                                                            <C>             <C>
            CASH FLOWS FROM OPERATING ACTIVITIES
                 Net income                                                    $      1,032    $        860
                 Adjustments to reconcile net income to net cash provided by
                     operating activities:
                     Equity in undistributed earnings of bank subsidiary               (839)           (309)
                     Other, net                                                          (8)              2
                                                                               ------------    ------------

                   Net Cash Provided by Operating Activities                            185             553
                                                                               ------------    ------------

            CASH FLOWS PROVIDED BY INVESTING ACTIVITIES
                 Principal collected on ESOP note receivable                             43              39
                                                                               ------------    ------------

            CASH FLOWS FROM FINANCING ACTIVITIES
                 Exercise of stock options                                                8              26
                 Cash dividends paid                                                   (272)           (593)
                                                                               ------------    ------------

                   Net Cash Used in Financing Activities                               (264)           (567)
                                                                               ------------    ------------

                   Increase (Decrease) in Cash and Cash Equivalents                     (36)             25

            CASH AND CASH EQUIVALENTS - BEGINNING                                       102              77
                                                                               ------------    ------------

            CASH AND CASH EQUIVALENTS - ENDING                                 $         66    $        102
                                                                               ============    ============
</TABLE>

--------------------------------------------------------------------------------
                                       27
<PAGE>

GOUVERNEUR BANCORP, INC.
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 17 - QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)

The following represents summarized quarterly financial data of the Company
which, in the opinion of management, reflects all adjustments necessary for a
fair presentation (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                      ------------------------------------------------------------
2005                                  December 31       March 31        June 30       September 30
----------------------------------    ------------    ------------    ------------    ------------
<S>                                   <C>             <C>             <C>             <C>
Interest income                       $      1,500    $      1,562    $      1,640    $      1,739
Interest expense                               483             513             559             642
                                      ------------    ------------    ------------    ------------

       Net Interest Income                   1,017           1,049           1,081           1,097

Provision for loan losses                      (40)            (30)            (30)            (40)
Other expenses, net of other income           (638)           (587)           (661)           (681)
                                      ------------    ------------    ------------    ------------

       Income before Income Taxes              339             432             390             376

Income tax expense                             120             161             144              80
                                      ------------    ------------    ------------    ------------

       Net Income                     $        219    $        271    $        246    $        296
                                      ============    ============    ============    ============

Earnings per share:
     Basic                            $       0.11    $       0.12    $       0.11    $       0.12
                                      ============    ============    ============    ============

     Diluted                          $       0.11    $       0.12    $       0.11    $       0.12
                                      ============    ============    ============    ============


                                                          Three Months Ended
                                      ------------------------------------------------------------
2004                                  December 31       March 31        June 30       September 30
----------------------------------    ------------    ------------    ------------    ------------

Interest income                       $      1,329    $      1,339    $      1,336    $      1,399
Interest expense                               405             403             405             435
                                      ------------    ------------    ------------    ------------

       Net Interest Income                     924             936             931             964

Provision for loan losses                      (25)            (25)            (35)            (50)
Other expenses, net of other income           (558)           (558)           (512)           (576)
                                      ------------    ------------    ------------    ------------

       Income before Income Taxes              341             353             384             338

Income tax expense                             134             130             145             147
                                      ------------    ------------    ------------    ------------

       Net Income                     $        207    $        223    $        239    $        191
                                      ============    ============    ============    ============

Earnings per share:
     Basic                            $       0.09    $       0.10    $       0.11    $       0.09
                                      ============    ============    ============    ============

     Diluted                          $       0.09    $       0.10    $       0.11    $       0.08
                                      ============    ============    ============    ============
</TABLE>

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