THE
                WILBER CORPORATIONANNUAL
                REPORT ON SECURITIES AND EXCHANGE COMMISSION FORM
                10-Kfor
                the Year-Ended December 31, 2007



































The
      Annual Report on Form 10-K that follows is not part of the proxy solicitation
      material.






























UNITED
                STATES
              SECURITIES
                AND EXCHANGE COMMISSION
              Washington,
                D.C. 20549
              FORM
                10-Ký
                ANNUAL REPORT
                PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
              For
                the fiscal year ended December 31, 2007
              
              Commission
                file number: 001-31896The
                Wilber Corporation
              (Exact
                name of registrant as specified in its charter)New
                York
              (State
                or other jurisdiction of incorporation or organization)
            15-6018501
              (I.R.S.
                Employer Identification No.)245
                Main Street, P.O. Box 430, Oneonta, NY
              (Address
                of principal executive offices)
            13820
              (Zip
                Code)607-432-1700
              (Registrant’s
                telephone number,
                including area code)
              
              None
              (Former
                name, former address and
                former fiscal year, if changed since last report)
              
              
              Securities
                registered pursuant to Section 12(b) of the Act:Title
                of each class
              Common
                Stock, $0.01 par value per share
            Name
                of each exchange on which registered
              American
                Stock ExchangeSecurities
                registered pursuant to Section 12(g) of the
                Act:   None





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes
o
      No ý





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act.


Yes
o
      No ý





Indicate
      by check mark whether registrant (1) has filed all reports required to be filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
ý
      No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
      be contained, to the best of the registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K. o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.  See definition of “Large accelerated filer,” “accelerated
      filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
      Act.  (Check one).





Large
                accelerated filer o
            Accelerated
                filer ý
            Non-accelerated
                filer o
            Smaller
                Reporting Company  o








1-K





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
o  No
ý





As
      of
      June 30, 2007, the aggregate market value of the registrant’s common stock held
      by non-affiliates of the registrant was $58.8 million, based upon the closing
      price as reported on the American Stock Exchange (“Amex®”).  Although
      Directors and Executive Officers of the registrant were assumed to be
“affiliates” for the purposes of this calculation, the classification is not to
      be interpreted as an admission of such status.  There were no classes
      of non-voting common stock authorized on June 30, 2007.





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Common
                Stock
              (Common
                Stock, $0.01 par value per share)
            Outstanding
                at March 10, 2008
              10,503,704
                shares





Documents
      Incorporated by Reference


Portions
      of the registrant’s definitive Proxy Statement for the registrant’s Annual
      Meeting of Shareholders to be held on April 25, 2008 are incorporated by
      reference.























2-K






















This
      page intentionally left blank










3-K


THE
      WILBER CORPORATION


FORM
      10-K


INDEX




FORWARD-LOOKING
                  STATEMENTSPART
                  IITEM
                  1:
              BUSINESSA.
              GeneralB.
              Market
                  AreaC.
              Lending
                  Activitiesi.
              Loan
                  Products and Servicesii.
              Loan
                  Approval Procedures and Authorityiii.
              Credit
                  Quality PracticesD.
              Investment
                  Securities ActivitiesE.
              Sources
                  of FundsF.
              Electronic
                  and Payment ServicesG.
              Trust
                  and Investment ServicesH.
              Insurance
                  ServicesI.
              Supervision
                  and Regulationi.
              The
                  Companyii.
              The
                  Bankiii.
              Other
                  SubsidiariesJ.
              CompetitionK.
              Legislative
                  and Regulatory DevelopmentsITEM
                  1A:
              RISK
                  FACTORSITEM
                  1B:
              UNRESOLVED
                  STAFF COMMENTSITEM
                  2:
              PROPERTIESITEM
                  3:
              LEGAL
                  PROCEEDINGSITEM4:
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERSPART
                  IIITEM
                  5:
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                  PURCHASES OF EQUITY SECURITIESA.
              Market
                  Information; Dividends on Common Stock; and Recent Sales of Unregistered
                  SecuritiesB.
              Use
                  of Proceeds from Registered SecuritiesC.
              Purchases
                  of Equity Securities by Issuer and Affiliated
                  PurchasersITEM
                  6:
              SELECTED
                  FINANCIAL DATAITEM
                  7:
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONSA.
              GeneralB.
              Performance
                  OverviewC.
              Financial
                  Conditioni.
              Comparison
                  of Financial Condition at December 31, 2007 and December 31,
                  2006D.
              Results
                  of Operationsi.
              Comparison
                  of Operating Results for the Years Ended December 31, 2007 and
                  December
                  31, 2006





4-K
 Index




ii.
              Comparison
                  of Operating Results for the Years Ended December 31, 2006 and
                  December
                  31, 2005E.
              LiquidityF.
              Capital
                  Resources and DividendsITEM
                  7A:
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM
                  8:
              FINANCIAL
                  STATEMENTS AND SUPPLEMENTARY DATAITEM
                  9:
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSUREITEM
                  9A:
              CONTROLS
                  AND PROCEDURESITEM
                  9B:
              OTHER
                  INFORMATIONPART
                  IIIITEM
                  10:
              DIRECTORS,
                  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEA.
              Directors
                  of the RegistrantB.
              Executive
                  Officers of the Registrant Who Are Not DirectorsC.
              Compliance
                  With Section 16(a)D.
              Code
                  of EthicsE.
              Corporate
                  GovernanceITEM
                  11:
              EXECUTIVE
                  COMPENSATIONITEM
                  12:
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERSITEM
                  13:
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                  INDEPENDENCEA.
              Related
                  TransactionsB.
              Director
                  IndependenceITEM
                  14:
              PRINCIPAL
                  ACCOUNTING FEES AND SERVICESPART
                  IVITEM
                  15:
              EXHIBITS
                  AND FINANCIAL STATEMENT SCHEDULES





5-K
 Index











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 report or in any press releases, public announcements, filings with
      the
      Securities and Exchange Commission (the "SEC"), or other disclosures, we are
      making "forward-looking statements" as described in the Private Securities
      Litigation Reform Act of 1995.  In addition, certain information we
      provide, such as analysis of the adequacy of our allowance for loan losses
      or an
      analysis of the interest rate sensitivity of our assets and liabilities, is
      always based on predictions of the future.  From time to time, we may
      also publish other forward-looking statements about anticipated financial
      performance, business prospects, 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 and uncertainties could cause our actual results and experience
      to
      differ materially from what we anticipate when we make our forward-looking
      statements.  Factors that could cause future results to vary from
      current management expectations include, but are not limited to, general
      economic conditions, legislative and regulatory changes, monetary and fiscal
      policies of the federal government, changes in tax policies, tax rates and
      regulations of federal, state and local tax authorities, changes in consumer
      preferences, changes in interest rates, deposit flows, cost of funds, demand
      for
      loan products, demand for financial services, competition, changes in the
      quality or composition of the Company’s loan and investment portfolios, changes
      in accounting principles, policies or guidelines, and other economic,
      competitive, governmental, and technological factors affecting the Company’s
      operations, markets, products, services and fees.





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





6-K
 Index





PART
      I





ITEM
      1: BUSINESS





A.
      General





The
      Wilber Corporation (“the Company”), a New York corporation, was originally
      incorporated in 1928.  The Company held and disposed of various real
      estate assets until 1974.  In 1974, the Company and its real estate
      assets were sold to Wilber National Bank (the “Bank”), a national bank
      established in 1874.  The Company’s real estate assets were used to
      expand the banking house of Wilber National Bank.  The Company was an
      inactive subsidiary of the Bank until 1982.  In 1983, under a plan of
      reorganization, the Company was re-capitalized, acquired 100% of the voting
      stock of the Bank, and registered as a bank holding company within the meaning
      of the Bank Holding Company Act of 1956 (“BHCA”).





The
      business of the Company consists primarily of the ownership, supervision, and
      control of the Bank.  The Bank is chartered by the Office of the
      Comptroller of the Currency (“the OCC”), and its deposits are insured up to
      applicable limits by the Federal Deposit Insurance Corporation (“the
      FDIC”).  The Company, through the Bank and the Bank’s subsidiaries,
      offers a full range of commercial and consumer financial products, including
      business, municipal, and consumer loans, deposits, trust and investment
      services, and insurance.  The Bank serves its customers through
      twenty- one (21) full service branch banking offices located in Otsego,
      Delaware, Schoharie, Chenango, Ulster, and Broome counties, New York, an ATM
      network, and electronic / Internet banking services.  In addition, the
      Bank operates representative loan production offices in Syracuse, New York
      (Onondaga County) and Clifton Park, New York (Saratoga County).  The
      Bank’s main office is located at 245 Main Street, Oneonta, New York, 13820
      (Otsego County).  The Bank employed 267 full-time equivalent employees
      at December 31, 2007.  The Bank’s website address, which also serves
      as the Company’s main website address, is www.wilberbank.com.





In
      2007,
      the Company acquired Provantage Funding Corporation (“Provantage”) a New York
      State licensed mortgage banking company based in Clifton Park, New York
      (Saratoga County).  Provantage has five (5) licensed mortgage banking
      offices, four (4) of which are located in New York State’s Capital District
      region, namely Saratoga, Schenectady, and Albany
      Counties.  Provantage’s other licensed office is located in Oneonta,
      New York (Otsego County), adjacent to the Bank’s Main
      Office.  Provantage is regulated by the New York State Banking
      Department.  Its principal business is to originate and sell
      high-quality residential mortgage loans to the Bank and other third party
      investors.





The
      Bank’s subsidiaries include Wilber REIT, Inc.; Western Catskill Realty, LLC; and
      Mang–Wilber, LLC.  Wilber REIT, Inc. is wholly - owned by the Bank and
      primarily holds mortgage related assets.  Western Catskill Realty, LLC
      is a wholly - owned real estate holding company, which primarily holds
      foreclosed real estate.  Mang–Wilber, LLC is the Bank’s insurance
      agency subsidiary, which is operated under a joint venture arrangement with
      a
      regional insurance agency.  Mang – Wilber, LLC sells a full range of
      personal and commercial property and casualty, life, and health insurance
      products from two of the Bank’s branch offices, namely the Bank’s main office in
      Oneonta, New York (Otsego County) and its Walton, New York office (Delaware
      County).  At December 31, 2007, the Bank owned a 62.4% membership
      interest in Mang–Wilber, LLC.





The
      Company and its subsidiaries’ (collectively “we” or “our”) principal business is
      to act as a financial intermediary and lending institution in the communities
      its serves by obtaining funds through customer deposits and institutional
      borrowings, lending the proceeds of those funds to our customers, and investing
      excess funds in debt securities and short-term liquid
      investments.  Our funding base consists of deposits derived
      principally from the central New York communities which we serve.  To
      a lesser extent, we borrow funds from institutional sources, principally the
      Federal Home Loan Bank of New York (“FHLBNY”).  We target our lending
      activities to consumers and municipalities in the immediate geographic areas
      we
      serve and to small and mid-sized businesses in the immediate geographic areas
      we
      serve as well as a broader statewide region.  Our investment
      activities primarily consist of purchases of U.S. Treasury, U.S. Government
      Agency (“GinnieMae”), and U.S. Government Sponsored Entities (“FannieMae” and
“FreddieMac”) obligations, as well as municipal, mortgage-backed, and high
      quality corporate debt instruments.  Through our Trust and Investment
      Division, we provide personal trust, agency, estate administration, and
      retirement planning services for individuals, as well as custodial and
      investment management services to institutions.  We also offer stocks,
      bonds, and mutual funds through a third party broker-dealer firm.





B.
      Market
      Area





We
      primarily operate in the small town and rural markets to the north and west
      of
      the Catskill Mountains in central New York.  The regional economy is
      driven by small not-for-profit organizations; farming; hospitals; small,
      independently owned retailers, restaurants and motels; light manufacturing;
      several small colleges; and tourism.  The National Baseball Hall of
      Fame (Cooperstown, New York), the National Soccer Hall of Fame (Oneonta, New
      York), several youth sport camps, and





7-K
 Index





outdoor
      recreation such as camping, hunting, fishing, and skiing, bring seasonal
      activity to several communities within our market area.  The Bank’s
      main office in Oneonta, New York, is approximately 70 miles southwest of Albany,
      New York, the state’s capital, and 180 miles northwest of New York
      City.





Our
      primary market area consists of four rural counties in central New York, namely
      Otsego, Delaware, Schoharie, and Chenango Counties.  Eighteen (18) of
      the Bank’s twenty-one (21) full-service branch offices and one of our Provantage
      mortgage banking offices are located in our primary market
      area.  Based on 2005 U.S. Census Bureau data, the estimated population
      of our four-county primary market area is 194,000.  Between 2000 and
      2005, the area population increased by less than 1%.  This compares to
      a national average of 1.5% during the same time period.  Approximately
      15.9% of the individuals that reside in our four-county primary market area
      are
      over the age of 65, as compared to a national average of 12.4%.  In
      2003 (the latest available statistics) the median household income for the
      four-county region was approximately $34 thousand.  This was
      approximately 79% of the United States national average and 78% of the New
      York
      State average.  The local unemployment rate approximates the national
      average.  Our management believes the demographic profile of the
      primary market area in which we operate has not materially changed through
      2007.





In
      addition to the eighteen (18) full-service branches located in our primary
      market area, we also operate two (2) full-service branch offices in Ulster
      County, New York, a full-service branch in Johnson City, New York (Broome
      County), two (2) representative loan production offices in Syracuse, New York
      (Onondaga County) and Clifton Park, New York (Saratoga County), and four (4)
      mortgage banking offices in New York’s capital district (Saratoga, Schenectady,
      and Albany Counties).  The Johnson City branch office, the Syracuse
      and Clifton Park representative offices, the four (4) Capital District mortgage
      banking offices, and our branch office located in Kingston, New York (Ulster
      County) operate in markets that are more densely populated than our primary
      market.  Our second office located in Ulster County, New York, namely
      our Boiceville Branch, is located in a rural market that is demographically
      similar to our primary market.





We
      anticipate that our expansion into the more densely populated markets throughout
      New York State will continue during 2008.  The Bank recently filed
      applications with the OCC to establish three additional full-service branch
      offices in Clifton Park, New York (Saratoga County); Dewitt, New York (Onondaga
      County); and Cicero, New York (Onondaga County).





C.
      Lending Activities





General.  The
      Company, through the Bank and Provantage, engage in a wide range of lending
      activities, including commercial lending primarily to small and mid-sized
      businesses; mortgage lending for 1-4 family and multi-family properties
      including home equity loans; mortgage lending for commercial properties;
      consumer installment and automobile lending; and to a lesser extent,
      agricultural lending.





Over
      the
      last several decades we have implemented lending strategies and policies that
      are designed to provide flexibility to meet customer needs while minimizing
      losses associated with borrowers’ inability or unwillingness to repay
      loans.  The loan portfolio, in general, is fully collateralized, and
      many commercial loans are further secured by personal guarantees.  We
      do not commonly grant unsecured loans to our customers.  Annually, we
      utilize the services of an outside consultant to conduct reviews of the larger,
      more complex commercial real estate and commercial loan portfolios to ensure
      adherence to underwriting standards and loan policy guidelines.





We
      periodically participate in loan participations with other banks or financial
      institutions both as an originator and as a participant.  A
      participation loan is generally formed when the aggregate size of a single
      loan
      exceeds the originating bank’s regulatory maximum loan size or a self-imposed
      loan limit.  We typically make participation loans for commercial or
      commercial real estate purposes.  Although we do not always maintain
      direct contact with the borrower, credit underwriting procedures and credit
      monitoring practices associated with participation loans are identical in all
      material respects to those practices and procedures followed for loans that
      we
      originate, service, and hold for our own account.  We typically buy
      participation loans from other commercial banks operating within New York State
      with whose management we are familiar.  Our total participation loans
      represent less than 10% of the total loans outstanding and are comprised of
      approximately fifteen (15) borrowers.





If
      deemed
      appropriate for the borrower and for the Bank, we place certain loans in
      federal, state, or local government agency or government sponsored loan
      programs.  These placements often help reduce our exposure to credit
      losses and often provide our borrowers with lower interest rates on their
      loans.





i.
      Loan
      Products and Services





Residential
      Real
      Estate.We originate 1-4 family residential mortgage loans,
      principally through Provantage.  Some of these loans are sold into the
      secondary market to third party investors, while others that meet our
      underwriting and





8-K
 Index





interest
      rate guidelines are retained for our loan portfolio.  The terms on
      these loans are typically 15 – 30 years and are usually secured by a first lien
      position on the home of the borrower.  We offer both adjustable rate
      and fixed rate loans and provide monthly and bi-weekly payment
      options.  Our 1-4 family residential loan portfolio primarily consists
      of owner-occupied, primary residence properties and, to a lesser extent, rental
      properties for off-campus student housing, which surround each of the local
      colleges within our market.  Our property appraisal process,
      debt-to-income limits for borrowers, and established loan-to-value limits
      dictate our residential real estate lending practices.  We also offer
      residential construction financing to borrowers that meet our credit
      underwriting guidelines.  In the regular course of our business, we do
      not originate sub-prime, Alt-A, negative amortizing, or other higher risk
      residential mortgages.





We
      originate and retain home equity loans.  Our home equity loans are
      typically granted as adjustable rate lines of credit.  The interest
      rate on the line of credit adjusts twice per year and is tied to the Wall Street Journal Prime
      loan rate.  The loan terms generally include a second lien position on
      the borrower’s residence and a 10-year interest only repayment
      period.  At the end of a 10-year term, the home equity line of credit
      is either renewed by the borrower or placed on a scheduled principal and
      interest payment plan by the Bank.





Commercial
      Real
      Estate.We originate commercial real estate loans to finance
      the purchase of developed real estate.  To a lesser extent, we will
      also provide financing for the construction of commercial real estate.Our commercial real
      estate loans are typically larger than those made for residential real
      estate.  The loans are often secured by properties whose tenants
      include “Main Street” type small businesses, retailers, and
      motels.  We also finance properties for commercial office and
      owner-occupied manufacturing space.  Our commercial real estate loans
      are usually limited to a maximum repayment period of 20 years.  Most
      of our commercial real estate loans are fully collateralized and further secured
      by the personal guarantees of the property owners.  Construction loans
      are generally granted as a line of credit whose term does not exceed 12
      months.  We typically advance funds on construction loans based upon
      an advance schedule, to which the borrower agrees, and physical inspection
      of
      the premises.





Commercial
      Loans.In addition to commercial real estate loans, we also
      make various types of commercial loans to qualified borrowers, including
      business installment and term loans, lines-of-credit, demand loans, time notes,
      automobile dealer floor-plan financing, and accounts receivable
      financing.





Business
      installment and term loans are typically provided to borrowers for long-term
      working capital or to finance the purchase of a piece of equipment, trucks,
      or
      automobiles utilized in their business.  We generally limit the term
      of the borrowing to a period shorter than the estimated useful life of the
      equipment being purchased.  We also place a lien on the equipment
      being financed by the borrower.





Lines
      of
      credit are typically provided to meet the short-term working capital needs
      of
      the borrowers for inventory and other seasonal aspects of their
      business.  We also offer a cash management line of credit that is tied
      to a borrower’s primary demand deposit operating account.  Each day,
      on an automated basis, the borrower’s line of credit is paid down with the
      excess operating funds available in the primary operating
      account.  Upon complete repayment of the line of credit, excess
      operating funds are invested in investment securities on a short-term basis,
      usually overnight, through a securities repurchase agreement between the Bank
      and the customer.





Demand
      loans and time notes are often granted to borrowers to provide short term or
      “bridge” financing for special orders, contracts, or projects.  These
      loans are often secured with a lien on business assets, liquid collateral,
      and/or personal guarantees.





On
      a
      limited basis we also provide inventory financing or “floor plans” for
      automobile dealers.  Floor plan lines of credit create unique risks
      that require close oversight by the Bank’s lending
      personnel.  Accordingly, we have developed special procedures for
      floor plan lines of credit to assure the borrower maintains sufficient inventory
      collateral at all times.





We
      offer
      accounts receivable financing to qualified borrowers through affiliation with
      a
      third party vendor specializing in this type of financing.  The
      program allows business customers to borrow funds from the Bank by assigning
      their accounts receivable to the Bank for billing and collection.  The
      program is supported by limited fraud and credit insurance.





Commercial
      loans and commercial real estate loans generally involve a higher degree of
      risk
      and are more complex than residential mortgages and consumer
      loans.  Such loans typically involve large loan balances to single
      borrowers or groups of related borrowers.  Commercial loan repayment
      and interest terms are often established to meet the unique needs of the
      borrower and the characteristics of the business.  Typically, payments
      on commercial real estate are dependent upon leases whose terms are shorter
      than
      the borrower’s repayment period.  This places significant reliance
      upon the owner’s successful operation and management of the
      property.  Accordingly, the borrower and we must be aware of the risks
      that affect the underlying business including, but not limited to, economic
      conditions, competition, product obsolescence, inventory cycles, seasonality,
      and the business owner’s experience and expertise.





9-K
 Index








Stand-by
      Letters of
      Credit.We offer stand-by letters of credit for our business
      customers.  Stand-by letters of credit are not loans.  They
      are guarantees to pay other creditors of the customer should the customer fail
      to meet certain payment obligations required by the third party
      creditor.  Those guarantees are primarily issued to support public and
      private borrowing arrangements, including bond financing and similar
      transactions.  Because the issuance of a stand-by letter of credit
      creates a contingent liability for the Bank, they are underwritten in the same
      manner as loans.  Accordingly, a stand-by letter of credit will only
      be issued upon completing our credit review process.  We charge our
      customers a fee for providing this service, which is based on the principal
      amount of the stand-by letter of credit.





Consumer
      Loans.We
      offer a variety of consumer loans to our customers.  These loans are
      usually provided to purchase a new or used automobile, motorcycle or
      recreational vehicle, or to make a home improvement.  We also make
      personal loans to finance the purchase of consumer durables or other needs
      of
      our customers.  The consumer loans are generally offered for a shorter
      term than residential mortgages because the collateral typically has an
      estimated useful life of 5 to 10 years and tends to depreciate
      rapidly.  Automobile loans comprise the largest portion of our
      consumer loan portfolio.  The financial terms of our automobile loans
      are determined by the age and condition of the vehicle, and the ability of
      the
      borrower to make scheduled principal and interest payments on the
      loan.  We obtain a lien on the vehicle and collision insurance
      policies are required on these loans.  Although we lend directly to
      borrowers, the majority of our automobile loans are originated through auto
      dealerships within our primary market area.  We commonly refer to
      these as indirect automobile or indirect installment loans.





We
      also
      provide an overdraft line of credit product called ChequeMate, which provides
      our customers with an option to eliminate overdraft fees should they make an
      error in balancing their checking account.  Our ChequeMate lines of
      credit are typically unsecured and are generally limited to less than $4,000
      per
      account.





ii.
      Loan
      Approval Procedures and Authority





General.  The
      Bank’s Board of Directors delegates the authority to provide loans to borrowers
      through the Bank’s loan policy.  The policy is modified, reviewed and
      approved on an annual basis to assure that lending policies and practices meet
      the needs of borrowers, mitigate perceived credit risk, and reflect current
      economic conditions.  Currently, we use a five (5) tier structure to
      approve loans.





First,
      the full Board of Directors of the Bank has authority to approve single loans
      or
      loans to any one borrower up to the Bank’s legal lending limit, which was $10.5
      million for loans not fully secured by readily marketable collateral and $17.5
      million for loans secured by readily marketable collateral at December 31,
      2007.  The full Board of Directors also approves loans made to members
      of the Board of Directors, their family members, and their related businesses
      when the total loans exceed $500,000.  If conditions merit, the Board
      of Directors may authorize exceptions to our loan policy.





Second,
      the Board of Directors, as required by the Bank’s by-laws, appoints a Loan and
      Investment Committee.  The Loan and Investment Committee must be
      comprised of at least three (3) outside directors and meets on an as-needed
      basis, generally bi-weekly.  Its lending authority for loans not
      secured by readily marketable collateral is limited to 60% of the Bank’s legal
      lending limit, which is approximately $6.3 million.  The Committee may
      also approve loans up to 100% of the Bank’s legal lending limit if the loan is
      secured by readily marketable collateral such as stocks and
      bonds.  The Loan and Investment Committee is also responsible for
      ratifying and affirming all loans made that exceed $25,000, approving collateral
      releases, authorizing charge-offs in excess of $25,000, and annually reviewing
      all lines of credit that exceed the lending limit of the Officers’ Loan
      Committee.  The actions of the Loan and Investment Committee are
      reported to and ratified by the full Board of Directors each month.





Third,
      the Board of Directors has authorized the creation of the Officers’ Loan
      Committee.  The Officers’ Loan Committee is comprised of four (4)
      voting members.  The three (3) permanent members of the Officers’ Loan
      Committee include the Bank’s Chief Executive Officer, the Regional President –
Southern Tier and Hudson Valley, and the Vice President - Credit Risk Management
      and Planning.  The fourth voting member of the Committee alternates
      among and between other specifically-designated senior loan
      officers.   The Officers’ Loan Committee may approve secured and
      unsecured loans up to $3.75 million and up to 100% of the Bank’s legal lending
      limit if the loan is secured by readily marketable collateral.  The
      Committee also has the authority to adjust loan rates from time to time as
      market conditions dictate.  Loan charge-offs up to $25,000 and
      collateral releases within prescribed limits established by the Board of
      Directors are also approved by the Officers’ Loan Committee.  All
      actions of the Officers’ Loan Committee are reported to the Loan and Investment
      Committee for ratification.





Fourth,
      the Board of Directors authorized the formation of Regional Officers’ Loan
      Committee(s), who may approve secured and unsecured loans up to $2.5
      million.  The Regional Officer’s Loan Committee must be comprised of
      at least two (2) of the permanent members of the Officer’s Loan Committee,
      including the Bank’s Chief Executive Officer, the





10-K
 Index





Regional
      President – Southern Tier and Hudson Valley, and the Vice President - Credit
      Risk Management and Planning, and two (2) other specifically-designated senior
      loan officers.





Fifth,
      through the loan policy, individual loan officers are provided specific loan
      limits by category of loan.  Each officer’s lending limits are
      determined based on the individual officer’s experience, past credit decisions,
      and expertise. These individual limits can also be combined under certain
      conditions.





Our
      goal
      for the loan approval process is to provide adequate review of loan proposals
      while at the same time responding quickly to customer requests.  We
      complete a credit review and maintain a credit file for each
      borrower.  The purpose of the file is to provide the history and
      current status of each borrower’s relationship and credit standing, so that a
      loan officer can quickly understand the borrower’s status and make a fully
      informed decision on a new loan request.  We require that all business
      borrowers submit audited, reviewed, or compiled internal financial statements
      or
      tax returns no less than annually.





Loans
      to Directors and Executive
      Officers.  Loans to members of the Board of Directors (and
      their related interests) are granted under the same terms and conditions as
      loans made to unaffiliated borrowers.  Any fee that is normally
      charged to other borrowers is also charged to the members of the Board of
      Directors.  Loans to executive officers are limited by banking
      regulations.  There is no regulatory loan limit established for
      executive officers to purchase, construct, maintain or improve a residence,
      or
      to finance the education of a dependent.  However, any loans to
      executive officers which are not for the construction, improvement, or purchase
      of a residence, not used to finance a dependent’s education, or not secured by
      readily marketable investment collateral, are limited to a maximum of
      $100,000.  In addition, we require that all loans made to executive
      officers be reported to the Board of Directors at the next Board of Directors
      meeting.





iii.   Credit
      Quality Practices





General.One
      of our key
      objectives is to maintain strong credit quality of the Bank’s loan
      portfolio.  We strive to accomplish this objective by maintaining a
      diversified mix of loan types, limiting industry concentrations, and monitoring
      regional economic conditions.  In addition, we use a variety of
      strategies to protect the quality of individual loans within the loan portfolio
      during the credit review and approval process.  We evaluate both the
      primary and secondary sources of repayment and complete financial statement
      review and cash flow analysis for commercial borrowers.  We also
      generally require personal guarantees on small business loans,
      cross-collateralize loan obligations, complete on-site inspections of the
      business, and require the company to adhere to financial
      covenants.  Similarly, in the event a modification to an outstanding
      loan is requested, we reevaluate the loan under the proposed terms prior to
      making the modification.  If we approve the modification, we often
      secure additional collateral or impose stricter financial
      covenants.  In the event a loan becomes delinquent, we follow
      collection procedures to assure repayment.  If it becomes necessary to
      repossess or foreclose on collateral, we strive to execute the proceedings
      in a
      timely manner and dispose of the repossessed or foreclosed property quickly
      to
      minimize the level of non-performing assets, subsequent asset deterioration,
      and
      costs associated with monitoring the collateral.





Delinquent
      Loans and Collection
      Procedures.When a borrower fails to make a required payment
      on a loan, we take a number of steps to induce the borrower to cure the
      delinquency and restore the loan to current status.  Our Chief Credit
      Officer continuously monitors the past due status of the loan
      portfolio.  Criticized and non-performing loans are reported to the
      Directors’ Loan and Investment Committee monthly, and the overall delinquency
      levels are reported to the Board of Directors at least
      quarterly.  Separate collection procedures have been established for
      residential mortgage, consumer, and commercial and commercial real estate
      loans.





On
      residential mortgage loans fifteen (15) days past due, we send the borrower
      a
      notice which requests immediate payment.  At twenty (20) days past
      due, the borrower is usually contacted by telephone by an employee of the
      Bank.  The borrower’s response and promise to pay is
      recorded.  At sixty (60) days or more past due, if satisfactory
      repayment arrangements are not made with the borrower, generally, an attorney
      letter will be sent and foreclosure procedures will begin.





On
      consumer loans ten (10) days past due, we send the borrower a notice which
      requests immediate payment.  If the loan remains past due, an employee
      of the Bank’s Collection Department or the approving Loan Officer will usually
      contact the borrower before day thirty (30) of past due status.  Loans
      sixty to ninety (60 – 90) days past due are generally subject to repossession of
      collateral.





We
      send
      past due notices to borrowers with commercial term loans, demand notes, and
      time
      notes (including commercial real estate) when the loan reaches ten (10) days
      past due.  Between day fifteen and day thirty (15 – 30), borrowers are
      contacted by telephone by an employee of the Bank’s Collection Department or by
      the approving Loan Officer to attempt





11-K
 Index





to
      return
      the account to current status.  After thirty (30) days past due, the
      loan officer and senior loan officer decide whether to pursue further action
      against the borrower.





Loan
      Portfolio Monitoring
      Practices.  Our loan policy requires that the Vice President -
      Credit Risk Management and Planning continually monitor the status of the loan
      portfolio, by regularly reviewing and analyzing reports, which include
      information on delinquent loans, criticized loans and foreclosed real
      estate.  We risk rate our loan portfolios and individual loans based
      on their perceived risks and historical losses.  For commercial
      borrowers whose aggregate loans exceed $50,000, we assign an individual risk
      rating annually.  We arrive at a risk rating based on current payment
      performance and payment history, the current financial strength of the borrower,
      and the value of the collateral and personal guarantee.  Loans
      classified as “substandard” typically exhibit some or all of the following
      characteristics:





•
the
      borrower lacks current financial
      information,


•
the
      business of the borrower is
      poorly managed,


•
the
      borrower’s business becomes
      highly-leveraged or appears to be insolvent,


•
the
      borrower exhibits inadequate cash
      flow to support the debt service,


•
the
      loan is chronically delinquent,
      or


•
the
      industry in which the business
      operates has become unstable or volatile.





Loans
      we
      classify as “special mention” are loans that are generally performing, but the
      borrower’s financial strength appears to be deteriorating.  Loans we
      categorize as a “pass” are generally performing per contractual terms and
      exhibit none of the characteristics of special mention or substandard
      loans.





Allowance
      for Loan
      Loss.  The allowance for loan losses is an amount which in the
      opinion of management, is necessary to absorb probable losses inherent in the
      loan portfolio.  We continually monitor the allowance for loan losses
      to determine its reasonableness.  On a quarterly basis, our Vice
      President - Credit Risk Management and Planning prepares a formal assessment
      of
      the allowance for loan losses and submits it to the full Board of Directors
      to
      determine the adequacy of the allowance.  The allowance is determined
      based upon numerous considerations.  For the consumer, residential
      mortgage, and small commercial loans, we consider local economic conditions,
      the
      growth and composition of these loan portfolios, the trend in delinquencies,
      changes in underwriting standards, the trend in loan charge-offs and other
      relevant economic and market factors to estimate the probable losses in the
      loan
      portfolio.  For large commercial loans, we evaluate specific
      characteristics of each loan, including, the borrower’s current cash flow, debt
      service coverage and payment history, business conditions in the borrower’s
      industry, the collateral and guarantees securing the loan, and our historical
      experience with similarly structured loans to arrive at a risk
      rating.  We then determine probable losses for these loans based on
      these characteristics, risk ratings and other economic factors.  And
      finally, we specifically estimate probable losses on non-performing loans
      through impairment testing.  The adequacy of our allowance for loan
      losses is also reviewed by the OCC on a periodic basis. Its comments and
      recommendations are factored into the determination of the allowance for loan
      losses.





The
      allowance for loan losses is increased by the provision for loan losses, which
      is recorded as an expense on our consolidated statement of
      income.  Loan charge-offs are recorded as a reduction in the allowance
      for loan losses.  Loan recoveries are recorded as an increase in the
      allowance for loan losses.





Non-Performing
      Loans.  There are three categories of non-performing loans, (i)
      those 90 or more days delinquent and still accruing interest, (ii) non-accrual
      loans, and (iii) troubled debt restructured loans (“TDR”).  We place
      individual loans on non-accrual status when timely collection of contractual
      principal and interest payments is doubtful.  This generally occurs
      when a loan becomes ninety (90) days delinquent.  When deemed prudent,
      however, we may place loans on non-accrual status before they become 90 days
      delinquent.  Upon being placed on non-accrual status, we reverse all
      interest accrued in the current year against interest
      income.  Interest accrued and not collected from a prior year is
      charged-off through the allowance for loan losses.  If ultimate
      repayment of a non-accrual loan is expected, any payments received may be
      applied in accordance with contractual terms.  If ultimate repayment
      of principal is not expected, any payment received on the non-accrual loan
      is
      applied to principal until ultimate repayment becomes expected.





Commercial
      type loans are considered impaired when it is probable that the borrower will
      not repay the loan according to the original contractual terms of the loan
      agreement, and all loan types are considered impaired if the loan is
      restructured in a troubled debt restructuring.





A
      loan is
      considered to be a TDR when we grant a special concession to the borrower
      because the borrower’s financial condition has deteriorated to the point where
      servicing the loan under the original terms becomes difficult or challenges
      the
      financial viability of the business.  Such concessions include the
      reduction of interest rates, forgiveness of principal or interest, extension
      of
      time for repayment, or other similar modifications to the original
      terms.  TDR loans that are in compliance with their modified terms and
      that yield a market rate may be removed from TDR status in the calendar year
      after the year in which the restructuring took place.





12-K
 Index








Our
      goal
      is to minimize the number of non-performing loans because of their negative
      impact on the Company’s earnings.





Foreclosure
      and
      Repossession.  At times it becomes necessary to foreclose or
      repossess property that a delinquent borrower pledged as collateral on a
      loan.  Upon concluding foreclosure or repossession procedures, we take
      title to the collateral and attempt to dispose of it in the most efficient
      manner possible.  Real estate properties formerly pledged as
      collateral on loans, which we have acquired through foreclosure proceedings
      or
      acceptance of a deed in lieu of foreclosure are called Other Real Estate Owned
      (
“OREO”).  OREO is carried at the lower of the recorded investment in
      the loan or the fair value of the real estate, less estimated costs to
      sell.  Write-downs from the unpaid loan balance to fair value are
      charged to the allowance for loan losses.





Loan
      Charge-Offs.  We charge off loans or portions of loans that we
      deem non-collectible and can no longer justify carrying as an asset on the
      Bank’s balance sheet.  We determine if a loan should be charged-off by
      analyzing all possible sources of repayment.  Once the responsible
      loan officer or designated Collections Department personnel determines the
      loan
      is not collectible, he/she completes a “Recommendation for Charge-off” form,
      which is subsequently reviewed and approved by the Bank’s Loan and Investment
      Committee (or by the Officers’ Loan Committee for charge-offs less than
      $25,000).





D.
      Investment Securities Activities





General.Our
      Board
      of Directors has final authority and responsibility for all aspects of the
      Company’s investment activities.  It exercises this authority by
      setting the Investment Policy each year and appointing the Loan and Investment
      Committee to monitor adherence to the policy.   The Board of
      Directors delegates its powers by appointing designated investment officers
      to
      purchase and sell investment securities for the account of the
      Company.  The Chief Executive Officer and the Senior Vice President of
      Bank Investments have the authority to make investment purchases within the
      limits set by the Board of Directors.  All investment securities
      transactions are reviewed monthly by the Loan and Investment Committee and
      the
      Board of Directors.





The
      Bank’s investment securities portfolio is primarily comprised of high-grade
      fixed income debt instruments.  Investment purchases are generally
      made when we have funds that exceed the present demand for loans.  Our
      primary investment objectives are to:





(i)
                minimize
                    risk through strong credit
                    quality;


(ii)
              provide
                  liquidity to fund loans and meet deposit run-off;


(iii)
              diversify
                  the Bank’s assets;


(iv)
              generate
                  a favorable investment return;


(v)
              meet
                  the pledging requirements of State, County and Municipal depositors;


(vi)
              manage
                  the risk associated with changing interest rates; and


(vii)
              match
                  the maturities of securities with deposit and borrowing maturities.





Our
      current investment policy generally limits securities investments to U.S.
      government, U.S. agency and U.S. sponsored entity securities, corporate debt,
      municipal bonds, pass-through mortgage backed securities issued by Fannie Mae,
      Freddie Mac or Ginnie Mae, and collateralized mortgage obligations issued by
      these same agencies.





The
      investment securities we hold are classified as held-to-maturity, trading,
      or
      available-for-sale, depending on the purposes for which the investment
      securities were acquired and are being held.  Securities
      held-to-maturity are debt securities that the Company has both the positive
      intent and ability to hold to maturity.  These securities are stated
      at amortized cost.  Debt and equity securities that are bought and
      held principally for the purpose of sale in the near term are classified as
      trading securities and are reported at fair value with unrealized gains and
      losses included in earnings.  Debt and equity securities not
      classified as either held-to-maturity or trading securities are classified
      as
      available-for-sale and are reported at fair value with unrealized gains and
      losses excluded from earnings and reported net of taxes in accumulated other
      comprehensive income or loss.  We hold the majority of our investment
      securities in the available-for-sale category.





On
      a
      daily basis we buy and sell overnight federal funds to and from our
      correspondent banks.  Federal funds are unsecured general obligations
      of the purchasing bank, and therefore, subject to credit risk.  To
      mitigate this risk, we monitor the financial strength of our correspondent
      banks
      on a continuous basis.  Financial strength rating reports of each
      correspondent bank are formally reviewed by our management on a quarterly
      basis.





From
      time
      to time we purchase and hold certificates of deposit with banks domiciled in
      the
      United States.  These obligations are all insured by the
      FDIC.





On
      a
      limited basis, we also invest in permissible types of equity
      securities.





13-K
 Index








E.
      Sources of Funds





General.Our
      lending and investment activities are highly dependent upon our ability to
      obtain funds.  Our primary source of funds is customer
      deposits.  To a lesser extent we have borrowed funds from the FHLBNY
      and entered into repurchase agreements to fund our loan and investment
      activities.





Deposits.We
      offer
      a variety of deposit accounts to our customers.  The fees, interest
      rates, and terms of each deposit product vary to meet the unique needs and
      requirements of our depositors.  Presently, we offer a variety of
      accounts for consumers, businesses, not-for-profit organizations and
      municipalities including: demand deposit accounts, interest bearing transaction
      accounts, money market accounts, statement savings accounts, passbook savings
      accounts, and fixed and variable rate certificates of deposit.  The
      majority of our deposit accounts are owned by individuals and businesses who
      reside near our branch locations.  Municipal deposits are generally
      derived from the local and county taxing authorities, school districts near
      our
      branch locations, and, to a limited degree, New York State public
      funds.  Accordingly, deposit levels are dependent upon regional
      economic conditions, as well as more general national and statewide economic
      conditions, local competition, and our pricing decisions.





Borrowed
      Funds.From time to time we borrow funds to finance our loan
      and investment activities.  Most of our borrowings are with the
      FHLBNY.  These advances are secured by a general lien on our eligible
      1-4 family residential mortgage portfolio or specific investment securities
      collateral.  We determine the maturity and structure of each advance
      based on market conditions at the time of borrowing and the interest rate risk
      profile of the loans or investments being funded.





We
      also
      utilize repurchase and resale agreements to fund our loan and investment
      activities.  Repurchase / resale agreements are contracts for sale of
      securities owned or borrowed by us, with an agreement with the counter party
      to
      repurchase those securities at an agreed upon price and date.  In
      addition, when necessary, we borrow overnight federal funds from other banks
      or
      borrow monies from the Federal Reserve Bank’s discount window.





Deposit
      account structures, fees and interest rates, as well as funding strategies,
      are
      determined by the Bank’s Asset and Liability Committee (“ALCO”).  The
      ALCO is comprised of the Bank’s senior managers and meets on a bi-weekly
      basis.  The ALCO reviews general economic conditions, the Bank’s need
      for funds, and local competitive conditions prior to establishing funding
      strategies and interest rates to be paid.  The actions of the ALCO are
      reported to the Directors’ Loan and Investment Committee and the full Board of
      Directors at their regularly scheduled meetings.





F.
      Electronic and Payment Services





General.We
      offer
      a variety of electronic services to our customers.  Most of the
      services are provided for convenience purposes and are typically offered in
      conjunction with a deposit or loan account.  Certain electronic and
      payment services are provided using marketing arrangements and third party
      services, branded with the Bank’s name.  These services often provide
      us with additional sources of fee income or reduce our operating and transaction
      expenses.  Our menu of electronic and payment services include point
      of sale transactions, debit card payments, ATMs, merchant credit and debit
      card
      processing, Internet banking, Internet bill pay services, voice response, wire
      transfer services, automated clearing house services, direct deposit of Social
      Security and other payments, loan autodraft payments, and cash management
      services.





G.
      Trust
      and Investment Services





General.We
      offer various personal trust and
      investment services through our Trust and Investment Division, including both
      fiduciary and custodial services.  At December 31, 2007 and December
      31, 2006, we had $316.692 million and $310.893 million, respectively, of assets
      under management in the Bank’s Trust and Investment Division.  The
      following chart summarizes the Trust and Investment Division assets under
      management as of the dates noted:





14-K
 Index








Trust
      Assets Summary Table:





December
                31,2007
            2006dollars
                in thousands
            Number
              of
              Accounts
            Estimated
              Market
              Value
            Number
              of
              Accounts
            Estimated
              Market
              ValueTrusts
            338
            $160,268
            348
            $151,558Estates
            9
            4,108
            12
            4,540Custodian,
                Investment Management and Others
            230
            152,316
            232
            154,795Total
            577
            $316,692
            592
            $310,893





We
      also
      provide investment services through a third party provider, INVEST Financial
      Corp., for the purchase of mutual funds and annuities.





H.
      Insurance Services





General.  Since
      1998, the Bank has been operating an insurance agency through a joint venture
      with a regional independent insurance agency.   The agency,
      Mang–Wilber, LLC, is licensed to sell, within New York State, various insurance
      products including life, health, property, and casualty insurance products
      to
      both consumers and businesses.  The principal office of the agency is
      in Sidney, New York (Delaware County), with satellite sales offices located
      in
      the Bank’s main office in Oneonta, New York (Otsego County) and its Walton, New
      York (Delaware County) branch office.  Mang – Wilber, LLC, also owns a
      two-thirds interest in a specialty-lines agency in Clifton Park, New York
      (Saratoga County).





We
      offer
      credit life and disability insurance through an affiliation with the New York
      Bankers Association.  The insurance is typically offered to and
      purchased by consumers securing a mortgage or consumer loan through the
      Bank.  In addition, we offer title insurance through New York Bankers
      Title Agency East, LLC.  Title insurance is sold in conjunction with
      origination of residential and commercial mortgages.  We own an
      interest in New York Bankers Title Agency East, LLC, and receive profit
      distributions based upon the overall performance of the agency.





I.  Supervision
      and Regulation





Set
      forth
      below is a brief description of certain laws and regulations governing the
      Company, the Bank, and its subsidiaries.  The description does not
      purport to be complete, and is qualified in its entirety by reference to
      applicable laws and regulations.




i.
      The
      Company




Bank
      Holding Company Act. The
      Company is a bank holding company registered with, and subject to regulation
      and
      examination by, the Board of Governors of the Federal Reserve System ("Federal
      Reserve Board") pursuant to the BHCA, as amended. The Federal Reserve Board
      regulates and requires the filing of reports describing the activities of bank
      holding companies, and conducts periodic examinations to test compliance with
      applicable regulatory requirements. The Federal Reserve Board has enforcement
      authority over bank holding companies, including, among other things, the
      ability to assess civil money penalties, to issue cease and desist or removal
      orders, and to require a bank holding company to divest
      subsidiaries.




The
      BHCA
      prohibits a bank holding company from acquiring direct or indirect ownership
      or
      control of more than 5% of the voting shares of any bank, or increasing such
      ownership or control of any bank, without the prior approval of the Federal
      Reserve Board. The BHCA further generally precludes a bank holding company
      from
      acquiring direct or indirect ownership or control of any non-banking entity
      engaged in any activities other than those which the Federal Reserve Board
      has
      determined to be so closely related to banking or managing and controlling
      banks
      as to be a proper incident thereto.  Some of the activities that have
      been found to be closely related to banking are: operating a savings
      association, mortgage company, finance company, credit card company, factoring
      company, or collection agency; performing certain data processing services;
      providing investment and financial advice; underwriting and acting as an
      insurance agent for certain types of credit-related insurance; real and personal
      property leasing; selling money orders, travelers' checks, and United States
      Savings Bonds; real estate and personal property appraising; and providing
      tax
      planning and preparation and check guarantee services.







15-K
 Index





Under
      provisions of the BHCA enacted as part of the Gramm-Leach-Bliley Act of 1999
      (“GLBA”), a bank holding company may elect to become a financial holding company
      (“FHC”) if all of its depository institution subsidiaries are well-capitalized
      and well-managed under applicable guidelines, as certified in a declaration
      filed with the Federal Reserve Board. In addition to the activities listed
      above, FHC’s may engage, directly or through a subsidiary, in any activity that
      the Federal Reserve Board, by regulation or order, has determined to be
      financial in nature or incidental thereto, or is complementary to a financial
      activity and does not pose a risk to the safety and soundness of depository
      institutions or the financial system. Pursuant to the BHCA, a number of
      activities are expressly considered to be financial in nature, including
      insurance and securities underwriting and brokerage. The Company has not elected
      to become an FHC.




The
      BHCA
      generally permits a bank holding company to acquire a bank located outside
      of
      the state in which the existing bank subsidiaries of the bank holding company
      are located, subject to deposit concentration limits and state laws prescribing
      minimum periods of time an acquired bank must have been in existence prior
      to
      the acquisition.




A
      bank
      holding company must serve as a source of strength for its subsidiary bank.
      The
      Federal Reserve Board may require a bank holding company to contribute
      additional capital to an undercapitalized subsidiary bank. The Company is
      subject to capital adequacy guidelines for bank holding companies (on a
      consolidated basis), which are substantially similar to the FDIC-mandated
      capital adequacy guidelines applicable to the Bank.




Federal
      Securities Law. The
      Company is subject to the information, reporting, proxy solicitation, insider
      trading, and other rules contained in the Securities Exchange Act of 1934 (the
      "Exchange Act") and the regulations of the SEC thereunder.  In
      addition, the Company must comply with the corporate governance and listing
      standards of the Amex® to maintain the listing of its common stock on the
      exchange.




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





The
      SEC
      has adopted in final form all of the new regulations Congress directed it to
      adopt in the Sarbanes-Oxley Act, including: new executive compensation
      disclosure rules, standards of independence for directors who serve on the
      Company’s Audit Committee; disclosure requirements as to whether at least one
      member of the Company’s Audit Committee qualifies as a “financial expert” as
      defined in the SEC regulations, and whether the Company has adopted a code
      of
      ethics applicable to its chief executive officer, chief financial officer,
      or
      those persons performing similar functions; and disclosure requirements
      regarding the operations of board nominating committees and the means, if any,
      by which security holders may communicate with directors.





ii.
      The
      Bank




The
      following discussion is not, and does not purport to be, a complete description
      of the laws and regulations applicable to the Bank. Such statutes and
      regulations relate to required reserves, investments, loans, deposits, issuances
      of securities, payments of dividends, establishment of branches, and other
      aspects of the Bank’s operations.  Any change in such laws or
      regulations by the OCC, the FDIC, or Congress could materially adversely affect
      the Bank.




General.  The
      Bank
      is a national bank subject to extensive regulation, examination, and supervision
      by the OCC, as its primary federal regulator, and by the FDIC, as its deposit
      insurer.  The Bank's deposit accounts are insured up to applicable
      limits by the Deposit Insurance Fund of the FDIC.  The Bank must file
      reports with the Federal Financial Institution Examination Council (“FFIEC”),
      OCC and the FDIC concerning its activities and financial condition and must
      obtain regulatory approval before commencing certain activities or engaging
      in
      transactions such as mergers and other business combinations or the
      establishment, closing, purchase or sale of branch offices. This regulatory
      structure gives the regulatory authorities extensive discretion in the
      enforcement of laws and regulations and the supervision of the
      Bank.




Business
      Activities.  The Bank's lending, investment, deposit, and other
      powers derive from the National Bank Act, FFIEC Interagency and OCC
      regulations.  These powers are also governed to some extent by the
      FDIC under the Federal Deposit Insurance Act and FDIC regulations. The Bank
      may
      make mortgage loans, commercial loans and consumer loans, and may invest in
      certain types of debt securities and other assets. The Bank may offer a variety
      of deposit accounts, including savings, certificate (time), demand, and NOW
      accounts.




Standards
      for Safety and
      Soundness. The OCC has adopted guidelines prescribing safety and
      soundness standards. These guidelines establish general standards relating
      to
      capital adequacy, asset quality, management, earnings





16-K
 Index





performance,
      liquidity and sensitivity to market risk.  In evaluating these safety
      and soundness standards, the OCC also evaluates internal controls and
      information systems, internal audit systems, loan documentation, credit
      underwriting, exposure to changes in interest rates, asset growth, compensation,
      fees, and benefits.  In general, the guidelines require appropriate
      systems and practices to identify and manage the risks and exposures specified
      in the guidelines. The OCC may order an institution that has been given notice
      that it is not satisfying these safety and soundness standards to submit a
      compliance plan, and if an institution fails to do so, the OCC must issue an
      order directing action to correct the deficiency and may issue an order
      directing other action. If an institution fails to comply with such an order,
      the OCC may seek to enforce such order in judicial proceedings and to impose
      civil money penalties.





Branching.  Generally,
      national banks may establish branch offices within a state to the same extent
      as
      commercial banks chartered under the laws of that state.





Transactions
      with Related
      Parties.  The Federal Reserve Act governs transactions between
      the Bank and its affiliates.  In general, an affiliate of the Bank is
      any company that controls, is controlled by, or is under common control with
      the
      Bank. Generally, the Federal Reserve Act limits the extent to which the Bank
      or
      its subsidiaries may engage in “covered transactions” with any one affiliate to
      10% of the Bank’s capital stock and surplus, and contains an aggregate limit of
      20% of capital stock and surplus for covered transactions with all affiliates.
      Covered transactions include loans, asset purchases, the issuance of guarantees,
      and similar transactions. The Bank's loans to insiders must be made on terms
      that are substantially the same as, and follow credit underwriting procedures
      that are not less stringent than, those prevailing for comparable transactions
      with unaffiliated persons and that do not involve more than the normal risk
      of
      repayment or present other unfavorable features.  The loans are also
      subject to maximum dollar limits and must generally be approved by the
      Board.




Capital
      Requirements. Capital
      adequacy is measured within guidelines defined as either tier 1 capital
      (primarily shareholders’ equity) or tier 2 capital (certain debt instruments and
      a portion of the reserve for loan losses).  There are two measures of
      capital adequacy for banks: the tier 1 leverage ratio and the risk-based
      requirements. Most banks must maintain a minimum tier 1 leverage ratio of
      4%.  In addition, tier 1 capital must equal 4% of risk-weighted
      assets, and total capital (tier 1 plus tier 2) must equal 8% of risk-weighted
      assets. Federal banking agencies are required to take prompt corrective action,
      such as imposing restrictions, conditions, and prohibitions, to deal with banks
      that fail to meet their minimum capital requirements or are otherwise in
      troubled condition.  The regulators have also established different
      capital classifications for banking institutions, the highest being “well
      capitalized.”  Under regulations adopted by the federal bank
      regulators, a banking institution is considered well capitalized if it has
      a
      total risk adjusted capital ratio of 10% or greater, a tier 1 risk adjusted
      capital ratio of 6% or greater and a leverage ratio of 5% or greater, and is
      not
      subject to any regulatory order or written directive regarding capital
      maintenance.  The Bank qualified as well capitalized at
      December 31, 2007.  See Part II, Item 7.F. entitled "Capital
      Resources and Dividends" and Note 13 of the Consolidated Financial Statements
      contained in Part II, Item 8, of this document for additional information
      regarding the Bank’s capital levels.




Payment
      of
      Dividends.  The OCC regulates the amount of dividends and other
      capital distributions that the Bank may pay to its shareholders. A national
      bank
      may not pay dividends from its capital.  All dividends must be paid
      out of undivided profits.  In general, if the Bank satisfies all OCC
      capital requirements both before and after a dividend payment, the Bank may
      pay
      a dividend to shareholders in any year equal to the current year's net income
      plus retained net income for the preceding two years.  A Bank may not
      declare or pay any dividend if it is “undercapitalized” under OCC regulations.
      The OCC also may restrict the Bank’s ability to pay dividends if the OCC has
      reasonable cause to believe that such payment would constitute an unsafe and
      unsound practice.  The Bank is not undercapitalized nor under any
      special restrictions regarding the payment of dividends.




Insurance
      of Deposit
      Accounts. The Bank is an insured depository institution subject to
      assessment by, and the payment of deposit insurance premiums to, the FDIC.
      Deposit insurance premiums are determined by a number of factors, including
      the
      insured depository’s supervisory condition and several of its financial
      ratios.  During 2006 and 2005, the Bank was not required to pay any
      deposit insurance premiums.  During 2007, the FDIC implemented certain
      provisions of the Federal Deposit Insurance Reform Act of 2005 (“FDIRA”), which
      provided a one time credit to qualified insured depositories, including the
      Bank, to offset future FDIC deposit insurance assessments.  The Bank’s
      one time credit totaling approximately $580 thousand was initially granted
      in
      the second quarter of 2007.  The remaining credit balance at December
      31, 2007 was $321 thousand.  We anticipate exhausting the remaining
      FDIRA credit during the fourth quarter of 2008, at which time we expect to
      begin
      recording FDIC premium expense at an annual rate of 5 to 7 basis points on
      eligible insured deposits.




Although
      we did not pay any FDIC insurance premiums during 2007, 2006 or 2005, the FDIC
      did levy an assessment based on the Bank’s deposit accounts under the Deposit
      Insurance Funds Act of 1996.  Under the Deposit Insurance Funds Act,
      deposits insured by the Bank Insurance Fund (“BIF”), such as the deposits of the
      Bank, were subject to an







17-K
 Index





assessment
      for payment on bond obligations financing the FDIC’s Savings Association Fund
      (“SAIF”).  The rate is adjusted quarterly, depending on the need of
      the fund.  At December 31, 2007, the assessment rate was 1.14 cents
      per $100 of insured deposits.  This compares to 1.24 cents and 1.34
      cents per $100 of insured deposits at December 31, 2006 and December 31, 2005,
      respectively.




Federal
      Reserve System. All
      depository institutions must maintain with a Federal Reserve Bank reserves
      against their transaction accounts (primarily checking, NOW, and Super NOW
      accounts) and non-personal time accounts. Since these reserves are maintained
      as
      vault cash or non-interest-bearing accounts, they have the effect of reducing
      an
      institution’s earnings. As of December 31, 2007, the Bank was in compliance with
      applicable reserve requirements.




Loans
      to One
      Borrower.  The Bank generally may not make a loan or extend
      credit to a single or related group of borrowers in excess of 15% of its
      unimpaired capital and surplus.  Up to an additional 10% of unimpaired
      capital and surplus can be lent if the additional amount is fully secured by
      readily marketable collateral.  At December 31, 2007, the Bank’s legal
      lending limit on loans to one borrower was $10.5 million for loans not fully
      secured by readily marketable collateral and $17.5 million for loans secured
      by
      readily marketable collateral.  At that date, the Bank did not have
      any loans or agreements to extend credit to a single or related group of
      borrowers in excess of its legal lending limit.




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




Community
      Reinvestment
      Act.  Under the federal Community Reinvestment Act (the “CRA”),
      the Bank, consistent with its safe and sound operation, must help meet the
      credit needs of its entire community, including low and moderate income
      neighborhoods.  The OCC periodically assesses the Bank's compliance
      with CRA requirements.  The Bank received a satisfactory rating for
      CRA on its last performance evaluation conducted by the OCC as of March 20,
      2006.




Fair
      Lending and Consumer Protection
      Laws.  The Bank must also comply with the federal Equal Credit
      Opportunity Act and the New York Executive Law, which prohibit creditors
      from discrimination in their lending practices on bases specified in these
      statutes. In addition, the Bank is subject to a number of federal statutes
      and
      regulations implementing them, which are designed to protect the general public,
      borrowers, depositors, and other customers of depository institutions. These
      include the Bank Secrecy Act, the Truth in Lending Act, the Home Ownership
      and
      Equity Protection Act, the Truth in Savings Act, the Home Mortgage Disclosure
      Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the
      Electronic Funds Transfers Act, the Fair Credit Reporting Act, the Right to
      Financial Privacy Act, the Expedited Funds Availability Act, the Flood Disaster
      Protection Act, the Fair Debt Collection Practices Act and the Consumer
      Protection for Depository Institutions Sales of Insurance
      regulation.  The OCC and, in some instances, other regulators,
      including the Justice Department, may take enforcement action against
      institutions that fail to comply with these laws.




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





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





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












18-K
 Index





iii.
      Other Subsidiaries




Provantage,
      the Company’s mortgage banking subsidiary, is licensed and regulated by the New
      York State Department of Banking.  Annually the New York State
      Department of Banking examines Provantage to assure it maintains certain minimum
      capitalization standards, and complies with stringent ownership and consumer
      protection rules and laws.





The
      Bank’s insurance agency subsidiary, Mang–Wilber LLC, is subject to New York
      State insurance laws and regulations.








J.  Competition





We
      face
      competition in all the markets we serve.  Traditional competitors are
      other local commercial banks, savings banks, savings and loan institutions,
      and
      credit unions, as well as local offices of major regional and money center
      banks.  Also, non-banking financial organizations, such as consumer
      finance companies, mortgage brokers, insurance companies, securities firms,
      money market funds, mutual funds and credit card companies offer substantive
      equivalents of transaction accounts and various loan and financial
      products.  As a result of the enactment of the GLBA (discussed further
      in Item 1. I (i) above), other non-banking financial organizations now may
      offer
      comparable products to those offered by the Company and to establish, acquire,
      or affiliate with commercial banks themselves.








K.
      Legislative and Regulatory Developments





Identity
      Theft.  On
      November 9, 2007, the federal banking agencies issued final rules and guidelines
      on identity theft. The regulation and guidelines, which implement Sections
      114
      and 315 of the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”),
      require financial institutions to implement a written identity theft prevention
      program, that card issuers assess the validity of change of address requests,
      and that users of consumer reports reasonably verify the identity of the subject
      of a consumer report in the event of a notice of address discrepancy. Compliance
      with the final rules is required by November 1, 2008.  The Company’s
      management has created a task force to assure compliance with these final rules
      by the mandatory compliance date.





Money
      Laundering.  On July 19, 2007, the federal banking agencies
      issued the “Interagency Statement on Enforcement of Bank Secrecy Act/Anti-Money
      Laundering Requirements.” This guidance clarifies the circumstances under which
      the bank regulators will take enforcement action, including the imposition
      of a
      cease and desist order, for failure to comply with the Bank Secrecy Act (‘BSA”)
      and its implementing regulations. We believe our policies and procedures comply
      the BSA requirements.





Subprime
      Mortgage
      Lending.  On June 29 2007, the federal banking agencies issued
      the “InteragencyStatement on Subprime
      Mortgage Lending.”  This guidance prescribes risk management,
      underwriting, workout and other prudent safety and soundness and consumer
      protection standards for lenders in connection with certain adjustable rate
      residential mortgage loans. We typically have not and do not intend to originate
      such loans.





New
      Legislative
      Developments.  Various federal bills that would significantly
      affect banks are introduced in Congress from time to time.  The
      Company cannot estimate the likelihood of any currently pending banking bills
      being enacted into law, or the ultimate effect that any such potential
      legislation, if enacted, would have upon its financial condition or results
      of
      operations.








ITEM
      1A:  RISK FACTORS





The
      investment performance of our common shares is affected by several material
      risk
      factors.  These factors (summarized below) can affect our financial
      condition or results of operations.  Accordingly, you should be aware
      of these risk factors and how each may potentially affect your investment in
      our
      common stock.





General
      Competitive and Economic
      Conditions.  National, regional, and local competitive
      conditions can negatively impact our financial condition or results of
      operations.  Our existing competition may begin offering new products
      and services, change the price for existing products and services, or open
      a new
      office in direct competition with one of our offices.  In addition,
      new competitors can establish a physical presence in our market or begin
      offering products and services through the Internet or other remote channels
      that compete directly with our products and services.  All of these
      factors are dynamic and may affect the demand for our products and services,
      and, in turn, our financial condition and results of operations.





19-K
 Index








Regional
      and local economic conditions including employment and unemployment conditions,
      population growth, and price and wage scale changes, may impact the demand
      for
      our products and services, the level of customer deposits, or credit status
      of
      our borrowers.  National and international economic conditions
      including raw materials costs, oil prices, consumer demand, and consumer trends,
      may impact the demand for our commercial borrower’s products and services,
      which, in turn, can affect our financial condition and results of
      operation.





Real
      Estate Market
      Conditions.  If real estate values in the market decline or
      become stagnant, business could be adversely affected.  Real estate
      values in our market area have risen over the last several
      years.  There continues to be a significant amount of speculation that
      the United States, or at least certain parts of the country, is in the midst
      of
      a real estate “bubble,” meaning that current real estate prices exceed the true
      values of the properties.  If this is the case, or if the market
      generally perceives that this is the case, then real estate prices could become
      stagnant or decline, and there could be a significant reduction in real estate
      construction and housing starts.





In
      addition, the value and liquidity of the real estate or other collateral
      securing Wilber’s loans could be impaired. A significant portion of the loan
      portfolio is dependent on real estate. At December 31, 2007, real estate
      served as the principal source of collateral with respect to approximately
      64.9%
      of the loan portfolio. While Wilber is not a subprime lender, a decline in
      the
      value of residential and commercial real estate securing the loans could
      adversely impact Wilber’s consolidated financial condition and results of
      operations. Given Wilber’s heavy reliance on real estate lending, this could
      have a significant adverse affect on business.





Credit
      Risk.  One
      of our main functions as a financial intermediary is to extend credit, in the
      form of loans, commitments and investments, to individuals, businesses, state,
      local and federal government and government sponsored entities within and
      outside of our primary market area.  The risk associated with these
      extensions of credit pose significant risks to earnings and capital that need
      to
      be controlled and monitored by management.  Losses incurred by us due
      to borrower’s failing to repay loans or other extensions of credit will
      negatively affect our financial condition and results of
      operations.





The
      Financial Performance of Large
      Borrowers.  Our financial condition and results of operations
      are highly dependent upon the credit worthiness and financial performance of
      our
      borrowers.  The Bank has several borrowers or groups of related
      borrowers whose total indebtedness with the Bank exceeds $1.0
      million.  The financial performance of these borrowers is a material
      risk factor that may affect our financial condition or results of
      operations.





Allowance
      for Loan Losses May Not Be
      Sufficient to Cover Actual Loan Losses.  The Bank’s Vice
      President of Credit Risk Management and Planning, under the control and
      supervision of the Board of Directors, continually monitors the credit status
      of
      the Bank’s loan portfolio.  The adequacy of the Allowance for Loan
      Losses is reviewed quarterly by the Board of Directors, and periodically by
      an
      independent loan review firm under the direction of the Bank’s Audit Committee,
      the Bank’s regulators, and the Company’s external auditors.  However,
      because the Allowance for Loan Losses is an estimate of probable losses and
      is
      based on management’s experience and assumptions, there is no certainty that the
      Allowance for Loan Losses will be sufficient to cover actual loan
      losses.  Actual loan losses in excess of the Allowance for Loan Losses
      would negatively impact our financial condition and results of
      operations.





Changes
      in Interest Rates and
      Capital Markets.  Our financial condition and results of
      operations are highly dependent upon the amount of the interest income we
      receive on our earning assets and the interest we pay for our funding and
      capital resources.  Accordingly, changes in interest rates and capital
      markets can affect our financial condition and results of
      operations.  A detailed analysis regarding our market risk and
      interest rate sensitivity is contained in Item 7A of this Annual Report on
      Form
      10-K.





Fraud
      Risk.  Financial institutions are inherently exposed to fraud
      risk.  A fraud can be perpetrated by a customer of the Bank, an
      employee, a vendor, or members of the general public.  A loss due to
      fraud that is determined not to be insured under our fidelity insurance coverage
      could negatively affect our financial condition or results of
      operations.





Changes
      in Laws, Regulations, and
      Policies.Financial institutions are highly regulated
      companies and are subject to numerous laws and regulations.  Changes
      to these laws or regulations, particularly at the federal and state level,
      may
      materially impact the business climate we operate within, which, in turn, may
      impact the economic return on our common shares, financial condition, or results
      of operations.





Changes
      in Generally Accepted
      Accounting Principles.  Changes to Generally Accepted
      Accounting Principles are periodically issued by the Financial Accounting
      Standards Board (“FASB”).  The purpose of these new Generally Accepted
      Accounting Principles is to quantify, identify, or disclose certain aspects
      of a
      company’s financial condition or results of operations.





20-K
 Index





Changes
      in the Financial Condition
      of Government Agencies, Government Sponsored Enterprises, and Local and State
      Governments.  We invest substantially in the debt instruments
      issued by U.S. Government Agencies, U.S. Government Sponsored Enterprises,
      and
      local and state governments.  A deterioration of the credit standing
      of any of these issuers of debt may materially impact our financial condition
      or
      results of operations.





Actions
      of Regulatory
      Authorities.The Company and the Bank are subject to the
      supervision of several federal and state regulatory bodies.  These
      regulatory bodies have authority to issue, change, and enforce rules and
      regulations including the authority to assess fines.  Changes to these
      regulations may impact the financial condition or results of operations of
      the
      Company or the Bank.  See Item 1 I. of this Annual Report on Form 10-K
      for additional explanation regarding the regulations to which the Company and
      the Bank are subject.





Changes
      in the Company’s Policies or
      Management.Our financial condition and results of operations
      depend upon the policies approved by the Board of Directors and the practices
      of
      management.  Changes in our policies or management practices,
      particularly credit policies and practices of the Bank, may affect our financial
      condition or results of operations.





Incidents
      Affecting Our
      Reputation.The demand for our products and services is
      influenced by our reputation and the reputation of our management and
      employees.  Public incidents that negatively affect the reputation of
      the Company or the Bank, including, but not limited to, breaches in the security
      of customer information or unfair or deceptive practices, may adversely impact
      our financial condition, results of operations, or economic performance of
      the
      Company’s common stock.





Technology
      Risk.We deploy various forms of technology to facilitate and
      process customer and internal transactions.  In addition, we gather,
      store and summarize various forms of computer generated data to analyze the
      Company’s services, business processes and financial
      performance.  Although we maintain various policies and procedures,
      including data back-up and recovery procedures, to mitigate technology risk,
      in
      the event one of our systems were to fail it could have and adverse impact
      on
      our financial condition or results of operations.





Liquidity
      of the Company’s Common
      Shares.  The Company’s common stock is lightly traded on the
      Amex®.  This condition may make it difficult for shareholders with
      large common stock ownership positions to sell or liquidate shares at a suitable
      price.





Changes
      to the Markets or Exchanges
      On Which the Company’s Common Shares Are Traded.   The
      Company’s common shares trade on the Amex®.  Changes to the Amex®’s
      trading practices or systems, reputation or financial condition, or rules which
      govern trading on the Amex may impact our shareholders’ ability to buy or sell
      his / her common shares at a suitable price.








ITEM
      1B:  UNRESOLVED STAFF COMMENTS





The
      Company has not been subject to any comments by the SEC during the period
      covered by this Annual Report on Form 10-K that remain unresolved.








ITEM
      2:  PROPERTIES





The
      Company and the Bank are headquartered at 245 Main Street, Oneonta, New
      York.  The three buildings that comprise our headquarters are owned by
      the Bank and also serve as our main office.  In addition to our main
      office, we own nineteen (19) branch offices and lease two (2) branch offices
      and
      two (2) loan production offices at market rates.





In
      the
      opinion of management, the physical properties of the Company are suitable
      and
      adequate.  All of our properties are insured at full replacement
      cost.








ITEM
      3:  LEGAL PROCEEDINGS





From
      time
      to time, the Company becomes subject to various legal claims which arise in
      the
      normal course of business. At December 31, 2007, the Company was not the subject
      of any material pending legal proceedings, other than ordinary routine
      litigation occurring in the normal course of its business.  The
      various pending legal claims against the Company will not, in the opinion of
      management based upon consultation with legal counsel, result in any material
      liability to the Company and will not materially affect our financial position,
      results of operations or cash flow.





21-K
 Index





Neither
      the Company, the Bank, Provantage, nor any of the Bank’s subsidiaries have been
      subject to review by the Internal Revenue Service of any transactions that
      have
      been identified as abusive or that have a significant tax avoidance
      purpose.








ITEM
      4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS





There
      were no matters submitted to a vote of the security holders of the Company
      during the fourth quarter of the fiscal year ended December 31,
      2007.








PART
      II





ITEM
        5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
        MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES








A.  Market
      Information; Dividends on Common Stock; and Recent Sales of Unregistered
      Securities





The
      common stock of the Company ($0.01 par value per share) trades on the Amex®
under the symbol “GIW.”  The following table shows the high and low
      trading prices for the common stock and quarterly dividend paid to our security
      holders for the periods presented:





Common
      Stock Market Price and Dividend Table:





2007
            
            
            2006High
            
            
            Low
            
            
            Dividend
            
            
            High
            
            
            Low
            
            
            Dividend4th
                Quarter
            
            $
            9.50
            
            
            $
            8.65
            
            
            $
            0.0950
            
            
            $
            10.25
            
            
            $
            9.51
            
            
            $
            0.09503rd
                Quarter
            
            $
            12.00
            
            
            $
            8.20
            
            
            $
            0.0950
            
            
            $
            10.50
            
            
            $
            9.85
            
            
            $
            0.09502nd
                Quarter
            
            $
            9.89
            
            
            $
            8.85
            
            
            $
            0.0950
            
            
            $
            11.35
            
            
            $
            10.20
            
            
            $
            0.09501st
                Quarter
            
            $
            10.29
            
            
            $
            9.17
            
            
            $
            0.0950
            
            
            $
            10.85
            
            
            $
            9.90
            
            
            $
            0.0950(1)
                Source: The American Stock Exchange Monthly Market Statistics
                Report.





At
      March
      10, 2008, there were 489 holders of record of our common stock (excluding
      beneficial owners who hold their shares in nominee name through brokerage
      accounts).  The closing price of the common stock at March 10, 2008
      was $9.00 per share.





Shareholder
      Return Performance
      Graph.  The following line graph presentation compares the
      five-year cumulative total shareholder return on the Company’s common stock
      against the cumulative total return on the Standard & Poor's 500 Index and
      the Standard and Poor’s Financial Index.  The graph assumes that $100
      was invested on January 1, 2003 and includes both price change and reinvestment
      of cash dividends.  Graph points are as of December 31 of each
      year.  From January 1, 2003 until February 11, 2004, the common stock
      of The Wilber Corporation was inactively traded on Nasdaq’s Over-the-Counter
      Bulletin Board market.  On February 12, 2004, the Company’s common
      stock began trading on the Amex® under the symbol “GIW”.  The
      cumulative return provided for The Wilber Corporation common stock was
      calculated using the December 31, 2007 closing prices for the common stock
      as
      reported on the Amex®.





22-K
 Index








Shareholder
      Return Performance Graph:











2002
            
            
            2003
            
            
            2004
            
            
            2005
            
            
            2006
            
            
            2007S&P
                500
            
            $
            100
            
            
            $
            129
            
            
            $
            140
            
            
            $
            144
            
            
            $
            160
            
            
            $
            166S&P
                Financial
            
            $
            100
            
            
            $
            131
            
            
            $
            142
            
            
            $
            148
            
            
            $
            168
            
            
            $
            149Wilber
                Corporation
            
            $
            100
            
            
            $
            132
            
            
            $
            125
            
            
            $
            117
            
            
            $
            113
            
            
            $
            109








We
      have
      not sold any unregistered securities in the past five years.





B.  Use
      of Proceeds from Registered Securities





None.





C.  Purchases
      of Equity Securities by Issuer and Affiliated Purchasers





On
      July
      26, 2005, we announced that the Company’s Board of Directors authorized
      management to purchase up to $1.5 million of the Company’s common stock under a
      stock repurchase program.  At September 30, 2007 management’s
      remaining share repurchase authority was $283 thousand due to the purchase
      of
      treasury shares totaling $1.217 million under this program since its
      inception.  During the three month period ended December 31, 2007, the
      Company’s management did not purchase any additional shares of common stock
      under this program.  Management’s remaining share repurchase authority
      was $283 thousand at December 31, 2007.





Shares
      repurchased under the repurchase program are made in the open market or through
      private transactions and are limited to one transaction per week.  All
      open market transactions are conducted exclusively through Merrill Lynch, a
      registered broker-dealer.  Private purchases may be transacted
      directly with the seller and need not be transacted through Merrill
      Lynch.  Each private transaction is individually subject to the
      approval of the Board of Directors of the Company.  All stock
      purchases are effected in compliance with the laws of the State of New York,
      Rule 10b(18) of the Securities Exchange Act of 1934 and the rules and
      regulations thereunder, and the rules of the Amex®.





23-K
 Index











ITEM
      6:  SELECTED FINANCIAL DATA





The
      comparability of the information provided in the following 5-Year Summary Table
      of Selected Financial Data and the Table of Selected Quarterly Financial Data
      have not been materially impacted by any significant business combinations,
      dispositions of business operations, or accounting changes other than those
      provided in the footnotes to our financial statements provided in PART II,
      Item
      8, of this document.




5-Year
      Summary Table of Selected Financial Data:





The
                Wilber Corporation and Subsidiaries
            
            As
                of and for the Year Ended December 31, (1)2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(dollars
                in thousands, except per share data)Consolidated
                Statements of Income Data:Interest
                and Dividend Income
            
            $
            46,030
            
            
            $
            43,341
            
            
            $
            40,310
            
            
            $
            37,165
            
            
            $
            38,628Interest
                Expense
            
            
            21,474
            
            
            
            18,360
            
            
            
            14,930
            
            
            
            12,761
            
            
            
            14,153Net
                Interest Income
            
            
            24,556
            
            
            
            24,981
            
            
            
            25,380
            
            
            
            24,404
            
            
            
            24,475Provision
                for Loan Losses
            
            
            900
            
            
            
            1,560
            
            
            
            1,580
            
            
            
            1,200
            
            
            
            1,565Net
                Interest Income After Provision for Loan Losses
            
            
            23,656
            
            
            
            23,421
            
            
            
            23,800
            
            
            
            23,204
            
            
            
            22,910Non-Interest
                Income (Excl. Investment Securities Gains, Net)
            
            
            6,956
            
            
            
            5,455
            
            
            
            5,156
            
            
            
            4,692
            
            
            
            4,684Investment
                Securities Gains, Net
            
            
            80
            
            
            
            514
            
            
            
            469
            
            
            
            1,031
            
            
            
            1,064Non-Interest
                Expense
            
            
            20,857
            
            
            
            20,032
            
            
            
            18,966
            
            
            
            17,307
            
            
            
            16,668Income
                Before Provision for Income Taxes
            
            
            9,835
            
            
            
            9,358
            
            
            
            10,459
            
            
            
            11,620
            
            
            
            11,990Provision
                for Income Taxes
            
            
            2,128
            
            
            
            2,206
            
            
            
            2,715
            
            
            
            3,002
            
            
            
            3,277Net
                Income
            
            $
            7,707
            
            
            $
            7,152
            
            
            $
            7,744
            
            
            $
            8,618
            
            
            $
            8,713Per
                Common Share:Earnings
                (Basic)
            
            $
            0.73
            
            
            $
            0.66
            
            
            $
            0.69
            
            
            $
            0.77
            
            
            $
            0.78Cash
                Dividends
            
            
            0.38
            
            
            
            0.38
            
            
            
            0.38
            
            
            
            0.38
            
            
            
            0.37Book
                Value
            
            
            6.61
            
            
            
            5.99
            
            
            
            6.08
            
            
            
            6.04
            
            
            
            5.74Tangible
                Book Value (2)
            
            
            6.13
            
            
            
            5.52
            
            
            
            5.61
            
            
            
            5.77
            
            
            
            5.46Consolidated
                Period-End Balance Sheet Data:Total
                Assets
            
            $
            793,680
            
            
            $
            761,981
            
            
            $
            752,728
            
            
            $
            750,861
            
            
            $
            729,023Securities
                Available-for-Sale
            
            
            237,274
            
            
            
            228,959
            
            
            
            235,097
            
            
            
            243,998
            
            
            
            271,095Securities
                Held-to-Maturity
            
            
            52,202
            
            
            
            62,358
            
            
            
            54,939
            
            
            
            59,463
            
            
            
            44,140Gross
                Loans
            
            
            443,870
            
            
            
            405,832
            
            
            
            403,665
            
            
            
            391,043
            
            
            
            360,906Allowance
                for Loan Losses
            
            
            6,977
            
            
            
            6,680
            
            
            
            6,640
            
            
            
            6,250
            
            
            
            5,757Deposits
            
            
            657,494
            
            
            
            629,044
            
            
            
            604,958
            
            
            
            571,929
            
            
            
            580,633Long-Term
                Borrowings
            
            
            41,538
            
            
            
            42,204
            
            
            
            52,472
            
            
            
            65,379
            
            
            
            55,849Short-Term
                Borrowings
            
            
            15,786
            
            
            
            18,459
            
            
            
            19,357
            
            
            
            37,559
            
            
            
            20,018Shareholder's
                Equity
            
            
            69,399
            
            
            
            63,332
            
            
            
            67,717
            
            
            
            67,605
            
            
            
            64,304Selected
                Key Ratios:Return
                on Average Assets
            
            
            0.99
            %
            
            
            0.95
            %
            
            
            1.02
            %
            
            
            1.17
            %
            
            
            1.20
            %Return
                on Average Equity
            
            
            11.84
            %
            
            
            11.20
            %
            
            
            11.40
            %
            
            
            13.08
            %
            
            
            13.67
            %Net
                Interest Margin (tax-equivalent)
            
            
            3.62
            %
            
            
            3.81
            %
            
            
            3.82
            %
            
            
            3.76
            %
            
            
            3.77
            %Efficiency
                Ratio (3)
            
            
            61.76
            %
            
            
            61.14
            %
            
            
            57.67
            %
            
            
            55.50
            %
            
            
            53.76
            %Dividend
                Payout
            
            
            52.05
            %
            
            
            57.58
            %
            
            
            55.07
            %
            
            
            49.35
            %
            
            
            47.44
            %Asset
                Quality:Non-performing
                Loans
            
            
            6,136
            
            
            
            2,529
            
            
            
            4,918
            
            
            
            2,751
            
            
            
            3,658Non-performing
                Assets
            
            
            6,383
            
            
            
            2,632
            
            
            
            4,938
            
            
            
            2,829
            
            
            
            3,678Net
                Loan Charge-Offs to Average Loans
            
            
            0.14
            %
            
            
            0.38
            %
            
            
            0.30
            %
            
            
            0.19
            %
            
            
            0.33
            %Allowance
                for Loan Losses to Period-End Loans
            
            
            1.57
            %
            
            
            1.65
            %
            
            
            1.64
            %
            
            
            1.60
            %
            
            
            1.60
            %Allowance
                for Loan Losses to Non-performing Loans (4)
            
            
            114
            %
            
            
            264
            %
            
            
            135
            %
            
            
            227
            %
            
            
            157
            %Non-performing
                Loans to Period-End Loans
            
            
            1.38
            %
            
            
            0.62
            %
            
            
            1.22
            %
            
            
            0.70
            %
            
            
            1.01
            %




(1)
                Certain figures have been reclassified to conform with the current
                period
                presentation.(2)
                Tangible book value numbers exclude goodwill and intangible assets
                associated with prior business combinations.(3)
                    The efficiency ratio is calculated by dividing total non-interest
                    expense
                    less amortization of intangibles and other real estate expense
                    by
                    tax-equivalent net interest income plus non-interest income other
                    than
                    securities gains and losses.(4) Non-performing loans include
                  non-accrual loans, troubled debt restructured loans and accruing
                  loans 90
                  days or more delinquent.





24-K
 Index





Table
      of
      Selected Quarterly Financial Data:





2007
            
            
            2006Selected
                Unaudited Quarterly Financial Data
            
            Fourth
            
            
            Third
            
            
            Second
            
            
            First
            
            
            Fourth
            
            
            Third
            
            
            Second
            
            
            First(Dollars
                in Thousands)Interest
                income
            
            $
            11,768
            
            
            $
            11,736
            
            
            $
            11,412
            
            
            $
            11,114
            
            
            $
            11,291
            
            
            $
            10,934
            
            
            $
            10,646
            
            
            $
            10,470Interest
                expense
            
            
            5,604
            
            
            
            5,485
            
            
            
            5,335
            
            
            
            5,050
            
            
            
            5,061
            
            
            
            4,691
            
            
            
            4,388
            
            
            
            4,220Net
                interest income
            
            
            6,164
            
            
            
            6,251
            
            
            
            6,077
            
            
            
            6,064
            
            
            
            6,230
            
            
            
            6,243
            
            
            
            6,258
            
            
            
            6,250Provision
                for loan losses
            
            
            250
            
            
            
            150
            
            
            
            240
            
            
            
            260
            
            
            
            300
            
            
            
            420
            
            
            
            420
            
            
            
            420Net
                interest income after provision for loan losses
            
            5,914
            
            
            
            6,101
            
            
            
            5,837
            
            
            
            5,804
            
            
            
            5,930
            
            
            
            5,823
            
            
            
            5,838
            
            
            
            5,830Investment
                Security Gains (Losses), Net
            
            
            (68
            )
            
            
            22
            
            
            
            79
            
            
            
            47
            
            
            
            129
            
            
            
            75
            
            
            
            17
            
            
            
            293Other
                non-interest income
            
            
            1,433
            
            
            
            1,546
            
            
            
            2,267
            
            
            
            1,710
            
            
            
            1,464
            
            
            
            1,300
            
            
            
            1,334
            
            
            
            1,357Non-interest
                expense
            
            
            5,570
            
            
            
            5,102
            
            
            
            5,221
            
            
            
            4,964
            
            
            
            4,618
            
            
            
            5,069
            
            
            
            5,494
            
            
            
            4,851Income
                before income tax expense
            
            
            1,709
            
            
            
            2,567
            
            
            
            2,962
            
            
            
            2,597
            
            
            
            2,905
            
            
            
            2,129
            
            
            
            1,695
            
            
            
            2,629Income
                tax expense
            
            
            349
            
            
            
            576
            
            
            
            555
            
            
            
            648
            
            
            
            704
            
            
            
            485
            
            
            
            341
            
            
            
            676Net
                income
            
            $
            1,360
            
            
            $
            1,991
            
            
            $
            2,407
            
            
            $
            1,949
            
            
            $
            2,201
            
            
            $
            1,644
            
            
            $
            1,354
            
            
            $
            1,953Basic
                earnings per share
            
            $
            0.13
            
            
            $
            0.19
            
            
            $
            0.23
            
            
            $
            0.18
            
            
            $
            0.21
            
            
            $
            0.15
            
            
            $
            0.12
            
            
            $
            0.18Basic
                weighted average shares outstanding
            
            
            10,503,704
            
            
            
            10,537,801
            
            
            
            10,569,182
            
            
            
            10,569,182
            
            
            
            10,569,182
            
            
            
            10,579,400
            
            
            
            10,966,693
            
            
            
            11,145,937Net
                interest margin (tax equivalent) (1)
            
            
            3.52
            %
            
            
            3.67
            %
            
            
            3.63
            %
            
            
            3.68
            %
            
            
            3.74
            %
            
            
            3.83
            %
            
            
            3.84
            %
            
            
            3.81
            %Return
                on average assets
            
            
            0.68
            %
            
            
            1.01
            %
            
            
            1.26
            %
            
            
            1.04
            %
            
            
            1.14
            %
            
            
            0.87
            %
            
            
            0.73
            %
            
            
            1.05
            %Return
                on average equity
            
            
            7.96
            %
            
            
            12.15
            %
            
            
            14.92
            %
            
            
            12.57
            %
            
            
            13.92
            %
            
            
            10.78
            %
            
            
            8.37
            %
            
            
            11.71
            %Efficiency
                ratio (2)
            
            
            68.52
            %
            
            
            61.02
            %
            
            
            58.52
            %
            
            
            59.36
            %
            
            
            55.52
            %
            
            
            62.34
            %
            
            
            67.44
            %
            
            
            59.36
            %




(1)
                Net interest margin (tax-equivalent) is tax-equivalent net interest
                income
                divided by average earning assets.(2)
                The Efficiency Ratio is calculated by dividing total non-interest
                expense
                less amortization of intangibles and other real estate expense by
                tax-equivalent net interest income plus non-interest income other
                than
                securities gains and losses







ITEM
        7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS





A.    General





The
      primary objective of this financial review is to provide an overview of the
      financial condition and results of operations of The Wilber Corporation and
      its
      subsidiaries for each of the years in the three-year period ended December
      31,
      2007.  This discussion and tabular presentations should be read in
      conjunction with the accompanying Consolidated Financial Statements and Notes
      presented in PART II, Item 8, of this document.





Our
      financial performance is heavily dependent upon net interest income, which
      is
      the difference between the interest and dividend income earned on our loans
      and
      investment securities less the interest paid on our deposits and
      borrowings.  Results of operations are also affected by the provision
      for loan losses, investment securities gains (losses), service charges on
      deposit accounts, trust and investment service fees, insurance commission
      income, the net gain on sale of loans, the increase on the cash surrender value
      on bank owned life insurance, other service fees and other
      income.  Our non-interest expenses consist of salaries, employee
      benefits, occupancy expense, furniture and equipment expense, computer service
      fees, advertising and marketing, professional fees, other miscellaneous expenses
      and taxes.  Results of operations are also influenced by general
      economic conditions (particularly changes in interest rates), competitive
      conditions, government policies, changes in Federal or State tax law, and the
      actions of our regulatory authorities.





25-K
 Index





Critical
      Accounting Policies.
      Management of the Company considers the accounting policy relating to the
      allowance for loan losses to be a critical accounting policy given the
      uncertainty in evaluating the level of the allowance required to cover credit
      losses inherent in the loan portfolio and the material effect that such
      judgments can have on the results of operations.  While management’s
      current evaluation of the allowance for loan losses indicates that the allowance
      is adequate, under adversely different conditions or assumptions, the allowance
      would need to be increased.  For example, if historical loan loss
      experience significantly worsened or if current economic conditions
      significantly deteriorated, additional provisions for loan losses would be
      required to increase the allowance for loan losses.  In addition, the
      assumptions and estimates used in the internal reviews of the Company’s
      non-performing loans and potential problem loans have a significant impact
      on
      the overall analysis of the adequacy of the allowance for loan
      losses.  While management has concluded that the evaluation of
      collateral values was reasonable under the circumstances for each of the
      reported periods, if collateral valuations were significantly lowered, the
      Company’s allowance for loan losses would also require an additional provision
      for loan losses.





Our
      policy on the allowance for loan losses is disclosed in Note 1 of the
      Consolidated Financial Statements.  A more detailed description of the
      allowance for loan losses is included in PART II, Item 7 C.i., of this
      document.  All accounting policies are important, and as such, we
      encourage the reader to review each of the policies included in Note 1 of the
      Consolidated Financial Statements (provided in PART II, Item 8, of this
      document) to obtain a better understanding of how our financial performance
      is
      reported.





Recent
      Accounting
      Pronouncements.  In December 2007, the Financial Accounting
      Standards Board (“FASB”) issued revised Statement of Financial Accounting
      Standards No. 141, “Business Combinations” (“SFAS 141(R)”).  SFAS
      141(R) retains the fundamental requirements of SFAS No. 141 that the acquisition
      method of accounting (formerly the purchase method) be used for all business
      combinations; that an acquirer be identified for each business combination;
      and
      that intangible assets be identified and recognized separately from
      goodwill.  SFAS 141(R) requires the acquiring entity in a business
      combination to recognize the assets acquired, the liabilities assumed, and
      any
      non-controlling interest in the acquiree at the acquisition date, measured
      at
      their fair values as of that date, with limited
      exceptions.  Additionally, SFAS No 141(R) changes the requirements for
      recognizing assets acquired and liabilities assumed arising from contingencies
      and recognizing and measuring contingent consideration.  SFAS No
      141(R) also enhances the disclosure requirements for business
      combinations.  SFAS No 141(R) applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008 and may
      not be applied before that date.





In
      December 2007, the FASB issued  SFAS  No. 160,
“Noncontrolling  Interests  in  Consolidated  Financial
      Statements, an amendment of ARB No.  51,”
(“SFAS 160”).  SFAS 160  amends  Accounting 
Research Bulletin  No.  51,  “Consolidated  Financial 
Statements,”  to  establish  accounting  and 
reporting  standards  for  the non-controlling interest in a
      subsidiary and for the deconsolidation of a subsidiary.  Among other
      things, SFAS 160  clarifies  that  a  non-controlling 
interest  in  a  subsidiary  is  an ownership 
interest  in  the  consolidated  entity  that
      should  be  reported  as  equity  in  the 
consolidated  financial  statements  and  requires 
consolidated  net  income  to  be reported at amounts that
      include the amounts attributable to both the parent and the non-controlling
      interest.  SFAS 160 also amends SFAS 128, “Earnings per Share,” so
      that earnings per share calculations in consolidated financial statements will
      continue to be based on amounts attributable to the parent.  SFAS 160 is
      effective for fiscal years, and interim periods within those fiscal years,
      beginning on or after December 15, 2008 and is applied prospectively as of 
the beginning of  the  fiscal year  in which  it 
is  initially applied, except  for  the presentation and
      disclosure  requirements which  are  to  be 
applied  retrospectively  for  all  periods 
presented.  SFAS 160 is not expected to have a material impact on
      our financial condition or results of operations.





In
      November 2007, the SEC issued Staff Accounting Bulletin No. 109,
“Written Loan Commitments Recorded at Fair Value Through Earnings” (“SAB
      109”).  SAB 109 provides views on the accounting  for
      written  loan commitments  recorded at  fair value under
      GAAP.  SAB No. 109 supersedes SAB 105, “Application of Accounting
      Principles to Loan Commitments.”  Specifically, SAB 109 states that
      the expected net future cash flows related to the associated servicing of a
      loan
      should be included in the measurement of all written loan commitments that
      are
      accounted for at fair value through earnings.  The provisions of SAB 109
      are applicable on a prospective basis to written loan commitments recorded
      at
      fair value under GAAP that are issued or modified in fiscal quarters beginning
      after December 15, 2007.  SAB 109 is not expected to have a material impact
      on our financial condition or results of operations.





In
      February 2007, FASB issued Statement of Financial Accounting Standards No.
      159,
“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS
      159”).  SFAS 159 permits entities to choose to measure many financial
      instruments and certain other items at fair value.  The objective is
      to improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions.  SFAS 159 is effective for fiscal years beginning after
      November 15, 2007.  Early adoption was permitted; however, we did not
      elect early adoption and therefore adopted the





26-K
 Index





standard
      on January 1, 2008.  Upon adoption, we did not elect the fair value
      option for any eligible items that existed at January 1, 2008..





In
      September 2006, FASB’s Emerging Issues Task Force (“EITF”) reached a consensus
      on EITF Issue No. 06-4, “Accounting for Deferred Compensation and Postretirement
      Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF
      06-4”).  EITF 06-4 will require that the postretirement aspects of an
      endorsement-type split dollar life insurance arrangement be recognized as a
      liability by the employer and that the obligation is not effectively settled
      by
      the purchase of life insurance.  Companies adopting EITF 06-4 will be
      able to choose between retrospective application to all prior periods or
      treating the application of EITF 06-4 as a cumulative-effect adjustment to
      beginning retained earnings or to other components of equity or net assets
      in
      the statement of condition.  EITF 06-4 will be effective for fiscal
      years beginning after December 15, 2007.  We have 15 split-dollar life
      insurance arrangements with current and former executives of the Bank that
      are
      subject to EITF 06-4.  We adopted EITF 06-4 effective for the fiscal
      year that began on January 1, 2008, at which time we recorded a $676 thousand
      liability and an equal and offsetting reduction to our beginning retained
      earnings.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements,” (“SFAS 157”), which is effective for fiscal
      years beginning after November 15, 2007 and for interim periods within those
      years.  This statement defines fair value, establishes a framework for
      measuring fair value, and expands the related disclosure
      requirements.  The expanded disclosures include a requirement to
      disclose fair value measurements according to a hierarchy, segregating
      measurements using (1) quoted prices in active markets for identical assets
      and
      liabilities, (2) significant other observable inputs, and (3) significant
      unobservable inputs.  SFAS No. 157 will affect certain of our fair
      value disclosures, but is not expected to have a material impact on our
      financial condition or results of operations.  The portion of our
      assets and liabilities with fair values based on unobservable inputs is not
      significant.








B.    Performance
      Overview for the Year Ended December 31, 2007





During
      2007 several of our key performance measures improved, as compared to
      2006.  Net income, earnings per share, return on assets, and return on
      equity all increased in 2007.  Specifically, net income increased from
      $7.152 million in 2006 to $7.707 million in 2007, a $555 thousand or 7.8%
      increase.  Earnings per share, return on assets, and return on equity
      increased from $0.66, 0.95%, and 11.20%, respectively, in 2006, to $0.73, 0.99%,
      and 11.84%, respectively, in 2007.  During 2007, there was an increase
      in total non-interest income, a reduction in the provision for loan losses
      and a
      reduction in income taxes.  These improvements were offset by a
      decrease in net interest income and an increase in total non-interest
      expense.





Although
      most of our performance measures improved during 2007, the improvement was
      largely due to a $660 thousand decrease in the provision for loan losses and
      three unusual events that largely impacted non-interest
      income.  First, during the first quarter of 2007 we recorded a $352
      thousand gain on the disposal of fixed assets due to the recognition of a
      deferred gain on the sale of our Norwich Town, New York (Chenango County) branch
      building and contents.  Second, in May 2007 a senior executive of the
      Bank unexpectedly passed away.  As a result, in the second quarter of
      2007 we recorded a $615 thousand (non-taxable) gain on life insurance coverage
      maintained by the Bank on the senior executive.  And finally, due to a
      regional flood in the second quarter of 2006, we recorded approximately $600
      thousand in losses and expenses due to the disposal / impairment of fixed assets
      for two of our branch office buildings and their contents and subsequent
      business resumption costs.  We applied for various flood relief grants
      from various New York State agencies due to the flood and were awarded $245
      thousand of grant funding, $232 thousand of which was recorded in
      2007.  The combined
      positive impact on net income from these events for the year ended December
      31,
      2007, compared to the year ended December 31, 2006 was approximately $1.350
      million.  The improvement in net income due to these three unusual
      events was offset, in part, by a decrease in net interest income and an increase
      in non-interest expense.  During 2007, we generally operated in a flat
      or inverted interest rate climate, which resulted in a $425 thousand decrease
      in
      net interest income between the periods.  Non-interest expense
      increased by $825 thousand or 4.1% between 2006  and 2007 largely due
      to increases in salaries and employee benefits expense.





The
      information provided in ITEM 7, Parts C through F,that follow provide
      additional information as to the financial condition, results of operations,
      liquidity, and capital resources of the Company.








C.
      Financial Condition





i.
      Comparison of Financial Condition at December 31, 2007, and December 31,
      2006





Please
      refer to the Consolidated Financial Statements presented in PART II, Item 8,
      of
      this document.





27-K
 Index








Asset
      Composition


Our
      assets are comprised of earning and non-earning assets.  Earning
      assets include our investment securities, loans, interest-bearing deposits
      at
      other banks and federal funds sold.  Non-earning assets include our
      real estate and other assets acquired as the result of foreclosure, facilities,
      equipment, goodwill and other intangibles, non-interest bearing deposits at
      other banks and cash.  We generally maintain approximately 92% to 95%
      of our total assets in earning assets.   During 2007 the
      composition of our assets changed modestly.  The total loans to total
      assets ratio was 55.9% at December 31, 2007, as compared to 53.3% at December
      31, 2006.





Total
      Assets


During
      2007, total assets increased from $761.981 million at December 31, 2006 to
      $793.680 million at December 31, 2007, a $31.699 million or 4.2%
      increase.  The growth in total assets was principally funded by an
      increase in deposit liabilities.  During 2007, deposit liabilities
      increased $28.450 million or 4.5%, from $629.044 million at December 31, 2006
      to
      $657.494 million at December 31, 2007.  Throughout most of 2007,
      opportunities to increase borrowings were limited due to an unfavorable flat
      or
      inverted yield curve, thereby curbing potential growth in funding, and, in
      turn,
      total asset growth.





Investment
      Securities


Our
      investment securities portfolio consists of trading, available-for-sale, and
      held-to-maturity securities.  The following table summarizes our
      trading, available-for-sale, and held-to-maturity investment securities
      portfolio for the periods indicated.





Summary
      of Investment Securities:





At
                December 312007
            
            
            2006
            
            
            2005Amortized
              Cost
            
            Estimated
              Fair
                Value
            
            
            Amortized
              Cost
            
            Estimated
              Fair
                Value
            
            
            Amortized
              Cost
            
            Estimated
              Fair
                Value(In
                thousands)Trading
                (1):
            
            $
            1,167
            
            
            $
            1,430
            
            
            $
            1,296
            
            
            $
            1,625
            
            
            $
            1,334
            
            
            $
            1,542Available-for-sale:U.S.
                Treasuries
            
            $
            5,997
            
            
            $
            6,070
            
            
            $
            10,963
            
            
            $
            10,807
            
            
            $
            10,952
            
            
            $
            10,866Obligations
                of U.S. GovernmentCorporations
                and Agencies
            
            
            7,997
            
            
            
            8,015
            
            
            
            21,486
            
            
            
            21,336
            
            
            
            25,444
            
            
            
            25,091Obligations
                of States and PoliticalSubdivisions
                (Municipal Bonds)
            
            
            48,861
            
            
            
            48,718
            
            
            
            47,985
            
            
            
            47,544
            
            
            
            55,080
            
            
            
            54,638Mortgage
                - Backed Securities
            
            
            172,719
            
            
            
            171,395
            
            
            
            149,400
            
            
            
            146,086
            
            
            
            146,463
            
            
            
            143,248Corporate
                Securities
            
            
            2,294
            
            
            
            2,293
            
            
            
            2,274
            
            
            
            2,267
            
            
            
            0
            
            
            
            0Equity
                securities (2)
            
            
            866
            
            
            
            783
            
            
            
            825
            
            
            
            919
            
            
            
            1,103
            
            
            
            1,254Total
                available-for-sale
            
            $
            238,734
            
            
            $
            237,274
            
            
            $
            232,933
            
            
            $
            228,959
            
            
            $
            239,042
            
            
            $
            235,097Held-to-maturity:Obligations
                of States and Political Subdivisions (Municipal Bonds)
            
            $
            17,874
            
            
            $
            18,018
            
            
            $
            22,903
            
            
            $
            22,916
            
            
            $
            10,655
            
            
            $
            10,633Mortgage-Backed
                Securities
            
            
            34,328
            
            
            
            33,725
            
            
            
            39,455
            
            
            
            38,394
            
            
            
            44,284
            
            
            
            43,204Total
                held-to-maturity
            
            $
            52,202
            
            
            $
            51,743
            
            
            $
            62,358
            
            
            $
            61,310
            
            
            $
            54,939
            
            
            $
            53,837(1)
                These securities are held by the Company for its non-qualified Executive
                Deferred Compensation plan.(2)
                Certain figures have been reclassified to conform with the current
                period
                presentation.





Between
      December 31, 2006 and December 31, 2007, our total investment securities
      portfolio (including trading, available-for-sale, and held-to-maturity)
      decreased $2.036 million or 0.7%.  During 2007 we received proceeds
      from sales and maturities of securities totaling $59.829 million, versus new
      purchases of $55.943 million.  Proceeds from the sale or maturity of
      the investment securities portfolio were generally used to purchase new
      investment securities, since most of our loan growth was funded by new deposit
      liabilities.





28-K
 Index








During
      2007 we continued to maintain a concentration in mortgage-backed
      securities.  These included both mortgage pass-through securities and
      collateralized mortgage obligations.  At the end of 2007, our
      mortgage-backed securities portfolio comprised 70.7% of the carrying value of
      our investment securities portfolio.  This compares to 63.3% and 64.3%
      at the end of 2006 and 2005, respectively.  Approximately 78.0% of our
      mortgage-backed securities are backed by the full faith and credit of the United
      States government through a Ginnie Mae guarantee.  The remaining 22.0%
      are guaranteed by Fannie Mae and Freddie Mac, which are government sponsored
      enterprises.  Although our mortgage-backed securities are guaranteed
      by U.S. government agencies, they are susceptible to prepayment
      risk.  For example, if residential mortgage interest rates were to
      drop significantly, the yield on our mortgage-backed securities would also
      decline.  When mortgage rates are low, homeowners often refinance
      their existing mortgage loans or purchase new homes.  This increases
      the amount of principal payments we receive on our mortgage-backed securities,
      which, in turn, increases the amount of net amortization expense we record
      as an
      offset to interest income, thereby decreasing the yield on the
      securities.





The
      estimated fair value of the investment portfolio is largely dependent upon
      the
      interest rate environment at the time the market price is
      determined.  As interest rates decline, the estimated fair value of
      bonds generally increases, and conversely, as interest rates increase, the
      estimated fair value of bonds generally decreases.  At December 31,
      2007, the net unrealized loss on the available-for-sale investment securities
      portfolio was $1.460 million.  By comparison, at December 31, 2006,
      the net unrealized loss on the available-for-sale investment securities
      portfolio was $3.974 million.  The general level of interest rates was
      lower at December 31, 2007, as compared to the general level of interest rates
      at December 31, 2006, which caused a general decrease in the net unrealized
      loss
      on the available-for-sale investment securities portfolio between the
      periods.  The net unrealized loss on the available-for-sale investment
      securities portfolio as a percent of the amortized cost was 0.6% at December
      31,
      2007, versus 1.7% at December 31, 2006.





The
      following table sets forth information regarding the carrying value, weighted
      average yields and anticipated principal repayments of the Bank’s investment
      securities portfolio as of December 31, 2007.  All amortizing security
      principal payments, including collateralized mortgage obligations and mortgage
      pass-through securities, are included based on their expected average
      lives.  Callable securities, primarily callable agency securities, and
      municipal bonds are assumed to mature on their maturity
      date.  Available-for-sale securities are shown at fair
      value.  Held-to-maturity securities are shown at their amortized
      cost.  The yields on debt securities shown in the table below are
      calculated by dividing annual interest, including accretion of discounts and
      amortization of premiums, by the amortized cost of the securities at December
      31, 2007.  Yields on obligations of states and municipalities exempt
      from federal taxation were not tax-effected.





Investment
      Securities Maturity Table:





At
                December 31, 2007In
                One Year or Less
            
            
            After
                One Year
              through
                Five Years
            
            
            After
                Five Years
              through
                Ten Years
            
            
            After
                Ten Years
            
            
            TotalDollars
                in Thousands
            
            Carrying
              Value
            
            
            Weighted
              Average
              Yield
            
            
            Carrying
              Value
            
            
            Weighted
              Average
              Yield
            
            
            Carrying
              Value
            
            
            Weighted
              Average
              Yield
            
            
            Carrying
              Value
            
            
            Weighted
              Average
              Yield
            
            
            Carrying
              Value
            
            
            Weighted
              Average
              YieldU.S.
                Treasuries
            
            
            -
            
            
            
            -
            
            
            $
            6,070
            
            
            
            4.03
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            $
            6,070
            
            
            
            4.03
            %Obligations
                of U.S. Government Corporations and Agencies
            
            
            4,002
            
            
            
            5.00
            %
            
            
            4,013
            
            
            
            4.11
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            8,015
            
            
            
            4.55
            %Obligations
                of States and Political Subdivisions (Municipal Bonds)
            
            
            10,365
            
            
            
            3.68
            %
            
            
            22,702
            
            
            
            3.49
            %
            
            
            31,752
            
            
            
            4.52
            %
            
            
            1,773
            
            
            
            4.52
            %
            
            
            66,592
            
            
            
            4.04
            %Mortgage-backed
                Securities
            
            
            8,564
            
            
            
            2.86
            %
            
            
            191,023
            
            
            
            4.75
            %
            
            
            4,146
            
            
            
            5.22
            %
            
            
            1,990
            
            
            
            5.21
            %
            
            
            205,723
            
            
            
            4.69
            %Corporate
                Securities
            
            
            2,293
            
            
            
            5.02
            %
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,293
            
            
            
            5.02
            %Total
                securities (1)
            
            $
            25,224
            
            
            
            3.73
            %
            
            $
            223,808
            
            
            
            4.59
            %
            
            $
            35,898
            
            
            
            4.60
            %
            
            $
            3,763
            
            
            
            4.88
            %
            
            $
            288,693
            
            
            
            4.52
            %




(1)
                This table excludes trading securities totaling $1.430 million and
                equity
                securities totaling $783 thousand at December 31, 2007.





At
      both
      December 31, 2007 and December 31, 2006, the approximate weighted average life
      for all of the Bank’s available-for-sale and held-to-maturity debt securities
      was 3.5 years.  These estimates were provided by a third party
      investment securities analyst and are used to provide comparisons with other
      companies in the banking industry.  The





29-K
 Index





estimates
      were based upon the projected cash flows (to the most likely call date) of
      our
      investment securities portfolio taking into consideration the unique
      characteristics of the individual securities held by us.  Our estimate
      may fluctuate significantly from period to period due to our concentration
      in
      mortgage-backed securities.





The
      credit quality of our debt securities is strong.  At December 31,
      2007, 99.5% of the securities held in our available-for-sale and
      held-to-maturity investment securities portfolio were rated “A” or better by
      Moody’s credit rating services; 95.5% were rated AAA.  This compares
      to 99.4% and 95.9%, respectively, for the period ended December 31,
      2006.  The following table summarizes the insured and uninsured status
      of the Bank’s municipal securities portfolio (excluding notes issued directly by
      the Bank to local municipalities) at December 31, 2007.  The values
      and percentages presented are based on the par value of municipal securities
      portfolio at December 31, 2007.





Obligations
      of States and Political Subdivisions (Municipal Bonds) Credit Quality
      Table:





dollars
                in thousandsAAA
                (1)
            AA
            A
            Not
                RatedUninsured
                /
              Un-enhanced
            Insured
                /
              Enhanced
            Uninsured
                /
              Un-
              enhanced
            Insured
                /
              Enhanced
            Un-Enhanced
            Un-Enhanced
            Total$9,760
            $32,820
            $8,745
            $1,765
            $300
            $510
            $53,90018.1%
            60.9%
            16.2%
            3.3%
            0.6%
            0.9%Total
                AAA
            $42,580
            Total
                AA
            $10,51079.0%
            
            19.5%(1)  Moody's
                ratings





We
      purchase our municipal securities based on the underlying creditworthiness
      of
      the issuing municipality and have not relied on the insurance enhancement
      attached to the security.





At
      December 31, 2007, the equity securities in our available-for-sale portfolio
      had
      a fair value of $783 thousand.  These securities are held by the
      Company and were comprised of common stocks of other banking
      institutions.  By comparison, the market value of this portfolio was
      $919 thousand at December 31, 2006.





Other
      Investments


At
      December 31, 2007 we held $4.782 million of non-marketable equity securities
      including: $2.759 million in FHLBNY stock; a $1.833 million equity interest
      in a
      Small Business Investment Company, Meridian Venture Partners II, L.P; $135
      thousand of Federal Reserve Bank of New York stock; $34 thousand in New York
      Business Development Corporation stock; and $21 thousand in small title
      insurance agency.  By comparison, at December 31, 2006; the estimated
      fair value of our non-marketable equity securities totaled $4.600 million,
      a
      $182 thousand or 4.0% net increase between the periods.  During 2007,
      we contributed $200 thousand of additional capital toward our Small Business
      Investment Company to fund additional equity investments.





Federal
      Funds Sold and Time
      Deposits with Other Banks


In
      the
      normal course of business, we sell and purchase federal funds to and from other
      banks to meet our daily liquidity needs.  We generally target our
      federal funds sold position to be between $10 million and $30
      million.  We believe these levels provide us ample levels of
      short-term liquidity to meet loan funding needs and other working capital
      requirements.  Because these funds are generally an unsecured
      obligation of the counter party, we only sell federal funds to well-capitalized
      banks that carry strong credit ratings.  We also limit our total
      federal funds sold position to 50% of the Bank’s equity capital or $33.411
      million at December 31, 2007.  Given the significant daily fluctuation
      in our federal funds sold position throughout the year, it is appropriate to
      compare the annual average federal funds sold positions rather than the
      positions at the end of the periods.  During 2007 our average federal
      funds sold position was $19.026 million.  By comparison, during 2006
      our average federal funds sold position was $11.548 million.





On
      occasion we invest short-term liquid funds in time deposits with other banks
      to
      improve the yield on our liquid investments.  At December 31, 2007, we
      did not hold any deposits with other banks, as compared to $800 thousand at
      December 31, 2006.





Loan
      Portfolio


General.The
      total loan portfolio
      increased $38.038 million or 9.4% during 2007.  Total loans
      outstanding at December 31, 2007, were $443.870 million, as compared to $405.832
      million at December 31, 2006.  During 2007, we continued to expand our
      geographic market for loans.  In particular, we established a
      representative loan production office in Clifton





30-K
 Index





Park,
      New
      York (Saratoga County) and acquired Provantage.  We also continued to
      aggressively market our small business, consumer, and residential mortgage
      loans
      in both our core rural markets and more densely populated markets including
      Johnson City, New York (Broome County); Syracuse, New York (Onondaga County);
      and Kingston, New York (Ulster County).  Due to these efforts, all
      categories of loans increased during 2007.  The following table
      summarizes the composition of our loan portfolio over the prior five-year
      period.





Distribution
      of Loans Table:





At
                December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent(Dollars
                in thousands)Residential
                real estate (1)
            
            $
            127,113
            
            
            
            28.6
            %
            
            $
            117,815
            
            
            
            29.0
            %
            
            $
            124,367
            
            
            
            30.8
            %
            
            $
            119,103
            
            
            
            30.5
            %
            
            $
            118,571
            
            
            
            32.9
            %Commercial
                real estate
            
            
            161,071
            
            
            
            36.3
            %
            
            
            152,128
            
            
            
            37.5
            %
            
            
            143,552
            
            
            
            35.6
            %
            
            
            129,516
            
            
            
            33.1
            %
            
            
            115,733
            
            
            
            32.1
            %Commercial
                (2)
            
            
            83,622
            
            
            
            18.8
            %
            
            
            74,033
            
            
            
            18.2
            %
            
            
            69,651
            
            
            
            17.3
            %
            
            
            78,003
            
            
            
            19.9
            %
            
            
            65,031
            
            
            
            18.0
            %Consumer
            
            
            72,064
            
            
            
            16.2
            %
            
            
            61,856
            
            
            
            15.2
            %
            
            
            66,095
            
            
            
            16.4
            %
            
            
            64,421
            
            
            
            16.5
            %
            
            
            61,571
            
            
            
            17.1
            %Total
                loans
            
            
            443,870
            
            
            
            100.0
            %
            
            
            405,832
            
            
            
            100.0
            %
            
            
            403,665
            
            
            
            100.0
            %
            
            
            391,043
            
            
            
            100.0
            %
            
            
            360,906
            
            
            
            100.0
            %Less:Allowance
                for loan losses
            
            
            (6,977
            )
            
            
            
            
            
            
            (6,680
            )
            
            
            
            
            
            
            (6,640
            )
            
            
            
            
            
            
            (6,250
            )
            
            
            
            
            
            
            (5,757
            )Net
                loans
            
            $
            436,893
            
            
            
            
            
            
            $
            399,152
            
            
            
            
            
            
            $
            397,025
            
            
            
            
            
            
            $
            384,793
            
            
            
            
            
            
            $
            355,149(1)
                Includes loans secured by 1-4 family residential dwellings, 5+ family
                residential dwellings, home equity loans and residential construction
                loans.(2)
                Includes commercial and industrial loans, agricultural loans and
                obligations (other than securities and leases) of states and political
                subdivisions in the United States





During
      the prior five-year period our commercial real estate portfolio increased
      $45.338 million or 39.2%.  At December 31, 2007, commercial real
      estate loans comprised 36.3% or $161.071 million of our total loan
      portfolio.  This compares to 32.1% or $115.733 million at December 31,
      2003.  Throughout the five-year period covered in the table above, we
      concentrated our efforts on opening new offices and hiring commercial lenders
      in
      large, more densely populated markets.  These efforts contributed to
      the increase in the outstanding balances in our commercial loan portfolio,
      as
      well.  At December 31, 2007, commercial loan balances outstanding
      totaled $83.622 million.  This compares to $65.031 million at December
      31, 2003.





In
      the
      first quarter of 2007, we acquired Provantage, a New York State licensed
      mortgage banker with four (4) offices located throughout the Capital District
      of
      New York, namely Saratoga, Schenectady and Albany Counties.  We
      acquired Provantage to improve our residential mortgage lending capabilities
      and
      increase the outstanding balances of our residential mortgage
      portfolio.  At December 31, 2007, the outstanding balance of our
      residential mortgage portfolio was $127.113million.  This
      compares to $117.815 million at December 31, 2006, a $9.298 million or 7.9%
      increase between the periods.





During
      2007, we competitively priced and marketed our consumer loan products,
      principally installment-type automobile loans, which increased the consumer
      loan
      portfolio to $72.064 million at December 31, 2007.  This represents a
      $10.208 million or 16.5% increase over the December 31, 2006 consumer loan
      portfolio balance totaling $61.856 million.  At December 31, 2006, our
      indirect automobile loan portfolio was comprised of 4,077 accounts, totaling
      $40.744 million.  This compares to 4,710 accounts and $51.299 million
      at December 31, 2007, a 15.5% net increase in accounts and a 25.9% net increase
      in indirect automobile loans outstanding.





The
      following table sets forth the amount of loans maturing and repricing in our
      portfolio.  The full principal amount outstanding of adjustable rate
      loans are included in the period in which the interest rate is next scheduled
      to
      adjust.  Similarly, the full principal amount outstanding of
      fixed-rate loans are shown based on their final maturity date.  The
      full principal amount outstanding of demand loans without a repayment schedule
      and no stated maturity, financed accounts receivable, and overdrafts are
      reported as due within one year.  The table has not been adjusted for
      scheduled principal payments or anticipated principal prepayments.





31-K
 Index








Maturity
      and Repricing of Loans Table:





Within
                One
              Year
                (1)
            
            
            One
              Through
              Five
              Years
            
            
            More
              Than
              Five
              Years
            
            
            TotalResidential
                real estate (1)
            
            $
            42,377
            
            
            $
            9,057
            
            
            $
            75,679
            
            
            $
            127,113Commercial
                real estate
            
            
            36,348
            
            
            
            38,119
            
            
            
            86,604
            
            
            
            161,071Commercial
                (2)
            
            
            47,731
            
            
            
            14,845
            
            
            
            21,046
            
            
            
            83,622Consumer
            
            
            6,730
            
            
            
            46,916
            
            
            
            18,418
            
            
            
            72,064Total
                loans receivable
            
            $
            133,186
            
            
            $
            108,937
            
            
            $
            201,747
            
            
            $
            443,870(1)
                Includes loans secured by 1-4 family residential dwellings, 5+ family
                residential dwellings, home equity loans and residential construction
                loans.
              
              (2)
                  Includes commercial and industrial loans, agricultural loans and
                  obligations (other than securities and leases) of states and political
                  subdivisions in the United States





The
      following table sets forth fixed and adjustable rate loans with maturity dates
      after December 31, 2008:





Table
      of
      Fixed and Adjustable Rate Loans:





Due
                  After December 31, 2008Fixed
              
              
              Adjustable
              
              
              TotalResidential
                  real estate (1)
              
              $
              77,998
              
              
              $
              45,710
              
              
              $
              123,708Commercial
                  real estate
              
              
              72,588
              
              
              
              85,187
              
              
              
              157,775Commercial  (2)
              
              
              36,264
              
              
              
              26,191
              
              
              
              62,455Consumer
              
              
              68,202
              
              
              
              1,084
              
              
              
              69,286Total
                  loans
              
              $
              255,052
              
              
              $
              158,172
              
              
              $
              413,224
  (1)
                  Includes loans secured by 1-4 family residential dwellings, 5+
                  family
                  residential dwellings, home equity loans and residential construction
                  loans.(2)
                  Includes commercial and industrial loans, agricultural loans and
                  obligations (other than securities and leases) of states and political
                  subdivisions in the United States





Commitments
      and Lines of
      Credit.  Standby and commercial letters of credit are
      conditional commitments issued by us to guarantee the performance of a customer
      to a third party.  Those guarantees are primarily issued to support
      public and private borrowing arrangements, including bond financing and similar
      transactions.  The credit risk involved in issuing standby and
      commercial letters of credit are essentially the same as that involved in
      extending loans to customers.  Since most of the standby letters of
      credit are expected to expire without being drawn upon, the total commitment
      amounts do not necessarily represent future cash requirements.  At
      December 31, 2007 and December 31, 2006 standby and commercial letters of credit
      totaled $6.988 million and $6.974 million, respectively.  At December
      31, 2007 and December 31, 2006 the fair value of the Bank’s standby letters of
      credit was not significant.  The following table summarizes the
      expirations of our standby and commercial letters of credit as of December
      31,
      2007.





Standby
      and Commercial Letters of Credit Expiration Table:





Commitment
                Expiration
                of Standby and Commercial Letters of Credit(dollars
                in thousands)Within
                one year
            
            $
            3,552After
                one but within three years
            
            
            84After
                three but within five years
            
            
            127Five
                years or greater
            
            
            3,225Total
            
            $
            6,988








32-K
 Index





In
      addition to standby letters of credit, we have issued lines of credit and other
      commitments to lend to our customers.  Commitments to extend credit
      are agreements to lend to a customer as long as there is no violation of any
      condition established in the loan agreement.  Commitments generally
      have fixed expiration dates or other termination clauses and may require payment
      of a fee.  These include home equity lines of credit, commitments for
      residential and commercial construction loans, commercial letters of credit,
      and
      other personal and commercial lines of credit.  At December 31, 2007
      and December 31, 2006, we had outstanding unfunded loan commitments of $90.555
      million and $81.536 million, respectively, representing a $9.019 million or
      11.1% increase period over period.  The increase in the unfunded loan
      commitments was primarily due to growth in the unused portion of commercial
      lines of credit.





Asset
      Quality and Risk
      Elements





General.One
      of our key
      objectives is to maintain strong credit quality of the Bank’s loan
      portfolio.  The following narrative provides summary information and
      our experience regarding the quality and risk elements of our loan
      portfolio.





Delinquent
      Loans.  At December 31, 2007, we had $3.917 million of loans
      that were 30 to 89 days past due (excluding non-performing
      loans).  This equaled 0.88% of total loans outstanding.  By
      comparison, at December 31, 2006 we had $6.070 million of loans that were 30
      to
      89 days past due (excluding non-performing loans).  This equaled 1.50%
      of total loans outstanding.  The decrease in delinquent loans between
      the periods was principally due to a decrease in delinquency on a few large
      commercial real estate loans.  We considered the level of delinquent
      loans at December 31, 2007 to be manageable and well within management’s
      targeted guideline of less than 2.0% of loans outstanding.





Non-accrual,
      Past Due and
      Restructured Loans.The following chart sets forth information
      regarding non-performing assets for the periods stated.





Table
      of
      Non-performing Assets:





At
                December 31,Dollars
                in Thousands
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Loans
                in Non-Accrual Status:Residential
                real estate (1)
            
            $
            895
            
            
            $
            450
            
            
            $
            327
            
            
            $
            141
            
            
            $
            257Commercial
                real estate
            
            
            4,341
            
            
            
            1,626
            
            
            
            2,287
            
            
            
            2,168
            
            
            
            1,199Commercial
                (2)
            
            
            843
            
            
            
            271
            
            
            
            1,191
            
            
            
            243
            
            
            
            1,700Consumer
            
            
            7
            
            
            
            0
            
            
            
            61
            
            
            
            9
            
            
            
            8Total
                non-accruing loans
            
            
            6,086
            
            
            
            2,347
            
            
            
            3,866
            
            
            
            2,561
            
            
            
            3,164Loans
                Contractually Past Due 90 Days or More and Still Accruing
                Interest
            
            
            50
            
            
            
            182
            
            
            
            181
            
            
            
            190
            
            
            
            123Troubled
                Debt Restructured Loans
            
            
            0
            
            
            
            0
            
            
            
            871
            
            
            
            0
            
            
            
            371Total
                non-performing loans
            
            
            6,136
            
            
            
            2,529
            
            
            
            4,918
            
            
            
            2,751
            
            
            
            3,658Other
                real estate owned
            
            
            247
            
            
            
            103
            
            
            
            20
            
            
            
            78
            
            
            
            20Total
                non-performing assets
            
            $
            6,383
            
            
            $
            2,632
            
            
            $
            4,938
            
            
            $
            2,829
            
            
            $
            3,678Total
                non-performing assets as a percentage of total assets
            
            
            0.80
            %
            
            
            0.35
            %
            
            
            0.66
            %
            
            
            0.38
            %
            
            
            0.50
            %Total
                non-performing loans as a percentage of total loans
            
            
            1.38
            %
            
            
            0.62
            %
            
            
            1.22
            %
            
            
            0.70
            %
            
            
            1.01
            %(1)
                Includes loans secured by 1-4 family residential dwellings, 5+ family
                residential dwellings, home equity loans and residential construction
                loans.
              
              (2)
                  Includes commercial and industrial loans, agricultural loans and
                  obligations (other than securities and leases) of states and political
                  subdivisions in the United States





Total
      non-performing loans, including non-accruing loans, loans 90 days or more past
      due and still accruing interest, and troubled debt restructured loans increased
      $3.607 million between December 31, 2006 and December 31, 2007, from $2.529
      million to $6.136 million.  Non-performing loans as a percentage of
      total loans outstanding were 1.38% at December 31, 2007, as compared to 0.62%
      at
      December 31, 2006, a 76 basis point increase.  During 2007, we
      transferred twenty-two (22) loans from performing to non-performing
      status.  These loans were distributed among seventeen (17) borrowers
      with one borrower’s indebtedness representing 52% or $1.867 million of the net
      increase.  The non-performing loans were not concentrated to any
      single industry or closely-related group of industries.





33-K
 Index





Impaired
      Loans.The following table provides information on impaired
      loans for the periods presented:





As
                of and for the YearEnded
                December 31,dollars
                in thousands
            2007
            
            
            2006Impaired
                Loans
            
            $
            5,701
            
            
            $
            1,896Allowance
                for Impaired Loans
            
            
            1,382
            
            
            
            334Average
                Recorded Investment in Impaired Loans
            
            
            4,858
            
            
            
            1,597





At
      December 31, 2007, $4.365 million of the impaired loans had a specific reserve
      allocation of $1.382 million, compared to $1.669 million of impaired loans
      at
      December 31, 2006 with a related reserve allocation of $334
      thousand.





Other
      Real Estate Owned and
      Repossessed Assets.Other Real Estate Owned (“OREO”) consists of
      properties formerly pledged as collateral on loans, which have been acquired
      by
      us through foreclosure proceedings or acceptance of a deed in lieu of
      foreclosure.  OREO is carried at the lower of the recorded investment
      in the loan or the fair value of the real estate, less estimated costs to
      sell.  At both December 31, 2007 and December 31, 2006 we held modest
      amounts of OREO property totaling $247 thousand and $103 thousand,
      respectively.





Potential
      Problem
      Loans.Potential problem loans are loans that are
      currently performing, but where known information about possible credit problems
      of the related borrowers causes management to have doubts as to the ability
      of
      such borrowers to comply with the present loan repayment terms and which may
      result in disclosure of such loans as non-performing at some time in the
      future.  Potential problem loans are typically loans classified by our
      loan rating system as “substandard.”  Potential problem loans may
      fluctuate significantly from period to period due to a rating upgrade of loans
      previously classified as substandard or a rating downgrade of loans previously
      carried in a higher credit classification.  In addition, we hold an
      amount of commercial and commercial real estate loans with balances in excess
      of
      $1.0 million.We
      have identified through normal credit review procedures potential problem loans
      totaling $7.870 million or 1.8% of total loans outstanding at December 31,
      2007.  By comparison, at December 31, 2006, potential problem loans
      totaled $14.538 million or 3.6% of total loans outstanding.  This
      represents a $6.668 million decrease in potential problem loans between December
      31, 2006 and December 31, 2007.





The
      decrease in potential problem loans from the period ended December 31, 2006
      to
      the period ended December 31, 2007, was due to several factors including,
      repayment by some borrowers, a rating upgrade of loans previously classified
      as
      substandard, and the transfer of a significant number of loans to non-performing
      status.  Management cannot predict economic conditions or other
      factors that may impact each potential problem loan.  Accordingly,
      there can be no assurance that other loans will not become 90 days or more
      past
      due, be placed on non-accrual status, become restructured, or require increased
      allowance coverage and provision for loan losses.





Loan
      Concentrations.We classify our loan portfolio by call report
      code and industry to determine and monitor the level of our loan
      concentrations.  We generally consider industry concentrations when
      the total loan obligations (outstanding loans and unfunded commitments) to
      the
      industry exceed 25% of the Bank’s Tier II capital.  The Bank’s Tier II
      capital at December 31, 2007 was $68.837 million, which established our industry
      concentration threshold at $17.209 million.  We also review the
      geographic concentration and economic trends within each industry concentration
      to further segment and analyze the risk.  The following narrative
      summarizes our concentrations of credit.





At
      December 31, 2007 we had $161.071 million in total loan obligations or 234.0%
      of
      the Bank’s Tier II capital secured by commercial real estate (“CRE”) properties
      or to commercial real estate developers/property managers.  The Office
      of the Comptroller of the Currency has set concentrations of CRE loans
      (non-owner occupied) at 300.0% of the Bank’s Tier II capital.  Based
      upon our analysis, as of December 31, 2007, the Bank had approximately $49.943
      million or 72.6% of the Bank’s Tier II capital in non-owner occupied CRE loans
      secured by the real estate and another $5.722 million or 8.3% to non-owner
      occupied CRE developers/property managers that is either secured by collateral
      other than commercial real estate or is unsecured.  At December 31,
      2007, there were 32 CRE loans with an aggregate balance of $13.478 million
      that
      have been identified as either non-performing or potential problem
      loans.





At
      December 31, 2007, we had 57 loans with $34.282 million in total loan
      obligations or 49.8% of the Bank’s Tier II capital to borrowers who operate in
      the hotel/motel industry, including lodges, bed and breakfast inns, and a
      limited number of campgrounds.  At December 31, 2007, 3 of the Bank’s
      largest hotel / motel borrowers had loan obligations totaling $15.021
      million.  In addition, there were another 7 hotel / motel borrowers
      who had aggregate loan obligations of between $1.000 million and $3.000
      million.  The hotel/motel properties that we finance are
      geographically dispersed throughout our market area and the broader statewide
      region.  However, 10 of the hotels/motels/bed & breakfast inns we
      finance are located in the core market areas of Cooperstown (Otsego County),
      Oneonta (Otsego County), Sidney (Delaware County),





34-K
 Index





Cobleskill
      (Schoharie County), and Norwich (Chenango County), New York, with total loan
      obligations of approximately $14.2 million.  Many of these hotels/inns
      are highly dependent upon tourism and have a seasonality that peaks in July
      and
      August.  At December 31, 2007, these loans were deemed to be of
      acceptable risk (“pass rated”) by our management, with no delinquency
      noted.  Two (2) loans in the hotel/motel sector with an outstanding
      balance of $1.736 million were risk rated as substandard at December 31, 2007
      due to insufficient cash flow generated by the operations of the
      motels.





At
      December 31, 2007, loan obligations to the healthcare industry,including hospitals,
      medical practices, and residential and independent care facilities, totaled
      $34.139 million or 49.6% of the Bank’s Tier II capital.  This
      portfolio was comprised of approximately 122 loans with an average size of
      $280
      thousand.  This portfolio presently contains 4 of the largest
      borrowers in the Bank with loan obligations totaling $20.994
      million.  All of these loans were pass rated at December 31, 2007 and
      were performing in compliance with contractual terms.  Only 1 (loan
      obligation in this portfolio was identified as substandard at December 31,
      2007.  The borrower is a small hospital with an unused line of credit
      totaling $200 thousand.





At
      December 31, 2007 we had 62 loans with $31.456 million of total loan obligations
      to borrowers who operate in the automotive and other vehicle dealership
      industry.  The total loan obligations to this industry-sector
      represents 45.7% of the Bank’s Tier II capital and consists of 22 borrowers
      whose primary revenue is derived from the retail sale and service of new and
      used motor vehicles, motor cycles, and/or recreational
      vehicles.  Loans to this industry consist of commercial real estate
      mortgages, equipment financing, working capital lines of credit, and inventory
      lines (dealer floor plans).  We maintain 16 dealer floor plan lines
      within this portfolio totaling $15.800 million, $9.654 million of which was
      outstanding at December 31, 2007.  Due to the significant risk posed
      by dealer floor plan lending, management monitors the dealer floor plan loans
      by
      conducting inventory reviews on a monthly basis.  At December 31,
      2007, there were three borrowers within this area of industry concentration
      with
      $3.195 million in aggregate loan obligations outstanding that were classified
      as
      substandard.  The substantial majority of our loan obligations for
      this area of concentration were made to dealerships that primarily sell American
      automobiles.  In 2007, American automobile manufacturers lost
      substantial market share to foreign automobile retailers.





At
      December 31, 2007, we had $25.719 million in total loan obligations or 37.4%
      of
      the Bank’s Tier II capital secured by residential rental properties, including
      1-4 family units, 5+ family units, and mobile home parks.  At December
      31, 2007, the portfolio consisted of approximately 117 loans with an average
      loan size of $222 thousand.  The geographic location and types of
      properties securing this portfolio were fairly diverse.  Five of the
      loans in this portfolio totaling $777 thousand were classified as substandard
      at
      December 31, 2007.





At
      December 31, 2007, we had 14 borrowers whose total loan obligations were equal
      to or exceeded $4.000 million.  In aggregate, these borrowers’ total
      loan obligations were $87.020 million.  Although these large
      relationships were dispersed among borrowers who operate in various industries,
      the decline in the financial condition of one of our large borrowers could
      significantly impact the credit quality of our loan portfolio.  At
      December 31, 2007, one of our large borrowers, with total loan obligations
      of
      $4.500 million, was classified as substandard.








35-K
 Index





Summary
      of Loss Experience
      (Charge-Offs) and Allowance for Loan Losses.   The
      following table sets forth the analysis of the activity in the allowance for
      loan losses, including charge-offs and recoveries, for the periods
      indicated.





Analysis
      of the Allowance for Loan Losses Table:





Years
                Ended December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003(Dollars
                in thousands)Balance
                at beginning of year
            
            $
            6,680
            
            
            $
            6,640
            
            
            $
            6,250
            
            
            $
            5,757
            
            
            $
            5,392Charge
                offs:Residential
                real estate (1)
            
            
            109
            
            
            
            56
            
            
            
            20
            
            
            
            133
            
            
            
            174Commercial
                real estate
            
            
            120
            
            
            
            2
            
            
            
            0
            
            
            
            51
            
            
            
            0Commercial
                (2)
            
            
            216
            
            
            
            1,161
            
            
            
            364
            
            
            
            121
            
            
            
            193Consumer
            
            
            721
            
            
            
            887
            
            
            
            1,091
            
            
            
            639
            
            
            
            1,109Total
                charge offs
            
            
            1,166
            
            
            
            2,106
            
            
            
            1,475
            
            
            
            944
            
            
            
            1,476Recoveries:Residential
                real estate (1)
            
            
            22
            
            
            
            31
            
            
            
            39
            
            
            
            20
            
            
            
            10Commercial
                real estate
            
            
            105
            
            
            
            73
            
            
            
            0
            
            
            
            0
            
            
            
            0Commercial
                (2)
            
            
            137
            
            
            
            143
            
            
            
            29
            
            
            
            51
            
            
            
            78Consumer
            
            
            299
            
            
            
            339
            
            
            
            217
            
            
            
            166
            
            
            
            188Total
                recoveries
            
            
            563
            
            
            
            586
            
            
            
            285
            
            
            
            237
            
            
            
            276Net
                charge-offs
            
            
            603
            
            
            
            1,520
            
            
            
            1,190
            
            
            
            707
            
            
            
            1,200Provision
                for loan losses
            
            
            900
            
            
            
            1,560
            
            
            
            1,580
            
            
            
            1,200
            
            
            
            1,565Balance
                at end of year
            
            $
            6,977
            
            
            $
            6,680
            
            
            $
            6,640
            
            
            $
            6,250
            
            
            $
            5,757Ratio
                of net charge-offs during the year to average loans outstanding during
                the
                year
            
            
            0.14
            %
            
            
            0.38
            %
            
            
            0.30
            %
            
            
            0.19
            %
            
            
            0.33
            %Allowance
                for loan losses to total loans
            
            
            1.57
            %
            
            
            1.65
            %
            
            
            1.64
            %
            
            
            1.60
            %
            
            
            1.60
            %Allowance
                for loan losses to non-performing loans
            
            
            114
            %
            
            
            264
            %
            
            
            135
            %
            
            
            227
            %
            
            
            157
            %(1)
                Includes loans secured by 1-4 family residential dwellings, 5+ family
                residential dwellings, home equity loans and residential construction
                loans.
              
              (2)
                  Includes commercial and industrial loans, agricultural loans and
                  obligations (other than securities and leases) of states and political
                  subdivisions in the United States





The
      allowance for loan losses at December 31, 2007 was $6.977 million or 1.57%
      of
      gross loans outstanding.  This compares to $6.680 million or 1.65% of
      loans outstanding at December 31, 2006.  During 2007, net charge-offs
      on loans totaled $603 thousand or 0.14% of average loans
      outstanding.  This compares to $1.520 million of net charge-offs or
      0.38% of average loans outstanding in 2006, a $917 thousand and 24 basis point
      net decrease, respectively, between the periods.During the first quarter
      of
      2006, we recorded a $981 thousand charge-off on two loans to one of our large
      commercial borrowers.  No similarly large charge-offs were recorded
      during 2007.





We
      recorded $900 thousand in the provision for loan losses during
      2007.  This compares to $1.560 million recorded in the provision for
      loan losses in 2006, a $660 thousand or 42.3% decrease.  During 2007,
      we experienced a decrease in delinquent loans, net charge-offs and potential
      problem loans.  The improvement in these credit quality measures were
      offset, in part, by an increase in non-performing loans.  Management
      and the Board of Directors deemed the allowance for loan losses as adequate
      at
      December 31, 2007 and December 31, 2006.





Allocation
      of the Allowance for Loan
      Losses.  We allocate our allowance for loan losses among the
      loan categories indicated in the following table.  Although we
      estimate and allocate probable losses by category of loan, this allocation
      should not be interpreted as the precise amount of future charge-offs or a
      proportional distribution of future charge-offs among loan
      categories.  Additionally, since management regards the allowance for
      loan losses as a general balance, the amounts presented do not represent the
      total balance available to absorb future charge-offs that might occur within
      the
      designated categories.





Subject
      to the qualifications noted above, an allocation of the allowance for loan
      losses by principal classification and the proportion of the related loan
      balance represented by the allocation is presented below for the periods
      indicated.








36-K
 Index





Loan
      Loss
      Summary Allocation Table:





At
                December 31,2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003Dollars
                in Thousands
            
            Amount
                of
              Allowance
              for
                Loan
              Losses
            
            
            Percent
                of
              Allowance
              for
                Loan
              Losses
                in
              Each
              Category
            
            
            Amount
                of
              Allowance
              for
                Loan
              Losses
            
            
            Percent
                of
              Allowance
              for
                Loan
              Losses
                in
              Each
              Category
            
            
            Amount
              of
              Allowance
              for
                Loan
              Losses
            
            
            Percent
                of
              Allowance
              for
                Loan
              Losses
                in
              Each
              Category
            
            
            Amount
              of
              Allowance
              for
                Loan
              Losses
            
            
            Percent
                of
              Allowance
              for
                Loan
              Losses
                in
              Each
              Category
            
            
            Amount
              of
              Allowance
              for
                Loan
              Losses
            
            
            Percent
                of
              Allowance
              for
                Loan
              Losses
                in
              Each
              CategoryResidential
                real estate (1)
            
            $
            607
            
            
            
            8.7
            %
            
            $
            501
            
            
            
            7.5
            %
            
            $
            595
            
            
            
            9.0
            %
            
            $
            670
            
            
            
            10.7
            %
            
            $
            545
            
            
            
            9.5
            %Commercial
                real estate
            
            
            2,969
            
            
            
            42.6
            %
            
            
            3,083
            
            
            
            46.2
            %
            
            
            3,171
            
            
            
            47.8
            %
            
            
            2,454
            
            
            
            39.3
            %
            
            
            2,248
            
            
            
            39.0
            %Commercial
                (2)
            
            
            1,799
            
            
            
            25.8
            %
            
            
            1,462
            
            
            
            21.9
            %
            
            
            1,512
            
            
            
            22.8
            %
            
            
            1,435
            
            
            
            23.0
            %
            
            
            1,297
            
            
            
            22.5
            %Consumer
            
            
            1,383
            
            
            
            19.8
            %
            
            
            1,114
            
            
            
            16.7
            %
            
            
            1,114
            
            
            
            16.8
            %
            
            
            1,080
            
            
            
            17.3
            %
            
            
            966
            
            
            
            16.8
            %Unallocated
            
            
            219
            
            
            
            3.1
            %
            
            
            520
            
            
            
            7.8
            %
            
            
            248
            
            
            
            3.7
            %
            
            
            611
            
            
            
            9.8
            %
            
            
            701
            
            
            
            12.2
            %Total
            
            $
            6,977
            
            
            
            100.0
            %
            
            $
            6,680
            
            
            
            100.0
            %
            
            $
            6,640
            
            
            
            100.0
            %
            
            $
            6,250
            
            
            
            100.0
            %
            
            $
            5,757
            
            
            
            100.0
            %




(1)
                Includes loans secured by 1-4 family residential dwellings, 5+ family
                residential dwellings, home equity loans and residential construction
                loans.
              
              (2)
                  Includes commercial and industrial loans, agricultural loans and
                  obligations (other than securities and leases) of states and political
                  subdivisions in the United States





Other
      Non-earning Assets and
      Bank Owned Life Insurance





Cash
      and Due from
      Banks.  In order to operate the Bank on a daily basis, it is
      necessary for us to maintain a limited amount of cash at our teller stations
      and
      within our vaults and ATMs to meet customers’ demands.  In addition,
      we always maintain an amount of check and other presentment items in the process
      of collection (or float).  We are also required to maintain a clearing
      / reserve balance at the Federal Reserve Bank of New York and minimum target
      balances at our correspondent banks.  At December 31, 2007, we
      maintained $11.897 million or 1.5% of total assets in these categories of
      non-earning assets.  This compares to $12.742 million or 1.7% of total
      assets at December 31, 2006.





Premises
      and
      Equipment.The net book value of premises and equipment
      increased $626 thousand or 11.0%, from $5.686 million at December 31, 2006
      to
      $6.312 million at December 31, 2007.  During 2007 we acquired land in
      the Dewitt, New York (Onondaga County) at a cost of $412 thousand with the
      intention of building a full-service branch facility on the site during
      2008.  The remaining net increase in premises and equipment totaling
      $214 thousand was due to various building improvements and equipment purchases
      made during 2007, net of depreciation.





Bank-Owned
      Life
      Insurance.The cash surrender value of bank-owned life
      insurance at December 31, 2007 was $15.785 million, as compared to $16.108
      million at December 31, 2006, a $323 thousand or 2.0% decrease.  In
      May of 2007, a senior executive of the Bank unexpectedly passed
      away.  The Bank held life insurance policies on the senior executive
      and received the full cash surrender value of these policies totaling $929
      thousand following his death.  This reduction in the cash surrender
      value of the bank-owned life insurance was offset, in part, by an increase
      in
      the cash surrender value on the remaining policies (and the senior executive’s
      policies preceding his death) totaling $606 thousand.  The policies
      are issued by five life insurance companies who all carry strong financial
      strength ratings.  At December 31, 2007, the Bank held policies on 15
      former and current members of the Bank’s senior management, all of whom
      participate in the Bank’s Amended and Restated Split-Dollar Life Insurance Plan
      as furnished in Exhibit 10.2 of this document.





Goodwill
      and Other Intangible
      Assets.During 2007 we recorded $101 thousand of goodwill due
      to the acquisition of Provantage.  This increased goodwill from $4.518
      million at December 31, 2006 to $4.619 million at December 31,
      2007.  We determined that no impairment of goodwill related to
      previous branch acquisitions or the Provantage acquisition was required in
      2007.





Other
      intangible assets, net, which consist of identifiable core deposit intangibles
      from prior period branch purchases and customer list intangibles from prior
      period insurance agency purchases, totaled $394 thousand at December 31, 2007,
      versus $520 thousand at December 31, 2006.  The $126 thousand
      reduction in other intangible assets between the periods was due to the
      amortization of both the core deposit intangible asset recorded in prior period
      bank branch acquisitions and the customer list intangible asset from a prior
      period insurance agency acquisition.





37-K
 Index





Pension
      Asset.  On
      December 31, 2006, we adopted SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements
      No. 87, 88, 106, and 132(R),” an accounting standard which requires employers to
      (i) recognize the over funded or under funded status of defined benefit
      postretirement plans, which is measured as the difference between the plan
      assets at fair value and the benefit obligation, as an asset or liability on
      its
      balance sheet, (ii) recognize changes in that funded status in the year in
      which
      the changes occur through comprehensive income, and (iii) measure the defined
      benefit plan assets and obligations as of the date of its year-end balance
      sheet.  Although we froze our defined pension plan on February 28,
      2006, as the plan sponsor we maintain a requirement to fund the plan and comply
      with SFAS No. 158.  At December 31, 2007, our pension plan remained in
      an over funded status due to improved plan performance.  The pension
      asset at December 31, 2007 was $4.872 million.  This compares to
      $2.357 million at December 31, 2006, a $2.515 million increase between
      periods.





Other
      Assets.  Other assets decreased $520 thousand or 5.1%, from
      $10.239 million at December 31, 2006 to $9.719 million at December 31,
      2007.  Other assets are principally comprised of other real estate
      owned, interest receivable, prepaid dealer reserve, prepaid taxes, prepaid
      insurance, computer software, net deferred tax assets, deferred taxes on
      investment securities, deferred tax asset on the pension plan, other assets,
      return/rejected check items, other prepaid items, and other accounts
      receivable.  Several factors contributed to the net decrease in other
      assets between the periods including decreases in deferred taxes on investment
      securities, deferred tax asset on the pension plan and other assets, offset,
      in
      part, by increases in rejected check items, deferred federal income tax,
      software, prepaid dealer reserve and other real estate owned.





Composition
      of
      Liabilities





Deposits.  Deposits
      are our primary funding source.  At December 31, 2007 and December 31,
      2006 deposits represented approximately 90% of our total
      liabilities.  Total deposits at December 31, 2007 were $657.494
      million.  This compares to $629.044 million at December 31, 2006, a
      $28.450 million or 4.5% increase.  The increase in total deposits
      between December 31, 2006 and December 31, 2007 was attributable to significant
      increases in money market deposit accounts and certificates of deposit (over
      and
      under $100 thousand) totaling $31.952 million, offset, by decreases in savings
      accounts, NOW accounts, demand deposits and other deposits totaling $3.502
      million.  During 2007, our depositors continued to transfer their
      funds to higher yield deposit accounts as interest rates on savings and NOW
      accounts remained low relative to money market and certificate of deposit
      interest rates.





The
      following table indicates the amount of our time accounts by time remaining
      until maturity as of December 31, 2007.





Time
      Accounts Maturity Table:





Maturity
                as of December 31, 2007Dollars
                in Thousands
            
            3
                Months
              or
                Less
            
            
            Over
                3 to
              6
                Months
            
            
            Over
                6 to
              12
                Months
            
            
            Over
                12
              Months
            
            
            TotalCertificates
                of Deposit of $100,000 or more
            
            $
            53,962
            
            
            $
            17,052
            
            
            $
            17,803
            
            
            $
            23,132
            
            
            $
            111,949Certificates
                of Deposit less than $100,000
            
            
            36,415
            
            
            
            31,498
            
            
            
            48,307
            
            
            
            82,247
            
            
            
            198,467Total
                of time accounts
            
            $
            90,377
            
            
            $
            48,550
            
            
            $
            66,110
            
            
            $
            105,379
            
            
            $
            310,416





Borrowings
      and Other Contractual
      Obligations.  Total borrowed funds consist of short-term and
      long-term borrowings.  Short-term borrowings include treasury, tax,
      and loan notes held for the benefit of the U.S. Treasury Department, and
      securities sold under agreements to repurchase with our customers and other
      third parties.  Long-term borrowings consist of monies we borrowed
      from the FHLBNY for various asset funding requirements and wholesale funding
      strategies.  Total borrowed funds were $57.324 million or 7.9% of
      total liabilities at December 31, 2007, as compared to $60.663 million or 8.7%
      of total liabilities at December 31, 2006, a $3.339 million or 5.5% decrease
      between the periods.





Short-term
      borrowings decreased from $18.459 million at December 31, 2006 to $15.786
      million at December 31, 2007, a $2.673 million or 14.5% decrease.  The
      decrease was principally due to a reduction in customer repurchase agreement
      balances.





During
      2007 we repaid $25.666 million of our long-term borrowings at FHLBNY as they
      amortized, matured or were called throughout the year.  These
      borrowings were replaced by new long-term borrowings totaling $25.000 million,
      which were used to fund newly originated and existing earning
      assets.  Management did not increase long-term borrowings during 2006
      as loan growth was principally funded by a growth in
      deposits.  Throughout most of 2007, deposits were a less





38-K
 Index





expensive
      funding source than long-term borrowings.  In addition, due to a poor
      interest rate environment, in particular a flat or inverted yield curve,
      management did not execute any new wholesale leverage transactions during
      2007.  See Note 8 of the Consolidated Financial Statements contained
      in PART II, Item 8, of this document for additional detail on our borrowed
      funds.





In
      connection with our financing and operating activities, we have entered into
      certain contractual obligations.  Our future minimum cash payments,
      excluding interest, associated with these contractual obligations, including
      borrowed funds and operating leases, at December 31, 2007 were as
      follows:





Contractual
                Obligations as of December 31, 2007Payments
                Due by Period(In
                thousands)
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            Thereafter
            
            
            TotalLong-term
                debt
            
            $
            6,493
            
            
            $
            2,205
            
            
            $
            9,563
            
            
            $
            1,673
            
            
            $
            16,030
            
            
            $
            5,574
            
            
            $
            41,538Operating
                lease obligations
            
            
            235
            
            
            
            226
            
            
            
            223
            
            
            
            214
            
            
            
            183
            
            
            
            1,116
            
            
            
            2,197Total
                contractual obligations
            
            $
            6,728
            
            
            $
            2,431
            
            
            $
            9,786
            
            
            $
            1,887
            
            
            $
            16,213
            
            
            $
            6,691
            
            
            $
            43,736








D.  Results
      of Operations





i.
      Comparison of Operating Results for the Years Ended December 31, 2007 and
      December 31, 2006





Please
      refer to the Consolidated Financial Statements presented in PART II, Item 8,
      of
      this document.





Summary.  Net
      income for 2007 was $7.707 million.  This compares to $7.152 million
      in 2006, a $555 thousand or 7.8% increase year over year.  During
      2007, we recorded a $1.067 million increase in total non-interest income, a
      $660
      thousand reduction in the provision for loan losses and a $78 thousand reduction
      in income taxes.  These improvements were offset by a $425 thousand
      decrease in net interest income and an $825 thousand increase in total
      non-interest expense.  Earnings per share improved from $0.66 in 2006
      to $0.73 in 2007, a $0.07 or 10.6% improvement.





Throughout
      2007 we operated in a difficult interest rate environment.  The
      treasury yield curve was flat or inverted throughout most of 2007, conditions
      which reduced our ability to improve net interest income.  Although we
      increased our average earning asset base by $25.315 million or 3.6% between
      2006
      and 2007, and believe we managed our asset and liability portfolios effectively
      throughout 2007, net interest income decreased $425 thousand or 1.7% between
      2006 and 2007.  We recorded net interest income of $24.556 million in
      2007, as compared to $24.981 million in 2006.  Net interest margin
      (tax-equivalent) was 3.62% in 2007, versus 3.81% in 2006.





The
      provision for loan losses decreased between comparable years due to positive
      trends in most of our credit quality measures.  In particular, the
      level of delinquent loans, potential problem loans and net loan charge-offs
      decreased between comparable periods, while non-performing loans
      increased.  We recorded $900 thousand in the provision for loan losses
      during 2007, as compared to $1.560 million in 2006, a $660 thousand
      decrease.





Non-interest
      income increased from $5.969 million in 2006 to $7.036 million in 2007, a $1.067
      million or 17.9% increase.  The gain on life insurance coverage
      recorded due to the death of a senior executive contributed $615 thousand of
      the
      improvement, in addition to increases in trust fees, service charges on deposit
      accounts, net gain on sale of loans, bank-owned life cash surrender value income
      and other income.  Other income increased from $776 thousand in 2006
      to $1.310 million in 2007, a $534 thousand increase.  These
      improvements were offset, in part, by decreases in commission income, net
      investment securities gains and other service fees.  During 2007, we
      recorded a $352 thousand deferred gain on the sale of the Bank’s Norwich Town
      branch building and contents and $232 thousand in flood-recovery
      grants.





During
      2007, non-interest expense increased $825 thousand or 4.1%, from $20.032 million
      in 2006 to $20.857 million in 2007.  Most of the increase was due to
      an increase in our salaries and employee benefits totaling $554
      thousand.  During 2007, we increased our full-time equivalent
      employees by 26, from 255 at December 31, 2006 to 281 at December 31, 2007
      due
      to our expansion efforts and the acquisition of Provantage.  In
      addition, we provided merit based wage increases to most of our employees and
      increased commission and bonus payments to our sales force for increases in
      loan
      and deposit balances outstanding.





Net
      Interest
      Income.  Net interest income is our most significant source of
      revenue (net interest income plus non-interest income).  During 2007,
      net interest income comprised 78% of our total revenues.  The other
      22% was due to non-interest income.  This compares to 81% and 19%,
      respectively, for 2006.  The following Asset and Yield Summary
      Table, Interest Rate
      Table and Rate and
      Volume Table and the associated narrative provide detailed net interest
      income information and analysis that are important to understanding our results
      of operations.





39-K
 Index





The
      following table summarizes the total dollar amount of interest income from
      average earning assets and the resultant yields, as well as the interest expense
      and rate paid on average interest bearing liabilities.  The average
      balances presented are calculated using daily totals and averaging them for
      the
      period indicated.





Asset
      and
      Yield Summary Table:





For
                  the Years Ended December 31,2007
              
              
              2006
              
              
              2005Average
                Outstanding
                Balance
              
              
              Interest
                Earned
                /Paid
              
              
              Yield
                /
                Rate
              
              
              Average
                Outstanding
                Balance
              
              
              Interest
                Earned
                /Paid
              
              
              Yield
                /
                Rate
              
              
              Average
                Outstanding
                Balance
              
              
              Interest
                Earned
                /Paid
              
              
              Yield
                /
                  Rate(Dollars
                  in thousands)Earning
                  Assets:Federal
                  funds sold
              
              $
              19,026
              
              
              $
              952
              
              
              
              5.00
              %
              
              $
              11,548
              
              
              $
              596
              
              
              
              5.16
              %
              
              $
              8,110
              
              
              $
              270
              
              
              
              3.33
              %Interest-
                  bearing deposits
              
              
              6,676
              
              
              
              314
              
              
              
              4.70
              %
              
              
              2,446
              
              
              
              90
              
              
              
              3.68
              %
              
              
              9,006
              
              
              
              449
              
              
              
              4.99
              %Securities
                  (1)
              
              
              286,160
              
              
              
              12,592
              
              
              
              4.40
              %
              
              
              294,151
              
              
              
              12,312
              
              
              
              4.19
              %
              
              
              297,965
              
              
              
              11,908
              
              
              
              4.00
              %Loans
                  (2)
              
              
              423,798
              
              32,172
              
              
              
              7.59
              %
              
              
              402,200
              
              
              30,343
              
              
              
              7.54
              %
              
              
              398,616
              
              
              27,683
              
              
              
              6.94
              %Total
                  earning assets
              
              
              735,660
              
              
              
              46,030
              
              
              
              6.26
              %
              
              
              710,345
              
              
              
              43,341
              
              
              
              6.10
              %
              
              
              713,697
              
              
              
              40,310
              
              
              
              5.65
              %Non-earning
                  assets
              
              
              40,744
              
              
              
              
              
              
              
              
              
              
              
              41,650
              
              
              
              
              
              
              
              
              
              
              
              41,968Total
                  assets
              
              $
              776,404
              
              
              
              
              
              
              
              
              
              
              $
              751,995
              
              
              
              
              
              
              
              
              
              
              $
              755,665Liabilities:Savings
                  accounts
              
              $
              76,815
              
              
              $
              467
              
              
              
              0.61
              %
              
              $
              87,453
              
              
              $
              549
              
              
              
              0.63
              %
              
              $
              98,356
              
              
              $
              677
              
              
              
              0.69
              %Money
                  market accounts
              
              
              98,213
              
              
              
              3,741
              
              
              
              3.81
              %
              
              
              65,103
              
              
              
              2,408
              
              
              
              3.70
              %
              
              
              42,667
              
              
              
              1,145
              
              
              
              2.68
              %NOW
                  accounts
              
              
              77,316
              
              
              
              996
              
              
              
              1.29
              %
              
              
              89,845
              
              
              
              1,026
              
              
              
              1.14
              %
              
              
              112,042
              
              
              
              1,134
              
              
              
              1.01
              %Time
                  & other deposit accounts
              
              
              318,692
              
              
              
              13,756
              
              
              
              4.32
              %
              
              
              302,127
              
              
              
              11,805
              
              
              
              3.91
              %
              
              
              277,649
              
              
              
              8,984
              
              
              
              3.24
              %Borrowings
              
              
              63,146
              
              
              2,514
              
              
              
              3.98
              %
              
              
              67,908
              
              
              2,572
              
              
              
              3.79
              %
              
              
              83,255
              
              
              2,990
              
              
              
              3.59
              %Total
                  interest-bearing liabilities
              
              
              634,182
              
              
              
              21,474
              
              
              
              3.39
              %
              
              
              612,436
              
              
              
              18,360
              
              
              
              3.00
              %
              
              
              613,969
              
              
              
              14,930
              
              
              
              2.43
              %Non-interest
                  bearing deposits
              
              
              72,350
              
              
              
              
              
              
              
              
              
              
              
              71,792
              
              
              
              
              
              
              
              
              
              
              
              67,788Other
                  non-interest bearing liabilities
              
              
              4,758
              
              
              
              
              
              
              
              
              
              
              
              3,918
              
              
              
              
              
              
              
              
              
              
              
              5,958Total
                  liabilities
              
              
              711,290
              
              
              
              
              
              
              
              
              
              
              
              688,146
              
              
              
              
              
              
              
              
              
              
              
              687,715Shareholders'
                  equity
              
              
              65,114
              
              
              
              
              
              
              
              
              
              
              
              63,849
              
              
              
              
              
              
              
              
              
              
              
              67,950Total
                  liabilities and shareholders' equity
              
              $
              776,404
              
              
              
              
              
              
              
              
              
              
              $
              751,995
              
              
              
              
              
              
              
              
              
              
              $
              755,665Net
                  interest income
              
              
              
              
              
              $
              24,556
              
              
              
              
              
              
              
              
              
              
              $
              24,981
              
              
              
              
              
              
              
              
              
              
              $
              25,380Net
                  interest rate spread (3)
              
              
              
              
              
              
              
              
              
              
              2.87
              %
              
              
              
              
              
              
              
              
              
              
              3.10
              %
              
              
              
              
              
              
              
              
              
              
              3.22
              %Net
                  earning assets
              
              $
              101,478
              
              
              
              
              
              
              
              
              
              
              $
              97,909
              
              
              
              
              
              
              
              
              
              
              $
              99,728Net
                  interest margin (4)
              
              
              
              
              
              
              
              
              
              
              3.34
              %
              
              
              
              
              
              
              
              
              
              
              3.52
              %
              
              
              
              
              
              
              
              
              
              
              3.56
              %Net
                  interest margin (tax-equivalent)
              
              
              
              
              
              
              
              
              
              
              3.62
              %
              
              
              
              
              
              
              
              
              
              
              3.81
              %
              
              
              
              
              
              
              
              
              
              
              3.82
              %Ratio
                  of earning assets to interest-bearing liabilities
              
              
              116.00
              %
              
              
              
              
              
              
              
              
              
              
              115.99
              %
              
              
              
              
              
              
              
              
              
              
              116.24
              %




(1)
                Securities include trading, available-for-sale, held-to-maturity
                and other
                investments. They are shown at average amortized cost with net
                unrealized gains or losses on securities available-for-sale included
                as a
                component of non-earning assets.(2)
                Average loans include loans held for sale, net deferred loan fees
                and
                costs, non-accrual loans and excludes the allowance for loan
                losses.(3)
                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.





We
      recorded $24.556 million of net interest income during 2007.  This
      compares to $24.981 million of net interest income during 2006.  The
      $425 thousand or 1.7% decrease in net interest income between comparable periods
      was principally due to a significant increase in the cost of our interest
      bearing liabilities (principally deposit funding), offset, in part, by increases
      in interest income on earning assets (principally loans).





40-K
 Index








The
      level
      of our net interest income is dependent on several factors including, but not
      limited to: our ability to attract and retain deposits, our ability to generate
      and retain loans, regional and local economic conditions, regional competition,
      capital market conditions, the national interest rate environment, as well
      as
      our tolerance for risk.  Throughout 2006 and 2007, our net interest
      income was affected by all of these factors, the most significant of which
      has
      been the general persistence of a flat or inverted yield curve.  A
      flat to inverted interest rate environment generally diminishes our ability
      to
      maintain or improve net interest margin because a portion of our net interest
      margin has historically been derived from mismatching long-term earning assets
      with short-term interest bearing liabilities.





Between
      2006 and 2007, total interest and dividend income increased $2.689 million
      or
      6.2%, from $43.341 million during 2006 to $46.030 million during
      2007.  The weighted average yield on loans, investment securities and
      interest-bearing deposits at other banks increased between 2006 and
      2007.  During the first three quarters of 2007, maturing earning
      assets were generally replaced with new assets originated at higher rates of
      interest.  In addition, during the first three quarters of 2007 most
      variable rate earning assets reset at higher rates of interest due to an
      increase in the index interest rate between periodic re-pricing
      dates.  The average yield on federal funds sold decreased between 2006
      and 2007, due principally to a 100 basis point drop in the federal funds target
      rate during the last four months of 2007.





The
      average yield on loans, our largest earning asset portfolio, increased five
      basis points between 2006 and 2007, from 7.54% in 2006 to 7.59% in
      2007.  Although the prime rate remained unchanged at 8.25% throughout
      most of 2007, the average yield on our loans increased.  A significant
      portion of our variable rate loans are indexed to the prime rate or other market
      interest rate, but only reset on a pre-determined periodic basis such as the
      anniversary date of the loan.  This condition delays the impact
      interest rate changes have on our loan portfolio yield.  For this
      reason, the prime rate increases experienced in the first two quarters of 2006
      did not fully impact loan yields until subsequent quarters.  The
      increase in loan yields, coupled with an increase in the average volume of
      loans
      outstanding between comparable periods, resulted in a $1.829 million increase
      in
      interest income on loans.  Interest income on loans totaled $32.172
      million in 2007, as compared to $30.343 million in 2006.  The average
      loans outstanding increased from $402.200 million in 2006 to $423.798 million
      in
      2007.  The average yield on loans began to decline during the fourth
      quarter of 2007, as the prime interest rate decreased 100 basis points between
      September 18, 2007 and December 11, 2007.  The prime rate at December
      11, 2007 decreased to 7.25%.  This compares to 8.25% on September 18,
      2007.





The
      average yield on the securities portfolio increased 21 basis points between
      2006
      and 2007, from 4.19% in 2006 to 4.40% in 2007.  During 2007, the
      proceeds of maturing, sold, or called investment securities were reinvested
      in
      higher yield instruments.  Although this activity helped improve
      interest income between comparable years, it was offset, in part, by a reduction
      in the average volume of securities we maintained in our investment
      portfolio.  Between 2006 and 2007, we maintained an increased level of
      federal funds sold and interest-bearing deposits (at other banks) to help manage
      interest rate and liquidity risk and were successful in increasing average
      loans
      outstanding.  The 21 basis point increase in the average yield on the
      investment securities portfolio, offset by a reduction in the average
      outstanding balance of the portfolio, resulted in a net increase in interest
      income on securities of $280 thousand between 2006 and 2007.  Interest
      income on securities increased from $12.312 million in 2006 to $12.592 million
      in 2007.





To
      manage
      interest rate risk and liquidity risk, we increased our average outstanding
      balance in federal funds sold and interest-bearing deposits (at other banks)
      between 2006 and 2007.  In particular, the average volume of federal
      funds sold increased $7.478 million, from $11.548 million in 2006 to $19.026
      million in 2007.  The average yield on the federal funds sold
      portfolio decreased 16 basis points between comparable periods due principally
      to a 100 basis point decrease in the target federal funds rate during the fourth
      quarter of 2007.  The increase in the volume of federal funds sold,
      offset, in part by a decrease in the yield on federal funds sold resulted in
      a
      $356 thousand improvement in interest income on federal funds sold between
      2006
      and 2007.  Interest income recorded on federal funds sold during 2007
      was $952 thousand, as compared to $596 thousand during 2006.





We
      recorded $314 thousand of interest income on interest-bearing deposits during
      2007, as compared to $90 thousand during 2006, a $224 thousand
      increase.  We increased the volume of interest-bearing deposits
      between comparable periods to mitigate interest rate risk and liquidity
      risk.  In addition, the yield on this portfolio increased from 3.68%
      during 2006 to 4.70% during 2007 due to higher market interest
      rates.





Interest
      expense increased $3.114 million, or 17.0%, between 2006 and 2007.  We
      recorded total interest expense of $21.474 million in 2007, as compared to
      $18.360 million during 2006.  The increase in interest expense between
      the periods was due to two primary factors.  First, between comparable
      periods, a significant portion of the certificate of deposit portfolio
      matured.  These funds, along with funds from new depositors, were
      often reinvested in new certificates of deposit, generally at higher rates
      of
      interest.  This increased interest expense on time and other deposit
      accounts from $11.805 million 2006 to $13.756 million in 2007, a $1.951 million
      or 16.5% increase.  Second, we recorded $3.741 million of interest
      expense on our money market deposit accounts during 2007.  This
      compares to $2.408 million during 2006, a





41-K
 Index





$1.333
      million or 55.4% increase between the periods.  Throughout 2006 and
      2007 we offered and promoted to customers our Wealth Management money market
      deposit account.  The account provided depositors with a 4.0% interest
      rate throughout 2006 and most of 2007.  It was offered to remain
      competitive with other financial institutions in our market.  As
      expected, our existing deposit customers and new deposit customers transferred
      their funds into this account, raising the average balance in our money market
      deposit accounts from $65.103 million in 2006 to $98.213 million in 2007, a
      $33.110 million or 50.9% increase.





At
      December 31, 2007, the Treasury yield curve was modestly sloped with a slight
      inversion in the 2-year and 3-year maturity timeframe.  The 90-day
      Treasury bill, the 3-year Treasury note and the 10-year Treasury note were
      yielding 3.25%, 2.81% and 3.90%, respectively.  This interest rate
      environment inhibits our ability to earn net interest income, since we typically
      earn a portion of our net interest income by procuring short-term to mid-term
      deposits and borrowings and investing those proceeds in longer term loans and
      investments.  This practice, which is sometimes referred to as
      mismatching assets and liabilities, typically allows banks to enhance their
      interest spread, which generates net interest income.





Since
      December 31, 2007, the Federal Open Market Committee decreased the target
      federal funds rate an additional 125 basis points to 3.00%.  This
      prompted banks, including us, to correspondingly lower their prime rate of
      interest to 6.00%.  In addition, the Treasury yield curve generally
      decreased 50 to 120 basis points due to concerns about general weakness in
      the
      national economy.  This interest environment will continue to make it
      difficult for us to improve net interest spread for several quarters
      prospectively since much of our loan portfolio is indexed to the prime rate
      and
      our federal funds sold position generally exceeds $20.000 million.





Comparative
      Interest Rate Table:





2007
            2006Interest
                Rates (1)
            
            December
            
            
            September
            
            
            June
            
            
            March
            
            
            December
            
            
            September
            
            
            June
            
            
            MarchTarget
                Federal Funds Rate
            
            
            4.25
            %
            
            
            4.75
            %
            
            
            5.25
            %
            
            
            5.25
            %
            
            
            5.25
            %
            
            
            5.25
            %
            
            
            5.25
            %
            
            
            4.75
            %NYC
                Prime
            
            
            7.25
            %
            
            
            7.75
            %
            
            
            8.25
            %
            
            
            8.25
            %
            
            
            8.25
            %
            
            
            8.25
            %
            
            
            8.25
            %
            
            
            7.75
            %90
                Day Treasury Bill
            
            
            3.25
            %
            
            
            3.79
            %
            
            
            4.94
            %
            
            
            5.04
            %
            
            
            5.05
            %
            
            
            4.89
            %
            
            
            5.06
            %
            
            
            4.64
            %6
                Month Treasury Bill
            
            
            3.31
            %
            
            
            4.06
            %
            
            
            4.95
            %
            
            
            5.05
            %
            
            
            5.06
            %
            
            
            5.01
            %
            
            
            5.26
            %
            
            
            4.82
            %1
                Year Treasury Note
            
            
            3.42
            %
            
            
            4.11
            %
            
            
            4.94
            %
            
            
            4.93
            %
            
            
            4.96
            %
            
            
            4.97
            %
            
            
            5.27
            %
            
            
            4.77
            %2
                Year Treasury Note
            
            
            2.86
            %
            
            
            3.99
            %
            
            
            4.88
            %
            
            
            4.58
            %
            
            
            4.79
            %
            
            
            4.69
            %
            
            
            5.17
            %
            
            
            4.79
            %3
                Year Treasury Note
            
            
            2.81
            %
            
            
            4.04
            %
            
            
            4.89
            %
            
            
            4.50
            %
            
            
            4.71
            %
            
            
            4.58
            %
            
            
            5.14
            %
            
            
            4.78
            %5
                Year Treasury Note
            
            
            3.27
            %
            
            
            4.26
            %
            
            
            4.93
            %
            
            
            4.50
            %
            
            
            4.68
            %
            
            
            4.55
            %
            
            
            5.11
            %
            
            
            4.77
            %10
                Year Treasury Note
            
            
            3.90
            %
            
            
            4.61
            %
            
            
            5.04
            %
            
            
            4.61
            %
            
            
            4.68
            %
            
            
            4.58
            %
            
            
            5.15
            %
            
            
            4.78
            %Federal
                Housing Finance Board National Avg. Mortgage Contract Rate
                (2)
            
            
            6.35
            %
            
            
            6.73
            %
            
            
            6.37
            %
            
            
            6.40
            %
            
            
            6.45
            %
            
            
            6.75
            %
            
            
            6.61
            %
            
            
            6.31
            %




(1)
                The yields and interest rates presented in this table are provided
                to us
                by a third party vendor on a bi-weekly basis. The interest rates
                provided in the table were obtained from the report nearest to the
                month-end.
              
              (2)
                  The Federal Housing Finance Board national average mortgage contract
                  rate
                  is presented with a one-month
                  lag.





Rate
      and
      Volume Analysis





The
      following table presents changes in interest income and interest expense
      attributable to changes in volume (change in average balance multiplied by
      prior
      year rate), changes in rate (change in rate multiplied by prior year volume),
      and the net change in net interest income.  The net change
      attributable to the combined impact of volume and rate has been allocated to
      each in proportion to the absolute dollar amount of change.  The table
      has not been adjusted for tax-exempt interest.








42-K
 Index





Rate
      and
      Volume Table:





Year
                Ended December 31,2007
                vs. 2006
            
            
            2006
                vs. 2005Rate
            
            
            Volume
            
            
            Total
            
            
            Rate
            
            
            Volume
            
            
            Total(In
                thousands)Earning
                assets:Federal
                funds sold
            
            $
            (19
            )
            
            $
            375
            
            
            $
            356
            
            
            $
            184
            
            
            $
            142
            
            
            $
            326Interest-bearing
                deposits
            
            
            31
            
            
            
            193
            
            
            
            224
            
            
            
            (94
            )
            
            
            (265
            )
            
            
            (359
            )Securities
            
            
            620
            
            
            
            (340
            )
            
            
            280
            
            
            
            557
            
            
            
            (153
            )
            
            
            404Loans
            
            
            191
            
            
            
            1,638
            
            
            
            1,829
            
            
            
            2,409
            
            
            
            251
            
            
            
            2,660Total
                earning assets
            
            
            823
            
            
            
            1,866
            
            
            
            2,689
            
            
            
            3,056
            
            
            
            (25
            )
            
            
            3,031Interest
                bearing liabilities:Savings
                accounts
            
            
            (17
            )
            
            
            (65
            )
            
            
            (82
            )
            
            
            (56
            )
            
            
            (71
            )
            
            
            (127
            )Money
                market accounts
            
            
            74
            
            
            
            1,259
            
            
            
            1,333
            
            
            
            526
            
            
            
            736
            
            
            
            1,262NOW
                accounts
            
            
            124
            
            
            
            (154
            )
            
            
            (30
            )
            
            
            134
            
            
            
            (242
            )
            
            
            (108
            )Time
                & other deposit accounts
            
            
            1,192
            
            
            
            759
            
            
            
            1,951
            
            
            
            1,911
            
            
            
            910
            
            
            
            2,821Borrowings
            
            
            127
            
            
            
            (185
            )
            
            
            (58
            )
            
            
            156
            
            
            
            (574
            )
            
            
            (418
            )Total
                interest bearing liabilities
            
            
            1,500
            
            
            
            1,614
            
            
            
            3,114
            
            
            
            2,671
            
            
            
            759
            
            
            
            3,430Change
                in net interest income
            
            $
            (677
            )
            
            $
            252
            
            
            $
            (425
            )
            
            $
            385
            
            
            $
            (784
            )
            
            $
            (399
            )





Rate
      and Volume
      Analysis:The purpose of a rate volume analysis is to identify
      the dollar amount of change in net interest income due to changes in interest
      rates versus changes in the volume of earning assets and interest bearing
      liabilities.





Interest
      income increased $2.689 million between the 2006 and 2007, due to both a net
      increase in the rate and volume of earning assets.  The yield on
      interest-bearing deposits, securities and loans all increased between 2006
      and
      2007, while the yield on federal funds sold decreased.  Similarly, the
      volume of federal funds sold, interest-bearing deposits and loans increased
      between comparable periods, while the average volume of investment securities
      decreased.  On a combined basis, the rate improvement on earning
      assets contributed an additional $823 thousand of interest income between
      comparable years, while the net increase in the volume of earning assets
      contributed $1.866 million of additional interest income.





Of
      the
      $2.689 million increase in interest income between 2006 and 2007, $1.829 million
      or 68.0% of the total increase was due to an increase in interest income on
      loans.  Between comparable periods, the average volume of loans
      outstanding increased $21.598 million, due principally to loan growth in our
      newer markets.  The growth in the volume of loans between comparable
      years contributed $1.638 million of the $1.829 million improvement in interest
      income on loans.  In addition, between the comparable periods,
      existing variable rate loans generally re-priced at higher rates of interest,
      helping to increase the yield on loans by 5 basis points from 7.54% in 2006
      to
      7.59% in 2007.  The increase in the rate on loans between comparable
      periods contributed $191 thousand of the $1.829 million increase in interest
      income on loans between comparable periods.





Due
      to
      the increasing interest rate risk associated with building the loan portfolio,
      particularly longer term fixed-rate loans, an increase in the volatility of
      deposit funding, and the persistence of a flat or inverted yield curve
      throughout most of 2007, we increased our average outstanding balance in federal
      funds sold between comparable years.  During 2007, we maintained an
      average federal funds sold position of $19.026 million.  This compares
      to $11.548 million in 2006.  The increase in the volume of federal
      funds sold between 2006 and 2007 contributed additional interest income totaling
      $375 thousand.  During the fourth quarter of 2007, the average yield
      on federal funds dropped significantly as the Federal Open Market Committee
      dropped the target federal funds rate to provide stimulus to the national
      economy.  The action of the Federal Open Market Committee helped drive
      down our average yield on federal funds sold to 5.00% for 2007.  This
      compares to 5.16% in 2006, a 16 basis point decrease.  The decrease in
      the average yield on federal funds reduced interest income $19 thousand between
      comparable periods.





Interest
      income on the securities portfolio increased $280 thousand between 2006 and
      2007.  To help fund loan growth, an increased federal funds sold
      position, and a higher interest-bearing deposits position, we reduced the size
      of our investment securities portfolio between comparable
      periods.  During 2006, the average outstanding balance of the
      investment securities portfolio was $294.151 million.  This compares
      to $286.160 million during 2007, a $7.991 million or





43-K
 Index





2.7%
      decrease.  The decrease in the average outstanding balance of
      investment securities between periods negatively impacted interest income by
      $340 thousand.  This was offset, however, by an increase in interest
      income on securities due to rate totaling $620 thousand.





The
      $2.689 million increase in interest income between 2006 and 2007 was negated
      by
      a $3.114 million increase in the cost of interest-bearing liabilities, $1.500
      million of which was due to the increase in rate and $1.614 million of which
      was
      due to the increase in the volume of interest-bearing
      liabilities.  The interest expense recorded on our most
      interest-sensitive liabilities, including time and other deposit accounts and
      money market accounts, increased due to both an increase in volume and an
      increase in rate.





Interest
      expense on time and other deposit accounts increased $1.951 million between
      2006
      and 2007.  Between comparable years, we raised the interest rates paid
      on certificates of deposit.  This was done to remain competitive with
      local bank competition and to match market increases in short-term interest
      rates, particularly for jumbo certificates of deposit (over
      $100,000).  This action increased the cost of time and other deposit
      accounts, resulting in a $1.192 million increase in interest expense due to
      rate.  The remaining increase in interest expense on time and other
      deposit accounts between the periods, totaling $759 thousand, was due to an
      increase in volume as depositors transferred their monies from low-rate
      interest-bearing deposit or demand deposit accounts to higher-yield certificates
      of deposit.





As
      short-term interest rates increased during the first half of 2006, we raised
      the
      interest rate to 4.0% on all tiers of our Wealth Management money market deposit
      account.  Although we believe this helped us retain existing
      depositors’ funds and attract new depositors, it caused a significant increase
      in interest expense on money market accounts.  Interest expense on
      money market deposit accounts increased $1.333 million between 2006 and
      2007.  The average rate paid on our money market deposit accounts
      increased from 3.70% for 2006 to 3.81% for 2007, while the average outstanding
      volume of money market deposit accounts increased from $65.103 million to
      $98.213 million over the same periods.  Of the $1.333 million increase
      in interest expense on money market deposit accounts, $1.259 million was due
      to
      an increase in volume and $74 thousand was due to an increase in
      rate.





During
      the first nine months of 2006, there was a general rise in short-term interest
      rates.  This caused some of our customers with NOW account deposits to
      either move their monies to another institution or transfer their NOW account
      funds to a less liquid, higher-rate deposit account.  This decreased
      the average volume of NOW accounts between the periods from $89.845 million
      in
      2006 to $77.316 million in 2007.  The decrease in the average volume
      of NOW account deposits reduced interest expense $154 thousand between
      comparable periods.  This improvement was offset, in part, by a $124
      thousand increase in interest expense on NOW account deposits due to a 15 basis
      point increase in the average rate paid between the periods.





The
      weighted average rate paid on savings accounts was 0.61% for 2007, as compared
      to 0.63% for 2006.  The low interest rate being offered on savings
      accounts caused depositors to reduce their savings deposits and decreased the
      average volume of savings deposits between the periods.  The interest
      expense recorded on savings accounts due to changes in volume decreased $65
      thousand between 2006 and 2007.  The 2 basis point drop in the average
      rate paid on savings accounts between the periods further reduced interest
      expense $17 thousand between 2006 and 2007.





The
      interest expense on borrowings decreased $58 thousand between 2006 and
      2007.  Between comparable periods, lower-cost borrowings were replaced
      by higher-cost borrowings as they matured.  This increased borrowing
      costs from 3.79% in 2006 to 3.98% in 2007, causing a $127 thousand increase
      in
      interest expense on borrowings due to rate.  Due to the increased
      borrowing rates and the flat to inverted yield curve throughout the comparable
      periods, we reduced average borrowings.  Specifically, average
      outstanding borrowings decreased from $67.908 million in 2006 to $63.146 million
      in 2007.  The decrease in the average outstanding balance of borrowed
      funds reduced interest expense on borrowings due to volume by $185 thousand
      between comparable years.





Provision
      for Loan
      Losses.We recorded $900 thousand in the provision for loan
      losses during 2007.  This compares to $1.560 million for
      2006.  The $660 thousand or 42.3% decrease in the provision for loan
      losses between comparable periods was principally caused by a reduction in
      potential problem loans, delinquent loans, and net charge-offs, offset, in
      part,
      by an increase in non-performing loans.  At December 31, 2006 we had
      identified $14.538 million in potential problem loans.  By comparison,
      at December 31, 2007, potential problem loans totaled $7.870 million, a $6.668
      million or 45.9% decrease.  Net charge-offs for 2007 were $603
      thousand, as compared to $1.520 million for 2006.  Loans 30 to 89 days
      delinquent decreased from $6.070 million at December 31, 2006 to $3.941 million
      at December 31, 2007.  Non-performing loans totaled $2.529 million at
      December 31, 2006 as compared to $6.136 million at December 31, 2007, a $3.607
      million increase between the periods.





Non-Interest
      Income.Non-interest income is comprised of trust fees,
      service charges on deposit accounts, commission income, net investment security
      gains, net gain on sale of loans, income and gains on bank-owned life insurance,
      other





44-K
 Index





service
      fees, and other income.  Non-interest income improved significantly
      between 2006 and 2007.  In particular, total non-interest income
      increased from $5.969 million in 2006 to $7.036 million in 2007, a $1.067
      million or 17.9% increase.  The significant increase in non-interest
      income between 2006 and 2007 principally due to three unusual events: (i) a
      $615
      thousand gain on life insurance coverage due to the death of a senior executive
      of the Company; (ii) the recording of New York State flood-grant proceeds during
      2007 totaling $232 thousand; and (iii) the recognition of a $352 thousand
      deferred gain on the sale of our Norwich Town branch building and related
      equipment to the site’s landowner.  In addition, between comparable
      periods we recorded increases in trust fees, service charges on deposit
      accounts, net gain on sale of loans, and bank-owned life insurance income
      totaling $512 thousand.  These improvements were offset, in part, by
      decreases in commission income, investment security gains (net), and other
      service fees totaling $594 thousand.





Trust
      fees increased $56 thousand or 3.5% between 2006 and 2007.  During
      2007, we recorded $1.641 million in trust fees as compared to $1.585 million
      in
      2006.  During 2007, we recorded account termination and executor fees
      totaling $296 thousand.  By comparison, during 2006 we recorded
      account termination and executor fees totaling $228 thousand, a $68 thousand
      increase between the years.  Trust fees recorded for routine account
      administration, custodial services and investment management (excluding account
      termination and executor fees) decreased $12 thousand between the periods,
      from
      $1.357 million in 2006 to $1.345 million in 2007.





During
      2007 we recorded $1.891 million of service charges on deposit
      accounts.  This compares to $1.659 million in service charges on
      deposit accounts during 2006, a $232 thousand or 14.0% increase.  The
      net increase in service charges on deposit accounts was primarily due to an
      increase in penalty charges on checking accounts.  During the first
      quarter of 2007 we began offering our courtesy overdraft service to more of
      our
      checking account customers, causing an increase in the product’s usage and
      improving deposit service fees.  Penalty charges on checking accounts
      increased $215 thousand between 2006 and 2007, from $824 thousand during 2006
      to
      $1.039 million during 2007.





Our
      commission income is generated from the Bank’s insurance agency subsidiary,
      Mang–Wilber LLC.  During 2007, we recorded commission income totaling
      $476 thousand.  This compares to $487 thousand in commission income
      during 2006, an $11 thousand or 2.3% decrease.  Mang–Wilber, LLC owns
      two-thirds of a specialty-lines property and casualty agency located in Clifton
      Park, New York (Saratoga County).  This agency did not perform well in
      2007, as compared to 2006, and was largely responsible for the decrease in
      commission income period over period.





During
      2007, we recorded net investment security gains totaling $80 thousand, $64
      thousand of which was due to an increase in the value of our trading securities
      portfolio and $16 thousand of which was attributable to gains on the sale of
      available-for-sale investment securities.  Our trading securities
      portfolio consists of equity and debt securities held by the Company’s executive
      deferred compensation plan.  By comparison, during 2006 we recorded
      $514 thousand in net investment security gains, a $434 thousand decrease period
      over period.  During 2006, we received proceeds from the sale and
      maturity of available-for-sale investment securities totaling $48.479 million,
      which generated $326 thousand in net gains during the period.  During
      that same period, our trading securities generated net gains of $188
      thousand.





During
      the first quarter of 2007 we acquired Provantage, a New York State licensed
      mortgage banker, to gain a foothold in the New York State Capital District
      market and provide additional residential mortgage options to our
      borrowers.  Provantage sells a significant portion of its originated
      loans to third party financial institutions in the normal course of its
      business.  During 2007, we recorded a $196 thousand net gain on the
      sale of these loans.  This compares to no loans sold during
      2006.





During
      2007, we recorded a $606 thousand increase in the cash surrender value of
      bank-owned life insurance.  This compares to $578 thousand during
      2006, a $28 thousand or 4.8% increase.  Between comparable periods,
      our insurance carriers raised their net crediting rates on bank-owned life
      insurance contracts.





Other
      service fees are comprised of numerous types of fee income including merchant
      credit card processing fees, commissions on residential mortgages, official
      check and check cashing fees, travelers’ check sales, wire transfer fees, letter
      of credit fees, U.S. government bond sales, certificate of deposit account
      registry service fees, and other miscellaneous service charges and
      fees.  Other service fees decreased $149 thousand or 40.3% between
      2006 and 2007.  The decrease in other service fees between the periods
      was principally due to the decrease in residential mortgage
      commissions.  During 2006, we originated residential mortgages as an
      agent for a large regional bank based in the Southeast.  In the first
      quarter of 2007, we acquired Provantage and terminated our agency relationship
      with the large regional bank.  This reduced residential mortgage
      commissions from $153 thousand in 2006 to $19 thousand in 2007, a $134 thousand
      decrease.





Other
      income is comprised of numerous types of fee income including investment
      services income, lease income, safe deposit box income, gain on sale of fixed
      assets, title insurance agency income, and income from the rental of foreclosed
      real estate.  Other income increased from $776 thousand in 2006 to
      $1.310 million in 2007, a $534 thousand or 68.8%





45-K
 Index





increase.  In
      the first quarter of 2007, we recorded a $352 thousand deferred gain on the
      sale
      of our Norwich Town branch building and related equipment to the site’s
      landowner.  There were no similar transactions recorded in
      2006.  In addition, during 2007, we received $232 thousand in flood
      grant proceeds from New York State.  These grants were provided to
      assist us with our flood recovery efforts due to a regional flood in
      2006.





Non-Interest
      Expense.Non-interest
      expense is comprised of salaries, employee benefits, occupancy expense,
      furniture and equipment expense, computer service fees, advertising and
      marketing expense, professional fees, and other miscellaneous
      expenses.  Non-interest expense increased $825 thousand or 4.1%
      between 2006 an 2007, from $20.032 million in 2006 to $20.857 million in
      2007.  Increases in salaries, employee benefits, furniture and
      equipment expense, advertising and marketing, professional fees and other
      miscellaneous expenses totaling $928 thousand, were offset, in part, by a modest
      decrease in occupancy expense and computer service fees totaling $103
      thousand.





Salaries
      expense increased $454 thousand or 4.9% between 2006 and 2007, from $9.369
      million in 2006 to $9.823 million in 2007.  The increase between
      comparable periods was due to a $429 thousand increase in base salaries and
      overtime (less deferred amounts), a $186 thousand increase in commission and
      incentive payments and a $161 thousand decrease in deferred compensation
      expenses.  During the first quarter of 2007, we acquired Provantage
      and provided general merit-related pay raises to our employees.  Our
      full-time equivalent employee base also increased from 255 at December 31,
      2006
      to 281 at December 31, 2007.  Due to these factors, we recorded a $429
      thousand increase in base salaries and overtime in 2007. During 2006 and 2007,
      we had in place various commission and incentive plans for our sales and support
      staff to grow our loan and deposit portfolios and improve the Company’s net
      income.   During 2007, we recorded $588 thousand in salaries
      expense due to these commission and incentive plans, as compared to $402
      thousand in 2006, a $186 thousand or 46.3% increase.  And finally, the
      salaries expense related to the Company’s executive deferred compensation plan
      decreased $161 thousand between 2006 and 2007, from $188 thousand in 2006 to
      $27
      thousand in 2007 due principally to weaker performance of the investments held
      for the benefit of the Company’s deferred compensation accounts.





Employee
      benefits expense increased modestly between 2006 and 2007.  We
      recorded employee benefits expense of $2.672 million in 2007, as compared to
      $2.572 million in 2006, a $100 thousand or 3.9% increase.  During
      2006, we recorded $263 thousand of expense associated with the Bank’s defined
      benefit retirement plan.  In February 2006, we froze the plan’s
      benefits.  In addition, the plan’s assets have performed well in
      recent years.  Due to these factors, we recorded a $159 thousand
      credit on the defined benefit retirement plan during 2007, reducing employee
      benefits expense by $421 thousand.  This reduction in benefits expense
      was offset by a significant increase in employee health insurance costs totaling
      $290 thousand, a $94 thousand increase in F.I.C.A. expense and a $145 thousand
      increase in other benefits.  During 2007 we experienced a significant
      increase in claims on the Bank’s partially self-insured health plan and assumed
      the costs associated with the Provantage health insurance plan resulting in
      a
      $290 thousand increase in total health insurance expense between comparable
      periods.  F.I.C.A. expense increased $94 thousand between 2006 and
      2007 due to increases in salaries expense.  And finally, other
      benefits expense increased $145 thousand between 2006 and 2007, due principally
      to an increase in the liability associated with the Bank’s supplemental
      executive retirement plan for two retired executives.





During
      2007, we recorded $1.769 million in occupancy expense for the Company’s
      premises.  This compares to $1.840 million during 2006, a $71 thousand
      or 3.9% decrease.  In the third quarter of 2006, we incurred
      significant occupancy expenses due to business resumption costs associated
      with
      restoring banking services after our market area was severely impacted by
      regional flooding.  In particular, during the third quarter of 2006 we
      leased “bank in the box” trailers to restore banking services at our Sidney, NY
      and Walton, NY locations.  In addition to incurring the costs
      associated with establishing and leasing these temporary banking facilities,
      we
      also incurred significant costs related to cleaning and dehumidifying our
      offices directly affected by flooding.  Similar expenses were not
      incurred in 2007.





During
      2007 we recorded furniture and equipment expense totaling $927 thousand, as
      compared to $793 thousand during 2006, a $134 thousand or 16.9%
      increase.  Between comparable periods we recorded a $110 thousand
      increase in depreciation expense on furniture and equipment, due principally
      to
      increased technology demands and related computer equipment
      purchases.





Computer
      service fees decreased $32 thousand or 4.0% between 2006 and 2007, from $807
      thousand in 2006 to $775 thousand in 2007.  Between the comparable
      periods, we engaged a new ATM network provider and successfully reduced ATM
      vendor fees by $48 thousand.  This decrease was offset, in part, by a
      $16 thousand net increase in various other components of computer service
      fees.





Advertising
      and marketing expenses increased significantly between 2006 and
      2007.  In particular, advertising and marketing expenses increased
      from $506 thousand in 2006 to $625 thousand in 2007, a $119 thousand or 23.5%
      increase.  During the fourth quarter of 2006, we engaged an
      advertising and marketing firm to assist us in improving the





46-K
 Index





Company’s
      brand image.  The increase in marketing fees between 2006 and 2007 was
      due, in part, to the costs associated with this project, as well as increased
      radio, newspaper and television advertising placements to support our
      Company-wide sales efforts.





Professional
      fees increased from $892 thousand in 2006 to $976 thousand in 2007, an $84
      thousand or 9.4% increase.  In 2007 we hired recruiting firms to
      assist us in hiring professionals for certain key administrative and sales
      positions with the Company.  The fees related to these endeavors
      totaled $44 thousand.  Similar expenses were not incurred during
      2006.  In addition, during 2007 we incurred a $40 thousand increase in
      fees paid to investment banking firms, attorneys and consultants to support
      our
      bank and branch acquisition and expansion efforts.





Other
      miscellaneous expenses include directors’ fees, fidelity insurance, the Bank’s
      OCC assessment, FDIC premiums and assessments, bad debt collection expenses,
      correspondent bank services, service expenses related to the Bank’s accounts
      receivable financing services, charitable donations and customer relations,
      other losses, dues and memberships, office supplies, postage and shipping,
      subscriptions, telephone expense, employee travel and entertainment, software
      amortization, intangible asset amortization expense, OREO expenses, minority
      interest expense, stock exchange listing fees, and several other miscellaneous
      expenses.  During 2007 other miscellaneous expenses increased $37
      thousand or 1.1%, from $3.253 million in 2006 to $3.290 million in
      2007.  The following table itemizes individual components of other
      miscellaneous expenses that increased (or decreased) significantly between
      comparable periods:





Table
      of
      Other Miscellaneous Expenses:





YearDescription
                of Other Miscellaneous Expense
            
            2007
            
            
            2006
            
            
            Increase
                /
              (Decrease)dollars
                in thousandsDonations
            
            $
            144
            
            
            $
            106
            
            
            $
            38Office
                supplies
            
            
            337
            
            
            
            290
            
            
            
            47Postage
                and shipping
            
            
            278
            
            
            
            234
            
            
            
            44Deferred
                reserves for unfunded loan commitments
            
            
            43
            
            
            
            (24
            )
            
            
            67Software
                amortization
            
            
            180
            
            
            
            217
            
            
            
            (37
            )Other
                losses
            
            
            88
            
            
            
            18
            
            
            
            70Net
                loss on disposal / impairment of fixed assets
            
            
            0
            
            
            
            362
            
            
            
            (362
            )Intangible
                asset amortization expense
            
            
            129
            
            
            
            179
            
            
            
            (50
            )All
                other miscellaneous expense items, net
            
            
            2,091
            
            
            
            1,871
            
            
            
            220Total
                Other Miscellaneous Expense
            
            $
            3,290
            
            
            $
            3,253
            
            
            $
            37





Most
      of
      the amount recorded in the net loss on the disposal / impairment of fixed assets
      in 2006 was due to flood related property and equipment losses.





Income
      Taxes.Income tax
      expense decreased from $2.206 million during 2006 to $2.128 million during
      2007.  Although income before taxes increased from $9.358 million in
      2006 to $9.835 million in 2007, income taxes decreased because a greater
      proportion of income before taxes was derived from non-taxable sources in 2007,
      as compared to 2006.  In particular, during the 2007, we recorded a
      $615 thousand gain on life insurance coverage due to the death of a senior
      executive.  Life insurance policy death benefits are
      non-taxable.  Our effective tax rate decreased from 23.6% in 2006 to
      21.6% in 2007, due to the increase in non-taxable revenue between the
      periods.





ii.
      Comparison of Operating Results for the Years Ended December 31, 2006 and
      December 31, 2005





Please
      refer to the Consolidated Financial Statements presented in PART II, Item 8,
      of
      this document.





Summary.Net
      income for 2006 was $7.152 million.  This was $592 thousand or 7.6%
      less than 2005 net income of $7.744 million.  Earnings per share were
      $0.66 in 2006, as compared to $0.69 in 2005, a $0.03 decrease between the
      periods.  Our return on average assets declined from 1.02% in 2005 to
      0.95% in 2006.  Similarly, our return on average shareholders’ equity
      also declined from 11.40% in 2005 to 11.20% in 2006. A decrease in net interest
      income and an increase in non-interest expense were partially offset by a slight
      decrease in the provision for loan losses, an increase in non-interest income
      and a decrease in income taxes between the periods.





47-K
 Index





Throughout
      2006 the yield curve was flat or inverted.  This poor interest rate
      climate made it difficult for us to increase net interest income, particularly
      when earning assets were not growing significantly.  Like most
      community banks, our bank earns some portion of its income by mismatching
      short-term liabilities with longer term earning assets.  Our net
      interest income decreased $399 thousand or 1.6%, from $25.380 million in 2005
      to
      $24.981 million in 2006.  During 2006, the yield on our loan portfolio
      increased significantly as our variable rate loans repriced at higher interest
      rates due to increases in short-term interest rates during the first-half of
      the
      year.  The increase in loan yields was offset by significant increases
      in interest expense on time and other deposit accounts and money market
      accounts.  The increase in short-term interest rates drove-up the cost
      of time accounts, particularly certificates of deposit, and caused a shift
      of
      non-maturity deposit balances from low-cost savings and NOW accounts to
      higher-cost money market accounts.   Between 2005 and 2006,
      interest income on loans increased $2.660 million, while the interest expense
      on
      money market and time and other deposit accounts increased $4.083
      million.





During
      2006 non-interest expense increased significantly.  We incurred
      $18.966 million of non-interest expense in 2005, as compared to $20.032 million
      in 2006, a $1.066 million or 5.6% increase.  During the second quarter
      of 2006 our market area was affected by a regional flood, which substantially
      damaged two of our branch offices, namely our Sidney, New York and Walton,
      New
      York branch offices.  The damages, related clean-up and recovery
      charges caused us to record approximately $600 thousand of unanticipated
      non-interest expense.





Salaries
      expense increased from $9.040 million in 2005 to $9.369 million in 2006, a
      $329
      thousand or 3.6% increase.  In 2006 we raised employee salaries and
      commission payments for additional responsibilities and
      performance.  We also increased staff to meet our regulatory
      compliance obligations and satisfy our expansion efforts.





Professional
      fees also increased significantly between the periods, from $709 thousand in
      2005 to $892 thousand in 2006, a $183 thousand or 25.8% increase.  The
      Company’s common stock self-tender offer in the second quarter of 2006 and the
      outsourcing of our internal audit function were the primary contributors to
      the
      increase.





The
      negative impact of a poor interest rate environment, the regional flood and
      the
      increase in salaries expense, was partially mitigated by an increase in
      non-interest income.  Non-interest income increased from $5.625
      million in 2005 to $5.969 million in 2006, a $344 thousand or 6.1%
      increase.  The increase was attributable to several factors, including
      a $113 thousand increase in trust fees and a $222 thousand increase in other
      income between the periods.





The
      decrease in income before tax between 2005 and 2006 reduced income tax
      expense.  We recorded $2.715 million of income taxes in 2005, versus
      $2.206 million in 2006, a $509 thousand or 18.7% decrease.





Net
      Interest
      Income.  Net interest income is our most significant source of
      net revenue (net interest income plus non-interest income).  During
      2006, net interest income comprised 81% of our total revenues.  The
      other 19% was due to non-interest income.  This compares to 82% and
      18%, respectively, for 2005.  The Asset and Yield Summary
      Table, Interest Rate
      Table and Rate and
      Volume Table provided in Item 7. D. i. above, and the associated
      narrative that follows provide detailed net interest income information and
      analysis that are important to understanding our results of
      operations.





Between
      2005 and 2006, net interest income decreased $399 thousand or
      1.6%.  This decrease was due to a significant increase in the cost of
      our interest bearing liabilities (principally deposit funding) offset, in part,
      by increases in interest income on earning assets (principally
      loans).





In
      June
      2006 the Federal Open Market Committee raised the target Federal funds rate
      from
      5.00% to 5.25%.  This represented the seventeenth consecutive 25 basis
      point increase in the target Federal funds rate over a 2-year
      period.  These actions, coupled with modest inflation expectations and
      a strong international appetite for U.S. Treasury securities during this time
      span resulted in a very flat, and at times, inverted yield curve throughout
      2006, an interest rate environment which made it difficult for us to maintain
      or
      improve net interest margin.  Historically, a portion of our net
      interest income has been earned from mismatching long-term earning assets with
      short-term interest bearing liabilities.  Additionally, the higher
      interest rates during 2006 curbed the demand for new loans, which limited our
      ability to improve interest income.  Average loans outstanding
      increased only modestly between 2005 and 2006.  Specifically, average
      loans outstanding increased $3.584 million or 0.9% between the periods, from
      $398.616 million in 2005 to $402.200 million in 2006.





Between
      2005 and 2006, total interest and dividend income increased $3.031 million
      or
      7.5%, from $40.310 million in 2005 to $43.341 million in 2006.  Most
      of the increase was due to an increase in the average yield on
      loans.  Between 2005 and 2006, the weighted average yield on the loan
      portfolio increased 60 basis points, from 6.94% to 7.54%.  This
      contributed $2.409 million of additional interest income between comparable
      periods.  This represents 79.5% of the net increase in interest income
      between 2005 and 2006.  During 2005 and 2006, the prime rate, the
      primary index rate for our





48-K
 Index





variable
      rate loans, increased significantly.  At January 1, 2005, the prime
      rate was 5.25%, as compared to 8.25% at December 31, 2006, a 300 basis point
      increase during the two-year period.





The
      increase in interest rates, particularly short-term interest rates, between
      the
      periods also increased our average yield on federal funds sold from 3.33% in
      2005 to 5.16% in 2006 and our average yield on our investment securities
      portfolio from 4.00% in 2005 to 4.19% in 2006.  The increase in the
      federal funds interest rate and the shorter average maturity on our deposit
      liabilities prompted us to increase the amount of federal funds sold during
      2006.  We maintained $11.548 million of average federal funds sold in
      2006, as compared to $8.110 million in 2005.  The net increase in
      interest income due to a higher federal funds rate and improved investment
      securities yields contributed an additional $730 thousand of interest income
      between the periods.  Interest income on federal funds sold increased
      $326 thousand between the periods, from $270 thousand in 2005 to $596 thousand
      in 2006, while interest income on our securities portfolio increased $404
      thousand, from $11.908 million in 2005 to $12.312 million in
      2006.  These increases in interest income were offset by a decrease in
      the average volume and average yield on interest bearing deposits held at other
      banks.  During 2005 and 2006, we had several certificates of deposit
      at other financial institutions mature. This caused a decrease in the average
      balance and average rate in this category of earning assets from $9.006 million
      and 4.99% in 2005 to $2.446 million and 3.68% in 2006,
      respectively.





Although
      there was a modest decrease in the average volume of interest bearing
      liabilities between 2005 and 2006, the shift from lower cost deposits to higher
      cost deposits raised the average cost of interest-bearing liabilities from
      2.43%
      in 2005 to 3.00% in 2006 and increased interest expense $3.430 million or
      23.0%.  Interest expense for 2005 was $14.930 million, as compared to
      $18.360 million in 2006.  Between the comparable periods (2005 and
      2006) there was a general increase in the level of interest
      rates.  This prompted us, as well as our competitors, to raise the
      interest rate paid on interest-bearing deposit accounts, particularly the more
      interest-sensitive deposit accounts, such as money market accounts and time
      accounts.  Between the periods we recorded a $2.515 million net
      increase in the cost of interest bearing deposit liabilities due to increase
      in
      interest rates.  In addition, due to the higher interest rates, our
      customers increased the amount of deposits held in money market and time and
      other deposit accounts.  The increased volume in these accounts
      contributed an additional $1.646 million of interest expense between comparable
      periods.





The
      flat
      to inverted yield curve that persisted throughout 2006 effectively eliminated
      wholesale leverage opportunities and reduced the economic benefit of borrowing
      funds throughout the year, causing us to reduce borrowings and, in turn, our
      earning assets.  During 2006 our total borrowings averaged $67.908
      million.  This compares to average borrowings of $83.255 million
      during 2005, a $15.347 million or 18.4% decrease between the
      periods.  The decrease in average borrowings, offset by an increase in
      borrowing rates, resulted in a net decrease in interest expense on borrowings
      of
      $418 thousand between the periods.





At
      December 31, 2006 the Treasury yield curve was slightly inverted.  The
      90-day Treasury bill was yielding 5.05% and the 10-year Treasury note was
      yielding 4.68%.  This interest rate environment inhibited our ability
      to earn net interest income, since banks typically earn net interest income
      by
      procuring short-term deposits and borrowings and investing those proceeds in
      longer term loans and investments.  This practice, which is sometimes
      referred to as mismatching assets and liabilities, typically allows banks to
      enhance their “interest spread,” which generates net interest
      income.





Comparative
      Interest Rate Table:





2006
            2005Interest
                Rates
                (1)
            
            December
            
            
            September
            
            
            June
            
            
            March
            
            
            December
            
            
            September
            
            
            June
            
            
            MarchTarget
                Federal Funds
                Rate
            
            
            5.25
            %
            
            
            5.25
            %
            
            
            5.25
            %
            
            
            4.75
            %
            
            
            4.25
            %
            
            
            3.75
            %
            
            
            3.25
            %
            
            
            2.75
            %NYC
                Prime
            
            
            8.25
            %
            
            
            8.25
            %
            
            
            8.25
            %
            
            
            7.75
            %
            
            
            7.25
            %
            
            
            6.75
            %
            
            
            6.25
            %
            
            
            5.75
            %90
                Day Treasury
                Bill
            
            
            5.05
            %
            
            
            4.89
            %
            
            
            5.06
            %
            
            
            4.64
            %
            
            
            3.97
            %
            
            
            3.48
            %
            
            
            2.98
            %
            
            
            2.78
            %6
                Month Treasury
                Bill
            
            
            5.06
            %
            
            
            5.01
            %
            
            
            5.26
            %
            
            
            4.82
            %
            
            
            4.32
            %
            
            
            3.87
            %
            
            
            3.12
            %
            
            
            3.09
            %1
                Year Treasury
                Note
            
            
            4.96
            %
            
            
            4.97
            %
            
            
            5.27
            %
            
            
            4.77
            %
            
            
            4.37
            %
            
            
            3.88
            %
            
            
            3.40
            %
            
            
            3.38
            %2
                Year Treasury
                Note
            
            
            4.79
            %
            
            
            4.69
            %
            
            
            5.17
            %
            
            
            4.79
            %
            
            
            4.34
            %
            
            
            4.08
            %
            
            
            3.65
            %
            
            
            3.83
            %3
                Year Treasury
                Note
            
            
            4.71
            %
            
            
            4.58
            %
            
            
            5.14
            %
            
            
            4.78
            %
            
            
            4.30
            %
            
            
            4.08
            %
            
            
            3.69
            %
            
            
            4.03
            %5
                Year Treasury
                Note
            
            
            4.68
            %
            
            
            4.55
            %
            
            
            5.11
            %
            
            
            4.77
            %
            
            
            4.31
            %
            
            
            4.14
            %
            
            
            3.77
            %
            
            
            4.27
            %10
                Year Treasury
                Note
            
            
            4.68
            %
            
            
            4.58
            %
            
            
            5.15
            %
            
            
            4.78
            %
            
            
            4.34
            %
            
            
            4.29
            %
            
            
            4.00
            %
            
            
            4.59
            %Federal
                Housing Finance Board
                National Avg. Mortgage Contract Rate (2)
            
            
            6.45
            %
            
            
            6.75
            %
            
            
            6.61
            %
            
            
            6.31
            %
            
            
            6.22
            %
            
            
            5.83
            %
            
            
            5.80
            %
            
            
            5.68
            %




(1)
                The yields and interest rates presented in this table are provided
                to us
                by a third party vendor on a bi-weekly basis. The interest rates
                provided in the table were obtained from the report nearest to the
                month-end.
              
              (2)
                  The Federal Housing Finance
                  Board national average mortgage contract rate is presented with
                  a
                  one-month lag.








49-K
 Index





Rate
      and Volume
      Analysis:Net interest income was $24.981 million in
      2006.  This compares to $25.380 million in 2005, a $399 thousand or
      1.6% decrease between comparable periods.  Although the decrease in
      net interest income between comparable periods was not drastic, several
      components of interest income and interest expense changed significantly between
      the periods due to both rate and volume factors.





Interest
      income increased $3.031 million between the periods due principally to an
      increase in the rate on earning assets.  As interest rates rose
      between 2005 and 2006 the yield on federal funds sold, securities, and loans
      all
      increased.  Together, the rate improvement on these three categories
      of earning assets contributed an additional $3.150 million of interest income
      between comparable periods.  This was offset by a $94 thousand
      decrease in interest income on interest bearing deposits due to a change in
      rate
      between the periods.  Between 2005 and 2006 the average yield on our
      loan portfolio increased 60 basis points, from 6.94% in 2005 to 7.54% in
      2006.  This increase contributed $2.409 million of additional interest
      income during 2006 or 78.8% of the total increase in interest income due to
      rate
      between the periods.  A significant portion of our loan portfolio is
      indexed to the prime rate.  As the prime rate increased during 2005
      and the first six month of 2006, the yield on our variable rate loan portfolio
      climbed.





The
      $3.056 million net improvement in interest income on earning assets due to
      a
      change in rate between the periods was offset, in part, by a $25 thousand net
      reduction in interest income due to a decrease in the average volume of earning
      assets. During 2005, our average earning assets were $713.697 million, which
      compares to $710.345 million during 2006.  The average volume of
      interest bearing deposits and securities decreased between the comparable
      periods, while the average volume of federal funds sold and loans increased
      slightly.  The decrease in the average volume of interest bearing
      deposits and securities reduced interest income by $418 thousand between
      comparable periods.  This was offset, in part, by a $393 thousand
      increase in interest income between comparable periods due to an increase in
      the
      average volume of federal fund sold and loans outstanding.





The
      $3.031 million increase in interest income between 2005 and 2006 was offset
      by a
      $3.430 million increase in the cost of interest bearing liabilities, $2.671
      million due to the increase in rate and $759 thousand due to the increase in
      the
      volume of interest bearing liabilities.  The interest expense recorded
      on our most interest-sensitive liabilities, including time and other deposits
      accounts and money market accounts, increased due to both an increase in volume
      and an increase in rate.  Specifically, interest expense on time and
      other deposit accounts and interest expense on money market accounts increased
      $2.821 million and $1.262 million, respectively, over the comparable
      periods.  Between the comparable periods, we raised the interest rates
      paid on our certificates of deposit to remain competitive within our
      market.  This drove up the cost of time and other deposit accounts
      resulting in a $1.911 million increase in interest expense due to changes in
      rate.  The remaining increase in interest expense on time and other
      deposit accounts between the periods totaling $910 thousand was due to an
      increase in volume as depositors transferred their monies from low-rate interest
      bearing deposit or demand deposit accounts to higher-yield certificates of
      deposit.  Money market accounts experienced similar
      results.  As interest rates increased between the periods, we raised
      the interest rates paid on our money market deposits, which increased interest
      expense $526 thousand on a comparable period basis.  The higher
      interest rates attracted additional deposits, which resulted in an increase
      in
      interest expense due to a change in volume of $736 thousand.  The
      average cost of our money market deposit accounts increased 101 basis points
      between comparable periods, from 2.69% in 2005 to 3.70% in 2006, while the
      average volume of money market deposit accounts increased from $42.668 million
      to $65.103 million over the same periods.





As
      short-term interest rates increased rapidly between the periods, we only
      modestly increased the interest rate on our NOW account
      deposits.  This caused some of our customers with NOW account deposits
      to either move their monies to another institution or transfer their NOW account
      funds to a higher-rate deposit account.  This decreased the average
      volume of NOW accounts between the periods from $112.042 million in 2005 to
      $89.845 million in 2006.  The decrease in the average volume of NOW
      account deposits reduced interest expense by $242 thousand between comparable
      periods.  This was offset, however, by a $134 thousand increase in
      interest expense on NOW account deposits due to a 13 basis point increase in
      the
      average rate paid between the periods.





In
      spite
      of rising interest rates between periods, we modestly reduced the average rate
      paid on our savings accounts from 0.69% in 2005 to 0.63% in 2006.  The
      low interest rate being offered on savings accounts caused depositors to reduce
      their savings deposits and decreased the average volume of savings deposits
      between the periods.  The interest expense recorded on savings
      accounts decreased $127 thousand between 2005 and 2006, $71 thousand due to
      a
      decrease in average volume and $56 thousand due to a decrease in
      rate.





The
      interest expense on borrowings decreased $418 thousand between 2005 and 2006
      due
      principally to the repayment of borrowed funds.  Between the
      comparable periods, the average volume of borrowings decreased by $15.347
      million, resulting in a $574 thousand decrease in interest expense due to
      changes in volume.  This was offset, in part, by a $156 thousand
      increase in interest expense on borrowings between comparable periods due to
      higher interest rates.





50-K
 Index








Provision
      for Loan
      Losses. We recorded a provision for loan losses of $1.560
      million in 2006, as compared to $1.580 million in 2005, a $20 thousand
      decrease.  During 2006 some of our credit quality measures worsened,
      while others improved.  In particular, between the periods we
      experienced a significant increase in potential problem loans.  During
      the first quarter of 2006, we downgraded some of our large commercial credits,
      which increased the level of potential problem loans from $7.897 million or
      2.0%
      of loans outstanding at December 31, 2005 to $15.264 million or 3.8% of loans
      outstanding at March 31, 2006.  At December 31, 2006 this level
      remained high at $14.538 million or 3.6% of loans outstanding.  In
      addition, loans 30 to 89 days delinquent totaled $2.062 million or 0.51% of
      loans outstanding at December 31, 2005.  This increased to $4.393
      million or 1.08% of loans outstanding at December 31, 2006.





Additional
      increases in the provision for loan losses were mitigated by a decrease in
      non-performing loans between December 31, 2005 and December 31, 2006 and a
      declining level of net charge-offs during the last three quarters of
      2006.  Non-performing loans decreased from $4.918 million or 1.22% of
      loans outstanding at December 31, 2005 to $2.529 million or 0.62% of loans
      outstanding at December 31, 2006.





Although
      net charge-offs increased $330 thousand or 27.7% between comparable twelve-month
      periods, the trend during the last three quarters of 2006 were
      favorable.  During the first quarter of 2006, we recorded a $981
      thousand charge-off of one borrower’s loans with us, for which an allowance for
      loan losses had been previously allocated.  This comprised 64.5% of
      our 2006 net charge-offs.  During the last three quarters of 2006, we
      recorded net charge-offs of $436 thousand.  This compares to $1.078
      million of net charge-offs during the last three quarters of 2005.





Non-Interest
      Income.Non-interest income is comprised of trust fees,
      service charges on deposit accounts, commissions income, investment security
      gains / (losses), income on bank-owned life insurance, other service fees,
      and
      other income.  Non-interest income increased $344 thousand or 6.1% in
      2006, from $5.625 million in 2005 to $5.969 million in 2006.  The net
      increase in non-interest income on a comparable period basis was due to net
      increases in trust fees, service charges on deposit accounts, net investment
      securities gains, bank-owned life insurance income and other income, offset,
      in
      part, by a decrease in commission income and other services fees.





Trust
      fees increased from $1.472 million in 2005 to $1.585 million in 2006, a $113
      thousand or 7.7% increase between the periods.  During 2006, executor
      and account closing fees increased $110 thousand or 93.2% due to the closing
      of
      several large estates and accounts.  Executor and account closing fees
      totaled $228 thousand in 2006, as compared to $118 thousand in
      2005.  Fees on retained trust, investment management and custodial
      accounts remained relatively unchanged year over year.





During
      2006 we recorded $1.659 million of service charges on deposit
      accounts.  This compares to $1.615 million during 2005, a $44 thousand
      or 2.7% increase.  During the third quarter of 2005 we reduced or
      eliminated select demand deposit and NOW account service charges to retain
      and
      attract new transaction accounts.  The decrease in service fees on
      these accounts between comparable periods was offset by a $64 thousand increase
      in ATM fees between the comparable periods.  During 2005 we raised the
      fee we charge non-customers to use our ATM network.  The increase in
      this fee was the primary reason our ATM fees increased during 2006.





During
      2006 we recognized net investment securities gains of $514
      thousand.  This compares to $469 thousand during 2005, a $45 thousand
      or 9.6% increase between the periods.  The increase in net investment
      securities gains between the periods was due to two factors: an $89 thousand
      increase in gains of trading securities, offset by a $44 thousand decrease
      in
      gains on the sale and maturity of available-for-sale investment
      securities.  During 2006 we recorded a net gain of $188 thousand on
      our trading securities portfolio.  This compares to a $99 thousand net
      gain in 2005.  Our trading securities portfolio consists of equity and
      debt securities held for the Company’s executive deferred compensation
      plan.  The securities held by this plan performed better in 2006 than
      in 2005.





During
      2006 we received proceeds from the sale and maturity of available-for-sale
      investment securities totaling $48.281 million.  This generated net
      investment securities gains of $326 thousand.  By comparison, during
      2005 we received proceeds from the sale and maturity of available-for-sale
      investment securities totaling $70.300 million, which generated net investment
      securities gains of $370 thousand.





We
      hold
      life insurance policies on the lives of sixteen active and former executives
      of
      the Company.  The cash surrender value of these policies totaled
      $16.108 million at December 31, 2006.  Although we did not purchase
      any additional policies in 2006, the income on these policies increased from
      $555 thousand in 2005 to $578 thousand in 2006, a $23 thousand or 4.1% increase
      due to a modest increase in the net crediting amount provided by our insurance
      carriers.





Other
      income is comprised of numerous types of fee income, including investment
      services, lease income, safe deposit box income, title insurance agency income,
      rental of bank real estate, and distributions from two insurance trusts, in
      which the Bank participates.  Other income increased from $554
      thousand in 2005 to $776 thousand in 2006, a $222 thousand





51-K
 Index





or
      40.1%
      increase.  The increase between the periods was due to several
      factors.  In the second quarter of 2006, we recorded $67 thousand of
      other income due to the unanticipated recovery on a defaulted investment
      security.  Between comparable periods we recorded a $76 thousand
      increase in investment services income due to increased investment service
      sales.  During the third quarter of 2006, we sold a small parcel of
      land and house adjacent to one of our branch offices generating a $38 thousand
      gain on the sale.   And finally, during the fourth quarter we
      received a $47 thousand net incentive payment from our ATM network provider
      to
      convert our ATM network.  These increases were offset, in part, by a
      decrease in certain components of other income, including a $27 thousand
      decrease in rental income and a $36 thousand decrease in income from a title
      insurance agency in which we hold an ownership interest.





Other
      service fees are comprised of numerous types of fee income including merchant
      credit card processing fees, residential mortgage commissions, official check
      and check cashing fees, travelers’ check sales, wire transfer fees, letter of
      credit fees, and other miscellaneous service charges commissions and
      fees.  Other service fees decreased $101 thousand or 21.4% between
      2005 and 2006.  The decrease in other service fees between the periods
      was principally due to the decrease in residential mortgage
      commissions.  We originate residential mortgage loans as an agent for
      a super-regional bank located in the Southeastern United
      States.  During 2006 the regional housing market slowed and mortgage
      interest rates increased.  Due to these factors we originated less
      mortgages under our agency arrangement during 2006, as compared to
      2005.  As a result, during 2005 we recorded $228 thousand of
      residential mortgage commissions, as compared to $153 thousand in 2006, a $75
      thousand or 32.9% decrease.





Our
      commission income is generated from the Bank’s insurance agency subsidiary, Mang
– Wilber LLC.  During 2006 we recorded $487 thousand of commission
      income.  This compares to $489 thousand in 2005.  An
      increase in commission income from our Oneonta, New York and Walton, New York
      locations was offset by a significant decrease in commission income from our
      specialty lines agency located in Clifton Park, New York.





Non-Interest
      Expense.Non-interest expense is comprised of salaries,
      employee benefits, occupancy expense, furniture and equipment expense, computer
      service fees, advertising and marketing expense, professional fees, and other
      miscellaneous expense.  Total non-interest expense increased $1.066
      million or 5.6% on a comparable period basis, from $18.966 million in 2005
      to
      $20.032 million in 2006.  Between comparable periods, most categories
      of non-interest expense increased with the exception of employee benefits cost
      and advertising and marketing expense.





Salaries
      expense increased $329 thousand or 3.6% between the comparable periods, from
      $9.040 million in 2005 to $9.369 million in 2006.  The increase
      between periods was due to increases in all three components of salary expense,
      namely base salaries and overtime, commission and incentive amounts and deferred
      compensation expense.  Base salaries and overtime increased $87
      thousand or 1.0% between the periods, from $8.692 million in 2005 to $8.779
      million in 2006, due to an increase in staff and general increases in base
      salary amounts.  Commission and incentive payments increased $121
      thousand between the periods, from $281 thousand in 2005 to $402 thousand in
      2006.  And finally, the salaries expense related to the Company’s
      executive deferred compensation plan increased $121 thousand between the
      periods, from $66 thousand in 2005 to $188 thousand in 2006 due principally
      to
      the improved performance of the investments held for the benefit of the deferred
      compensation accounts.





We
      recorded employee benefits expense of $2.572 million in 2006.  This
      compares to $2.612 million in 2005.  The net decrease in employee
      benefits expense between comparable periods totaling $40 thousand or 1.5% was
      due to several factors.  In the first quarter of 2006, we froze our
      defined benefit pension plan and began making employer contributions to our
      401k
      retirement plan.  Due principally to the curtailment charge on the
      frozen defined benefit plan, we recorded a net increase in retirement benefits
      expense (defined benefit pension expense and 401k retirement expense) of $88
      thousand between comparable periods.  Retirement benefits expense
      increased from $574 thousand in 2005 to $662 thousand in
      2006.  F.I.C.A expense, group life insurance, group disability
      insurance, unemployment insurance, workers compensation and employee education
      expense each increased between comparable periods, combining for an additional
      $118 thousand of benefits expense.  The increase in these costs were
      offset by a $182 thousand decrease in other benefits due, principally, to a
      reduction in the amount recorded to fund the Company’s supplemental executive
      retirement plan for two retired executives.  In addition, our group
      health insurance expense decreased $64 thousand between comparable periods
      due
      to favorable claims experience.





Occupancy
      expense increased $162 thousand or 9.7% between 2005 and
      2006.  Occupancy expense totaled $1.840 million in 2006, as compared
      to $1.678 million in 2005.  The increase was substantially due to a
      regional flood, which caused us to temporarily close our Walton and Sidney,
      New
      York branch offices; while a third office, our main office, was modestly damaged
      due to water intrusion.  We incurred significant costs in 2006 to
      clean-up each of these offices.  In addition, we entered into two
      lease agreements with a third party, to rent “bank-in-a-box” temporary banking
      facilities in the Walton and Sidney markets.





52-K
 Index





Computer
      service fees increased $62 thousand or 8.3% between 2005 and 2006.  We
      recorded $807 thousand of computer service fees in 2006, as compared to $745
      thousand in 2005.  The increase between the periods can be primarily
      attributed to a core computer system conversion completed during the third
      quarter of 2005.  We converted our proprietary core computer operating
      system to a system more widely used throughout the banking
      industry.  To operate the new system we entered into various software
      licensing agreements and maintenance contracts with several hardware and
      software computer system vendors, resulting in an increase in computer service
      fees.





Furniture
      and equipment expense also increased $29 thousand or 3.8% between periods,
      from
      $764 thousand in 2005 to $793 thousand in 2006.  The increase was
      primarily due to an increase in expenditures on computer equipment related
      to
      the 2005 core system conversion.





Professional
      fees increased $183 thousand or 25.8% between comparable periods, from $709
      thousand in 2005 to $892 thousand in 2006.  The increase in
      professional fees was due to a couple of significant factors.  In
      April 2006 we announced a self-tender offer for the Company’s common
      stock.  To complete the offer we recorded $82 thousand of legal and
      other professional fees.  In addition, in 2006 we engaged a regional
      accounting firm to perform our internal audit function.  This
      increased professional fees $143 thousand over comparable
      periods.  These increases were reduced by a $42 thousand net decrease
      in other components of legal and professional fees.





Other
      miscellaneous expenses include directors’ fees, fidelity insurance, the Bank’s
      OCC assessment, FDIC premiums and assessments, bad debt collection expenses,
      correspondent bank services, service expenses related to the Bank’s accounts
      receivable financing services, charitable donations and customer relations,
      other losses, dues and memberships, office supplies, postage and shipping,
      subscriptions, telephone expense, employee travel and entertainment, software
      amortization, intangible asset amortization expense, OREO
      expenses,  minority interest expense, stock exchange listing fees,
      loss on disposal/impairment of fixed assets and several other miscellaneous
      expenses.  During 2006, other miscellaneous expenses increased $343
      thousand or 11.8%, from $2.910 million in 2005 to $3.253 million in
      2006.  The following table itemizes certain components of other
      miscellaneous expenses that increased or (decreased) significantly between
      comparable periods.





Table
      of
      Other Miscellaneous Expenses:








YearDescription
                of Other Miscellaneous Expense
            
            2006
            
            
            2005
            
            
            Increase
                /
              (Decrease)dollars
                in thousandsDirectors
                fees
            
            $
            259
            
            
            $
            200
            
            
            $
            59Collection
                and non-filing expense
            
            
            186
            
            
            
            127
            
            
            
            59Correspondent
                bank services
            
            
            131
            
            
            
            151
            
            
            
            (20
            )Donations
            
            
            106
            
            
            
            84
            
            
            
            22Dues
                and memberships
            
            
            63
            
            
            
            52
            
            
            
            11Office
                Supplies
            
            
            290
            
            
            
            318
            
            
            
            (28
            )Postage
                and shipping
            
            
            234
            
            
            
            270
            
            
            
            (36
            )Deferred
                reserves for unfunded loan commitments
            
            
            (24
            )
            
            
            12
            
            
            
            (36
            )Travel
                and entertainment
            
            
            212
            
            
            
            229
            
            
            
            (17
            )Software
                amortization
            
            
            217
            
            
            
            183
            
            
            
            34Other
                losses
            
            
            18
            
            
            
            36
            
            
            
            (18
            )Minority
                interest for Mang - Wilber LLC insurance agency subsidiary
            
            
            79
            
            
            
            90
            
            
            
            (11
            )Loss
                / (Gain) on Disposal / Impairment of Fixed Assets
            
            
            362
            
            
            
            (5
            )
            
            
            367All
                other miscellaneous expense items, net
            
            
            1,120
            
            
            
            1,163
            
            
            
            (43
            )Total
                Other Miscellaneous Expense
            
            $
            3,253
            
            
            $
            2,910
            
            
            $
            343





Most
      of
      the amount recorded in the impairment / disposal of fixed assets in 2006 was
      due
      to flood related losses.





Income
      Taxes.Income tax
      expense decreased from $2.715 million in 2005 to $2.206 million in 2006, a
      $509
      thousand or 18.7% decrease between the periods.  The decrease in
      income tax expense was primarily due to a decreased amount of





53-K
 Index





pre-tax
      income.Our
      effective tax rate decreased from 26.0% in 2005 to 23.6% in 2006 due to a
      greater percentage of our pre-tax income being generated from tax-exempt
      securities and bank-owned life insurance.





E.    Liquidity





Liquidity
      describes our ability to meet financial obligations in the normal course of
      business.  Liquidity is primarily needed to meet the borrowing and
      deposit withdrawal requirements of our customers, to fund loans to customers,
      and to fund our current and planned expenditures.  We are committed to
      maintaining a strong liquidity position.  Accordingly, we monitor our
      liquidity position on a daily basis through our daily funds management
      process.  This includes:





●
                maintaining the appropriate levels of currency throughout our branch
                system to meet the daily cash needs of our customers,


●
                balancing our mandated deposit or “reserve” requirements at the Federal
                Reserve Bank of New York,


●
                maintaining adequate cash balances at our correspondent banks, and


●
                assuring that adequate levels of federal funds sold, liquid assets,
                and
                borrowing resources are available to meet obligations, including
                reasonably anticipated daily fluctuations.





The
      following list represents the sources of funds available to meet our liquidity
      requirements.  Our primary sources of funds are denoted by an asterisk
      (*).





Source
                of Funding•
                Currency*•
                Federal Reserve and Correspondent Bank Balances*•
                Federal Funds Sold*•
                Loan and Investment Principal and Interest Payments*•
                Investment Security Maturities and Calls*•
                Demand Deposits and NOW Accounts*•
                Savings and Money Market Deposits*•
                Certificates of Deposit and Other Time Deposits*•
                Repurchase Agreements*•
                FHLBNY Advances / Lines of Credit*•
                Sale of Available-for-Sale Investment Securities•
                Brokered Deposits•
                Correspondent Lines of Credit•
                Federal Reserve Discount Window Borrowings•
                Sale of Loans•
                Proceeds from Issuance of Equity Securities•
                Branch Acquisition
              •
                Cash Surrender Value of Bank-Owned Life
                Insurance





In
      addition to the daily funds management process, we also monitor certain
      liquidity ratios and complete a liquidity assessment on a monthly
      basis.  The monthly evaluation report, known as the Liquidity
      Contingency Scorecard, is reviewed by the ALCO and the Bank’s Board of
      Directors.  The report provides management with various ratios and
      financial market data that are compared to limits established within the Bank’s
      Asset and Liability Management Policy.  It was designed to provide an
      early warning signal of a potential liquidity crisis.  Based on the
      limits established in our Asset and Liability Management Policy, we determined
      that at December 31, 2007 the Bank was in a “1B” liquidity position, the second
      strongest liquidity position based on management’s internal rating
      system.  This compares to a “1A” liquidity position at December 31,
      2006, the strongest liquidity position based on management’s internal rating
      system.








54-K
 Index





The
      following table summarizes several of our key liquidity measures for the periods
      stated:





Table
      of
      Liquidity Measures:





Liquidity
                Measure
            
            December
                31,Dollars
                in Thousands
            
            2007
            
            
            2006Cash
                and Cash Equivalents
            
            $
            18,942
            
            
            $
            25,859Available
                for Sale Investment Securities at Estimated Fair Value less Securities
                pledged for State and Municipal Deposits and Borrowings
            
            $
            59,006
            
            
            $
            72,240Total
                Loan to Total Asset Ratio
            
            
            55.9
            %
            
            
            53.3
            %FHLBNY
                Remaining Borrowing Capacity
            
            $
            14,294
            
            
            $
            24,128Available
                Correspondent Bank Lines of Credit
            
            $
            15,000
            
            
            $
            15,000





Although
      our overall liquidity position diminished modestly between December 31, 2006
      and
      December 31, 2007, we maintained adequate amounts of cash and cash equivalents
      at December 31, 2007 to meet anticipated short-term funding needs.  In
      addition, our ability to meet unanticipated funding needs was
      strong.  At December 31, 2007, we maintained $59.006 million of
      available-for-sale investment securities that could be pledged for borrowings
      or
      sold to meet unanticipated funding needs.  This compares to $72.240
      million at December 31, 2006.  Our FHLBNY borrowing capacity decreased
      from $24.128 million at December 31, 2006 to $14.294 million at December 31,
      2007, a $9.834 million decrease.  During 2007, we procured long-term
      borrowings at the FHLBNY to fund an increase in our loans
      outstanding.  In addition to these sources of liquidity, at December
      31, 2007 and December 31, 2006 we maintained a $15.000 million unsecured credit
      facility at a correspondent bank in the event we needed to borrow federal funds
      on an overnight basis.  And finally, at December 31, 2007 and December
      31, 2006, our total loan to total asset ratios of 55.9% and 53.3%, respectively,
      were low relative to our comparative peer group of financial
      institutions.  The slight decrease in the Company’s liquidity position
      was principally due to a significant growth in loans during 2007.





Our
      commitments to extend credit and stand-by letters of credit increased between
      December 31, 2006 and December 31, 2007.  At December 31, 2007,
      commitments to extend credit and standby and commercial letters of credit were
      $97.543 million as compared to $88.510 million at December 31, 2006, a $9.032
      million or 10.2% increase between the periods.  The increase between
      December 31, 2006 and December 31, 2007 was principally due to increases in
      our
      commercial lines of credit, commercial letters of credit, and commitments to
      fund real estate construction.Our experience indicates
      that draws on the commitments to extend credit and stand-by letters of credit
      do
      not fluctuate significantly from quarter to quarter and therefore are not
      expected to significantly impact our liquidity prospectively.





We
      recognize that deposit flows and loan and investment prepayment activity are
      affected by the level of interest rates, the interest rates and products offered
      by competitors, and other factors.  Based on our deposit retention
      experience, anticipated levels of regional economic activity, particularly
      moderate levels of loan demand within our primary market area, and current
      pricing strategies, we anticipate that we will have sufficient levels of
      liquidity to meet our current funding commitments for several quarters
      prospectively.





F.     Capital
      Resources and Dividends





The
      maintenance of appropriate capital levels is a management
      priority.  Overall capital adequacy is monitored on an ongoing basis
      by our management and reviewed regularly by the Board of
      Directors.  Our principal capital planning goal is to provide an
      adequate return to shareholders while retaining a sufficient capital base to
      provide for future expansion and comply with all regulatory
      standards.





Between
      December 31, 2006 and December 31, 2007 our total shareholders’ equity increased
      $6.067 million or 9.6%.  Total shareholders’ equity was $69.399
      million at December 31, 2007, as compared to $63.332 million at December 31,
      2006.  The increase in shareholders’ equity between the periods was
      due to an increase in retained earnings and a decrease in accumulated other
      comprehensive loss, reduced, in part, by an increase in treasury
      stock.  During 2007, we earned $7.707 million in net income and
      declared and paid $4.010 million in cash dividends to shareholders, resulting
      in
      a $3.697 million or 4.1% increase in retained earnings.





Accumulated
      other comprehensive loss decreased from $3.247 million at December 31, 2006
      to
      $272 thousand at December 31, 2007, due to two factors, namely a significant
      decrease in the net unrealized loss on securities, net of tax and a significant
      increase in the pension asset, net of tax.  Due to a decrease in the
      general level of interest rates between December 31, 2006 and December 31,
      2007,
      we recorded a $1.533 million decrease in the net unrealized loss





55-K
 Index





on
      securities, net of tax.  In addition, we recorded a $1.442 million
      increase in the funded status of our defined benefit pension plan, net of
      tax.





The
      increase in retained earnings and the decrease in accumulated other
      comprehensive income was reduced, in part, by a $605 thousand increase in
      treasury stock resulting from our  purchase of 65,478 shares of common
      stock at a total cost of $605 thousand.





The
      Company and the Bank are both subject to regulatory capital
      guidelines.  Under these guidelines, as established by federal bank
      regulators, in order to be “adequately capitalized,” the Company and the Bank
      must both maintain a minimum ratio of tier 1 capital to risk-weighted assets
      of
      4.0% and a minimum ratio of total capital to risk-weighted assets of
      8.0%.  Tier 1 capital is comprised of shareholders’ equity, less
      intangible assets and accumulated other comprehensive income.  Total
      capital for this risk-based capital standard includes tier 1 capital plus the
      Company’s allowance for loan losses.  Similarly, for the Bank to be
      considered “well capitalized,” it must maintain a tier 1 capital to
      risk-weighted assets ratio of 6.0% and a total capital to risk-weighted assets
      ratio of 10.0%.  The Company exceeded all capital adequacy guidelines
      and the Bank exceeded all well capitalized guidelines at December 31, 2007
      and
      December 31, 2006.  The Company’s tier 1 capital to risk-weighted
      assets ratio and total capital to risk-weighted assets ratio at December 31,
      2007 were 12.04%and
      13.29%, respectively.  This compares to 12.25% and 13.50%,
      respectively, at December 31, 2006.  Additional details regarding the
      Company’s and the Bank’s capital ratios are set forth in Note 13 of the
      Company’s Consolidated Financial Statements located in PART II, Item 8, of this
      document.





The
      principal source of funds for the payment of shareholder dividends by the
      Company has been dividends declared and paid to the Company by its subsidiary
      Bank.  There are various legal and regulatory limitations applicable
      to the payment of dividends to the Company by its subsidiaries, as well as
      the
      payment of dividends by the Company to its shareholders.  As of
      December 31, 2007, under these statutory limitations, the maximum amount that
      could have been paid by the Bank subsidiary to the Company without special
      regulatory approval was approximately $4.75 million.  The ability of
      the Company and the Bank to pay dividends in the future is and will continue
      to
      be influenced by regulatory policies, capital guidelines, and applicable
      laws.





See
      PART
      II, Item 5 of this document, "Market for Registrant’s Common Equity, Related
      Stockholder Matters, and Issuers Purchases of Equity Securities," for a recent
      history of the Company's cash dividend payments and stock sale and repurchase
      activities.








ITEM
      7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK





Our
      business activities generate market risk.  Market risk is the
      possibility that changes in future market conditions, including rates and
      prices, will reduce earnings and make the Company less valuable.  We
      are primarily exposed to market risk through changes in interest
      rates.  This risk is called interest rate risk and is an inherent
      component of risk for all banks.  The risk occurs because we pay
      interest on deposits and borrowed funds at varying rates and terms, while
      receiving interest income on loans and investments with different rates and
      terms.  As a result, our earnings and the imputed economic value of
      assets and liabilities are subject to potentially significant fluctuations
      as
      interest rates rise and fall.  Our objective is to minimize the
      fluctuation in net interest margin and net interest income caused by anticipated
      and unanticipated changes in interest rates.





Ultimately,
      the Bank’s Board of Directors is responsible for monitoring and managing market
      and interest rate risk.  The Board accomplishes this objective by
      annually reviewing and approving an Asset and Liability Management Policy,
      which
      establishes broad risk limits and delegates responsibility to carry out asset
      and liability oversight and control to the Directors’ Loan and Investment
      Committee and management’s ALCO.





We
      manage
      a few different forms of interest rate risk.  The first is mismatch
      risk, which involves the mismatch of maturities of fixed rate assets and
      liabilities.  The second is basis risk.  Basis risk is the
      risk associated with non-correlated changes in different interest
      rates.  For example, we price many of our adjustable rate commercial
      loans (assets) using the prime rate as a basis, while some of our deposit
      accounts (liabilities) are tied to Treasury security yields.  In a
      given timeframe, the prime rate might decrease 2% while a particular Treasury
      security might only decrease 1%.  If this were to occur, our yield on
      prime based commercial loans would decrease by 2%, while the cost of deposits
      might only decrease by 1%, negatively affecting net interest income and net
      interest margin.  The third risk is option risk.  Option
      risk generally appears in the form of prepayment volatility on residential
      mortgages, commercial loans, commercial real estate loans, consumer loans,
      mortgage-backed securities, and callable agency or municipal investment
      securities.  The Bank’s customers generally have alternative financing
      sources (or options) to refinance their existing debt obligations with other
      financial institutions.  When interest rates decrease, many of these
      customers exercise this option by refinancing at other institutions and prepay
      their loans with us, forcing us to reinvest the prepaid funds in lower-yielding
      investments and





56-K
 Index





loans.  The
      same type of refinancing activity also accelerates principal payments on
      mortgage-backed securities held by the Bank.  Municipal investment
      securities and agency securities are issued with specified call dates and call
      prices that are typically exercised by the issuer when interest rates on
      comparable maturity securities are lower than the current coupon rate on the
      security.





Measuring
      and managing interest rate risk is a dynamic process that the Bank’s management
      must continually perform to meet the objective of maintaining stable net
      interest income and net interest margin.  This means that prior to
      setting the term or interest rate on loans or deposits, or before purchasing
      investment securities or borrowing funds, management must understand the impact
      that alternative interest rates will have on the Bank’s interest rate risk
      profile.  This is accomplished through simulation
      modeling.  Simulation modeling is the process of “shocking” the
      current balance sheet under a variety of interest rate scenarios and then
      measuring the impact of interest rate changes on both projected earnings and
      the
      economic value of the Bank’s equity.  The estimates underlying the
      sensitivity analysis are based on numerous assumptions including, but not
      limited to: the nature and timing of interest rate changes, prepayments on
      loans
      and securities, deposit retention rates, pricing decisions on loans and
      deposits, and reinvestment/replacement rates on asset and liability cash
      flows.  While assumptions are developed based on available information
      and current economic and local market conditions, management cannot make any
      assurances as to the ultimate accuracy of these assumptions, including
      competitive influences and customer behavior.  Accordingly, actual
      results may differ from those predicted by simulation modeling.





The
      following table shows the projected changes in net interest income from a
      parallel shift in all market interest rates.  The shift in interest
      rates is assumed to occur in monthly increments of 0.50% per month until the
      full shift is complete.  In other words, we assume it will take six
      months for a 3.00% shift to take place.  This is also known as a
“ramped” interest rate shock.  The projected changes in net interest
      income are totals for the twelve-month period beginning January 1, 2008 and
      ending December 31, 2008, under ramped shock scenarios.





Interest
      Rate Sensitivity Table:





Interest
                Rates
            Dollars
                in ThousandsInterest
                Rate
              Shock
                (1)
            Prime
                Rate
            Projected
              Annualized
              Net
              Interest
              Income
            Projected
              Dollar
              Change
                in
              Net
              Interest
              Income
            Projected
              Percentage
              Change
                in
              Net
              Interest
              Income
            Projected
              Change
                in
              Net
                Interest
              Income
                as a
              Percent
                of
              Total
              Shareholders'
              Equity3.00%
            10.25%
            $25,215
            (357)
            -1.40%
            -0.51%2.00%
            9.25%
            $25,096
            (476)
            -1.86%
            -0.69%1.00%
            8.25%
            $25,208
            (364)
            -1.42%
            -0.52%No
                change
            7.25%
            $25,572
            -
            -
            --1.00%
            6.25%
            $26,168
            596
            2.33%
            0.86%-2.00%
            5.25%
            $25,446
            (126)
            -0.49%
            -0.18%-3.00%
            4.25%
            $24,822
            (750)
            -2.93%
            -1.08%




(1)
                Under a ramped interest rate shock, interest rates are modeled to
                change
                at a rate of 0.50% per month.





Many
      assumptions are embedded within our interest rate risk model.  These
      assumptions are approved by the Bank’s ALCO and are based upon both management’s
      experience and projections provided by investment securities
      companies.  Assuming our prepayment and other assumptions are
      accurate, and assuming we take reasonable actions to preserve net interest
      income, we project that net interest income would decline by $476 thousand
      or
      0.69% of total shareholders’ equity in a +2.00% ramped interest rate shock and
      by $126 thousand or 0.18% of total shareholders’ equity in a –2.00% ramped
      interest rate shock.  This is within our Asset and Liability Policy
      guideline, which limits the maximum projected decrease in net interest income
      in
      a +2.00% or –2.00% ramped interest rate shock to –5.0% of the Company’s total
      equity capital.





Our
      strategy for managing interest rate risk is impacted by overall market
      conditions and customer demand, but we generally try to limit the volume and
      term of fixed-rate assets and fixed-rate liabilities so that we can adjust
      the
      mix and pricing of assets and liabilities to mitigate net interest income
      volatility.  We also purchase investments for the
      securities





57-K
 Index





portfolio
      and structure borrowings from the FHLBNY to offset interest rate risk taken
      in
      the loan portfolio.  We also offer adjustable rate loan and deposit
      products that change as interest rates change.  Approximately 24% of
      our total assets at December 31, 2007 were invested in adjustable rate loans
      and
      investments.





At
      December 31, 2007, the Treasury yield curve was generally flat.  This
      means the yields on long-term Treasury yields were only modestly greater than
      short-term Treasury yields.  At December 31, 2007, the one-year
      Treasury bill yield was approximately 3.42%, versus 3.90% for the ten year
      Treasury note, only a 48 basis point difference.  A flat interest rate
      environment inhibits our ability to earn net interest income since banks
      typically earn net interest income by procuring short-term deposits and
      borrowings and investing those proceeds in longer term loans and
      investments.  This practice, which is sometimes referred to as
      mismatching assets and liabilities, typically allows banks to enhance their
      “interest spread,” which generates net interest income.  Furthermore,
      due to a weakening national economy since December 31, 2007 the general level
      of
      interest rates has dropped precipitously, particularly for instruments with
      a
      maturity of two years or less.  Although this interest rate
      environment may provide us opportunity to reduce interest expense, the 125
      basis
      point drop in the target federal funds rate and the national prime rate will
      also negatively impact interest income.  Our modeling predicts that
      this decrease will marginally improve net interest income over a one year
      timeframe, although the interest rate environment generally remains difficult
      for banks.





58-K
 Index





ITEM
      8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA

















Report
      of Independent Registered Public Accounting Firm











The
      Board
      of Directors and Shareholders of The Wilber Corporation:





We
      have
      audited the accompanying consolidated statements of condition of The Wilber
      Corporation and subsidiaries (“the Company”) as of December 31, 2007 and 2006,
      and the related consolidated statements of income, change in shareholders'
      equity and comprehensive income, and cash flows for each of the years in the
      three-year period ended December 31, 2007.  These consolidated
      financial statements are the responsibility of the Company’s
      management.  Our responsibility is to express an opinion on these
      consolidated 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 The Wilber Corporation
      and
      subsidiaries as of December 31, 2007 and 2006, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2007, in conformity with U.S. generally accepted accounting
      principles.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), The Wilber Corporation and subsidiaries’
internal control over financial reporting as of December 31, 2007, based on
      criteria established in Internal Control - Integrated
      Framework issued by the Committee of Sponsoring Organizations of the
      Treadway Commission (COSO), and our report dated March 10, 2008 expressed an
      unqualified opinion on the effectiveness of the Company’s internal control over
      financial reporting.

























Albany,
      New York


March
      10,
      2008














59-K
 Index








The
                  Wilber CorporationConsolidated
                  Statements of ConditionDecember
                  31,
              
              
              December
                  31,in
                  thousands except share and per share data
              
              2007
              
              
              2006AssetsCash
                  and Due from Banks
              
              $
              11,897
              
              
              $
              12,742Time
                  Deposits with Other Banks
              
              
              0
              
              
              
              800Federal
                  Funds Sold
              
              
              7,045
              
              
              
              12,317Total
                  Cash and Cash Equivalents
              
              
              18,942
              
              
              
              25,859SecuritiesTrading,
                  at Fair Value
              
              
              1,430
              
              
              
              1,625Available-for-Sale,
                  at Fair Value
              
              
              237,274
              
              
              
              228,959Held-to-Maturity,
                  Fair Value of $51,743 at December 31, 2007and
                  $61,310 at December 31, 2006
              
              
              52,202
              
              
              
              62,358Other
                  Investments
              
              
              4,782
              
              
              
              4,600Loans
                  Held for Sale
              
              
              456
              
              
              
              0Loans
              
              
              443,870
              
              
              
              405,832Allowance
                  for Loan Losses
              
              
              (6,977
              )
              
              
              (6,680
              )Loans,
                  Net
              
              
              436,893
              
              
              
              399,152Premises
                  and Equipment, Net
              
              
              6,312
              
              
              
              5,686Bank
                  Owned Life Insurance
              
              
              15,785
              
              
              
              16,108Goodwill
              
              
              4,619
              
              
              
              4,518Intangible
                  Assets, Net
              
              
              394
              
              
              
              520Pension
                  Asset
              
              
              4,872
              
              
              
              2,357Other
                  Assets
              
              
              9,719
              
              
              
              10,239Total
                  Assets
              
              $
              793,680
              
              
              $
              761,981Liabilities
                  and Shareholders’ EquityDeposits:Demand
              
              $
              71,145
              
              
              $
              71,914Savings,
                  NOW and Money Market Deposit Accounts
              
              
              254,196
              
              
              
              243,249Certificates
                  of Deposit (Over $100M)
              
              
              111,949
              
              
              
              101,025Certificates
                  of Deposit (Under $100M)
              
              
              198,467
              
              
              
              188,386Other
                  Deposits
              
              
              21,737
              
              
              
              24,470Total
                  Deposits
              
              
              657,494
              
              
              
              629,044Short-Term
                  Borrowings
              
              
              15,786
              
              
              
              18,459Long-Term
                  Borrowings
              
              
              41,538
              
              
              
              42,204Other
                  Liabilities
              
              
              9,463
              
              
              
              8,942Total
                  Liabilities
              
              
              724,281
              
              
              
              698,649Shareholders’
                  Equity:Common
                  Stock, $.01 Par Value, 16,000,000 Shares Authorized,and
                  13,961,664 Shares Issued at December 31, 2007,and
                  December 31, 2006
              
              
              140
              
              
              
              140Additional
                  Paid in Capital
              
              
              4,224
              
              
              
              4,224Retained
                  Earnings
              
              
              93,618
              
              
              
              89,921Accumulated
                  Other Comprehensive Loss
              
              
              (272
              )
              
              
              (3,247
              )Treasury
                  Stock at Cost, 3,457,960 Shares at December 31, 2007and
                  3,392,482 Shares at December 31, 2006
              
              
              (28,311
              )
              
              
              (27,706
              )Total
                  Shareholders’ Equity
              
              
              69,399
              
              
              
              63,332Total
                  Liabilities and Shareholders’ Equity
              
              $
              793,680
              
              
              $
              761,981See
                  accompanying notes to Consolidated Financial Statements





60-K
 Index





The
                  Wilber CorporationConsolidated
                  Statements of IncomeYear
                  Ended December 31,in
                  thousands except share and per share data
              
              2007
              
              
              2006
              
              
              2005Interest
                  and Dividend IncomeInterest
                  and Fees on Loans
              
              $
              32,172
              
              
              $
              30,343
              
              
              $
              27,683Interest
                  and Dividends on Securities:U.S.
                  Government and Agency Obligations
              
              
              9,654
              
              
              
              9,549
              
              
              
              9,124State
                  and Municipal Obligations
              
              
              2,513
              
              
              
              2,499
              
              
              
              2,569Other
              
              
              425
              
              
              
              264
              
              
              
              215Interest
                  on Federal Funds Sold and Time Deposits
              
              
              1,266
              
              
              
              686
              
              
              
              719Total
                  Interest and Dividend Income
              
              
              46,030
              
              
              
              43,341
              
              
              
              40,310Interest
                  ExpenseInterest
                  on Deposits:Savings,
                  NOW and Money Market Deposit Accounts
              
              
              5,204
              
              
              
              3,983
              
              
              
              2,956Certificates
                  of Deposit (Over $100M)
              
              
              4,761
              
              
              
              3,842
              
              
              
              2,445Certificates
                  of Deposit (Under $100M)
              
              
              7,904
              
              
              
              7,033
              
              
              
              5,944Other
                  Deposits
              
              
              1,091
              
              
              
              930
              
              
              
              595Interest
                  on Short-Term Borrowings
              
              
              581
              
              
              
              670
              
              
              
              633Interest
                  on Long-Term Borrowings
              
              
              1,933
              
              
              
              1,902
              
              
              
              2,357Total
                  Interest Expense
              
              
              21,474
              
              
              
              18,360
              
              
              
              14,930Net
                  Interest Income
              
              
              24,556
              
              
              
              24,981
              
              
              
              25,380Provision
                  for Loan Losses
              
              
              900
              
              
              
              1,560
              
              
              
              1,580Net
                  Interest Income After Provision for Loan Losses
              
              
              23,656
              
              
              
              23,421
              
              
              
              23,800Non
                  Interest IncomeTrust
                  Fees
              
              
              1,641
              
              
              
              1,585
              
              
              
              1,472Service
                  Charges on Deposit Accounts
              
              
              1,891
              
              
              
              1,659
              
              
              
              1,615Commission
                  Income
              
              
              476
              
              
              
              487
              
              
              
              489Investment
                  Security Gains, Net
              
              
              80
              
              
              
              514
              
              
              
              469Net
                  Gain on Sale of Loans
              
              
              196
              
              
              
              0
              
              
              
              0Increase
                  in Cash Surrender Value of Bank Owned Life Insurance
              
              
              606
              
              
              
              578
              
              
              
              555Gain
                  on Life Insurance Coverage
              
              
              615
              
              
              
              0
              
              
              
              0Other
                  Service Fees
              
              
              221
              
              
              
              370
              
              
              
              471Other
                  Income
              
              
              1,310
              
              
              
              776
              
              
              
              554Total
                  Non Interest Income
              
              
              7,036
              
              
              
              5,969
              
              
              
              5,625Non
                  Interest ExpenseSalaries
              
              
              9,823
              
              
              
              9,369
              
              
              
              9,040Employee
                  Benefits
              
              
              2,672
              
              
              
              2,572
              
              
              
              2,612Occupancy
                  Expense of Bank Premises
              
              
              1,769
              
              
              
              1,840
              
              
              
              1,678Furniture
                  and Equipment Expense
              
              
              927
              
              
              
              793
              
              
              
              764Computer
                  Service Fees
              
              
              775
              
              
              
              807
              
              
              
              745Advertising
                  and Marketing
              
              
              625
              
              
              
              506
              
              
              
              508Professional
                  Fees
              
              
              976
              
              
              
              892
              
              
              
              709Other
                  Miscellaneous Expenses
              
              
              3,290
              
              
              
              3,253
              
              
              
              2,910Total
                  Non Interest Expense
              
              
              20,857
              
              
              
              20,032
              
              
              
              18,966Income
                  Before Taxes
              
              
              9,835
              
              
              
              9,358
              
              
              
              10,459Income
                  Taxes
              
              
              (2,128
              )
              
              
              (2,206
              )
              
              
              (2,715
              )Net
                  Income
              
              $
              7,707
              
              
              $
              7,152
              
              
              $
              7,744Weighted
                  Average Shares Outstanding
              
              
              10,544,768
              
              
              
              10,813,076
              
              
              
              11,169,730Basic
                  Earnings Per Share
              
              $
              0.73
              
              
              $
              0.66
              
              
              $
              0.69See
                  accompanying notes to Consolidated Financial Statements







61-K
 Index





Consolidated
                  Statements of Changes in Shareholders' Equity and Comprehensive
                  IncomeAccumulatedAdditional
              
              
              
              
              
              OtherCommon
              
              
              Paid
                  in
              
              
              Retained
              
              
              Comprehensive
              
              
              Treasuryin
                  thousands except share and per share data
              
              Stock
              
              
              Capital
              
              
              Earnings
              
              
              Income
                  (Loss)
              
              
              Stock
              
              
              TotalBalance
                  December 31, 2004
              
              $
              140
              
              
              $
              4,224
              
              
              $
              83,402
              
              
              $
              396
              
              
              $
              (20,557
              )
              
              $
              67,605Comprehensive
                  Income:Net
                  Income
              
              
              -
              
              
              
              -
              
              
              
              7,744
              
              
              
              -
              
              
              
              -
              
              
              
              7,744Change
                  in Net Unrealized Gain (Loss)on
                  Securities, Net of Taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,805
              )
              
              
              -
              
              
              
              (2,805
              )Total
                  Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,939Cash
                  Dividends ($.38 per share)
              
              
              -
              
              
              
              -
              
              
              
              (4,246
              )
              
              
              -
              
              
              
              -
              
              
              
              (4,246
              )Purchase
                  of Treasury Stock (48,655 shares)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (581
              )
              
              
              (581
              )Balance
                  December 31, 2005
              
              $
              140
              
              
              $
              4,224
              
              
              $
              86,900
              
              
              $
              (2,409
              )
              
              $
              (21,138
              )
              
              $
              67,717Comprehensive
                  Income:Net
                  Income
              
              
              -
              
              
              
              -
              
              
              
              7,152
              
              
              
              -
              
              
              
              -
              
              
              
              7,152Change
                  in Net Unrealized Gain (Loss)on
                  Securities, Net of Taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (18
              )
              
              
              -
              
              
              
              (18
              )Total
                  Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,134Adjustment
                  to Initally Apply FASBStatement  No.
                  158, Net of Taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (820
              )
              
              
              
              
              
              
              (820
              )Cash
                  Dividends ($.38 per share)
              
              
              -
              
              
              
              -
              
              
              
              (4,131
              )
              
              
              -
              
              
              
              -
              
              
              
              (4,131
              )Purchase
                  of Treasury Stock (576,755 shares)
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              (6,568
              )
              
              
              (6,568
              )Balance
                  December 31, 2006
              
              $
              140
              
              
              $
              4,224
              
              
              $
              89,921
              
              
              $
              (3,247
              )
              
              $
              (27,706
              )
              
              $
              63,332Comprehensive
                  Income:Net
                  Income
              
              
              -
              
              
              
              -
              
              
              
              7,707
              
              
              
              -
              
              
              
              -
              
              
              
              7,707Change
                  in Net Unrealized Gain (Loss)on
                  Securities, Net of Taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,533
              
              
              
              -
              
              
              
              1,533Change
                  in the Funded Status of DefinedBenefit
                  Plan, Net of Taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,442
              
              
              
              
              
              
              
              1,442Total
                  Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,682Cash
                  Dividends ($.38 per share)
              
              
              -
              
              
              
              -
              
              
              
              (4,010
              )
              
              
              -
              
              
              
              -
              
              
              
              (4,010
              )Purchase
                  of Treasury Stock (65,478 shares)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (605
              )
              
              
              (605
              )Balance
                  December 31, 2007
              
              $
              140
              
              
              $
              4,224
              
              
              $
              93,618
              
              
              $
              (272
              )
              
              $
              (28,311
              )
              
              $
              69,399See
                  accompanying notes to Consolidated Financial Statements.














62-K
 Index








The
                  Wilber CorporationConsolidated
                  Statements of Cash FlowsYear
                  Ended December 31,in
                  thousands
              
              2007
              
              
              2006
              
              
              2005Cash
                  Flows from Operating Activities:Net
                  Income
              
              $
              7,707
              
              
              $
              7,152
              
              
              $
              7,744Adjustments
                  to Reconcile Net Income to Net CashUsed
                  by Operating Activities:Provision
                  for Loan Losses
              
              
              900
              
              
              
              1,560
              
              
              
              1,580Depreciation
                  and Amortization
              
              
              1,210
              
              
              
              1,133
              
              
              
              1,151Net
                  (Gain) / Loss on Disposal/Impairment of Fixed Assets
              
              
              (374
              )
              
              
              324
              
              
              
              5Net
                  Amortization of Premiums and Accretion of Discounts on
                  Investments
              
              
              485
              
              
              
              647
              
              
              
              1,027Gain
                  on Life Insurance Coverage
              
              
              (615
              )
              
              
              0
              
              
              
              0Available-for-Sale
                  Investment Security Gains, net
              
              
              (16
              )
              
              
              (326
              )
              
              
              (370
              )Deferred
                  Income Tax Expense (Benefit)
              
              
              215
              
              
              
              (130
              )
              
              
              (138
              )Other
                  Real Estate Losses
              
              
              29
              
              
              
              0
              
              
              
              0Increase
                  in Cash Surrender Value of Bank Owned Life Insurance
              
              
              (606
              )
              
              
              (578
              )
              
              
              (555
              )Net
                  Decrease in Trading Securities
              
              
              259
              
              
              
              105
              
              
              
              61Net
                  Gains on Trading Securities
              
              
              (64
              )
              
              
              (188
              )
              
              
              (99
              )Net
                  Gain on Sale of Loans
              
              
              (196
              )
              
              
              0
              
              
              
              0Originations
                  of Mortgage Loans Held for Sale
              
              
              (10,479
              )
              
              
              0
              
              
              
              0Proceeds
                  from Sale of Mortgage Loans Held for Sale
              
              
              10,219
              
              
              
              0
              
              
              
              0(Increase)
                  Decrease in Other Assets
              
              
              (1,795
              )
              
              
              7
              
              
              
              (180
              )Increase
                  (Decrease) in Other Liabilities
              
              
              308
              
              
              
              579
              
              
              
              (223
              )Net
                  Cash Provided by Operating Activities
              
              
              7,187
              
              
              
              10,285
              
              
              
              10,003Cash
                  Flows from Investing Activities:Net
                  Cash Acquired from Acquisition of a Branch
              
              
              0
              
              
              
              0
              
              
              
              22,521Net
                  Cash Paid for Provantage Funding Corporation
              
              
              (165
              )
              
              
              0
              
              
              
              0Proceeds
                  from Maturities of Held-to-Maturity Investment Securities
              
              
              10,048
              
              
              
              7,507
              
              
              
              9,932Purchases
                  of Held-to-Maturity Investment Securities
              
              
              0
              
              
              
              (14,408
              )
              
              
              (5,614
              )Proceeds
                  from Maturities of Available-for-Sale Investment
                  Securities
              
              
              43,662
              
              
              
              42,842
              
              
              
              60,950Proceeds
                  from Sales and Calls of Available-for-Sale Investment
                  Securities
              
              
              6,119
              
              
              
              5,637
              
              
              
              9,350Purchases
                  of Available-for-Sale Investment Securities
              
              
              (55,943
              )
              
              
              (41,903
              )
              
              
              (66,367
              )Net
                  (Increase) / Decrease in Other Investments
              
              
              (182
              )
              
              
              (653
              )
              
              
              86Cash
                  Received from Death Benefit
              
              
              1,544
              
              
              
              0
              
              
              
              0Net
                  Increase in Loans
              
              
              (38,119
              )
              
              
              (3,777
              )
              
              
              (6,177
              )Purchase
                  of Premises and Equipment, Net of Disposals
              
              
              (1,728
              )
              
              
              (349
              )
              
              
              (932
              )Proceeds
                  from Sale of Premises and Equipment
              
              
              87
              
              
              
              40
              
              
              
              0Proceeds
                  from Sale of Other Real Estate
              
              
              77
              
              
              
              0
              
              
              
              0Net
                  Cash (Used by) Provided by Investing Activities
              
              
              (34,600
              )
              
              
              (5,064
              )
              
              
              23,749Cash
                  Flows from Financing Activities:Net
                  Increase (Decrease) in Demand Deposits, Savings, NOW,Money
                  Market and Other Time Deposits
              
              
              7,445
              
              
              
              (3,462
              )
              
              
              (8,100
              )Net
                  Increase in Certificates of Deposit
              
              
              21,005
              
              
              
              27,548
              
              
              
              8,162Net
                  Decrease in Short-Term Borrowings
              
              
              (2,673
              )
              
              
              (898
              )
              
              
              (18,202
              )Increase
                  in Long-Term Borrowings
              
              
              25,000
              
              
              
              0
              
              
              
              24,900Repayment
                  of Long-Term Borrowings
              
              
              (25,666
              )
              
              
              (10,268
              )
              
              
              (37,807
              )Purchase
                  of Treasury Stock
              
              
              (605
              )
              
              
              (6,568
              )
              
              
              (581
              )Cash
                  Dividends Paid
              
              
              (4,010
              )
              
              
              (4,131
              )
              
              
              (4,246
              )Net
                  Cash Provided by (Used by) Financing Activities
              
              
              20,496
              
              
              
              2,221
              
              
              
              (35,874
              )Net
                  (Decrease) / Increase in Cash and Cash Equivalents
              
              
              (6,917
              )
              
              
              7,442
              
              
              
              (2,122
              )Cash
                  and Cash Equivalents at Beginning of Year
              
              
              25,859
              
              
              
              18,417
              
              
              
              20,539Cash
                  and Cash Equivalents at End of Year
              
              $
              18,942
              
              
              $
              25,859
              
              
              $
              18,417
   63-K
 Index
  Year
                  Ended December 31,in
                  thousands
              
              2007
              
              
              2006
              
              
              2005Supplemental
                  Disclosures of Cash Flow Information:Cash
                  Paid during Period for:Interest
              
              $
              21,247
              
              
              $
              18,082
              
              
              $
              14,918Income
                  Taxes
              
              $
              2,210
              
              
              $
              2,727
              
              
              $
              3,085Non
                  Cash Investing Activities:Change
                  in Unrealized Gain / (Loss) on Securities
              
              $
              2,514
              
              
              $
              (29
              )
              
              $
              (4,596
              )Transfer
                  of Loans to Other Real Estate
              
              $
              334
              
              
              $
              83
              
              
              $
              0Adjustment
                  to Initally Apply FASB Statement No. 158, Net of Tax
              
              $
              0
              
              
              $
              (820
              )
              
              $
              0Fair
                  Value of Tangible Assets Acquired
              
              $
              504
              
              
              $
              0
              
              
              $
              8,119Goodwill
                  and Identifiable Intangible Assets Recognized in Purchase
                  Combination
              
              $
              105
              
              
              $
              0
              
              
              $
              0Fair
                  Value of Liabilities Assumed
              
              $
              444
              
              
              $
              0
              
              
              $
              32,967See
                  accompanying notes to Consolidated Financial Statements.

























64-K
 Index





Note
      1. Summary of Significant Accounting Policies





The
      Wilber Corporation (“the Parent Company”) operates 21 branches serving Otsego,
      Delaware, Schoharie, Ulster, Chenango, and Broome Counties through its wholly
      owned subsidiary Wilber National Bank (“the Bank”), and also operates 5 licensed
      mortgage banking branches in Saratoga, Schenectady, Otsego, and Albany Counties
      through its wholly owned subsidiary Provantage Funding Corporation
      (“Provantage”).  The Parent Company's primary source of revenue is
      interest earned on commercial, mortgage, and consumer loans to customers of
      the
      Bank who are predominately individuals and small and middle-market
      businesses.  Collectively, the Parent Company, the Bank, and
      Provantage are referred to herein as “the Company.”





The
      Bank
      owns a majority interest in Mang-Wilber, LLC, an insurance agency offering
      a
      full line of life, health and property, and casualty insurance. Accordingly,
      the
      assets and liabilities and revenues and expenses of Mang-Wilber, LLC are
      included in the Company's Consolidated Financial Statements.





The
      Consolidated Financial Statements of the Company conform to accounting
      principles generally accepted in the United States of America (GAAP). The
      following is a summary of the more significant policies:





Principles
      of Consolidation — The Consolidated Financial Statements include the accounts of
      the Parent Company and its wholly owned subsidiary after elimination of
      inter-company accounts and transactions. In the “Parent Company Only Financial
      Statements,” the investment in subsidiary is carried under the equity method of
      accounting.





Management’s
      Use of Estimates — The preparation of the Consolidated Financial Statements in
      conformity with GAAP 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 Consolidated Financial
      Statements and the reported amounts of revenue and expense during the reporting
      period. Actual results could differ from those estimates.





Reclassifications
      — Whenever necessary, reclassifications are made to prior period amounts to
      conform to current year presentation.





Cash
      Equivalents — The Company considers amounts due from correspondent banks, cash
      items in process of collection, federal funds sold and time deposit balances
      with other banks to be cash equivalents for purposes of the consolidated
      statements of cash flows.





Securities
      — The Company classifies its investment securities at date of purchase as either
      held-to-maturity, available-for-sale or trading. Held-to-maturity securities
      are
      those for which the Company has the intent and ability to hold to maturity,
      and
      are reported at amortized cost.  Available-for-sale securities are
      reported at fair value, with net unrealized gains and losses reflected in
      shareholders' equity as accumulated other comprehensive income (loss), net
      of
      the applicable income tax effect.  Trading securities are reported at
      fair value, with unrealized gains and losses reflected in the income
      statement.





Non-marketable
      equity securities, including Federal Reserve Bank and Federal Home Loan Bank
      of
      New York stock required for membership in those organizations, are carried
      at
      cost.





Premiums
      and discounts are amortized or accreted over the life of the related security
      as
      an adjustment to yield using the level yield method. Dividend and interest
      income are recognized when earned. Realized gains and losses on the sale of
      securities are included in securities gains (losses). The cost of securities
      sold is based on the specific identification method.





A
      decline
      in the fair value of any available-for-sale or held-to-maturity security below
      cost that is deemed to be other than temporary is charged to earnings, resulting
      in the establishment of a new cost basis for the security.





Loans
—
      Loans are reported at their outstanding principal balance. Interest income
      on
      loans is accrued based upon the principal amount outstanding.





Loans
      are
      placed on non-accrual status when timely collection of principal and interest
      in
      accordance with contractual terms is doubtful.  Loans are transferred
      to a non-accrual basis generally when principal or interest payments become
      ninety days delinquent, unless the loan is well secured and in the process
      of
      collection, or sooner when management concludes circumstances indicate that
      borrowers may be unable to meet contractual principal or interest
      payments.  When a loan is transferred to a non-accrual status, all
      interest previously accrued in the current period but not collected is reversed
      against interest income in that period.  Interest accrued in a prior
      period and not collected is charged-off against the allowance for loan
      losses.





65-K
 Index





Note
      1. Summary of Significant Accounting Policies, Continued





If
      ultimate repayment of a non-accrual loan is expected, any payments received
      are
      applied in accordance with contractual terms.  If ultimate repayment
      of principal is not expected, any payment received on a non-accrual loan is
      applied to principal until ultimate repayment becomes
      expected.  Non-accrual loans are returned to accrual status when they
      become current as to principal and interest or demonstrate a period of
      performance under the contractual terms and, in the opinion of management,
      are
      fully collectible as to principal and interest.  When in the opinion
      of management the collection of principal appears unlikely, the loan balance
      is
      charged-off in total or in part.





Commercial
      type loans are considered impaired when it is probable that the borrower will
      not repay the loan according to the original contractual terms of the loan
      agreement, and all loan types are considered impaired if the loan is
      restructured in a troubled debt restructuring.





A
      loan is
      considered to be a troubled debt restructured loan (TDR) when the Company grants
      a concession to the borrower because of the borrower’s financial condition that
      it would not otherwise consider.  Such concessions include the
      reduction of interest rates, forgiveness of principal or interest or other
      modifications of interest rates that are less than the current market rate
      for
      new obligations with similar risk.  TDR loans that are in compliance
      with their modified terms and that yield a market rate may be removed from
      the
      TDR status after a period of performance.





Allowance
      for Loan Losses — The allowance for loan losses is the amount, which in the
      opinion of management, is necessary to absorb probable losses inherent in the
      loan portfolio.  The allowance is determined based upon numerous
      considerations, including local economic conditions, the growth and composition
      of the loan portfolio with respect to the mix between the various types of
      loans
      and their related risk characteristics, a review of the value of collateral
      supporting the loans, comprehensive reviews of the loan portfolio by the
      external loan review and management, as well as consideration of volume and
      trends of delinquencies, non-performing loans, and loan
      charge-offs.  As a result of the test of adequacy, required additions
      to the allowance for loan losses are made periodically by charges to the
      provision for loan losses.





The
      allowance for loan losses related to impaired loans is based on discounted
      cash
      flows using the loan’s initial effective interest rate or the fair value of the
      collateral for certain loans where repayment of the loan is expected to be
      provided solely by the underlying collateral (collateral dependent
      loans).  The Company’s impaired loans are generally collateral
      dependent.  The Company considers the estimated cost to sell, on a
      discounted basis, when determining the fair value of collateral in the
      measurement of impairment if those costs are expected to reduce the cash flows
      available to repay or otherwise satisfy the loans.





Management
      believes that the allowance for loan losses is adequate.  While
      management uses available information to recognize loan losses, future additions
      to the allowance for loan losses may be necessary based on changes in economic
      conditions or changes in the values of properties securing loans in the process
      of foreclosure.  In addition, various regulatory agencies, as an
      integral part of their examination process, periodically review the Company’s
      allowance for loan losses.  Such agencies may require the Company to
      recognize additions to the allowance for loan losses based on their judgments
      about information available to them at the time of their examination, which
      may
      not be currently available to management.





Other
      Real Estate Owned (“OREO”) — Other real estate owned consists of properties
      formerly pledged as collateral on loans, which have been acquired by the Company
      through foreclosure proceedings or acceptance of a deed in lieu of foreclosure.
      Other real estate owned is carried at the lower of the recorded investment
      in
      the loan or the fair value of the real estate, less estimated costs to sell.
      Upon transfer of a loan to foreclosure status, an appraisal is obtained and
      any
      excess of the loan balance over the fair value, less estimated costs to sell,
      is
      charged against the allowance for loan losses. Expenses and subsequent
      adjustments to the fair value are treated as other operating
      expense.  Gains on the sale of other real estate owned are included in
      income when title has passed and the sale has met the minimum down payment
      requirements prescribed by GAAP.





Bank
      Premises and Equipment — Land is carried at cost. Premises and equipment are
      stated at cost less accumulated depreciation computed principally using
      accelerated methods over the estimated useful lives of the assets, which range
      from 15 to 40 years for buildings and from 3 to 10 years for furniture and
      equipment. Maintenance and repairs are charged to expense as
      incurred.





Bank-Owned
      Life Insurance (“BOLI”) — The BOLI was purchased as a financing tool for
      employee benefits. The value of life insurance financing is the tax preferred
      status of increases in life insurance cash values and death benefits and
      the








66-K
 Index





Note
      1. Summary of Significant Accounting Policies, Continued





cash
      flow
      generated at the death of the insured. The purchase of the life insurance policy
      results in an interest sensitive asset on the Company's consolidated statements
      of condition that provides monthly tax-free income to the Company.  In
      addition to interest risk related to BOLI investments, there is also credit
      risk
      related to insurance carriers.  To mitigate this risk, annual
      financial condition reviews are completed on all carriers. BOLI is stated on
      the
      Company's consolidated statements of condition at its current cash surrender
      value. Increases in BOLI's cash surrender value are reported as other operating
      income in the Company's consolidated statements of income.





Income
      Taxes — Income taxes are accounted for under the asset and liability
      method.  The Company files a consolidated tax return on the accrual
      method. Deferred tax assets and liabilities are recognized for future tax
      consequences attributable to temporary differences between the financial
      statement carrying amounts of existing assets and liabilities and their
      respective tax bases and operating loss and tax credit carry forwards. Deferred
      tax assets and liabilities are measured using enacted tax rates expected to
      apply to taxable income in the years in which temporary differences are expected
      to be recovered or settled. The effect on deferred tax assets and liabilities
      of
      a change in tax rates is recognized in income in the period that includes the
      enactment date.





Tax
      benefits of uncertain tax positions are accounted for in accordance with FASB
      Interpretation No. 48, “Accounting for Uncertainty
      in Income
      Taxes – An Interpretation of FASB Statement No. 109” (“FIN
      48”).  FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise’s financial statements in accordance with Statement
      of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income
      Taxes.”  FIN 48 also prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return.  In
      addition, FIN 48 provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, disclosure and
      transition.  The provisions of FIN 48 were applied to all tax
      positions upon initial adoption of this standard as of January 1, 2007, with
      the
      effect of adoption recognized in retained earnings as the cumulative effect
      of
      an accounting change.  Tax positions must have met the
      more-likely-than-not recognition threshold at the effective date in order for
      the related tax benefits to be recognized or continue to be
      recognized.  Interest and penalties related to income taxes are
      classified as income tax expense on the consolidated statements of
      income.  The adoption of FIN 48 by the Company had no impact on its
      Consolidated Financial Statements.





Pension
—
      The Company maintains a noncontributory, defined benefit pension plan covering
      substantially all employees, as well as supplemental employee retirement plans
      covering certain executives.  Costs associated with these plans, based
      on actuarial computations of current and future benefits for employees, are
      charged to current operating expenses. Effective December 31, 2006, the Company
      adopted SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans – An Amendment of FASB Statement
      No. 87, 88, 106 and 132,” which requires the Company to recognize the
      over funded or under funded status of a single employer defined benefit
      postretirement plan as an asset or liability on its balance sheet and to
      recognize changes in the funded status in comprehensive income in the year
      in
      which the change occurred.  However, gains and losses, prior service
      costs or credits, and transition assets or obligations that have not been
      included in net periodic benefit cost as of the end of 2006, the fiscal year
      in
      which SFAS No. 158 was initially applied, were recognized as components of
      the
      ending balance of accumulated other comprehensive income, net of
      tax.  The incremental impact of adopting SFAS No. 158 at December 31,
      2006 was an increase to accumulated other comprehensive loss of approximately
      $820,000, a decrease to other assets for pension benefits (classified as other
      assets) of approximately $1,344,000, and an increase in the deferred tax asset
      (classified as other assets) of approximately $524,000.  Subsequent
      changes in the funded status of the defined benefit plan are included in other
      comprehensive income.





Treasury
      Stock — Treasury stock acquisitions are recorded at cost.  Subsequent
      sales of treasury stock are recorded on an average cost basis.  Gains
      on the sale of treasury stock are credited to additional
      paid-in-capital.  Losses on the sale of treasury stock are charged to
      additional paid-in-capital to the extent of previous gains, otherwise charged
      to
      retained earnings.





Earnings
      Per Share — Basic earnings per share (EPS) is computed by dividing income
      available to common stockholders by the weighted average number of common shares
      outstanding for the period.  Entities with complex capital structures
      must also present diluted EPS, which reflect the potential dilution that could
      occur if securities or other contracts to issue common stock were exercised
      or
      converted into common shares.  The Company does not have a complex
      capital structure and, accordingly, has presented only basic EPS.





Trust
      Department — Assets held in fiduciary or agency capacities for customers are not
      included in the accompanying consolidated statements of condition, since such
      items are not assets of the Company.





Financial
      Instruments with Off-Balance Sheet Risk — The Bank is a party to other financial
      instruments with off-balance sheet risk in the normal course of business to
      meet
      the financing needs of its customers. These financial instruments





67-K
 Index





Note
      1. Summary of Significant Accounting Policies, Continued





include
      commitments to extend credit and standby letters of credit which involve, to
      varying degrees, elements of credit and interest rate risk in excess of the
      amount recognized in the statement of condition. The contract amounts of those
      instruments reflect the extent of involvement the Bank has in particular classes
      of financial instruments.





Comprehensive
      Income — For the Company, comprehensive income represents net income plus other
      comprehensive income (loss), which consists of two components: 1) the net change
      in unrealized gains or losses on securities available for sale, recorded net
      of
      income taxes, for the period, and 2) the change in the funded status of defined
      benefit plans, recorded net of tax, for the period, and is presented in the
      consolidated statements of changes in shareholders' equity and comprehensive
      income. Accumulated other comprehensive income (loss) represents the net
      unrealized gains or losses on securities available-for-sale and the net change
      in the funded status of defined benefit plans.





Segment
      Reporting — The Company's operations are solely in the banking industry and
      include the provision of traditional commercial banking services. The Company
      operates solely in the geographical region of Central New York State. The
      Company has identified separate operating segments; however, these segments
      did
      not meet the quantitative thresholds for separate disclosure.





Goodwill
      and Other Intangible Assets —Acquired intangible assets (other than goodwill)
      are amortized over their useful economic life, while goodwill and any acquired
      intangible assets with an indefinite useful economic life are not amortized,
      but
      are reviewed for impairment on an annual basis.





When
      facts and circumstances indicate there may be an impairment of amortizable
      intangible assets, the Company evaluates the recoverability of the asset
      carrying value, using estimates of the undiscounted future cash flows over
      the
      remaining asset life.  Any impairment loss is measured by the excess
      of carrying value over fair value.





Goodwill
      impairment tests are performed on an annual basis or when events or
      circumstances dictate.  In these tests, the fair value of each
      reporting unit is compared to the carrying amount of that reporting unit in
      order to determine if impairment is indicated.  If so, the implied
      fair value of the reporting unit’s goodwill is compared to its carrying amount
      and the impairment loss is measured by the excess of carrying value over fair
      value.





68-K
 Index





Note
                  2. Investment SecuritiesThe
                  amortized cost and fair value of investment securities are as
                  follows:December
                  31, 2007Gross
              
              
              Gross
              
              
              EstimatedAmortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              Fairdollars
                  in thousands
              
              
              
              Cost
              
              
              Gains
              
              
              Losses
              
              
              ValueAvailable-for-Sale
                  PortfolioU.S.
                  Treasuries
              
              
              
              $
              5,997
              
              
              $
              73
              
              
              $
              0
              
              
              $
              6,070Obligations
                  of U.S. Government Corporations and Agencies
              
              
              7,997
              
              
              
              18
              
              
              
              0
              
              
              
              8,015Obligations
                  of States and Political Subdivisions
              
              
              
              48,861
              
              
              
              215
              
              
              
              358
              
              
              
              48,718Mortgage-Backed
                  Securities
              
              
              
              
              172,719
              
              
              
              295
              
              
              
              1,619
              
              
              
              171,395Corporate
                  Securities
              
              
              
              
              2,294
              
              
              
              0
              
              
              
              1
              
              
              
              2,293Equity
                  Securities
              
              
              
              
              866
              
              
              
              0
              
              
              
              83
              
              
              
              783$
              238,734
              
              
              $
              601
              
              
              $
              2,061
              
              
              $
              237,274Trading
                  Portfolio
              
              
              
              $
              1,167
              
              
              $
              263
              
              
              $
              0
              
              
              $
              1,430Held-to-Maturity
                  PortfolioObligations
                  of States and Political Subdivisions
              
              
              
              $
              17,874
              
              
              $
              162
              
              
              $
              18
              
              
              $
              18,018Mortgage-Backed
                  Securities
              
              
              
              
              34,328
              
              
              
              8
              
              
              
              611
              
              
              
              33,725$
              52,202
              
              
              $
              170
              
              
              $
              629
              
              
              $
              51,743
  December
                  31, 2006Gross
              
              
              Gross
              
              
              EstimatedAmortized
              
              
              Unrealized
              
              
              Unrealized
              
              
              Fairdollars
                  in thousands
              
              
              
              Cost
              
              
              Gains
              
              
              Losses
              
              
              ValueAvailable-for-Sale
                  PortfolioU.S.
                  Treasuries
              
              
              
              $
              10,963
              
              
              $
              0
              
              
              $
              156
              
              
              $
              10,807Obligations
                  of U.S. Government Corporations and Agencies
              
              
              
              21,486
              
              
              
              0
              
              
              
              150
              
              
              
              21,336Obligations
                  of States and Political Subdivisions
              
              
              
              
              47,985
              
              
              
              240
              
              
              
              681
              
              
              
              47,544Mortgage-Backed
                  Securities
              
              
              
              
              149,400
              
              
              
              100
              
              
              
              3,414
              
              
              
              146,086Corporate
                  Securities
              
              
              
              
              2,274
              
              
              
              0
              
              
              
              7
              
              
              
              2,267Equity
                  Securities
              
              
              
              
              825
              
              
              
              95
              
              
              
              1
              
              
              
              919$
              232,933
              
              
              $
              435
              
              
              $
              4,409
              
              
              $
              228,959Trading
                  Portfolio
              
              
              
              $
              1,296
              
              
              $
              329
              
              
              $
              0
              
              
              $
              1,625Held-to-Maturity
                  PortfolioObligations
                  of States and Political Subdivisions
              
              
              
              $
              22,903
              
              
              $
              48
              
              
              $
              35
              
              
              $
              22,916Mortgage-Backed
                  Securities
              
              
              
              
              39,455
              
              
              
              0
              
              
              
              1,061
              
              
              
              38,394$
              62,358
              
              
              $
              48
              
              
              $
              1,096
              
              
              $
              61,310
  The
                  following tables provide information on temporarily impaired
                  securities:
  December
                    31, 2007Less
                    Than 12 Months
                
                
                12
                    Months or Longer
                
                
                TotalEstimated
                
                
                Unrealized
                
                
                Estimated
                
                
                Unrealized
                
                
                Estimated
                
                
                Unrealizeddollars
                    in thousands
                
                Fair
                    Value
                
                
                Losses
                
                
                Fair
                    Value
                
                
                Losses
                
                
                Fair
                    Value
                
                
                LossesObligations
                    of States and Political Subdivisions
                
                
                1,861
                
                
                
                4
                
                
                
                24,336
                
                
                
                372
                
                
                
                26,197
                
                
                
                376Mortgage-Backed
                    Securities
                
                
                47,042
                
                
                
                260
                
                
                
                101,020
                
                
                
                1,970
                
                
                
                148,062
                
                
                
                2,230Corporate
                    Securities
                
                
                0
                
                
                
                0
                
                
                
                2,293
                
                
                
                1
                
                
                
                2,293
                
                
                
                1Equity
                    Securities
                
                
                533
                
                
                
                24
                
                
                
                153
                
                
                
                59
                
                
                
                686
                
                
                
                83$
                49,436
                
                
                $
                288
                
                
                $
                127,802
                
                
                $
                2,402
                
                
                $
                177,238
                
                
                $
                2,690





69-K
 Index





Note
                  2. Investment Securities, ContinuedDecember
                  31, 2006Less
                  Than 12 Months
              
              
              12
                  Months or Longer
              
              
              TotalEstimated
              
              
              Unrealized
              
              
              Estimated
              
              
              Unrealized
              
              
              Estimated
              
              
              Unrealizeddollars
                  in thousands
              
              Fair
                  Value
              
              
              Losses
              
              
              Fair
                  Value
              
              
              Losses
              
              
              Fair
                  Value
              
              
              LossesU.S.
                  Treasuries
              
              $
              0
              
              
              $
              0
              
              
              $
              10,808
              
              
              $
              156
              
              
              $
              10,808
              
              
              $
              156Obligations
                  of U.S. GovernmentCorporations
                  and Agencies
              
              
              5,990
              
              
              
              10
              
              
              
              15,346
              
              
              
              140
              
              
              
              21,336
              
              
              
              150Obligations
                  of States and Political Subdivisions
              
              
              4,425
              
              
              
              42
              
              
              
              28,724
              
              
              
              674
              
              
              
              33,149
              
              
              
              716Mortgage-Backed
                  Securities
              
              
              35,204
              
              
              
              206
              
              
              
              138,972
              
              
              
              4,269
              
              
              
              174,176
              
              
              
              4,475Corporate
                  Securities
              
              
              2,267
              
              
              
              7
              
              
              
              0
              
              
              
              0
              
              
              
              2,267
              
              
              
              7Equity
                  Securities
              
              
              94
              
              
              
              1
              
              
              
              0
              
              
              
              0
              
              
              
              94
              
              
              
              1$
              47,980
              
              
              $
              266
              
              
              $
              193,850
              
              
              $
              5,239
              
              
              $
              241,830
              
              
              $
              5,505
  The
                  above unrealized losses are considered temporary, based on the
                  following:U.S.
                  treasuries and agencies, state and political subdivisions, and
                  corporate
                  securities: The unrealized losses on these investments were caused
                  by
                  market interest rate increases. The contractual terms of these
                  investments require the issuer to settle the securities at par
                  upon
                  maturity of the investment. Because the decline in fair value is
                  attributed to market interest rates and not credit quality, and
                  because
                  the Company has the ability and intent to hold these investments
                  until a
                  market price recovery, which may be to maturity, these investments
                  are not
                  considered other than temporarily impaired.Mortgage-backed
                  securities: The unrealized losses on investments in mortgage-backed
                  securities has been caused by market rate increases. Substantially
                  all of the contractual cash flows of these securities are issued
                  or backed
                  by various government agencies or government sponsored enterprises
                  such as
                  GNMA, FNMA, and FHLMC. Because the decline in fair value is
                  attributed to market interest rates and not credit quality, and
                  because
                  the Company has the ability and intent to hold these investments
                  until a
                  market price recovery or to maturity, these investments are not
                  considered
                  other-than-temporarily impaired.The
                  Company does not believe that the gross unrealized losses as of
                  December
                  31, 2007, which is comprised of 203 investment securities, represent
                  an
                  other than temporary impairment.The
                  amortized cost and fair value of debt securities by contractual
                  maturity
                  are shown below. Expected maturities will differ from contractual
                  maturities because issuers may have the right to call or prepay
                  obligations with or without call or prepayment
                  penalties. Mortgage-backed securities are included based on the final
                  contractual maturity date, while equity securities have no stated
                  maturity
                  and are excluded from the following
                  tables.
  December
                  31, 2007Amortized
              
              
              Fairdollars
                  in thousands
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Cost
              
              
              ValueAvailable-for-Sale
                  SecuritiesDue
                  in One Year or Less
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              7,973
              
              
              $
              7,978Due
                  After One Year Through Five Years
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              57,032
              
              
              
              56,571Due
                  After Five Years Through Ten Years
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              75,736
              
              
              
              75,375Due
                  After Ten Years
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              97,127
              
              
              
              96,567$
              237,868
              
              
              $
              236,491
  December
                  31, 2007Amortized
              
              
              Fairdollars
                  in thousands
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              Cost
              
              
              ValueHeld-to-Maturity
                  SecuritiesDue
                  in One Year or Less
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              9,114
              
              
              $
              9,284Due
                  After One Year Through Five Years
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,922
              
              
              
              3,958Due
                  After Five Years Through Ten Years
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              19,679
              
              
              
              19,541Due
                  After Ten Years
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              19,487
              
              
              
              18,960$
              52,202
              
              
              $
              51,743








70-K
 Index





Note
                  2. Investment Securities, ContinuedThe
                  following table sets forth information with regard to securities
                  gains and
                  losses realized on sales or calls of available-for-sale
                  securities:Year
                  Ended December 31,dollars
                  in thousands
              
              2007
              
              
              2006
              
              
              2005Gross
                  Gains
              
              $
              16
              
              
              $
              326
              
              
              $
              383Gross
                  Losses
              
              
              0
              
              
              
              0
              
              
              
              (13
              )Net
                  Securities Gains
              
              $
              16
              
              
              $
              326
              
              
              $
              370
  The
                  proceeds from sales and calls of available-for sale investment
                  securities
                  were $6,119,000, $5,637,000, and $9,350,000 for the years ended
                  December
                  31, 2007, 2006, and 2005, respectively.Federal
                  Home Loan Bank and Federal Reserve Bank stock of $2,949,000 at
                  December
                  31, 2007 and $2,933,000 in 2006 is carried at cost as fair values
                  are not
                  readily determinable. Both investments are required for membership
                  and are classified as other investments on the statement of
                  condition. At December 31, 2007, investment securities with an
                  amortized cost of $189,513,000 and an estimated fair value of $188,121,000
                  were pledged as collateral for certain public deposits, borrowings,
                  and
                  other purposes as required or permitted by
                  law.














71-K
 Index





Note
                  3. LoansDecember
                  31,dollars
                  in thousands
              
              2007
              
              
              2006Residential
                  Real Estate
              
              $
              127,113
              
              
              $
              117,815Commercial
                  Real Estate
              
              
              161,071
              
              
              
              152,128Commercial
              
              
              83,622
              
              
              
              74,033Consumer
              
              
              72,064
              
              
              
              61,856$
              443,870
              
              
              $
              405,832Less:
                  Allowance for Loan Losses
              
              
              (6,977
              )
              
              
              (6,680
              )Net
                  Loans
              
              $
              436,893
              
              
              $
              399,152
  At
                  December 31, 2007, $53,251,000 in residential real estate loans
                  were
                  pledged as collateral for FHLBNY advances.At
                  the periods presented below, the subsidiary bank had loans to directors
                  and executive officers of the Company and its subsidiary, or company
                  in
                  which they have ownership. Such loans are made in the ordinary
                  course of
                  business on substantially the same terms, including interest rates
                  and
                  collateral, as those prevailing at the time for comparable transactions
                  with other persons and did not involve more than normal risk of
                  collectibility or present other unfavorable features. Loan transactions
                  with related parties are as
                  follows:
  December
                  31,dollars
                  in thousands
              
              2007
              
              
              2006Balance
                  at Beginning of Year
              
              $
              14,892
              
              
              $
              6,596Loan
                  Payments
              
              
              (2,705
              )
              
              
              (1,573
              )Decreases
                  Due to Director and Executive Officer Attrition
              
              
              (446
              )
              
              
              0New
                  Loans and Advances
              
              
              5,083
              
              
              
              9,869Increases
                  Due to the Addition of Executive Officers
              
              
              76
              
              
              
              0Ending
                  Balance
              
              $
              16,900
              
              
              $
              14,892
  There
                  was significant disruption and volatility in the financial and
                  capital
                  markets during the second half of 2007. Turmoil in the mortgage
                  market adversely impacted both domestic and global markets, and
                  led to a
                  significant credit and liquidity crisis. These market conditions were
                  attributable to a variety of factors, in particular the fallout
                  associated
                  with subprime mortgage loans (a type of lending we have never actively
                  pursued). The disruption has been exacerbated by the continued
                  decline of the real estate and housing market. While we continue to
                  adhere to prudent underwriting standards, in the event that there
                  was a
                  sharp downturn in the housing market in our Central New York market
                  areas,
                  it could adversely affect the value of property used as collateral
                  for our
                  loans. Adverse changes in the economy may have a negative effect on
                  the ability of our borrowers to make timely loan payments, which
                  would
                  have a negative impact on our earnings. An increase in loan
                  delinquencies could adversely impact our loan loss experience,
                  causing
                  increases in our provision and allowance for loan losses in future
                  periods.





72-K
 Index





Note
                  4. Allowance for Loan LossesChanges
                  in the allowance for loan losses are presented in the following
                  summary:Year
                  Ended December 31,dollars
                  in thousands
              
              2007
              
              
              2006
              
              
              2005Balance
                  at Beginning of Year
              
              $
              6,680
              
              
              $
              6,640
              
              
              $
              6,250Provision
                  for Loan Losses
              
              
              900
              
              
              
              1,560
              
              
              
              1,580Recoveries
                  Credited
              
              
              563
              
              
              
              586
              
              
              
              285Loans
                  Charged-Off
              
              
              (1,166
              )
              
              
              (2,106
              )
              
              
              (1,475
              )Ending
                  Balance
              
              $
              6,977
              
              
              $
              6,680
              
              
              $
              6,640
  The
                  following provides information on impaired loans for the periods
                  presented:As
                  of and For the YearEnded
                  December 31,dollars
                  in thousands
              
              2007
              
              
              2006
              
              
              2005Impaired
                  Loans
              
              $
              5,701
              
              
              $
              1,896
              
              
              $
              3,478Allowance
                  for Impaired Loans
              
              
              1,382
              
              
              
              334
              
              
              
              1,179Average
                  Recorded Investment in Impaired Loans
              
              
              4,858
              
              
              
              1,597
              
              
              
              3,170
  At
                  December 31, 2007, $4,365,000 of the impaired loans had a specific
                  reserve
                  allocation of $1,382,000 compared to $1,669,000 of impaired loans
                  at
                  December 31, 2006 with a related reserve allocation of
                  $334,000.The
                  Company did not record any interest income related to impaired
                  loans for
                  the years ended December 31, 2007, 2006 and 2005.The
                  following table sets forth information with regards to non-performing
                  loans:
  As
                  of December 31,dollars
                  in thousands
              
              2007
              
              
              2006
              
              
              2005Loans
                  in Non-Accrual Status
              
              $
              6,086
              
              
              $
              2,347
              
              
              $
              3,866Loans
                  Contractually Past Due 90 Days or Moreand
                  Still Accruing Interest
              
              
              50
              
              
              
              182
              
              
              
              181Troubled
                  Debt Restructured Loans
              
              
              0
              
              
              
              0
              
              
              
              871Total
                  Non-Performing Loans
              
              $
              6,136
              
              
              $
              2,529
              
              
              $
              4,918
  The
                  Company did not record any interest income related to non-accrual
                  loans
                  for the years ended December 31, 2007, 2006, and 2005. Had the loans
                  in non-accrual status performed in accordance with their original
                  terms,
                  additional interest income of $259,000, $71,000, and $49,000 would
                  have
                  been recorded for the years ended December 31, 2007, 2006, and
                  2005,
                  respectively.Had
                  the troubled debt restructured loans performed in accordance with
                  their
                  original terms, the Company would have recorded interest income
                  of $3,000 for the year ended December 31, 2005. Under the
                  restructured terms, the Company recorded interest income of $4,000
                  for the
                  year ended December 31, 2005.








73-K
 Index





Note
                  5. Premises and EquipmentDecember
                  31,dollars
                  in thousands
              
              2007
              
              
              2006Land
              
              $
              1,001
              
              
              $
              598Buildings
              
              
              7,679
              
              
              
              7,776Furniture,
                  Fixtures and Equipment
              
              
              5,449
              
              
              
              4,489Construction
                  in Progress
              
              
              8
              
              
              
              122$
              14,137
              
              
              $
              12,985Less:
                  Accumulated Depreciation
              
              
              (7,825
              )
              
              
              (7,299
              )$
              6,312
              
              
              $
              5,686Depreciation
                  expense was $771,000, $729,000, and $797,000 for the years ended
                  December
                  31, 2007, 2006 and 2005, respectively.


Note
                  6. Goodwill and Intangible AssetsGoodwill
                  and intangible assets are presented in the following
                  table:December
                  31,dollars
                  in thousands
              
              2007
              
              
              2006Goodwill
              
              $
              4,619
              
              
              $
              4,518Core
                  Deposit Intangible
              
              $
              777
              
              
              $
              777Other
                  Intangible Assets
              
              
              354
              
              
              
              350Total
                  Intangible Assets
              
              $
              1,131
              
              
              $
              1,127Accumulated
                  Amortization
              
              
              (737
              )
              
              
              (607
              )Intangible
                  Assets, Net
              
              $
              394
              
              
              $
              520
  In
                  March 2007, the Company acquired Provantage Funding Corporation,
                  a
                  mortgage banking subsidiary, and recorded related goodwill of $101,000
                  and
                  a customer list intangible asset of $4,000.Amortization
                  expense on intangible assets was $130,000 for 2007, $178,000 for
                  2006, and
                  $171,000 for 2005. The core deposit intangible and other intangible
                  assets are amortized over a weighted average period of approximately
                  5 and
                  15 years, respectively.Estimated
                  annual amortization expense of intangible assets, absent any impairment
                  or
                  change in estimated useful lives is summarized as follows for each
                  of the
                  next five years:
  dollars
                  in thousands2008
              
              
              
              
              $
              1222009
              
              
              
              
              
              
              1222010
              
              
              
              
              
              
              312011
              
              
              
              
              
              
              232012
              
              
              
              
              
              
              23





74-K
 Index





Note
                  7. Time DepositsContractual
                  maturities of time deposits were as follows:December
                  31, 2007dollars
                  in thousands
              
              Amount
              
              
              %2008
              
              $
              205,037
              
              
              
              66.052009
              
              
              89,209
              
              
              
              28.742010
              
              
              8,272
              
              
              
              2.662011
              
              
              2,222
              
              
              
              0.722012
              
              
              5,576
              
              
              
              1.80Thereafter
              
              
              100
              
              
              
              0.03$
              310,416
              
              
              
              100.00
              %











75-K
 Index





Note
                  8. BorrowingsThe
                  following is a summary of borrowings:December
                  31,dollars
                  in thousands
              
              2007
              
              
              2006Short-Term
                  Borrowings:Securities
                  Sold Under Agreements to Repurchase
              
              $
              14,189
              
              
              $
              16,748Treasury
                  Tax and Loan Notes
              
              
              1,597
              
              
              
              1,711Total
                  Short-Term Borrowings
              
              $
              15,786
              
              
              $
              18,459Long-Term
                  Borrowings:Advances
                  from Federal Home Loan Bank of New YorkBearing
                  Interest at 3.62%, Due February 2008, Callable February
                  2007
              
              
              0
              
              
              
              5,000Bearing
                  Interest at 2.35% to 2.43%, Due March 2007
              
              
              0
              
              
              
              5,500Bearing
                  Interest at 3.85%, Due March 2010, Callable March 2007
              
              
              0
              
              
              
              5,000Bearing
                  Interest at 3.05%, Due December 2012, Callable December
                  2007
              
              
              0
              
              
              
              8,000Bearing
                  Interest at 5.56%, Due July 2008
              
              
              113
              
              
              
              274Bearing
                  Interest at 4.31% Due November 2015, Callable November
                  2008
              
              
              4,000
              
              
              
              4,000Bearing
                  Interest at 5.03%, Due January 2009
              
              
              384
              
              
              
              696Bearing
                  Interest at 3.85%, Due January 2010
              
              
              457
              
              
              
              655Bearing
                  Interest at 3.12%, Due March 2011
              
              
              1,762
              
              
              
              2,256Bearing
                  Interest at 5.89% to 5.95%, Due July 2011
              
              
              742
              
              
              
              918Bearing
                  Interest at 5.30%, Due December 2011
              
              
              946
              
              
              
              1,148Bearing
                  Interest at 4.11%, Due January 2012
              
              
              629
              
              
              
              765Bearing
                  Interest at 4.42%, Due January 2015
              
              
              760
              
              
              
              848Bearing
                  Interest at 6.26%, Due July 2016
              
              
              687
              
              
              
              745Bearing
                  Interest at 5.77%, Due December 2016
              
              
              1,408
              
              
              
              1,523Bearing
                  Interest at 6.04%, Due January 2017
              
              
              713
              
              
              
              770Bearing
                  Interest at 6.46%, Due July 2021
              
              
              404
              
              
              
              422Bearing
                  Interest at 5.07%, Due January 2025
              
              
              3,558
              
              
              
              3,684Bearing
                  Interest at 4.97%, Due October 2014
              
              
              2,475
              
              
              
              0Bearing
                  Interest at 4.68%, Due March 2012, Callable March 2010
              
              
              5,000
              
              
              
              0Bearing
                  Interest at 4.34%, Due March 2012, Callable March 2008
              
              
              5,000
              
              
              
              0Bearing
                  Interest at 4.33%, Due April 2012, Callable January 2008
              
              
              10,000
              
              
              
              0Bearing
                  Interest at 4.45%, Due October 2012, Callable October 2010
              
              
              2,500
              
              
              
              0Total
                  Long-Term Borrowings
              
              $
              41,538
              
              
              $
              42,204
  Borrowings
                  from the Federal Home Loan Bank of New York ("FHLBNY") are collateralized
                  by mortgage loans, mortgage-backed securities, or other government
                  agency
                  securities. At December 31, 2007, $12,500,000 of the long-term
                  borrowings were collateralized by securities with an amortized
                  cost and
                  estimated fair value of $28,411,000 and $28,158,000,
                  respectively. The remaining long-term borrowings totaling $29,038,000
                  are collateralized by the Company's mortgage loans. At December 31,
                  2007, the Bank had a line of credit of $76,234,400 with the FHLB.
                  However,
                  based on outstanding borrowings at FHLB, the total potential borrowing
                  capacity on these lines is reduced to $14,294,000 at December 31,
                  2007.At
                  December 31, 2006, $23,500,000 of the long-term borrowings were
                  collateralized by securities with an amortized cost and estimated
                  fair
                  value of $27,529,000 and $26,863,000, respectively. The
                  remaining long-term borrowings totaling $18,704,000 are collateralized
                  by
                  the Company's mortgage loans. At December 31, 2006, the Bank had a
                  line of credit of $75,906,000 with the FHLB. However, based on
                  outstanding borrowings at FHLB, the total potential borrowing capacity
                  on
                  these lines is reduced to $24,128,000 at December 31,
                  2006.








76-K
 Index





Note
                  8. Borrowings, ContinuedInformation
                  related to short-term borrowings is as follows:As
                  of and For theYear
                  Ended December 31,dollars
                  in thousands
              
              2007
              
              
              2006
              
              
              2005Outstanding
                  Balance at End of Period
              
              $
              15,786
              
              
              $
              18,459
              
              
              $
              19,357Average
                  Interest Rate at End of Period
              
              
              3.12
              %
              
              
              3.26
              %
              
              
              3.30
              %Maximum
                  Outstanding at any Month-End
              
              
              24,036
              
              
              
              25,778
              
              
              
              39,447Average
                  Amount Outstanding during Period
              
              
              19,426
              
              
              
              19,980
              
              
              
              22,747Average
                  Interest Rate during Period
              
              
              3.13
              %
              
              
              3.36
              %
              
              
              2.78
              %
  Average
                  amounts outstanding and average interest rates are computed using
                  weighted
                  daily averages.Securities
                  sold under agreements to repurchase included in short-term borrowings
                  represent the purchase of interests in government securities by
                  the Bank’s
                  customers or other third parties, which are repurchased by the
                  Bank on the
                  following business day or at stated maturity. The underlying
                  securities are held in a third party custodian account and are
                  under the
                  Company’s control. The amortized cost and estimated fair value of
                  securities pledged as collateral for repurchase agreements was
                  $31,487,000
                  and $31,175,000, respectively, at December 31, 2007. The amortized
                  cost and estimated fair value of securities pledged as collateral
                  for
                  repurchase agreements was $32,926,000 and $32,196,000, respectively,
                  at
                  December 31, 2006. These amounts are included in the total of investment
                  securities pledged disclosed in Note
                  2.








77-K
 Index





Note
                  9. Income TaxesIncome
                  tax expense attributable to income before taxes is comprised of
                  the
                  following:Year
                  Ended December 31,dollars
                  in thousands
              
              2007
              
              
              2006
              
              
              2005Current:Federal
              
              $
              1,673
              
              
              $
              2,064
              
              
              $
              2,541State
              
              
              240
              
              
              
              272
              
              
              
              312Total
                  Current
              
              
              1,913
              
              
              
              2,336
              
              
              
              2,853Deferred:Federal
              
              
              169
              
              
              
              (116
              )
              
              
              (75
              )State
              
              
              46
              
              
              
              (14
              )
              
              
              (63
              )Total
                  Deferred
              
              
              215
              
              
              
              (130
              )
              
              
              (138
              )Total
                  Income Tax Expense
              
              $
              2,128
              
              
              $
              2,206
              
              
              $
              2,715
  The
                  components of deferred income taxes, which are included in the
                  consolidated statements of condition, are:
  Year
                  Ended December 31,dollars
                  in thousands
              
              2007
              
              
              2006Assets:Allowance
                  for Loan Losses
              
              $
              2,666
              
              
              $
              2,601Deferred
                  Compensation
              
              
              1,303
              
              
              
              1,356Net
                  Unrealized Loss on SecuritiesAvailable-for-Sale
              
              
              565
              
              
              
              1,548Pension
                  Assets - SFAS No. 158
              
              
              (388
              )
              
              
              524Other
              
              
              325
              
              
              
              2304,471
              
              
              
              6,259Liabilities:Securities
                  Discount Accretion
              
              
              351
              
              
              
              315Defined
                  Benefit Pension Plan
              
              
              1,493
              
              
              
              1,442Equity
                  Investment
              
              
              420
              
              
              
              283Goodwill
                  Amortization
              
              
              423
              
              
              
              329Other
              
              
              246
              
              
              
              3072,933
              
              
              
              2,676Net
                  Deferred Tax Assets at End of Year
              
              
              1,538
              
              
              
              3,583Net
                  Deferred Tax Assets at Beginning of Year
              
              $
              3,583
              
              
              $
              2,918Decrease
                  (Increase) in Net Deferred Tax Asset
              
              $
              2,045
              
              
              $
              (665
              )Prior
                  Year Decrease in Net Adjustment toAccumulated
                  Other Comprehensive Income
              
              $
              (2,072
              )
              
              $
              (1,537
              )Current
                  Year Decrease in Net Adjustment toAccumulated
                  Other Comprehensive Income
              
              $
              177
              
              
              $
              2,072Purchase
                  Accounting Adjustments, Net
              
              $
              65
              
              
              $
              0Deferred
                  Tax Expense (Benefit)
              
              $
              215
              
              
              $
              (130
              )













78-K
 Index





Note
                  9. Income Taxes, ContinuedRealization
                  of deferred tax assets is dependent upon the generation of future
                  taxable
                  income or the existence of sufficient taxable income within the
                  carryback
                  period. A valuation allowance is provided when it is more likely than
                  not that some portion of the deferred tax assets will not be
                  realized. In assessing the need for a valuation allowance, management
                  considers the scheduled reversal of the deferred tax liabilities,
                  the
                  level of historical taxable income, and projected future taxable
                  income
                  over the periods in which the temporary differences comprising
                  the
                  deferred tax assets will be deductible. Based on its assessment,
                  management determined that no valuation allowance is
                  necessary.A
                  reconciliation of the statutory federal income tax rate to the
                  effective
                  income tax rate is as follows:
  Year
                  Ended December 31,dollars
                  in thousands
              
              2007
              
              
              2006
              
              
              2005Statutory
                  Federal Income Tax Rate
              
              
              34.0
              %
              
              
              34.0
              %
              
              
              34.0
              %Variances
                  from Statutory Rate:State
                  Income Tax, Net of Federal Tax Benefit
              
              
              1.9
              
              
              
              1.8
              
              
              
              1.6Tax
                  Exempt Income
              
              
              (14.8
              )
              
              
              (13.2
              )
              
              
              (12.1
              )Other
              
              
              0.5
              
              
              
              1.0
              
              
              
              2.5Effective
                  Tax Rate
              
              
              21.6
              %
              
              
              23.6
              %
              
              
              26.0
              %
  Effective
                  January 1, 2007, the Company adopted the provisions of the Financial
                  Accounting Standards Board's Interpretation No. 48, “Accounting for
                  Uncertainty in Income Taxes” (“FIN 48”). There was no cumulative
                  effect related to adopting FIN 48. The balance of the Company's
                  unrecognized tax benefit was $0 and $52 at December 31, 2007 and
                  December
                  31, 2006, respectively.The
                  Company is currently open to audit by the Internal Revenue Service
                  for the
                  years ending December 31, 2004 through 2006. The Company’s New York State
                  income tax return is open to audit for the years ending December
                  31, 2005
                  and 2006.The
                  Company recognized interest accrued related to the unrecognized
                  tax
                  benefits in tax expense. There are no accrued interest and penalties
                  as of December 31, 2007.




Note.
                  10. Employee Benefit PlansEffective
                  February 28, 2006, the Company's defined benefit pension plan was
                  frozen.  Under the frozen plan, no future benefits will be
                  accrued for plan participants, nor will any new participants be
                  enrolled
                  in the plan.  This plan is sponsored by the Company's bank
                  subsidiary.  Prior to being frozen, the plan covered employees
                  who had attained the age of 21 and completed one year of
                  service.  Although the plan was frozen, the Company maintains
                  the responsibility for funding the plan.  The Company's funding
                  practice is to contribute at least the minimum amount annually
                  to meet
                  minimum funding requirements.  An annual minimum contribution
                  was not required in 2007 because the plan is more than 100%
                  funded.  Plan assets consist primarily of marketable fixed
                  income securities and common stocks.  Plan benefits are based on
                  years of service and the employee’s average compensation during the five
                  highest consecutive years of the last ten years of
                  employment.The
                  Company adopted SFAS No. 158 effective December 31, 2006.  SFAS
                  No. 158 requires an employer to (1) recognize the over funded or
                  under
                  funded status of defined benefit postretirement plans, which is
                  measured
                  as the difference between the plan assets at fair value and the
                  benefit
                  obligation, as an asset or liability in its balance sheet; (2)
                  recognize
                  changes in that funded status in the year in which the changes
                  occur
                  through comprehensive income; and (3) measure the defined benefit
                  plan
                  assets and obligations as of the date of its year-end balance
                  sheet.  SFAS No. 158 does not change how an employer determines
                  the amount of net periodic benefit
                  cost.





79-K
 Index





Note.
                  10. Employee Benefit Plans, ContinuedThe
                  following table sets forth the components of pension expense (benefit)
                  as
                  well as changes in the plan’s projected benefit obligation and plan assets
                  and the plan’s funded status and amounts recognized in the consolidated
                  statements of condition based on a December 31 measurement
                  date.dollars
                  in thousands
              
              2007
              
              
              2006Change
                  in Benefit Obligation:Benefit
                  Obligation at Beginning of Year
              
              $
              15,710
              
              
              $
              18,268Service
                  Cost
              
              
              135
              
              
              
              413Interest
                  Cost
              
              
              901
              
              
              
              913Actuarial
                  Gain
              
              
              (1,010
              )
              
              
              (128
              )Benefits
                  Paid
              
              
              (822
              )
              
              
              (779
              )Curtailment
                  Loss
              
              
              0
              
              
              
              (2,977
              )Projected
                  Benefit Obligation at End of Year
              
              $
              14,914
              
              
              $
              15,710Change
                  in Plan Assets:Fair
                  Value of Plan Assets at Beginning of Year
              
              $
              18,068
              
              
              $
              17,028Actual
                  Gain on Plan Assets
              
              
              2,540
              
              
              
              1,819Employer
                  Contribution
              
              
              0
              
              
              
              0Benefits
                  Paid
              
              
              (822
              )
              
              
              (779
              )Fair
                  Value of Plan Assets at End of Year
              
              $
              19,786
              
              
              $
              18,068Funded
                  Status at End of Year
              
              $
              4,872
              
              
              $
              2,358
  Amounts
                  recognized in accumulated other comprehensive income, pretax, consist
                  of
                  the following at December 31,:dollars
                  in thousands
              
              2007
              
              
              2006Net
                  Gain (Loss)
              
              $
              1,012
              
              
              $
              (1,214
              )Prior
                  Service Cost
              
              $
              0
              
              
              $
              (130
              )$
              1,012
              
              
              $
              (1,344
              )
  The
                  funded status of the plan, which totaled $4,872,000 and $2,358,000
                  at
                  December 31, 2007 and 2006, respectively, were recognized as other
                  assets
                  in the consolidated statements of condition.The
                  following table presents a comparison of the accumulated benefit
                  obligation and plan assets:dollars
                  in thousands
              
              2007
              
              
              2006Projected
                  Benefit Obligation
              
              $
              14,914
              
              
              $
              15,710Accumulated
                  Benefit Obligation
              
              
              14,914
              
              
              
              15,710Fair
                  Value of Plan Assets
              
              
              19,786
              
              
              
              18,068














80-K
 Index





Note.
                    10. Employee Benefit Plans,
                    ContinuedComponents
                    of Net Periodic Benefit
                    Cost are:dollars
                    in
                    thousands
                
                2007
                
                
                2006
                
                
                2005Service
                    Cost
                
                $
                135
                
                
                $
                413
                
                
                $
                682Interest
                    Cost
                
                
                901
                
                
                
                913
                
                
                
                924Expected
                    Return on Plan
                    Assets
                
                
                (1,325
                )
                
                
                (1,375
                )
                
                
                (1,247
                )Net
                    Amortization
                
                
                130
                
                
                
                122
                
                
                
                215Curtailment
                    Expense
                
                
                0
                
                
                
                190
                
                
                
                0$
                (159
                )
                
                $
                263
                
                
                $
                574
  Amounts
                    recognized in other
                    comprehensive income, pretax, during 2007 consist of the
                    following:dollars
                    in
                    thousandsNet
                    Gain on Pension
                    Asset
                
                
                
                $
                (2,226
                )Pension
                    amortization
                
                
                
                
                
                (130
                )$
                (2,356
                )
  The
                    following weighted-average
                    assumptions were used to determine the benefit obligation of
                    the plan as
                    of September 30:2007
                
                
                2006
                
                
                2005Discount
                    Rate
                
                
                6.25
                %
                
                
                5.80
                %
                
                
                5.50
                %Expected
                    Return on Plan
                    Assets
                
                
                7.50
                %
                
                
                7.50
                %
                
                
                8.00
                %Rate
                    of Compensation
                    Increase
                
                
                N/A
                %
                
                
                N/A
                %
                
                
                3.00
                %
  The
                    following weighted-average
                    assumptions were used to determine the net periodic benefit cost
                    of the
                    plan for the years ended December 31:2007
                
                
                2006
                
                
                2005Discount
                    Rate
                
                
                5.80
                %
                
                
                5.50
                %
                
                
                5.88
                %Expected
                    Return on Plan
                    Assets
                
                
                7.50
                %
                
                
                8.00
                %
                
                
                8.00
                %Rate
                    of Compensation
                    Increase
                
                
                N/A
                %
                
                
                3.00
                %
                
                
                3.00
                %
  The
                    plan's weighted average asset
                    allocations at September 30, 2007 and 2006, by asset category,
                    are as
                    follows:Plan
                    Assets
                    atSeptember
                    30,2007
                
                
                2006Equity
                    Securities
                
                
                
                
                
                
                58.0
                %
                
                
                59.8
                %Debt
                    Securities
                
                
                
                
                
                
                40.0
                %
                
                
                39.9
                %Other
                
                
                
                
                
                
                2.0
                %
                
                
                0.3
                %100.0
                %
                
                
                100.0
                %
  The
                    following benefit payments,
                    which reflect expected future service, as appropriate, are expected
                    to be
                    paid over the next five years:dollars
                    in
                    thousands2008
                
                
                
                
                
                
                
                
                
                $
                7772009
                
                
                
                
                
                
                
                
                
                
                8272010
                
                
                
                
                
                
                
                
                
                
                8272011
                
                
                
                
                
                
                
                
                
                
                8602012
                
                
                
                
                
                
                
                
                
                
                9142013-2018
                
                
                
                
                
                
                
                
                
                
                5,588





81-K
 Index





Note.
                  10. Employee Benefit Plans,
                  ContinuedInvestment
                  StrategyThe
                  plan assets are invested in
                  the New York State Bankers Retirement System (the "System"), which
                  was
                  established in 1938 to provide for the payment of benefits to employees
                  of
                  participating banks.  The System is overseen by a Board of
                  Trustees who meet quarterly and set the investment policy
                  guidelines.  The System utilizes two investment management
                  firms, (which will be referred to as Firm I and Firm II).  Firm
                  I is investing approximately 70% of the total portfolio and Firm
                  II is
                  investing approximately 30% of the portfolio.  The System's
                  investment objective is to exceed the investment benchmarks in
                  each asset
                  category.  Each firm operates under a separate written
                  investment policy approved by the Board of Trustees and designed
                  to
                  achieve an allocation approximating 60% invested in Equity Securities
                  and
                  40% invested in Debt Securities.  Each firm reports at least
                  quarterly to the Investment Committee and semi-annually to the
                  Board.The
                  equity portfolio consists
                  of  international securities and a diversified range of
                  securities in the US equity markets.  The fixed income portfolio
                  focuses the purchase and sale of futures and options on futures
                  on foreign
                  currencies and foreign and domestic bonds, bond indices and short-term
                  securities.Discount
                  RateAnnually,
                  the Company establishes
                  a discount rate to determine the value of the plan's benefit
                  obligation.  The Company uses the 20-year AA Corporate bond
                  yield as a basis for determining the discount rate for the
                  plan.Expected
                  Long-Term
                  Rate-of-ReturnThe
                  expected long-term
                  rate-of-return on the plan assets reflects long-term earnings expectations
                  on existing plan assets and those contributions expected to be
                  received
                  during the current plan year.  In estimating that rate,
                  appropriate consideration was given to historical returns earned
                  by plan
                  assets in the fund and the rates of return expected to be available
                  for
                  reinvestment.  Average rates of return over the past 1, 3, 5,
                  and 10 year periods were determined and subsequently adjusted to
                  reflect
                  current capital market assumptions and changes in investment
                  allocations.Supplemental
                  Retirement Income
                  AgreementIn
                  addition to the Company’s
                  noncontributory defined benefit pension plan, there are two supplemental
                  employee retirement plans for two former executives.  The amount
                  of the liabilities recognized in the Company’s consolidated statements of
                  condition associated with these plans was $1,013,000 at December
                  31, 2007
                  and $905,000 at December 31, 2006.  For the years ended December
                  31, 2007, 2006, and 2005, the Company recognized $206,000, $63,000
                  and
                  $194,000, respectively, of expense related to those plans.  The
                  discount rate used in determining the actuarial present values
                  of the
                  projected benefit obligations was 5.71% at December 31,
                  2007.










82-K
 Index





Note
                  11. Commitments and
                  ContingenciesFinancial
                  instruments whose
                  contract amounts represent credit risk consist of the
                  following:December
                  31,dollars
                  in
                  thousands
              
              2007
              
              
              2006Commitments
                  to Extend
                  Credit
              
              $
              90,555
              
              
              $
              81,536Commercial
                  and Stand-by Letters of
                  Credit
              
              
              6,988
              
              
              
              6,974Commitments
                  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 amounts do not necessarily represent
                  future cash requirements.Stand-by
                  letters of credit are
                  conditional commitments issued by the Bank to guarantee the performance
                  of
                  a customer to a third party. Those guarantees are primarily issued to
                  support public and private borrowing arrangements, including bond
                  financing and similar transactions. The credit risk involved in
                  issuing letters of credit is essentially the same as that involved
                  in
                  extending loan facilities to customers. Since some of the letters of
                  credit are expected to expire without being drawn upon, the total
                  commitment amounts do not necessarily represent future cash requirements.
                  Stand-by letters of credit outstandings were $4,380,000 and $6,974,000
                  as
                  of December 31, 2007 and December 31, 2006,
                  respectively.The
                  estimated fair value of the
                  Company’s stand-by letters of credit was $16 thousand and $18 thousand
                  at
                  December 31, 2007 and December 31, 2006, respectively. The estimated
                  fair value of stand-by letters of credit at their inception is
                  equal to
                  the fee that is charged to the customer by the Company. Generally,
                  the Company’s stand-by letters of credit have a term of one year. In
                  determining the fair values disclosed above, the fees were reduced
                  on a
                  straight-line basis from the inception of each stand-by letter
                  of credit
                  to the respective dates above.The
                  amount of collateral obtained,
                  if deemed necessary, by the Bank upon extension of credit for commitments
                  to extend credit and letters of credit is based upon management's
                  credit
                  evaluation of the counter party. Collateral held varies but includes
                  residential and commercial real estate.
  Future
                  payments under operating
                  lease obligations as of December 31, 2007 are as
                  follows:dollars
                  in
                  thousands
              Amount2008
              
              $
              2352009
              
              
              2262010
              
              
              2232011
              
              
              2142012
              
              
              183Thereafter
              
              
              1,116
  In
                  the ordinary course of
                  business, there are various legal proceedings pending against the
                  Company. After consultation with outside counsel, management
                  considers that the aggregate exposure, if any, arising from such
                  litigation would not have a material adverse effect on the Company's
                  consolidated financial
                  position.













83-K
 Index





Note
                  12. Disclosures about Fair
                  Value of Financial InstrumentsSFAS
                  No. 107, "Disclosures about
                  Fair Value of Financial Instruments," requires disclosure of fair
                  value
                  information about financial instruments, whether or not recognized
                  in the
                  consolidated statement of condition, for which it is practicable
                  to
                  estimate that value. In cases where quoted market prices are not
                  available, fair values are based on estimates using present value
                  or other
                  valuation techniques. Those techniques are significantly affected
                  by the
                  assumptions used, including the discount rate and estimates of
                  future cash
                  flows. In that regard, the derived fair value estimates cannot
                  be
                  substantiated by comparison to independent markets and in many
                  cases,
                  could not be realized in immediate settlement of the instruments.
                  SFAS No.
                  107 excludes certain financial instruments and all nonfinancial
                  instruments from its disclosure requirements. Accordingly, the
                  aggregate
                  fair value amounts presented do not represent the underlying value
                  of the
                  Bank.The
                  following methods and
                  assumptions were used to estimate the fair value of each class
                  of
                  financial instruments:Short-Term
                  Financial
                  InstrumentsThe
                  fair value of certain
                  financial instruments is estimated to approximate their carrying
                  value
                  because the remaining term to maturity of the financial instrument
                  is less
                  than 90 days or the financial instrument reprices in 90 days or
                  less. Such
                  financial instruments include cash and due from banks, Federal
                  Funds sold,
                  accrued interest receivable and accrued interest
                  payable.The
                  fair value of Time Deposits
                  with Other Banks is estimated using discounted cash flow analysis
                  based on
                  the Company's current reinvestment rate for similar
                  deposits.SecuritiesFair
                  values for investments were
                  based on quoted market prices, where available, as provided by
                  third-party
                  vendors.  If quoted market prices were not available, fair
                  values provided by the vendors were based on quoted market prices
                  of
                  comparable instruments in active markets and/or based on a matrix
                  pricing
                  methodology which employs The Bond Market Association's standard
                  calculations for cash flow and price/yield analysis, or live benchmark
                  bond pricing, or terms/condition data available from major pricing
                  sources.  The fair value of other investments is estimated at
                  their carrying value.LoansFor
                  certain homogenous categories
                  of loans, such as some residential mortgages, credit card receivables,
                  and
                  other consumer loans, fair value is estimated using the quoted
                  market
                  prices for securities backed by similar loans, adjusted for differences
                  in
                  loan characteristics. The fair value of other types 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.














84-K
 Index





Note
                  12. Disclosures about Fair
                  Value of Financial Instruments, ContinuedDepositsThe
                  fair value of demand deposits,
                  savings accounts, and certain NOW and money market deposits is
                  the amount
                  payable on demand at the reporting date. The fair value of fixed-maturity
                  time deposits is estimated using the rates currently offered for
                  deposits
                  of similar remaining maturities.BorrowingsThe
                  fair value of repurchase
                  agreements, short-term borrowings, and long-term borrowings is
                  estimated
                  using discounted cash flow analysis based on the Company's current
                  incremental borrowing rate for similar borrowing
                  arrangements.Off-Balance
                  Sheet
                  InstrumentsThe
                  fair value of outstanding loan
                  commitments and standby letters of credit are based on fees currently
                  charged to enter into similar agreements, taking into account the
                  remaining terms of the agreements, the counter parties' credit
                  standing
                  and discounted cash flow analysis. The fair value of these instruments
                  approximates the value of the related fees and is not
                  material.The
                  carrying values and estimated
                  fair values of the Company’s financial instruments are as
                  follows:  December
                    31,
                
                
                December
                    31,2007
                
                
                2006Carrying
                
                
                Fair
                
                
                Carrying
                
                
                Fairdollars
                    in
                    thousands
                
                Value
                
                
                Value
                
                
                Value
                
                
                ValueFinancial
                    Assets:Cash
                    and Cash
                    Equivalents
                
                $
                18,942
                
                
                $
                18,942
                
                
                $
                25,859
                
                
                $
                25,856Securities
                
                
                295,688
                
                
                
                295,229
                
                
                
                297,542
                
                
                
                296,494Loans
                    Held for
                    Sale
                
                
                456
                
                
                
                456
                
                
                
                0
                
                
                
                0Loans
                
                
                443,870
                
                
                
                448,387
                
                
                
                405,832
                
                
                
                405,708Allowance
                    for Loan
                    Losses
                
                
                (6,977
                )
                
                
                (6,977
                )
                
                
                (6,680
                )
                
                
                (6,680
                )Net
                    Loans
                
                
                436,893
                
                
                
                441,410
                
                
                
                399,152
                
                
                
                399,028Accrued
                    Interest
                    Receivable
                
                
                3,621
                
                
                
                3,621
                
                
                
                3,674
                
                
                
                3,674Financial
                    Liabilities:Demand
                
                $
                71,145
                
                
                $
                71,145
                
                
                $
                71,914
                
                
                $
                71,914Savings,
                    NOW and
                    MoneyMarket
                    Deposit
                    Accounts
                
                
                254,196
                
                
                
                254,196
                
                
                
                243,249
                
                
                
                243,249Certificates
                    of
                    Deposit
                
                
                310,416
                
                
                
                313,328
                
                
                
                289,411
                
                
                
                288,916Other
                    Deposits
                
                
                21,737
                
                
                
                21,737
                
                
                
                24,470
                
                
                
                24,469Borrowings
                
                
                57,324
                
                
                
                57,702
                
                
                
                60,663
                
                
                
                58,892Accrued
                    Interest
                    Payable
                
                
                1,195
                
                
                
                1,195
                
                
                
                968
                
                
                
                968







85-K
 Index





Note
                  13. Regulatory
                  MattersThe
                  Company and the subsidiary
                  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 effect on the Company’s consolidated financial statements.
                  Under capital adequacy guidelines and the regulatory framework
                  for prompt
                  corrective action, the subsidiary bank must meet specific capital
                  guidelines that involve quantitative measures of assets, liabilities,
                  and
                  certain off-balance sheet items as calculated under regulatory
                  accounting
                  practices. The Company’s and subsidiary bank’s capital amounts and
                  classifications 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 maintenance
                  of
                  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 (as
                  defined), and of Tier 1 capital (as defined) to average assets
                  (as
                  defined). Management believes the Company and subsidiary bank meet
                  all
                  capital adequacy requirements to which they are
                  subject.The
                  most recent notification from
                  the Office of the Comptroller of the Currency categorized the subsidiary
                  bank as well capitalized under the regulatory framework for prompt
                  corrective action. To be categorized as well capitalized the Company
                  and
                  subsidiary bank must maintain minimum total risk-based, Tier 1
                  risk-based,
                  and Tier 1 leverage ratios as set forth in the following table.
                  There have
                  been no conditions or events since that notification that management
                  believes have changed the subsidiary institution’s
                  category.  For
                    CapitalActual:
                
                Adequacy
                    Purposes:
                
                Well
                    Capitalized:dollars
                    in
                    thousands
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                Ratio
                
                
                Amount
                
                
                RatioAs
                    of December 31,
                    2007Total
                    Capital to Risk-Weighted
                    Assets:The
                    Company
                
                $
                71,320
                
                
                
                13.29
                %
                
                $
                42,937
                
                
                
                8.00
                %
                
                
                N/A
                
                
                
                N/ASubsidiary
                    Bank
                
                $
                68,837
                
                
                
                12.84
                %
                
                $
                42,874
                
                
                
                8.00
                %
                
                $
                53,593
                
                
                
                10.00
                %Tier
                    1 Capital to Risk-Weighted
                    Assets:The
                    Company
                
                $
                64,607
                
                
                
                12.04
                %
                
                $
                21,469
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ASubsidiary
                    Bank
                
                $
                62,134
                
                
                
                11.59
                %
                
                $
                21,437
                
                
                
                4.00
                %
                
                $
                32,156
                
                
                
                6.00
                %Tier
                    1 Capital to Average
                    Assets:The
                    Company
                
                $
                64,607
                
                
                
                8.15
                %
                
                $
                31,714
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ASubsidiary
                    Bank
                
                $
                62,134
                
                
                
                7.85
                %
                
                $
                31,676
                
                
                
                4.00
                %
                
                $
                39,595
                
                
                
                5.00
                %As
                    of December 31,
                    2006Total
                    Capital to Risk-Weighted
                    Assets:The
                    Company
                
                $
                67,826
                
                
                
                13.50
                %
                
                $
                40,186
                
                
                
                8.00
                %
                
                
                N/A
                
                
                
                N/ASubsidiary
                    Bank
                
                $
                66,309
                
                
                
                13.20
                %
                
                $
                40,179
                
                
                
                8.00
                %
                
                $
                50,223
                
                
                
                10.00
                %Tier
                    1 Capital to Risk-Weighted
                    Assets:The
                    Company
                
                $
                61,542
                
                
                
                12.25
                %
                
                $
                20,093
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ASubsidiary
                    Bank
                
                $
                60,026
                
                
                
                11.95
                %
                
                $
                20,089
                
                
                
                4.00
                %
                
                $
                30,134
                
                
                
                6.00
                %Tier
                    1 Capital to Average
                    Assets:The
                    Company
                
                $
                61,542
                
                
                
                8.11
                %
                
                $
                30,367
                
                
                
                4.00
                %
                
                
                N/A
                
                
                
                N/ASubsidiary
                    Bank
                
                $
                60,026
                
                
                
                7.92
                %
                
                $
                30,330
                
                
                
                4.00
                %
                
                $
                37,913
                
                
                
                5.00
                %
  Banking
                    regulations limit the
                    amount of dividends that may be paid to shareholders. Generally,
                    dividends
                    are limited to retained net profits for the current year and
                    two preceding
                    years. At December 31, 2007, dividends totaling $4,745,000 could
                    have been
                    paid without prior regulatory
                    approval.





86-K
 Index





Note
                    14. Other Comprehensive
                    IncomeThe
                    following is a summary of
                    changes in other comprehensive income for the periods
                    presented:Year
                    Ended December
                    31,dollars
                    in
                    thousands
                
                2007
                
                
                2006
                
                
                2005Unrealized
                    Holding Gains (Losses)
                    Arising During the Period Net of Tax(Pre-tax
                    Amount of $2,530,000,
                    $297,000, and ($4,226,000))
                
                $
                1,542
                
                
                $
                181
                
                
                $
                (2,579
                )Reclassification
                    Adjustment for
                    Gains Realized in Net IncomeDuring
                    the Period, Net of Tax
                    (Pre-tax Amount of ($16,000),($326,0000),
                    and
                    ($370,000))
                
                
                (9
                )
                
                
                (199
                )
                
                
                (226
                )Amortization
                    of Pension Liability
                    (Pre-tax Amount of $2,356,000, $0, and $0)
                
                
                1,442
                
                
                
                0
                
                
                
                0Other
                    Comprehensive Loss, Net of
                    Tax of $1,895,000, ($11,000)and
                    ($1,791,000)
                
                $
                2,975
                
                
                $
                (18
                )
                
                $
                (2,805
                )Components
                    of accumulated other
                    comprehensive loss are:
  As
                    of December
                    31,dollars
                    in
                    thousands
                
                2007
                
                
                2006Unrealized
                    Loss on
                    Securities
                
                $
                (895
                )
                
                $
                (2,427
                )Unrecognized
                    Pension Gain
                    (Loss)
                
                
                623
                
                
                
                (820
                )Accumulated
                    Other Comprehensive
                    Loss
                
                $
                (272
                )
                
                $
                (3,247
                )








87-K
 Index





Note
                  15. Parent Company Only
                  Financial StatementsPresented
                  below are the condensed
                  statements of condition December 31, 2007, and 2006 and statements
                  of
                  income and cash flows for each of the years in the three-year period
                  ended
                  December 31, 2007, for the Parent Company. These financial statements
                  should be read in conjunction with the consolidated financial statements
                  and notes thereto.
  Condensed
                  Statements of
                  ConditionDecember
                  31,dollars
                  in
                  thousands
              
              
              2007
              
              
              2006AssetsCash
                  and Cash
                  Equivalents
              
              
              $
              923
              
              
              $
              588Securities
                  Available for Sale, at
                  Estimated Fair Value
              
              
              
              737
              
              
              
              916Investment
                  in Subsidiary, Equity
                  Basis
              
              
              
              67,659
              
              
              
              61,759Other
                  Assets
              
              
              
              1,435
              
              
              
              1,632Total
                  Assets
              
              
              $
              70,754
              
              
              $
              64,895Liabilities
                  and Shareholders’
                  EquityTotal
                  Liabilities
              
              
              $
              1,355
              
              
              $
              1,563Shareholders’
                  Equity
              
              
              
              69,399
              
              
              
              63,332Total
                  Liabilities and
                  Shareholders’ Equity
              
              
              $
              70,754
              
              
              $
              64,895
  Condensed
                  Statements of
                  IncomeDecember
                  31,dollars
                  in
                  thousands
              
              2007
              
              
              2006
              
              
              2005Dividends
                  from
                  Subsidiary
              
              $
              6,356
              
              
              $
              9,756
              
              
              $
              5,305Interest
                  and Other Dividend
                  Income
              
              
              47
              
              
              
              75
              
              
              
              89Net
                  Gain on Sale of
                  Securities
              
              
              0
              
              
              
              165
              
              
              
              06,403
              
              
              
              9,996
              
              
              
              5,394Operating
                  Expense
              
              
              725
              
              
              
              682
              
              
              
              606Income
                  Before Income Tax Benefit
                  and Equityin
                  Undistributed Income of
                  Subsidiary
              
              
              5,678
              
              
              
              9,314
              
              
              
              4,788Income
                  Tax
                  Benefit
              
              
              (257
              )
              
              
              (171
              )
              
              
              (190
              )Equity
                  in Undistributed Income of
                  Subsidiaries
              
              
              1,772
              
              
              
              (2,333
              )
              
              
              2,766Net
                  Income
              
              $
              7,707
              
              
              $
              7,152
              
              
              $
              7,744





88-K
 Index





Note
                  15. Parent Company Only
                  Financial Statements, ContinuedCondensed
                  Statements of Cash
                  FlowsYear
                  Ended December
                  31,dollars
                  in
                  thousands
              
              2007
              
              
              2006
              
              
              2005Cash
                  Flows from Operating
                  Activities:Net
                  Income
              
              $
              7,707
              
              
              $
              7,152
              
              
              $
              7,744Adjustments
                  to Reconcile Net
                  Income to CashProvided
                  by Operating
                  Activities:Investment
                  Security
                  Gains
              
              
              0
              
              
              
              (165
              )
              
              
              0Decrease
                  (Increase) in Other
                  Assets
              
              
              2
              
              
              
              (3
              )
              
              
              16Increase
                  (Decrease) in Other
                  Liabilities
              
              
              55
              
              
              
              (47
              )
              
              
              (32
              )Equity
                  in Undistributed Income of
                  Subsidiaries
              
              
              (1,772
              )
              
              
              2,333
              
              
              
              (2,766
              )Net
                  Cash Provided by Operating
                  Activities
              
              
              5,992
              
              
              
              9,270
              
              
              
              4,962Cash
                  Flows from Investing
                  Activities:Proceeds
                  from Sales of
                  Available-for-Sale Securities
              
              
              60
              
              
              
              472
              
              
              
              0Purchase
                  of Available-for-Sale
                  Securities
              
              
              (57
              )
              
              
              (50
              )
              
              
              (625
              )Payments
                  for Investments in and
                  Advances to Subsidiaries
              
              
              (1,045
              )
              
              
              0
              
              
              
              0Net
                  Cash Provided by (Used by)
                  Investing Activities
              
              
              (1,042
              )
              
              
              422
              
              
              
              (625
              )Cash
                  Flows from Financing
                  Activities:Purchase
                  of Treasury
                  Stock
              
              
              (605
              )
              
              
              (6,569
              )
              
              
              (581
              )Cash
                  Dividends
              
              
              (4,010
              )
              
              
              (4,128
              )
              
              
              (4,246
              )Net
                  Cash Used in Financing
                  Activities
              
              
              (4,615
              )
              
              
              (10,697
              )
              
              
              (4,827
              )Net
                  Increase (Decrease) in Cash
                  Equivalents
              
              
              335
              
              
              
              (1,005
              )
              
              
              (490
              )Cash
                  and Cash Equivalents at
                  Beginning of Year
              
              
              588
              
              
              
              1,593
              
              
              
              2,083Cash
                  and Cash Equivalents at End
                  of Year
              
              $
              923
              
              
              $
              588
              
              
              $
              1,593A
                  statement of changes in
                  shareholders' equity has not been presented since it is the same
                  as the
                  consolidated statement of changes in shareholders' equity previously
                  presented.





Note
                16.  Federal Reserve Bank RequirementThe
                Company is required to maintain a clearing balance with the Federal
                Reserve Bank.  The required clearing balance for the 14-day
                maintenance period ending January 2, 2008 was
                $1,300,000.


























89-K
 Index





ITEM
        9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE





None.








ITEM
      9A: CONTROLS AND PROCEDURES





We
      have
      established disclosure control procedures to ensure that material information
      related to the Company, its financial condition or results of operation, is
      made
      known to the officers that certify the Company’s financial reports and to other
      members of senior management and the Board of Directors.  These
      procedures have been formalized through the formation of a Management Disclosure
      Committee and the adoption of a Management Disclosure Committee Charter and
      related disclosure certification process.  The management disclosure
      committee is comprised of our senior management and meets at least quarterly
      to
      review periodic filings for full and proper disclosure of material
      information.





Our
      management, including the Chief Executive Officer and Chief Financial Officer,
      evaluated the design and operational effectiveness of the Company’s disclosure
      controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)–15(e) under
      the Securities Exchange Act of 1934, as amended) as of December 31,
      2007.  Based upon that evaluation, the Chief Executive Officer and
      Chief Financial Officer concluded that the Company’s disclosure controls and
      procedures were effective in ensuring that information required to be disclosed
      by the Company in reports that it files or submits under the Securities Exchange
      Act of 1934 are recorded, processed, summarized and reported within the time
      periods specified in the SEC’s rules and forms.





It
      should
      be noted that any system of internal controls, regardless of design can provide
      only reasonable, and not absolute, assurance that the objectives of the control
      system are met.  In addition, the design of any control system is
      based in part upon certain assumption about the likelihood of future
      events.  Because of these and other inherent limitations of control
      systems, there can be no assurance that any design will succeed in achieving
      its
      stated goals under all potential future conditions, regardless of how
      remote.





Management’s
      Report on Internal Control Over Financial Reporting





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in Exchange Act Rules
      13a-15f.  Under the supervision and with the participation of our
      management, including our Chief Executive Officer and Chief Financial Officer,
      we conducted an evaluation of the effectiveness of our internal control over
      financial reporting based on the framework in Internal Control – Integrated
      Framework issued by the Committee of Sponsoring Organizations of the
      Treadway Commission.  Based on our evaluation under the framework in
Internal Control – Integrated
      Framework, our management has reasonable assurance that our internal
      control over financial reporting was effective as of December 31,
      2007.  The independent registered public accounting firm of KMPG LLP,
      as auditors of the Company’s Consolidated Financial Statements, has issued an
      audit report on the effectiveness of the Company’s internal control over
      financial reporting as of December 31, 2007.











90-K
 Index











Report
      of Independent Registered Public Accounting Firm





The
      Board
      of Directors and Shareholders of The Wilber Corporation:





We
      have
      audited The Wilber Corporation and subsidiaries’ (the Company) internal control
      over financial reporting as of December 31, 2007, based on criteria established
      in Internal Control -
      Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission (COSO).  The Company's management is
      responsible for maintaining effective internal control over financial reporting
      and for its assessment of the effectiveness of internal control over financial
      reporting, included in the accompanying Management's Report on Internal
      Control Over Financial Reporting.  Our responsibility is to
      express an opinion on the Company’s internal control over financial reporting
      based on our audit.





We
      conducted our audit 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
      effective internal control over financial reporting was maintained in all
      material respects.  Our audit included obtaining an understanding of
      internal control over financial reporting, assessing the risk that a material
      weakness exists, and testing and evaluating the design and operating
      effectiveness of internal control based on the assessed risk. Our audit also
      included performing such other procedures as we considered necessary in the
      circumstances.  We believe that our audit provides a reasonable basis
      for our opinion.





A
      company's internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles.  A company's internal
      control over financial reporting includes those policies and procedures that
      (1)
      pertain to the maintenance of records that, in reasonable detail, accurately
      and
      fairly reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as necessary
      to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements.  Also, projections of any evaluation
      of effectiveness to future periods are subject to the risk that controls may
      become inadequate because of changes in conditions, or that the degree of
      compliance with the policies or procedures may deteriorate.





In
      our
      opinion, The Wilber Corporation and subsidiaries maintained, in all material
      respects, effective internal control over financial reporting as of December
      31,
      2007, based on criteria established in Internal Control - Integrated
      Framework issued by COSO.





We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated statements of condition of
      The
      Company as of December 31, 2007 and 2006, and the related consolidated
      statements of income, shareholders’ equity and comprehensive income, and cash
      flows for each of the years in the three-year period ended December 31, 2007,
      and our report dated March 10, 2008 expressed an unqualified opinion on those
      consolidated financial statements.














Albany,
      New York


March
      10,
      2008








91-K
 Index





ITEM
      9B: OTHER INFORMATION





None.








PART
      III





ITEM
      10:  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE





A.
      Directors of the Registrant





Information
      contained under the captions Proposal II, "Election of Directors;" "The Nominees
      and Continuing Directors" and under "Corporate Governance;” “Board of
      Directors;” “Executive Committee;” “Audit and Compliance Committee;”
“Compensation and Benefits Committee;” and “Corporate Governance and Nominating
      Committee;” in the definitive Proxy Statement for the Annual Meeting of
      Shareholders to be held on April 25, 2008, to be filed with the Commission
      within 120 days after the end of the fiscal year covered by this Form 10-K,
      is
      incorporated herein by this reference.





B.
      Executive Officers of the Registrant Who Are Not Directors





Information
      contained in Proposal II under the caption, "Executive Officers Who Are Not
      Directors," in the definitive Proxy Statement for the Annual Meeting of
      Shareholders to be held on April 25, 2008, to be filed with the Commission
      within 120 days after the end of the fiscal year covered by this Form 10-K,
      is
      incorporated herein by this reference.





C.  Compliance
      with Section 16(a) of The Exchange Act





Information
      contained under the caption, “Section 16(a) Beneficial Ownership Reporting
      Compliance,” in the definitive Proxy Statement for the Annual Meeting of
      Shareholders to be held on April 25, 2008, to be filed with the Commission
      within 120 days after the end of the fiscal year covered by this Form 10-K,
      is
      incorporated herein by this reference.





D.
      Code
      of Ethics





The
      Company has adopted a Code of Ethics for adherence by its members of the Board
      of Directors, Chief Executive Officer, Chief Financial Officer, Chief Accounting
      Officer and other officers of the Company and its affiliates to ensure honest
      and ethical conduct; full, fair and proper disclosure of financial information
      in the Company's periodic reports; and compliance with applicable laws, rules,
      and regulations. The text of the Company’s Code of Ethics, as amended, is posted
      and available on the Bank’s website (http://www.wilberbank.com) under 'About
      Us.'





E.
        Corporate Governance





There
      have been no material changes to the procedures by which shareholders of the
      Company may recommend director nominees to the Company’s Board.





Information
      contained under the captions “Corporate Governance – Audit and Compliance
      Committee”, “Audit Committee Report” and “Audit Committee Financial Expert” in
      the definitive Proxy Statement for the Annual Meeting of Shareholders to be
      held
      on April 25, 2008, to be filed with the Commission within 120 days after the
      end
      of the fiscal year covered by the Form 10-K is incorporated herein by
      reference.








ITEM
      11:  EXECUTIVE COMPENSATION





Information
      contained under the captions, “Compensation Committee Report” and
      "Compensation," in the definitive Proxy Statement for the Annual Meeting of
      Shareholders to be held on April 25, 2008, to be filed with the Commission
      within 120 days after the end of the fiscal year covered by this Form 10-K,
      is
      incorporated herein by this reference.





ITEM
        12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
        MANAGEMENT AND RELATED STOCKHOLDER MATTERS





Information
      contained under the caption, "Principal Owners of Our Common Stock," in the
      definitive Proxy Statement for the Annual Meeting of Shareholders to be held
      on
      April 25, 2008, to be filed with the Commission within 120 days after the end
      of
      the fiscal year covered by this Form 10-K, is incorporated herein by this
      reference.





92-K
 Index








ITEM
      13:CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





A.
      Related Transactions





Information
      contained under the caption, "Transactions with Directors and Executive
      Officers," in the definitive Proxy Statement for the Annual Meeting of
      Shareholders to be held on April 25, 2008, to be filed with the Commission
      within 120 days after the end of the fiscal year covered by this Form 10-K,
      is
      incorporated herein by this reference.





B.  Director
      Independence





Information
      contained under the captions “Corporate Governance – Audit and Compliance
      Committee”; “Compensation and Benefits Committee”, “Corporate Governance and
      Nominating Committee;” “Compensation Committee Report” and “Director
      Independence;” in the definitive Proxy Statement for the Annual Meeting of
      Shareholders to be held on April 25, 2008, to be filed with the Commission
      within 120 days after the end of the fiscal year covered by the Form 10-K is
      incorporated herein by reference.








ITEM
      14:  PRINCIPAL ACCOUNTING FEES AND
      SERVICES





Information
      contained under the caption, "Independent Auditors' Fees – Audit and Non-Audit Fees,"
      and “Independent Auditors' Fees – Pre-Approval Policies and
      Procedures” in the definitive Proxy Statement for the Annual Meeting of
      Shareholders to be held on April 25, 2008, to be filed with the Commission
      within 120 days after the end of the fiscal year covered by this Form 10-K,
      is
      incorporated herein by this reference.











PART
      IV








ITEM
      15:  EXHIBITS AND FINANCIAL STATEMENT
      SCHEDULES





The
      financial statement schedules and exhibits filed as part of this Form 10-K
      are
      as follows:





(a)(1)
      The following Consolidated Financial Statements are included in PART II, Item
      8,
      hereof:





-Independent
                Auditors’ Report


-Consolidated
                Balance Sheets at December 31, 2007 and 2006


-Consolidated
                Statements of Income for the Years Ended December 31, 2007, 2006
                and 2005


-Consolidated
                Statements of Changes in Shareholders’ Equity for the Years Ended December
                31, 2007, 2006 and 2005


-Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007, 2006
                and
                2005


-Consolidated
                Statements of Comprehensive Income for the Years Ended December 31,
                2007,
                2006 and 2005


-Notes
                to Consolidated Financial Statements





(2)
      None.





(3)
      Exhibits:  See Exhibit Index to this Form 10-K





(b)
        See
        Exhibit Index to this Form 10-K





(c)
      None.








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 Index








SIGNATURES








Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this registration statement to be signed
      on
      its behalf by the undersigned, thereunto duly authorized.





THE
                WILBER CORPORATIONDate:
            March
                12, 2008
            
            By:
            /s/
                Douglas C. GulottyDouglas
                C. GulottyPresident
                and Chief Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.








Signatures
            
            Title
            
            Date/s/  Douglas
                C. Gulotty
            
            President
                and Chief Executive Officer
            
            March
                12, 2008Douglas
                C. Gulotty/s/
                Joseph E. Sutaris
            
            Executive
                Vice President, Chief Financial
            
            March
                12, 2008Joseph
                E. Sutaris
            
            Officer,
                Treasurer & Secretary/s/
                Brian R. Wright
            
            Director,
                Chairman
            
            March
                12, 2008Brian
                R. Wright/s/
                Alfred S. Whittet
            
            Director,
                Vice Chairman
            
            March
                12, 2008Alfred
                S. Whittet/s/
                Mary C. Albrecht
            
            Director
            
            March
                12, 2008Mary
                C. Albrecht/s/
                Olon T. Archer
            
            Director
            
            March
                12, 2008Olon
                T. Archer/s/
                Thomas J. Davis
            
            Director
            
            March
                12, 2008Thomas
                J. Davis/s/
                Joseph P. Mirabito
            
            Director
            
            March
                12, 2008Joseph
                P. Mirabito/s/
                James L. Seward
            
            Director
            
            March
                12, 2008James
                L. Seward/s/
                Geoffrey A. Smith
            
            Director
            
            March
                12, 2008Geoffrey
                A. Smith/s/
                David F. Wilber, III
            
            Director
            
            March
                12, 2008David
                F. Wilber, III





94-K
 Index








EXHIBIT
      INDEX





No.
            Document3.1
            Restated
                Certificate of Incorporation of The Wilber Corporation (incorporated
                by
                reference as Exhibit A of the Company’s Definitive Proxy Statement -
                Schedule 14A (File No. 001-31896) filed with the SEC on March 24,
                2005)3.2
            Bylaws
                of The Wilber Corporation as Amended and Restated (incorporated by
                reference to Exhibit 3.2 of the Company’s Form 8-K Current Report (File
                No. 001-31896) filed with the SEC on January 28, 2008)10.1
            Deferred
                Compensation Agreement as Amended between Wilber National Bank and
                Alfred
                S. Whittet (incorporated by reference to Exhibit 10.1 of the Company’s
                Form 8-K Current Report (File No. 001-31896) filed with the SEC on
                January
                6, 2006)10.2
            Amended
                and Restated Wilber National Bank Split-Dollar Policy Endorsement
                as of
                December 31, 2007 for Douglas C. Gulotty (replaces Exhibits 10.2
                and 10.3
                of the Company’s Form 10/A Registration Statement (No. 001-31896) filed
                with the SEC on January 30, 2004)10.8
            Retention
                Bonus Agreement as Amended between Wilber National Bank and Douglas
                C.
                Gulotty (incorporated by reference to Exhibit 10.8 of the Company’s Form
                8-K Current Report (File No. 001-31896) filed with the SEC on January
                6,
                2006)10.9
            Retention
                Bonus Agreement as Amended between Wilber National Bank and Joseph
                E.
                Sutaris (incorporated by reference to Exhibit 10.8 of the Company’s Form
                8-K Current Report (File No. 001-31896) filed with the SEC on January
                6,
                2006)10.11
            Employment
                Agreement between Wilber National Bank and Douglas C. Gulotty
                (incorporated by reference to Exhibit 10.11 of the Company’s Form 8-K
                Current Report (File No. 001-31896) filed with the SEC on January
                6,
                2006)10.12
            Employment
                Agreement between Wilber National Bank and Joseph E. Sutaris (incorporated
                by reference to Exhibit 10.12 of the Company’s Form 8-K Current Report
                (File No. 001-31896) filed with the SEC on January 6,
                2006)10.13
            Deferred
                Compensation Agreement between Wilber National Bank and Alfred S.
                Whittet13
            Annual
                Report to Shareholders (included in this annual report on Form
                10-K)14
            Code
                of Ethics, as amended, incorporated by reference to Exhibit 14 of
                the
                Company’s Annual Report on Form 10-K, and available on the Company's
                website (http://www.wilberbank.com)
                under the link 'About Us.'21
            Subsidiaries
                of the Registrant31.1
            Certification
                of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act31.2
            Certification
                of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                Act32.1
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. 135032.2
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C.
                1350






95-K