**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





ý
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d)  OF


THE
      SECURITIES EXCHANGE ACT OF 1934





**For
      the Quarterly Period Ended September 30, 2007**





OR





 ̈
      TRANSITION PERIOD
      PURSUANT TO SECTION 13 OR 15(d) OF


THE
      SECURITIES EXCHANGE ACT OF 1934





For
      the
      Transition Period from _______ to _______








Commission
      File Number:  001-31896








**THE
      WILBER CORPORATION**


(Exact
      Name of the Registrant as Specified in its Charter)





**New
                York**
            **15-6018501**(State
                or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
                Employer Identification Number)





**245
      Main Street, Oneonta, NY 13820**


(Address
      of Principal Executive Offices) (Zip Code)





**607
      432-1700**


(Registrant’s
      Telephone Number Including Area Code)





Securities
      Registered Pursuant to Section 12(b) of the Act:


**Common
      Stock, $0.01 par value per share**


(Title
      of
      Class)





Securities
      Registered Pursuant to Section 12(g) of the Act:


**None**











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  ̈





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


Large
                accelerated filer   ̈
            Accelerated
                filer  ý
            Non-accelerated
                filer   ̈





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


Yes
 ̈
      No ý





As
      of
      November 1, 2007, there were issued and outstanding 10,503,704 shares of the
      Registrant’s Common Stock.











**THE
      WILBER CORPORATION**


**FORM
      10-Q**


**INDEX**








**PART
      I – FINANCIAL INFORMATION**


FORWARD-LOOKING
                STATEMENTSITEM
                1:
            Interim
                Financial Statements (Unaudited)Consolidated
                Statements of ConditionConsolidated
                Statements of IncomeConsolidated
                Statements of Changes in Shareholders’ Equity and Comprehensive
                IncomeConsolidated
                Statements of Cash FlowsNotes
                to Unaudited Consolidated Interim Financial StatementsITEM
                2:
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                OperationsA.
            GeneralB.
            Financial
                Condition and Performance OverviewC.
            Comparison
                of Financial Condition at September 30, 2007 and December 31,
                2006D.
            Comparison
                of Results of Operations for the Three Months Ended September 30,
                2007 and
                2006E.
            Comparison
                of Results of Operations for the Nine Months Ended September 30,
                2007 and
                2006F.
            LiquidityG.
            Capital
                Resources and DividendsITEM
                3:
            Quantitative
                and Qualitative Disclosures about Market RiskITEM
                4:
            Controls
                and ProceduresITEM
                4T:
            Controls
                and Procedures**PART
                II – OTHER INFORMATION**ITEM
                1:
            Legal
                ProceedingsITEM
                1A:
            Risk
                FactorsITEM
                2:
            Unregistered
                Sales of Equity Securities and Use of ProceedsITEM
                3:
            Defaults
                Upon Senior SecuritiesITEM
                4:
            Submission
                of Matters to a Vote of Security HoldersITEM
                5:
            Other
                InformationITEM
                6:
            ExhibitsSignature
                PageIndex
                to Exhibits





1
 *Index*


**PART
      I – FINANCIAL INFORMATION**








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, and 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.








2
 *Index*


ITEM
      1:  Interim Financial Statements
      (Unaudited)




***The
                  Wilber Corporation******Consolidated
                  Statements of Condition (Unaudited)*****September
                  30,**
              
              
              **December
                  31,*****dollars
                  in thousands except share and per share data***
              **2007**
              
              
              **2006****Assets**Cash
                  and Due from Banks
              
              **$**
              **18,844**
              
              
              $
              12,742Time
                  Deposits with Other Banks
              
              ****
              **800**
              
              
              
              800Federal
                  Funds Sold
              
              ****
              **21,106**
              
              
              
              12,317Total
                  Cash and Cash Equivalents
              
              ****
              **40,750**
              
              
              
              25,859SecuritiesTrading,
                  at Fair Value
              
              ****
              **1,531**
              
              
              
              1,625Available-for-Sale,
                  at Fair Value
              
              ****
              **227,367**
              
              
              
              228,959Held-to-Maturity,
                  Fair Value of $53,461 at September 30, 2007,and
                  $61,310 at December 31, 2006
              
              ****
              **54,385**
              
              
              
              62,358Other
                  Investments
              
              ****
              **4,940**
              
              
              
              4,600Loans
              
              ****
              **433,911**
              
              
              
              405,832Allowance
                  for Loan Losses
              
              ****
              **(6,876**
              **)**
              
              
              (6,680
              )Loans,
                  Net
              
              ****
              **427,035**
              
              
              
              399,152Premises
                  and Equipment, Net
              
              ****
              **6,217**
              
              
              
              5,686Bank-Owned
                  Life Insurance
              
              ****
              **15,630**
              
              
              
              16,108Goodwill
              
              ****
              **4,619**
              
              
              
              4,518Intangible
                  Assets, Net
              
              ****
              **425**
              
              
              
              520Other
                  Assets
              
              ****
              **13,005**
              
              
              
              12,596Total
                  Assets
              
              **$**
              **795,904**
              
              
              $
              761,981**Liabilities
                  and Shareholders’ Equity**Deposits:Demand
              
              **$**
              **73,091**
              
              
              $
              71,914Savings,
                  NOW, and Money Market Deposit Accounts
              
              ****
              **259,612**
              
              
              
              243,249Certificates
                  of Deposit (Over $100M)
              
              ****
              **100,084**
              
              
              
              101,025Certificates
                  of Deposit (Under $100M)
              
              ****
              **194,565**
              
              
              
              188,386Other
                  Deposits
              
              ****
              **23,531**
              
              
              
              24,470Total
                  Deposits
              
              ****
              **650,883**
              
              
              
              629,044Short-Term
                  Borrowings
              
              ****
              **24,036**
              
              
              
              18,459Long-Term
                  Borrowings
              
              ****
              **45,108**
              
              
              
              42,204Other
                  Liabilities
              
              ****
              **9,017**
              
              
              
              8,942Total
                  Liabilities
              
              ****
              **729,044**
              
              
              
              698,649**Shareholders’
                  Equity:**Common
                  Stock, $.01 Par Value, 16,000,000 Shares Authorizedand
                  13,961,664 Shares Issued at September 30, 2007and
                  December 31, 2006
              
              ****
              **140**
              
              
              
              140Additional
                  Paid in Capital
              
              ****
              **4,224**
              
              
              
              4,224Retained
                  Earnings
              
              ****
              **93,256**
              
              
              
              89,921Accumulated
                  Other Comprehensive Loss
              
              ****
              **(2,449**
              **)**
              
              
              (3,247
              )Treasury
                  Stock at Cost, 3,457,960 Shares at September 30, 2007and
                  3,392,482 Shares at December 31, 2006
              
              ****
              **(28,311**
              **)**
              
              
              (27,706
              )Total
                  Shareholders’ Equity
              
              ****
              **66,860**
              
              
              
              63,332Total
                  Liabilities and Shareholders’ Equity
              
              **$**
              **795,904**
              
              
              $
              761,981*See
                  accompanying notes to interim unaudited consolidated financial
                  statements.*


3
 *Index*
  ***The
                  Wilber Corporation******Consolidated
                  Statements of Income (Unaudited)***
              
              **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,*****dollars
                  in thousands except share and per share data***
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Interest
                  and Dividend Income**Interest
                  and Fees on Loans
              
              **$**
              **8,306**
              
              
              $
              7,763
              
              
              **$**
              **23,994**
              
              
              $
              22,544Interest
                  and Dividends on Securities:U.S.
                  Government and Agency Obligations
              
              ****
              **2,311**
              
              
              
              2,326
              
              
              ****
              **7,151**
              
              
              
              7,194State
                  and Municipal Obligations
              
              ****
              **625**
              
              
              
              631
              
              
              ****
              **1,893**
              
              
              
              1,820Other
              
              ****
              **102**
              
              
              
              63
              
              
              ****
              **304**
              
              
              
              183Interest
                  on Federal Funds Sold and Time Deposits
              
              ****
              **392**
              
              
              
              151
              
              
              ****
              **920**
              
              
              
              309Total
                  Interest and Dividend Income
              
              ****
              **11,736**
              
              
              
              10,934
              
              
              ****
              **34,262**
              
              
              
              32,050**Interest
                  Expense**Interest
                  on Deposits:Savings,
                  NOW, and Money Market Deposit Accounts
              
              ****
              **1,360**
              
              
              
              1,060
              
              
              ****
              **3,861**
              
              
              
              2,818Certificates
                  of Deposit (Over $100M)
              
              ****
              **1,179**
              
              
              
              967
              
              
              ****
              **3,523**
              
              
              
              2,697Certificates
                  of Deposit (Under $100M)
              
              ****
              **2,019**
              
              
              
              1,804
              
              
              ****
              **5,841**
              
              
              
              5,152Other
                  Deposits
              
              ****
              **288**
              
              
              
              234
              
              
              ****
              **809**
              
              
              
              685Interest
                  on Short-Term Borrowings
              
              ****
              **142**
              
              
              
              157
              
              
              ****
              **449**
              
              
              
              490Interest
                  on Long-Term Borrowings
              
              ****
              **497**
              
              
              
              469
              
              
              ****
              **1,387**
              
              
              
              1,457Total
                  Interest Expense
              
              ****
              **5,485**
              
              
              
              4,691
              
              
              ****
              **15,870**
              
              
              
              13,299**Net
                  Interest Income**
              
              ****
              **6,251**
              
              
              
              6,243
              
              
              ****
              **18,392**
              
              
              
              18,751Provision
                  for Loan Losses
              
              ****
              **150**
              
              
              
              420
              
              
              ****
              **650**
              
              
              
              1,260Net
                  Interest Income After Provision for Loan Losses
              
              ****
              **6,101**
              
              
              
              5,823
              
              
              ****
              **17,742**
              
              
              
              17,491**Non-Interest
                  Income**Trust
                  Fees
              
              ****
              **473**
              
              
              
              344
              
              
              ****
              **1,253**
              
              
              
              1,095Service
                  Charges on Deposit Accounts
              
              ****
              **478**
              
              
              
              414
              
              
              ****
              **1,379**
              
              
              
              1,227Commission
                  Income
              
              ****
              **112**
              
              
              
              98
              
              
              ****
              **402**
              
              
              
              415Investment
                  Security Gains, Net
              
              ****
              **22**
              
              
              
              75
              
              
              ****
              **148**
              
              
              
              385Net
                  Gain on Sale of Loans
              
              ****
              **50**
              
              
              
              0
              
              
              ****
              **160**
              
              
              
              0Increase
                  in Cash Surrender Value of Bank-Owned Life Insurance
              
              ****
              **148**
              
              
              
              153
              
              
              ****
              **451**
              
              
              
              426Gain
                  on Life Insurance Coverage
              
              ****
              **0**
              
              
              
              0
              
              
              ****
              **615**
              
              
              
              0Other
                  Service Fees
              
              ****
              **54**
              
              
              
              69
              
              
              ****
              **177**
              
              
              
              266Other
                  Income
              
              ****
              **231**
              
              
              
              222
              
              
              ****
              **1,086**
              
              
              
              562Total
                  Non-Interest Income
              
              ****
              **1,568**
              
              
              
              1,375
              
              
              ****
              **5,671**
              
              
              
              4,376**Non-Interest
                  Expense**Salaries
              
              ****
              **2,548**
              
              
              
              2,459
              
              
              ****
              **7,295**
              
              
              
              7,172Employee
                  Benefits
              
              ****
              **526**
              
              
              
              586
              
              
              ****
              **1,897**
              
              
              
              2,024Occupancy
                  Expense of Company Premises
              
              ****
              **441**
              
              
              
              588
              
              
              ****
              **1,308**
              
              
              
              1,443Furniture
                  and Equipment Expense
              
              ****
              **212**
              
              
              
              200
              
              
              ****
              **624**
              
              
              
              581Computer
                  Service Fees
              
              ****
              **202**
              
              
              
              228
              
              
              ****
              **579**
              
              
              
              625Advertising
                  and Marketing
              
              ****
              **140**
              
              
              
              147
              
              
              ****
              **391**
              
              
              
              376Professional
                  Fees
              
              ****
              **199**
              
              
              
              148
              
              
              ****
              **722**
              
              
              
              674Other
                  Miscellaneous Expenses
              
              ****
              **834**
              
              
              
              713
              
              
              ****
              **2,471**
              
              
              
              2,519Total
                  Non-Interest Expense
              
              ****
              **5,102**
              
              
              
              5,069
              
              
              ****
              **15,287**
              
              
              
              15,414Income
                  Before Taxes
              
              ****
              **2,567**
              
              
              
              2,129
              
              
              ****
              **8,126**
              
              
              
              6,453Income
                  Taxes
              
              ****
              **(576**
              **)**
              
              
              (485
              )
              
              ****
              **(1,779**
              **)**
              
              
              (1,502
              )**Net
                  Income**
              
              **$**
              **1,991**
              
              
              $
              1,644
              
              
              **$**
              **6,347**
              
              
              $
              4,951Weighted
                  Average Shares Outstanding
              
              ****
              **10,537,801**
              
              
              
              10,579,399
              
              
              ****
              **10,558,607**
              
              
              
              10,895,268Basic
                  Earnings Per Share
              
              **$**
              **0.19**
              
              
              $
              0.15
              
              
              **$**
              **0.60**
              
              
              $
              0.45*See
                  accompanying notes to interim unaudited consolidated financial
                  statements.*


4
 *Index*


***The
                  Wilber Corporation******Consolidated
                  Statements of Changes in Shareholders' Equity and Comprehensive
                  Income
                  (Unaudited)*****Accumulated****Additional**
              
              
              
              
              
              **Other****Common**
              
              
              **Paid
                  in**
              
              
              **Retained**
              
              
              **Comprehensive**
              
              
              **Treasury*****dollars
                  in thousands except share and per share data***
              **Stock**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Loss**
              
              
              **Stock**
              
              
              **Total**Balance
                  December 31, 2005
              
              $
              140
              
              
              $
              4,224
              
              
              $
              86,900
              
              
              $
              (2,409
              )
              
              $
              (21,138
              )
              
              $
              67,717Comprehensive
                  Income:Net
                  Income
              
              
              -
              
              
              
              -
              
              
              
              4,951
              
              
              
              -
              
              
              
              -
              
              
              
              4,951Change
                  in Net Unrealized Losson
                  Securities, Net of Taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              49
              
              
              
              -
              
              
              
              49Total
                  Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,000Cash
                  Dividends ($.095 per share)
              
              
              -
              
              
              
              -
              
              
              
              (3,124
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,124
              )Purchase
                  of Treasury Stock (576,755 shares)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,568
              )
              
              
              (6,568
              )Balance
                  September 30, 2006
              
              $
              140
              
              
              $
              4,224
              
              
              $
              88,727
              
              
              $
              (2,360
              )
              
              $
              (27,706
              )
              
              $
              63,025Balance
                  December 31, 2006
              
              $
              140
              
              
              $
              4,224
              
              
              $
              89,921
              
              
              $
              (3,247
              )
              
              $
              (27,706
              )
              
              $
              63,332Comprehensive
                  Income:Net
                  Income
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **6,347**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **6,347**Change
                  in Net Unrealized Losson
                  Securities, Net of Taxes
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **740**
              
              
              ****
              **-**
              
              
              ****
              **740**Change
                  in Pension Asset, Net of Tax
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **58**
              
              
              ****
              **-**
              
              
              ****
              **58**Total
                  Comprehensive Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              ****
              **7,145**Cash
                  Dividends ($.095 per share)
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **(3,012**
              **)**
              
              ****
              **-**
              
              
              ****
              **-**
              
              
              ****
              **(3,012**
              **)**Purchase
                  of Treasury Stock (65,478 shares)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              ****
              **(605**
              **)**
              
              ****
              **(605**
              **)****Balance
                  September 30, 2007**
              
              **$**
              **140**
              
              
              **$**
              **4,224**
              
              
              **$**
              **93,256**
              
              
              **$**
              **(2,449**
              **)**
              
              **$**
              **(28,311**
              **)**
              
              **$**
              **66,860***See
                  accompanying notes to interim unaudited consolidated financial
                  statements.*


5
 *Index*


***The
                  Wilber Corporation******Consolidated
                  Statements of Cash Flows (Unaudited)*****Nine
                  Months Ended****September
                  30,*****dollars
                  in thousands***
              
              **2007**
              
              
              **2006****Cash
                  Flows from Operating Activities:**Net
                  Income
              
              **$**
              **6,347**
              
              
              $
              4,951Adjustments
                  to Reconcile Net Income to Net CashProvided
                  by Operating Activities:Provision
                  for Loan Losses
              
              ****
              **650**
              
              
              
              1,260Depreciation
                  and Amortization
              
              ****
              **845**
              
              
              
              844Net
                  (Gain) Loss on Disposal / Impairment of Fixed Assets
              
              ****
              **(374**
              **)**
              
              
              290Net
                  Amortization of Premiums and Accretion of Discounts on
                  Investments
              
              ****
              **376**
              
              
              
              505Gain
                  on Life Insurance Coverage
              
              ****
              **(615**
              **)**
              
              
              0Available-for-Sale
                  Investment Security Gains, net
              
              ****
              **(12**
              **)**
              
              
              (271
              )Other
                  Real Estate Losses
              
              ****
              **29**
              
              
              
              0Increase
                  in Cash Surrender Value of Bank Owned Life Insurance
              
              ****
              **(451**
              **)**
              
              
              (426
              )Net
                  Decrease in Trading Securities
              
              ****
              **230**
              
              
              
              80Net
                  Gains on Trading Securities
              
              ****
              **(136**
              **)**
              
              
              (114
              )Net
                  Gain on Sale of Loans
              
              ****
              **(160**
              **)**
              
              
              0Originations
                  of Mortgage Loans Held for Sale
              
              ****
              **(7,216**
              **)**
              
              
              0Proceeds
                  from Sales of Mortgage Loans Held for Sale
              
              ****
              **7,376**
              
              
              
              0Increase
                  in Other Assets
              
              ****
              **(829**
              **)**
              
              
              (185
              )Decrease
                  in Other Liabilities
              
              ****
              **(138**
              **)**
              
              
              (696
              )Net
                  Cash Provided by Operating Activities
              
              ****
              **5,922**
              
              
              
              6,238**Cash
                  Flows from Investing Activities:**Net
                  Cash Paid for Provantage Funding Corporation
              
              ****
              **(165**
              **)**
              
              
              0Proceeds
                  from Maturities of Held-to-Maturity Investment Securities
              
              ****
              **7,891**
              
              
              
              5,734Purchases
                  of Held-to-Maturity Investment Securities
              
              ****
              **0**
              
              
              
              (14,110
              )Proceeds
                  from Maturities of Available-for-Sale Investment
                  Securities
              
              ****
              **36,089**
              
              
              
              26,185Proceeds
                  from Sales of Available-for-Sale Investment Securities
              
              ****
              **3,866**
              
              
              
              3,057Purchases
                  of Available-for-Sale Investment Securities
              
              ****
              **(37,423**
              **)**
              
              
              (12,877
              )Net
                  (Increase) Decrease in Other Investments
              
              ****
              **(340**
              **)**
              
              
              449Cash
                  Received from Death Benefit
              
              ****
              **1,544**
              
              
              
              0Net
                  Increase in Loans
              
              ****
              **(27,965**
              **)**
              
              
              (2,176
              )Purchase
                  of Premises and Equipment, Net of Disposals
              
              ****
              **(1,395**
              **)**
              
              
              (335
              )Proceeds
                  from Sale of Other Real Estate
              
              ****
              **77**
              
              
              
              0Proceeds
                  from Sale of Premises and Equipment
              
              ****
              **87**
              
              
              
              40Net
                  Cash (Used in) Provided by Investing Activities
              
              ****
              **(17,734**
              **)**
              
              
              5,967**Cash
                  Flows from Financing Activities:**Net
                  Increase (Decrease) in Demand Deposits, Savings, NOW,Money
                  Market, and Other Deposits
              
              ****
              **16,601**
              
              
              
              (3,185
              )Net
                  Increase in Certificates of Deposit
              
              ****
              **5,238**
              
              
              
              15,581Net
                  Increase in Short-Term Borrowings
              
              ****
              **5,577**
              
              
              
              4,635Increase
                  in Long-Term Borrowings
              
              ****
              **20,000**
              
              
              
              0Repayment
                  of Long-Term Borrowings
              
              ****
              **(17,096**
              **)**
              
              
              (5,748
              )Purchase
                  of Treasury Stock
              
              ****
              **(605**
              **)**
              
              
              (6,568
              )Cash
                  Dividends Paid
              
              ****
              **(3,012**
              **)**
              
              
              (3,124
              )Net
                  Cash Provided by Financing Activities
              
              ****
              **26,703**
              
              
              
              1,591Net
                  Increase in Cash and Cash Equivalents
              
              ****
              **14,891**
              
              
              
              13,796Cash
                  and Cash Equivalents at Beginning of Period
              
              ****
              **25,859**
              
              
              
              18,417Cash
                  and Cash Equivalents at End of Period
              
              **$**
              **40,750**
              
              
              $
              32,213**Supplemental
                  Disclosures of Cash Flow Information:**Cash
                  Paid during Period for:Interest
              
              **$**
              **15,591**
              
              
              $
              13,200Income
                  Taxes
              
              **$**
              **2,210**
              
              
              $
              2,727Non
                  Cash Investing Activities:Change
                  in Unrealized Gain on Securities
              
              **$**
              **1,222**
              
              
              $
              83Transfer
                  of Loans to Other Real Estate
              
              **$**
              **(334**
              **)**
              
              $
              0Fair
                  Value of Assets Acquired
              
              **$**
              **504**
              
              
              $
              0Goodwill
                  and Identifiable Intangible Assets Recognized in Purchase
                  Combination
              
              **$**
              **105**
              
              
              $
              0Fair
                  Value of Liabilities Assumed
              
              **$**
              **444**
              
              
              $
              0*See
                  accompanying notes to interim unaudited consolidated financial
                  statements.*


6
 *Index*





The
      Wilber Corporation


Notes
      to
      Unaudited Consolidated Interim Financial Statements





***Note
      1.  Basis of Presentation***





The
      accompanying unaudited consolidated interim financial statements include the
      accounts of The Wilber Corporation (the "Company"), its wholly owned
      subsidiaries Provantange Funding Corporation (“Provantage”), and Wilber National
      Bank (the "Bank"), and the Bank's wholly owned subsidiaries.  All
      significant intercompany accounts and transactions have been eliminated in
      consolidation.  The accompanying unaudited consolidated interim
      financial statements have been prepared in accordance with accounting principles
      generally accepted in the United States of America ("GAAP") for interim
      financial information and with the instructions to Form 10-Q and Article 10
      of
      Regulation S-X.  Accordingly, they do not include all of the
      information and footnotes required by GAAP for complete financial
      statements.





The
      preparation of financial statements in conformity with GAAP required management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period.  Actual results could differ from those
      estimates.  In the opinion of management, the unaudited consolidated
      interim financial statements include all necessary adjustments, consisting
      of
      normal recurring accruals, necessary for a fair presentation for the periods
      presented.  The results for the periods presented are not necessarily
      indicative of results to be expected for the entire fiscal year or any other
      interim period.





The
      data
      in the consolidated statement of condition for December 31, 2006 was derived
      from the Company's 2006 Annual Report on Form 10-K.  The Annual Report
      on Form 10-K includes the Company's audited consolidated statements of condition
      as of December 31, 2006 and 2005, and the consolidated statements of income,
      consolidated statements of cash flows, and consolidated statements of
      shareholders’ equity and comprehensive income for each of the years in the
      three-year period ended December 31, 2006.  That data, along with the
      unaudited interim financial information presented in the consolidated statements
      of condition as of September 30, 2007, the statements of income for the three-
      and nine-month periods ended September 30, 2007 and 2006, and the statements
      of
      changes in shareholders' equity and comprehensive income and cash flows for
      the
      nine-month periods ended September 30, 2007 and 2006, should be read in
      conjunction with the 2006 consolidated financial statements, including the
      notes
      thereto.





Amounts
      in prior periods’ consolidated financial statements are reclassified when
      necessary to conform to the current period's presentation.





***Note
      2.  Earnings Per Share***





Basic
      earnings per share (“EPS”) are calculated by dividing net income available to
      common shareholders by the weighted average number of common shares outstanding
      during the period.  Entities with complex capital structures must also
      present diluted EPS, which reflects 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.





***Note
      3.  Guarantees***





Stand-by
      letters of credit written 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 totaled $5,100,000 at
      September 30, 2007 and $4,200,000 at December 31, 2006.





The
      estimated fair value of the Company’s stand-by letters of credit was $14,000 and
      $18,000 at September 30, 2007 and December 31, 2006,
      respectively.  The estimated fair value of stand-by letters
      of


7
 *Index*


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.





***Note
                  4.  Employee Benefit Plans***





Effective
                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 is
                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
                  components of Net Periodic (Benefit) Cost, based on a measurement
                  date as
                  of the prior September 30, are:





**Three
                  Months Ended**
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,*****dollars
                  in thousands***
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Service
                  Cost
              
              **$**
              **34**
              
              
              $
              103
              
              
              **$**
              **102**
              
              
              $
              314Interest
                  Cost
              
              ****
              **225**
              
              
              
              235
              
              
              ****
              **675**
              
              
              
              672Expected
                  Return on Plan Assets
              
              ****
              **(331**
              **)**
              
              
              (347
              )
              
              ****
              **(993**
              **)**
              
              
              (1,024
              )Net
                  Amortization
              
              ****
              **33**
              
              
              
              35
              
              
              ****
              **98**
              
              
              
              84Curtailment
                  Expense
              
              ****
              **0**
              
              
              
              0
              
              
              ****
              **0**
              
              
              
              190**$**
              **(39**
              **)**
              
              $
              26
              
              
              **$**
              **(118**
              **)**
              
              $
              236


***Note
                  5. Other Comprehensive Income***


The
                  following is a summary of changes in other comprehensive income
                  (loss) for
                  the periods presented:
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****September
                  30,**
              
              
              **September
                  30,*****dollars
                  in thousands***
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Unrealized
                  Holding Gains Arising During the Period, Net of Tax(Pre-Tax
                  Amount of $2,555, $4,502, $1,234, and $354)
              
              **$**
              **1,574**
              
              
              $
              2,747
              
              
              **$**
              **747**
              
              
              $
              214Reclassification
                  Adjustment for Gains Realized in Net Income During the
                  Period,Net
                  of Tax  (Pre-Tax Amount of ($12), $0, ($12), and
                  ($271))
              
              ****
              **(7**
              **)**
              
              
              0
              
              
              ****
              **(7**
              **)**
              
              
              (165
              )Amortization
                  of Pension Liability (Pre-Tax Amount of $32, $0, $98, and
                  $0)
              
              ****
              **19**
              
              
              
              0
              
              
              ****
              **58**
              
              
              
              0Other
                  Comprehensive Income (Net of Tax of $989, $1,753, $510, and
                  $34)
              
              **$**
              **1,586**
              
              
              $
              2,747
              
              
              **$**
              **798**
              
              
              $
              49




8
 *Index*


***Note
                  6.  Income Taxes***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.As
                  of January 1, 2007, the Company’s liability for an unrecognized tax
                  benefit totaled $52,000.  Since the statute of limitations
                  expired on September 15, 2007, and concurrent with the filing of
                  the
                  Company's 2006 tax return, this liability, as well as $11,512 in
                  accrued
                  interest, was reduced to zero during the three-month period ended
                  September 30, 2007.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 recently concluded an examination by New
                  York State for the tax years 2003 and 2004.  The tax returns
                  were accepted as filed with no
                  changes.


***Note
                  7.  Impaired Loans***The
                  following provides information on impaired loans for the periods
                  presented:
 
 **September
                  30,**
              
              
              **December
                  31,*****dollars
                  in thousands***
              
              **2007**
              
              
              **2006**Impaired
                  Loans
              
              **$**
              **4,819**
              
              
              $
              1,896Allowance
                  for Impaired Loans
              
              ****
              **809**
              
              
              
              334Average
                  Recorded Investment in Impaired Loans (year to date)
              
              ****
              **4,574**
              
              
              
              1,597
 
 At
                  September 30, 2007, $3,493,000 of the impaired loans had a specific
                  reserve allocation of $809,000 compared to $1,669,000 of total
                  impaired
                  loans at December 31, 2006 with a related reserve of
                  $334,000.The
                  following table sets forth information with regard to non-performing
                  loans:
 
 **September
                  30,**
              
              
              **December
                  31,*****dollars
                  in thousands***
              
              **2007**
              
              
              **2006**Loans
                  in Non-Accrual Status
              
              **$**
              **3,209**
              
              
              $
              2,347Loans
                  Contractually Past Due 90 Days or Moreand
                  Still Accruing Interest
              
              ****
              **111**
              
              
              
              182Troubled
                  Debt Restructured Loans
              
              ****
              **1,874**
              
              
              
              0Total
                  Non-Performing Loans
              
              **$**
              **5,194**
              
              
              $
              2,529
 
 The
                  Company did not record any interest income related to non-accrual
                  loans
                  for the three- and nine- month periods ended September 30,
                  2007.  Had the loans in non-accrual status performed in
                  accordance with their original terms, additional interest income
                  of
                  $80,000 and $204,000, respectively, would have been recorded for
                  the
                  three- and nine- month periods ended September 30,
                  2007.Had
                  the troubled debt restructured loans performed in accordance with
                  their
                  original terms, the Company would have recorded interest income
                  of $45,000
                  and $135,000, respectively, for the three- and nine-month periods
                  ended
                  September 30, 2007.  Under the restructured terms, the Company
                  recorded interest income of $47,000 and $141,000, respectively,
                  for the
                  three- and nine-month periods ended September 30,
                  2007.




9
 *Index*








ITEM
      2: Management’s Discussion and Analysis of Financial Condition
      and Results of Operations





A.
      General





The
      primary objective of this quarterly report is to provide: (i) an overview of
      the
      significant changes in our financial condition, including liquidity and capital
      resources, at September 30, 2007 as compared to December 31, 2006; (ii) a
      comparison of our results of operations for the three-month period ended
      September 30, 2007 as compared to the three-month period ended September 30,
      2006, and (iii) a comparison of our results of operations for the nine-month
      period ended September 30, 2007 as compared to the nine-month period ended
      September 30, 2006.





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





*Critical
      Accounting Policies.* Our management 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
      evaluation of the allowance for loan losses indicated that the allowance was
      adequate as of September 30, 2007, under adversely different conditions or
      assumptions, the allowance would need to be changed.  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.  In addition, the
      assumptions and estimates used in our internal reviews of non-performing loans
      and potential problem loans had a significant impact on the overall analysis
      of
      the adequacy of the allowance for loan losses.  While we have
      concluded that the September 30, 2007 evaluation of collateral values was
      reasonable under the circumstances, if collateral valuations were significantly
      lowered, our allowance for loan losses would also require additional provisions
      for loan losses.





*Recent
      Accounting Pronouncements*.  In February 2007, the Financial
      Accounting Standards Board (“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.  Management has not completed
      an evaluation of the impact of this standard.  Although early adoption
      of SFAS 159 is permitted, the Company elected not to adopt it for its fiscal
      year that began January 1, 2007.





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 currently have 16
      split-dollar life insurance arrangements with current and former executives
      of
      the Bank that will be subject to EITF 06-4.  We are currently
      evaluating the potential impact of EITF 06-4.





10
 *Index*


In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements,” 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.  We are currently evaluating the potential impact of
      this statement.





B.
      Financial Condition and Performance Overview





Our
      total
      assets increased $33.923 million or 4.5% during the first nine-months of 2007,
      from $761.981 million at December 31, 2006 to $795.904 million at September
      30,
      2007.  The majority of the growth in total assets was due to a
      significant growth in loans.  Between December 31, 2006 and September
      30, 2007, loans increased to $433.911 million at September 30, 2007 from
      $405.832 million at December 31, 2006, a $28.079 million or 6.9 % increase.
      The
      growth in loans was principally due to our recent market expansion into larger
      markets within central New York State and related loan origination efforts
      in
      those markets.





Between
      December 31, 2006 and September 30, 2007, we experienced decreases in both
      potential problem loans and in loans 30 to 89 days delinquent, while
      non-performing loans increased.  Potential problem loans are loans
      that are currently performing, but where known information about possible credit
      problems exists.  Potential problem loans decreased from $14.538
      million or 3.6% of total loans outstanding at December 31, 2006 to $8.207
      million or 1.9% of total loans outstanding at September 30,
      2007.  Similarly, the level of loans 30 to 89 days delinquent
      decreased from $6.070 million or 1.5% of total loans outstanding at December
      31,
      2006 to $2.743 million or 0.6% of total loans outstanding at September 30,
      2007.  Conversely, non-performing loans, which are loans in
      non-accrual status, loans that are 90 or more days contractually past due and
      still accruing interest, and loans where the original repayment terms have
      been
      restructured, increased from $2.529 million or 0.6% of total loans outstanding
      at December 31, 2006 to $5.194 million or 1.2% of total loans outstanding at
      September 30, 2007 due primarily to the transfer of 12 loans from performing
      to
      non-performing status.  These loans were distributed among several
      borrowers and did not represent any single industry concentration.





At
      September 30, 2007, the allowance for loan losses was $6.876 million or 1.6%
      of
      total loans outstanding.  This compares to $6.680 million or 1.7% of
      loans outstanding at December 31, 2006.  The allowance for loan losses
      as a percentage of total loans decreased slightly due principally to a
      significant increase in loans outstanding between December 31, 2006 and
      September 30, 2007.  During the nine-month period ended September 30,
      2007, the level of non-performing loans increased significantly, from $2.529
      million on December 31, 2006 to $5.194 million on September 30, 2007, a $2.665
      million increase.  The allowance for loan losses did not increase as
      much between the periods, however, due to significant decreases in net
      charge-offs and in consideration for the level of potential problem loans
      between comparable periods.





Net
      income and earnings per share increased significantly between the nine-month
      periods ended September 30, 2007 and September 30, 2006.  Net income
      and earnings per share were $6.347 million and $0.60 for the nine-month period
      ended September 30, 2007, as compared to $4.951 million and $0.45 for the
      nine-month period ended September 30, 2006.  The significant increase
      in net income and earnings per share between comparable nine-month periods
      was
      principally due to a $1.295 million increase in non-interest income and a $610
      thousand decrease in the provision for loan losses, offset in part by a $359
      thousand decrease in net interest income.





Non-interest
      income increased significantly between comparable nine-month periods due
      principally to three unusual events, which are explained in detail in the
      overview section of PART I, ITEM 2. E. of this Form 10-Q.  On a
      combined basis, these three unusual events contributed $1.199 million of
      incremental non-interest income over comparable nine-month
      periods.  These events are not likely to recur in future
      periods.





The
      provision for loan losses decreased between comparable nine-month periods due
      to
      certain positive trends in the credit quality of our loan
      portfolio.  In particular, the level of potential problem loans and
      net loan charge-offs between comparable periods decreased, offset by an increase
      in non-performing loans.





Net
      interest income declined between comparable nine-month periods due to the
      persistence of a flat to inverted yield curve.   Between the
      comparable periods, interest and dividend income increased $2.212 million or
      6.9% due principally to an increase in loans outstanding, while interest expense
      increased $2.571 million or 19.3% due principally to the rising cost of deposit
      funding.


11
 *Index*





Net
      income and earnings per share for the three-month period ended September 30,
      2007 were $1.991 million and $0.19, respectively, versus $1.644 million and
      $0.15, respectively, for the three-month period ended September 30, 2006, a
      $347
      thousand or 21.1% increase in net income and a $0.04 improvement in earnings
      per
      share.  Between comparable three-month periods, we recorded a $270
      thousand decrease in the provision for loan losses due to the improved credit
      quality of the loan portfolio and recorded a $193 thousand or 14.0% increase
      in
      non-interest income.  These improvements were offset, in part, by
      increases in non-interest expense and income taxes.  Between
      comparable three-month periods, net interest income increased
      modestly.  Although there was a significant increase in earning asset
      yields between comparable periods, these improvements were offset by significant
      increases in deposit funding costs.





The
      following tables, set forth in this quarterly financial report, provide readers
      with supplementary information that is not directly obtainable from the
      unaudited consolidated interim financial statements provided in PART I, Item
      1
      of this quarterly report.  These tables are to be read in conjunction
      with our management discussion and analysis narrative regarding the financial
      condition, results of operations, liquidity, and capital resources contained
      within this report.









12
 *Index*


Asset
      and
      Yield Summary Table:





The
      following tables set forth the total dollar amount and resultant yields of
      interest income from average earning assets, as well as the interest expense
      on
      average interest bearing liabilities for the periods stated.  Average
      outstanding balances are daily averages.





**For
                the Three Months Ended September 30,****2007**
            **2006**Average
              Outstanding
              Balance
            
            
            Interest
              Earned
                /Paid
            
            
            Yield
                / Rate
            
            
            Average
              Outstanding
              Balance
            
            
            Interest
              Earned
                /Paid
            
            
            Yield
                / Rate(Dollars
                in thousands)**Earning
                Assets:**Federal
                funds sold
            
            $
            19,113
            
            
            $
            245
            
            
            
            5.09
            %
            
            
            $
            9,226
            
            
            $
            122
            
            
            
            5.25
            %Interest-bearing
                deposits
            
            
            12,416
            
            
            
            147
            
            
            
            4.70
            %
            
            
            
            3,114
            
            
            
            29
            
            
            
            3.69
            %Securities
                (1)
            
            
            275,366
            
            
            
            3,038
            
            
            
            4.38
            %
            
            
            
            286,606
            
            
            
            3,020
            
            
            
            4.18
            %Loans
                (2)
            
            
            430,523
            
            
            
            8,306
            
            
            
            7.65
            %
            
            
            
            405,904
            
            
            
            7,763
            
            
            
            7.59
            %Total
                earning assets
            
            
            737,418
            
            
            
            11,736
            
            
            
            6.31
            %
            
            
            
            704,850
            
            
            
            10,934
            
            
            
            6.15
            %Non-earning
                assets
            
            
            41,554
            
            
            
            
            
            
            
            
            
            
            
            
            41,187Total
                assets
            
            $
            778,972
            
            
            
            
            
            
            
            
            
            
            
            $
            746,037**Liabilities:**Savings
                accounts
            
            $
            76,173
            
            
            $
            115
            
            
            
            0.60
            %
            
            
            $
            86,789
            
            
            $
            139
            
            
            
            0.64
            %Money
                market accounts
            
            
            101,283
            
            
            
            995
            
            
            
            3.90
            %
            
            
            
            68,782
            
            
            
            675
            
            
            
            3.89
            %NOW
                accounts
            
            
            76,207
            
            
            
            250
            
            
            
            1.30
            %
            
            
            
            86,006
            
            
            
            246
            
            
            
            1.13
            %Time
                & other deposit accounts
            
            
            316,871
            
            
            
            3,486
            
            
            
            4.36
            %
            
            
            
            299,538
            
            
            
            3,005
            
            
            
            3.98
            %Borrowings
            
            
            63,381
            
            
            
            639
            
            
            
            4.00
            %
            
            
            
            65,553
            
            
            
            626
            
            
            
            3.79
            %Total
                interest-bearing liabilities
            
            
            633,915
            
            
            
            5,485
            
            
            
            3.43
            %
            
            
            
            606,668
            
            
            
            4,691
            
            
            
            3.07
            %Non-interest
                bearing deposits
            
            
            75,566
            
            
            
            
            
            
            
            
            
            
            
            
            75,878Other
                non-interest bearing liabilities
            
            
            4,493
            
            
            
            
            
            
            
            
            
            
            
            
            2,980Total
                liabilities
            
            
            713,974
            
            
            
            
            
            
            
            
            
            
            
            
            685,526Shareholders'
                equity
            
            
            64,998
            
            
            
            
            
            
            
            
            
            
            
            
            60,511Total
                liabilities and shareholders' equity
            
            $
            778,972
            
            
            
            
            
            
            
            
            
            
            
            $
            746,037Net
                interest income
            
            
            
            
            
            $
            6,251
            
            
            
            
            
            
            
            
            
            
            
            $
            6,243Net
                interest rate spread (3)
            
            
            
            
            
            
            
            
            
            
            2.88
            %
            
            
            
            
            
            
            
            
            
            
            
            3.08
            %Net
                earning assets
            
            $
            103,503
            
            
            
            
            
            
            
            
            
            
            
            $
            98,182Net
                interest margin (4)
            
            
            
            
            
            
            
            
            
            
            3.36
            %
            
            
            
            
            
            
            
            
            
            
            
            3.51
            %Net
                interest margin (tax-equivalent)
            
            
            
            
            
            
            
            
            
            
            3.67
            %
            
            
            
            
            
            
            
            
            
            
            
            3.83
            %Ratio
                of earning assets to interest-bearing liabilities
            
            
            116.3%
            
            
            
            
            
            
            
            
            
            
            
            
            116.2%





(1)
                Securities 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, and 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.





13
 *Index*





**For
                the Nine Months Ended September 30,****2007**
            
            
            **2006**Average
              Outstanding
              Balance
            
            
            Interest
              Earned
                /Paid
            
            
            Yield
                / Rate
            
            
            Average
              Outstanding
              Balance
            
            
            Interest
              Earned
                /Paid
            
            
            Yield
                / Rate(Dollars
                in thousands)**Earning
                Assets:**Federal
                funds sold
            
            $
            17,785
            
            
            $
            693
            
            
            
            5.21
            %
            
            
            $
            6,267
            
            
            $
            235
            
            
            
            5.01
            %Interest-bearing
                deposits
            
            
            6,380
            
            
            
            227
            
            
            
            4.76
            %
            
            
            
            2,770
            
            
            
            74
            
            
            
            3.57
            %Securities
                (1)
            
            
            284,525
            
            
            
            9,348
            
            
            
            4.39
            %
            
            
            
            294,876
            
            
            
            9,197
            
            
            
            4.17
            %Loans
                (2)
            
            
            419,450
            
            
            
            23,994
            
            
            
            7.65
            %
            
            
            
            402,307
            
            
            
            22,544
            
            
            
            7.49
            %Total
                earning assets
            
            
            728,140
            
            
            
            34,262
            
            
            
            6.29
            %
            
            
            
            706,220
            
            
            
            32,050
            
            
            
            6.07
            %Non-earning
                assets
            
            
            40,820
            
            
            
            
            
            
            
            
            
            
            
            
            41,659Total
                assets
            
            $
            768,960
            
            
            
            
            
            
            
            
            
            
            
            $
            747,879**Liabilities:**Savings
                accounts
            
            $
            78,767
            
            
            $
            367
            
            
            
            0.62
            %
            
            
            $
            89,114
            
            
            $
            419
            
            
            
            0.63
            %Money
                market accounts
            
            
            93,341
            
            
            
            2,743
            
            
            
            3.93
            %
            
            
            
            59,891
            
            
            
            1,610
            
            
            
            3.59
            %NOW
                accounts
            
            
            78,224
            
            
            
            751
            
            
            
            1.28
            %
            
            
            
            92,223
            
            
            
            789
            
            
            
            1.14
            %Time
                & other deposit accounts
            
            
            315,893
            
            
            
            10,173
            
            
            
            4.31
            %
            
            
            
            298,961
            
            
            
            8,534
            
            
            
            3.82
            %Borrowings
            
            
            61,293
            
            
            
            1,836
            
            
            
            4.00
            %
            
            
            
            68,514
            
            
            
            1,947
            
            
            
            3.80
            %Total
                interest-bearing liabilities
            
            
            627,518
            
            
            
            15,870
            
            
            
            3.38
            %
            
            
            
            608,703
            
            
            
            13,299
            
            
            
            2.92
            %Non-interest
                bearing deposits
            
            
            72,853
            
            
            
            
            
            
            
            
            
            
            
            
            71,340Other
                non-interest bearing liabilities
            
            
            4,382
            
            
            
            
            
            
            
            
            
            
            
            
            3,616Total
                liabilities
            
            
            704,753
            
            
            
            
            
            
            
            
            
            
            
            
            683,659Shareholders'
                equity
            
            
            64,207
            
            
            
            
            
            
            
            
            
            
            
            
            64,220Total
                liabilities and shareholders' equity
            
            $
            768,960
            
            
            
            
            
            
            
            
            
            
            
            $
            747,879Net
                interest income
            
            
            
            
            
            $
            18,392
            
            
            
            
            
            
            
            
            
            
            
            $
            18,751Net
                interest rate spread (3)
            
            
            
            
            
            
            
            
            
            
            2.91
            %
            
            
            
            
            
            
            
            
            
            
            
            3.15
            %Net
                earning assets
            
            $
            100,622
            
            
            
            
            
            
            
            
            
            
            
            $
            97,517Net
                interest margin (4)
            
            
            
            
            
            
            
            
            
            
            3.38
            %
            
            
            
            
            
            
            
            
            
            
            
            3.55
            %Net
                interest margin (tax-equivalent)
            
            
            
            
            
            
            
            
            
            
            3.66
            %
            
            
            
            
            
            
            
            
            
            
            
            3.82
            %Ratio
                of earning assets to interest-bearing liabilities
            
            
            116.0%
            
            
            
            
            
            
            
            
            
            
            
            
            116.0%





(1)
                Securities 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, and 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.





14
 *Index*


Table
      of
      Non-Performing Assets:





The
      following table sets forth information regarding non-performing loans and assets
      as of the periods indicated.







**At
                  September**
                **30,
                  2007**
              
              
              **At
                  December**
                **31,
                  2006***(Dollars
                in thousands)*Loans
                  in Non-Accrual Status:Residential
                  real estate (1)
              
              $
              724
              
              
              $
              450Commercial
                  real estate
              
              
              1,540
              
              
              
              1,626Commercial
                  (2)
              
              
              928
              
              
              
              271Consumer
              
              
              17
              
              
              
              0Total
                  non-accruing loans
              
              
              3,209
              
              
              
              2,347Loans
                  Contractually Past Due 90 Days or More and Still Accruing
                  Interest
              
              
              111
              
              
              
              182Troubled
                  Debt Restructured Loans
              
              
              1,874
              
              
              
              0Total
                  non-performing loans
              
              
              5,194
              
              
              
              2,529Other
                  real estate owned
              
              
              247
              
              
              
              103Total
                  non-performing assets
              
              $
              5,441
              
              
              $
              2,632Total
                  non-performing assets as a percentage of total assets
              
              
              0.68
              %
              
              
              0.35
              %Total
                  non-performing loans as a percentage of total loans
              
              
              1.20
              %
              
              
              0.62
              %(1)
                Includes loans secured by 1-4 family 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.




15
 *Index*





Analysis
      of the Allowance for Loan Losses Table:





The
      following table sets forth changes in the allowance for loan losses for the
      periods indicated:




**Three
                  months ended**
                **September
                  30,**
              
              
              **Nine
                  months ended**
                **September
                  30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**(Dollars
                  in thousands)Balance
                  at beginning of period
              
              $
              6,830
              
              
              $
              6,241
              
              
              $
              6,680
              
              
              $
              6,640Charge-offs:Residential
                  real estate (1)
              
              
              0
              
              
              
              0
              
              
              
              97
              
              
              
              47Commercial
                  real estate
              
              
              0
              
              
              
              1
              
              
              
              120
              
              
              
              2Commercial
                  (2)
              
              
              84
              
              
              
              3
              
              
              
              189
              
              
              
              1,015Consumer
              
              
              127
              
              
              
              213
              
              
              
              503
              
              
              
              612Total
                  charge-offs
              
              
              211
              
              
              
              217
              
              
              
              909
              
              
              
              1,676Recoveries:Residential
                  real estate (1)
              
              
              0
              
              
              
              12
              
              
              
              22
              
              
              
              28Commercial
                  real estate
              
              
              23
              
              
              
              0
              
              
              
              64
              
              
              
              0Commercial
                  (2)
              
              
              15
              
              
              
              14
              
              
              
              132
              
              
              
              49Consumer
              
              
              69
              
              
              
              54
              
              
              
              237
              
              
              
              223Total
                  recoveries
              
              
              107
              
              
              
              80
              
              
              
              455
              
              
              
              300Net
                  charge-offs
              
              
              104
              
              
              
              137
              
              
              
              454
              
              
              
              1,376Provision
                  for loan losses
              
              
              150
              
              
              
              420
              
              
              
              650
              
              
              
              1,260Balance
                  at end of period
              
              $
              6,876
              
              
              $
              6,524
              
              
              $
              6,876
              
              
              $
              6,524Ratio
                  of net charge-offs during the period to average loans outstanding
                  during
                  the period (annualized)
              
              
              0.10
              %
              
              
              0.13
              %
              
              
              0.14
              %
              
              
              0.46
              %Allowance
                  for loan losses to total loans
              
              
              1.58
              %
              
              
              1.61
              %
              
              
              1.58
              %
              
              
              1.61
              %Allowance
                  for loan losses to non-performing loans
              
              
              132
              %
              
              
              308
              %
              
              
              132
              %
              
              
              308
              %




(1)
        Includes loans secured by 1-4 family 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.


16
 *Index*





C.
      Comparison of Financial Condition at September 30, 2007 and December 31,
      2006





*Overview.*  During
      the first nine months of 2007, our total assets increased $33.923 million or
      4.5%.  At September 30, 2007, total assets were $795.904
      million.  This compares to $761.981 million in total assets at
      December 31, 2006.  Loans increased $28.079 million or 6.9% between
      December 31, 2006 and September 30, 2007.  At September 30, 2007,
      loans comprised 54.5% of our total assets.  This compares to 53.3% at
      December 31, 2006.  Although the growth in loans during the nine-month
      period ended September 30, 2007 was consistent with our strategic objectives,
      it
      had a slightly negative impact on our overall liquidity position.





Total
      liabilities increased $30.395 million or 4.4% between December 31, 2006 and
      September 30, 2007.  Increases in deposits totaling $21.839 million
      during the period comprised 71.9% of the growth in total liabilities, while
      increases in borrowings and other liabilities contributed $8.556 million or
      28.1% of the growth.  Most of the increase in deposits during the
      nine-month period ended September 30, 2007 was due to greater levels of
      high-cost deposits such as money market accounts and certificates of deposit,
      offset, in part, by decreased amounts of low-cost deposits such as savings
      and
      NOW accounts.  The continuation of this trend negatively affected our
      net interest income during both the three-month and nine-month periods ended
      September 30, 2007.





Total
      shareholders’ equity increased $3.528 million or 5.6% between December 31, 2006
      and September 30, 2007.  A $3.335 million increase in retained
      earnings and a $798 thousand decrease in accumulated other comprehensive loss
      between the periods were offset, in part, by a $605 thousand increase in
      treasury stock.  During the first three quarters of 2007, we generated
      net income of $6.347 million and paid cash dividends totaling $3.012
      million.  In addition, due to a slight decrease in the general level
      of interest rates between December 31, 2006 and September 30, 2007, we
      experienced an increase in the fair value of our available-for-sale investment
      securities, which resulted in a $740 thousand decrease in the net unrealized
      loss on securities, net of taxes.




*Asset
      Quality.*  We use several measures to determine the overall credit
      quality of our loan portfolio.  These include the level of delinquent
      loans (those 30 to 89 days delinquent), the level of non-performing loans,
      the
      level of impaired loans, the level of potential problem loans, and the dollar
      amount and type of loan charge-offs we experience.  Between December
      31, 2006 and September 30, 2007, the level of impaired and non-performing loans
      increased, while potential problem loans and delinquent loans
      decreased.





Total
      non-performing loans, including loans in non-accrual status, loans 90 days
      or
      more past due and still accruing interest, and troubled debt restructured loans,
      increased $2.665 million between December 31, 2006 and September 30, 2007,
      from
      $2.529 million at December 31, 2006 to $5.194 million at September 30,
      2007.  At September 30, 2007, total non-performing loans comprised
      1.2% of total loans outstanding.  This compares to 0.6% at December
      31, 2006.  During the nine-month period ended September 30, 2007, we
      transferred 12 loans from performing status to non-accrual status, causing
      an
      $862 thousand net increase in non-accrual loans.  In addition, during
      the same period we restructured one loan with an outstanding balance of $1.874
      million.  At September 30, 2007, this loan was in compliance with its
      restructured terms.





Between
      December 31, 2006 and September 30, 2007, impaired loans increased from $1.896
      million to $4.819 million, a $2.923 million increase.  Although this
      increase was significant, the level of allowance for impaired loans increased
      only $475 thousand, from $334 thousand at December 31, 2006 to $809 thousand
      at
      September 30, 2006.





Potential
      problem loans are loans which are currently performing, but where information
      about possible credit problems exists. The amount of potential problem loans
      may
      vary significantly from quarter to quarter due to our significant volume of
      commercial loans with balances in excess of $1.0 million.  Between
      December 31, 2006 and September 30, 2007, potential problem loans decreased
      $6.331 million, from $14.538 million at December 31, 2006 to $8.207 million
      at
      September 30, 2007.  Potential problem loans as a percentage of total
      loans outstanding equaled 1.9% at September 30, 2007, versus 3.6% at December
      31, 2006.  The decrease in potential problem loans between December
      31, 2006 and September 30, 2007 was due to a combination of factors, including
      the removal of several loans from potential problem loan status due to the
      improved financial condition of the borrower, repayment of loans by the
      borrower, and, to a lesser extent, the transfer of potential problem loans
      to
      non-performing status.





We
      recorded net loan charge-offs of $454 thousand during the nine-month period
      ended September 30,


17
 *Index*


2007.  This
      compares to $1.376 million for the same nine-month period in
      2006.  During the first quarter of 2006, we recorded $981 thousand in
      charge-offs for loans to one of our large commercial borrowers due to the
      deterioration in the financial condition of the borrower.  There were
      no similarly large charge-offs in the first quarter of
      2007.  Annualized net loan charge-offs as a percentage of average
      total loans outstanding was 0.1% for the nine-month period ended September
      30,
      2007, versus 0.4% for the same period last year.





At
      September 30, 2007, loans that were 30 to 89 days delinquent totaled $2.743
      million or 0.6% of loans outstanding.  By comparison, at December 31,
      2006 we had $6.070 million or 1.5% of loans outstanding in this same category,
      a
      $3.327 million or 54.8% decrease.  The level of delinquent loans at
      September 30, 2007 was within management’s preferred target range of less than
      1.0% of total loans outstanding.





The
      allowance for loan losses at September 30, 2007 was $6.876 million or 1.6%
      of
      total loans outstanding.  This compares to $6.680 million or 1.7% of
      loans outstanding at December 31, 2006.  During the first nine months
      of 2007, we recorded net charge-offs of $454 thousand.  During the
      nine months ended September 30, 2007, the Company recorded $650 thousand in
      the
      provision for loan losses.  Management and the Board of Directors
      deemed the allowance for loan losses as adequate at September 30, 2007 and
      December 31, 2006.





The
      credit quality of our available-for-sale and held-to-maturity investment
      securities portfolios remained strong during the quarter.  At
      September 30, 2007, 99.4% of the securities held in the Company’s bond portfolio
      were rated “A” or better by Moody’s credit rating service; 95.3% were rated
“AAA.”  By comparison, at December 31, 2006, 99.4% were rated “A” or
      better and 95.9% were rated “AAA.”





*Sub-Prime
      Mortgage Assets.*During recent quarters, many financial institutions have recorded
      impairments on their mortgage-related loan and investment securities portfolios
      due to the general collapse of the sub-prime mortgage market.  Sub-prime
      mortgages are generally defined as mortgages where the borrower's financial
      capacity to make timely principal and interest payments on his mortgage are
      not
      sustainable over an extended period of time.  Although the national
      financial markets in which we operate have been impacted by the collapse of
      the
      sub-prime mortgage market, we have not recorded and do not expect to record
      any
      significant losses or asset impairments due to this market condition.  It
      has not been our general practice to originate, purchase, or hold sub-prime
      loans and investment securities, and we have no plans to do so.





D.
      Comparison of Results of Operations for the Three Months Ended September 30,
      2007 and 2006





*Overview.*During
      the third quarter of 2007, our net income and earnings per share were $1.991
      million and $0.19, respectively.  This compares to net income and
      earnings per share of $1.644 million and $0.15 in the third quarter of 2006,
      resulting in a $347 thousand or 21.1% increase in net income and a $0.04
      increase in earnings per share period over period.  Return on average
      assets and return on average equity for the three-month period ended September
      30, 2007 were 1.01% and 12.15%, respectively.  This compares to a
      return on average assets of 0.87% and a return on average equity of 10.78%
      for
      the three-month period ended September 30, 2006.  The improvement in
      our operating results was due principally to a $193 thousand increase in
      non-interest income and a $270 thousand decrease in the provision for loan
      losses period over period due to the improved credit quality of our loan
      portfolio, offset, in part, by modest increases in non-interest expense and
      income taxes.





*Net
      Interest Income.*  Net interest income is our most significant
      source of revenue.  During the third quarter of 2007, net interest
      income comprised 79.9% of our net revenue (net interest income plus non-interest
      income).  This compares to 82.0% in the third quarter of
      2006.  Net interest income was $6.251 million during the three months
      ended September 30, 2007, as compared to $6.243 million for the three months
      ended September 30, 2006, an $8 thousand or 0.1% increase.  Although
      the net change in net interest income was not significant, we experienced
      significant increases in both interest income and interest expense between
      comparable three-month periods.





Throughout
      the second quarter of 2007 and the eight preceding quarters, we have operated
      in
      a flat or inverted yield curve environment.  Although the yield curve
      exhibited a modestly upward slope at September 30, 2007, this did not
      significantly affect net interest margin in the third quarter of
      2007.  The interest rate climate has impaired our ability to improve
      net interest income and net interest margin principally because a portion of
      our
      net interest margin has historically been derived from mismatching long-term
      earning assets with short-term interest bearing liabilities.


18
 *Index*


Between
      comparable quarterly periods, total interest and dividend income increased
      $802
      thousand or 7.3%, from $10.934 million for the three-month period ended
      September 30, 2006 to $11.736 million for the three-month period ended September
      30, 2007.  Between the quarterly periods, the weighted average yield
      on all categories of earning assets, except for federal funds sold,
      increased.  Between the periods, maturing loans, investment
      securities, and interest-bearing deposits were replaced with new assets
      originated at slightly higher rates of interest.  In addition, between
      September 30, 2006 and September 30, 2007, some variable rate loans reset at
      higher rates of interest as the index interest rate on these loans increased
      between periodic re-pricing dates.  These interest rate changes, along
      with a $32.568 million or 4.6% increase in average earning assets between the
      periods, driven principally by a growth in loans outstanding, resulted in a
      sixteen basis point increase in total earning asset yields between the
      comparable periods.  Total earning asset yields were 6.31% in the
      third quarter of 2007.  This compares to 6.15% in the third quarter of
      2006.





At
      the
      end of the third quarter of 2007, the Federal Open Market Committee lowered
      the
      target federal funds rate from 5.25% to 4.75%, the first change in this rate
      since June 2006.  This had the immediate impact of decreasing the
      yield on our federal funds sold, thereby lowering the effective yield on the
      federal funds sold portfolio to 5.09% for the third quarter of
      2007.  This compares to a 5.25% yield on federal funds sold in the
      third quarter of 2006.  Although the yield decreased 16 basis points,
      interest income on federal funds sold increased $123 thousand between comparable
      periods due to a $9.887 million increase in the average balance.





We
      maintained a higher level of interest bearing deposits (at other banks) between
      comparable three-month periods.  In the third quarter of 2007, we
      maintained $12.416 million in average balances in interest-bearing
      deposits.  This compares to $3.114 million in the third quarter of
      2006.  Management maintained a greater average outstanding balance in
      these short-term deposits to help mitigate interest rate risk and bolster
      short-term liquidity.  Interest income on interest bearing deposits
      between the comparable periods increased $118 thousand.





The
      average yield on the securities portfolio increased 20 basis points between
      comparable quarters, from 4.18% in the third quarter of 2006 to 4.38% in the
      third quarter of 2007.  Although the average outstanding balance of
      the securities portfolio decreased $11.240 million between the third quarter
      of
      2006 and the third quarter of 2007, the interest income earned on the portfolio
      increased $18 thousand due to the improved yield.





The
      average yield on loans, our largest earning asset portfolio, increased 6 basis
      points between comparable quarters, from 7.59% in the third quarter of 2006
      to
      7.65% in the third quarter of 2007.  The increase in loan yields
      coupled with an increase in the average volume of loans outstanding between
      the
      periods resulted in a $543 thousand increase in interest income on loans between
      the periods.  The average volume of loans outstanding increased from
      $405.904 million in the three-month period ended September 30, 2006 to $430.523
      million in the three-month period ended September 30, 2007.





Interest
      expense increased $794 thousand or 16.9% between the three-month period ended
      September 30, 2006 and the three-month period ended September 30,
      2007.  We recorded total interest expense of $5.485 million for the
      three-month period ended September 30, 2007, as compared to $4.691 million
      for
      the three-month period ended September 30, 2006.  The increase in
      interest expense between the periods was due to two primary
      factors.  First, we recorded $995 thousand of interest expense on our
      money market deposit accounts in the third quarter of 2007.  This
      compares to $675 thousand in the third quarter of 2006, a $320 thousand or
      47.4%
      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 both periods.  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
      $68.782 million in the third quarter of 2006 to $101.283 million in the third
      quarter of 2007, a $32.501 million or 47.2% increase.  Second, between
      comparable periods, a significant portion of the certificate of deposit
      portfolio matured.  These funds were often reinvested in new
      certificates of deposit, generally at higher rates of interest.  This
      increased interest expense $481 thousand between comparable
      quarters.





*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.


19
 *Index*


Rate
      and
      Volume Table:





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.





20
 *Index*








**For
                the Three Months Ended September 30,**
            
            
            **For
                the Nine Months Ended September 30,****2007
                vs. 2006**
            
            
            **2007
                vs. 2006****Rate**
            
            
            **Volume**
            
            
            **Total**
            
            
            **Rate**
            
            
            **Volume**
            
            
            **Total**(In
                thousands)**Earning
                assets:**Federal
                funds sold
            
            $
            (4
            )
            
            $
            127
            
            
            $
            123
            
            
            $
            10
            
            
            $
            448
            
            
            $
            458Interest-bearing
                deposits
            
            
            10
            
            
            
            108
            
            
            
            118
            
            
            
            31
            
            
            
            122
            
            
            
            153Securities
            
            
            139
            
            
            
            (121
            )
            
            
            18
            
            
            
            481
            
            
            
            (330
            )
            
            
            151Loans
            
            
            70
            
            
            
            473
            
            
            
            543
            
            
            
            476
            
            
            
            974
            
            
            
            1,450Total
                earning assets
            
            
            215
            
            
            
            587
            
            
            
            802
            
            
            
            998
            
            
            
            1,214
            
            
            
            2,212**Interest-bearing
                liabilities:**Savings
                accounts
            
            
            (7
            )
            
            
            (17
            )
            
            
            (24
            )
            
            
            (6
            )
            
            
            (46
            )
            
            
            (52
            )Money
                market accounts
            
            
            0
            
            
            
            320
            
            
            
            320
            
            
            
            160
            
            
            
            973
            
            
            
            1,133NOW
                accounts
            
            
            33
            
            
            
            (29
            )
            
            
            4
            
            
            
            90
            
            
            
            (128
            )
            
            
            (38
            )Time
                & other deposit accounts
            
            
            279
            
            
            
            202
            
            
            
            481
            
            
            
            1,061
            
            
            
            578
            
            
            
            1,639Borrowings
            
            
            (21
            )
            
            
            34
            
            
            
            13
            
            
            
            102
            
            
            
            (213
            )
            
            
            (111
            )Total
                interest-bearing liabilities
            
            
            284
            
            
            
            510
            
            
            
            794
            
            
            
            1,407
            
            
            
            1,164
            
            
            
            2,571Change
                in net interest income
            
            $
            (69
            )
            
            $
            77
            
            
            $
            8
            
            
            $
            (409
            )
            
            $
            50
            
            
            $
            (359
            )





Net
      interest income increased $8 thousand or 0.1% between the three-month period
      ended September 30, 2006 and the three-month period ended September 30,
      2007.  The net increase in net interest income due to volume between
      comparable periods totaled $77 thousand, as compared to a net decrease in net
      interest income totaling $69 thousand due to rate.  Interest and
      dividend income increased $802 thousand between the three-month period ended
      September 30, 2006 and the three-month period ended September 30, 2007 due
      to
      increases in both the rate and volume of earning
      assets.  Specifically, between comparable quarters, interest income
      increased $587 thousand due to an increase in the volume of earning assets
      and
      $215 thousand due to an increase in the rate of earning assets.  This
      improvement was offset by an increase in interest expense between the periods
      totaling $794 thousand, $510 thousand due to an increase in the volume of
      interest-bearing liabilities and $284 thousand due to an increase in the rate
      paid on interest-bearing liabilities.





During
      the third quarter of 2007 we maintained average earning assets of $737.418
      million.  This compares to average earning assets of $704.850 million
      during the third quarter of 2006, a $32.568 million or 4.6%
      increase.  Between the periods the average outstanding volume of loans
      outstanding increased $24.619 million or 6.1% due to the expansion of our
      lending territory and strategic emphasis to increase loans
      outstanding.  This caused a $473 thousand increase in interest income
      between comparable quarters due to an increase the average volume of loans
      outstanding.  Although the general level of interest rates decreased
      between September 30, 2006 and September 30, 2007, the average yield on loans
      increased 16 basis points between the periods, resulting in a $70 thousand
      increase in interest income due to rate.  A significant portion of our
      variable rate loans, including most of our home equity lines of credit, are
      indexed to the prime rate.  Even though the prime rate was 8.25%
      during the entire third quarter of 2006 and most of the third quarter of 2007,
      the yield on loans increased modestly between the periods because many of our
      prime-based loans reset after the third quarter of 2006.





Due
      to an
      increase in loans between comparable quarters, we increased the average
      outstanding balances of federal funds sold and interest bearing deposits (at
      other banks) to improve liquidity and mitigate interest rate risk.  On
      a combined basis, the increase in the volume of these portfolios increased
      interest income $235 thousand between comparable quarters.  A 50 basis
      point decrease in the federal funds target rate at the end of the third quarter
      of 2007 reduced the average yield on federal funds sold between the periods
      from
      5.25% in the third quarter of 2006 to 5.09% in the third quarter of 2007 and
      negatively impacted interest income by $4 thousand.





To
      help
      fund the loan growth between the comparable periods, as well as to counteract
      the interest rate risk associated with originating and holding fixed rate loans,
      we reduced the size of our investment


21
 *Index*


securities
      portfolio.  During the third quarter of 2007, the average outstanding
      balance of the investment securities portfolio was $275.366
      million.  This compares to $286.606 million during the third quarter
      of 2006, an $11.240 million or 3.9% decrease.  The decrease in the
      volume of the investment securities portfolio between comparable three-month
      periods caused a $121 thousand decrease in interest income on investments
      between the third quarter of 2006 and the third quarter of 2007.  This
      was offset by a $139 thousand increase in interest income on the investment
      securities portfolio due to rate.  The yield on the investment
      securities portfolio was 4.18% during the third quarter of 2006 because a
      significant portion of the securities we held were purchased during 2003, 2004,
      and 2005 when interest rates reached historic lows.  Between the third
      quarter of 2006 and the third quarter of 2007, some of these securities were
      replaced by higher-yielding instruments, increasing the yield to
      4.38%.





The
      $802
      thousand increase in interest income between the three-month period ended
      September 30, 2006 and the three-month period ended September 30, 2007 was
      offset by a $794 thousand increase in the cost of interest bearing liabilities,
      $510 thousand due to the increase in volume and $284 thousand due to the
      increase in rate.  The interest expense recorded on our most
      interest-sensitive liabilities, including time and other deposit accounts and
      money market accounts, increased significantly between comparable
      quarters.





Interest
      expense on time and other deposit accounts increased $481 thousand between
      comparable quarterly periods.  Between periods, certificates of
      deposit that were originally opened in 2003, 2004, and 2005, when interest
      rates
      were at historic lows, matured and were replaced by higher-cost certificates
      of
      deposit.  This drove up the cost of time and other deposit accounts by
      38 basis points, from 3.98% in the third quarter of 2006 to 4.36% in the third
      quarter of 2007, resulting in a $279 thousand increase in interest expense
      due
      to rate.  The remaining increase in interest expense on time and other
      deposit accounts between the periods, totaling $202 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.  In particular, interest
      expense on money market accounts increased $320 thousand due to volume between
      the third quarter of 2006 and the third quarter of 2007.  Between the
      third quarter of 2006 and the third quarter of 2007, we continued to offer
      our
      Wealth Management account, a retail money market account providing depositors
      with a 4.0% interest rate.  The attractive interest rate on this
      deposit product garnered additional money market deposits, which resulted in
      an
      increase in interest expense due to volume totaling $320
      thousand.  The average volume of money market deposit accounts
      increased $32.501 million over comparable periods, from $68.782 million in
      the
      third quarter of 2006 to $101.283 million in the third quarter of
      2007.





The
      average volume of our savings accounts declined between the three-month period
      ended September 30, 2006 and the three-month period ended September 30, 2007
      as
      customers transferred their savings account funds into higher-rate deposit
      alternatives.  The decrease in interest expense on savings accounts
      totaled $24 thousand between comparable periods, $17 thousand due to volume
      and
      $7 thousand due to rate.





Even
      though we paid a slightly higher rate on our NOW accounts, we continued to
      experience a decline in the average volume of NOW accounts outstanding as
      customers transferred their NOW account funds into higher-rate deposit
      alternatives.  Between the third quarter of 2006 and the third quarter
      of 2007, the average volume of NOW account balances declined $9.799
      million.  This caused a $29 thousand decrease in interest expense
      between comparable periods due to volume, which was offset by a $33 thousand
      increase in interest expense on NOW accounts due to rate.





The
      interest expense recorded on borrowings increased $13 thousand between the
      three-month period ended September 30, 2006 and the three-month period ended
      September 30, 2007.  Between comparable periods, as interest rates
      generally decreased, higher-cost borrowings were replaced by lower-cost
      borrowings as they matured, causing a $21 thousand decrease in interest expense
      on borrowings due to rate.  This was offset by a $34 thousand increase
      in interest expense due to an increase in borrowings between the
      periods.





*Provision
      for Loan Losses.* We recorded a provision for loan losses of
      $150 thousand for the three- month period ended September 30,
      2007.  This compares to $420 thousand for the three-month period ended
      September 30, 2006, a $270 thousand decrease.  The provision for loan
      losses decreased principally because we experienced a significant decrease
      in
      the level of potential problem loans in 2007 and a modest decrease in the level
      of net charge-offs between the comparable quarters.  At
      September


22
 *Index*


30,
      2007,
      potential problem loans were $8.207 million.  This compares to $14.538
      million at December 31, 2006 and $14.358 million at September 30,
      2006.  Net charge-offs totaled $104 thousand for the third quarter of
      2007 as compared to $137 thousand for the third quarter of 2006.





*Non-Interest
      Income.*Non-interest income is comprised of trust fees, service
      charges on deposit accounts, commission income, net investment securities gains,
      net gain on sale of loans, income and gains on bank-owned life insurance, other
      service fees, and other income.  Non-interest income improved
      significantly in the three-month period ended September 30, 2007 as compared
      to
      the three-month period ended September 30, 2006.  Specifically, total
      non-interest income increased from $1.375 million in the three-month period
      ended September 30, 2006 to $1.568 million in the three-month period ended
      September 30, 2007, a $193 thousand or 14.0% increase.  Between
      comparable quarterly periods we recorded significant increases in trust fees,
      service charges on deposit accounts, and net gain on sale of loans, as well
      as
      modest increases in commission income and other income.  These
      improvements were offset, in part, by decreases in net investment securities
      gains, income on bank-owned life insurance, and other service fees.





Trust
      fees increased $129 thousand or 37.5% between the three-month period ended
      September 30, 2006 and the three-month period ended September 30,
      2007.  During the third quarter of 2007, we recorded $473 thousand in
      trust fees as compared to $344 thousand in the third quarter of
      2006.  The increase between comparable quarters was principally due to
      in the recording of executor fees.  During the third quarter of 2007,
      we recorded executor fees totaling $118 thousand.  By comparison,
      during the third quarter of 2006 we did not record any executor
      fees.  The remaining increase in trust fees between the periods,
      totaling $11 thousand, was due to a net increase in trust, custodial, investment
      management, and other account administration and termination fees between the
      periods on new and existing accounts.





During
      the third quarter of 2007, we recorded $478 thousand of service charges on
      deposit accounts.  This compares to $414 thousand during the third
      quarter of 2006, a $64 thousand or 15.5% 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 increasing
      deposit service fees.





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 services 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 the third quarter of 2007, we recorded a $50
      thousand net gain on the sale of these loans.  This compares to no
      loans sold during the third quarter of 2006.





During
      the third quarter of 2007 we recorded $112 thousand of commission income as
      compared to $98 thousand during the third quarter of 2006.  The $14
      thousand or 14.3% increase period over period was due to a modest increase
      in
      insurance policy sales by our Mang–Wilber LLC insurance agency
      subsidiary.





Other
      income is comprised of several types of fee and other income including
      investment service fees, lease income, safe deposit box income, title insurance
      agency income, and rental of foreclosed real estate.  Other income
      increased from $222 thousand in the third quarter of 2006 to $231 thousand
      in
      the third quarter of 2007, a $9 thousand or 4.1% increase.  The
      increase between comparable periods was principally due to a $14 thousand
      increase in investment services fees.





During
      the three-month period ended September 30, 2007, we recorded net investment
      security gains totaling $22 thousand, $10 thousand due to an increase in the
      value of our trading securities portfolio and $12 thousand in 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 the third quarter
      of 2006 we recorded $75 thousand in net investment security gains due to an
      increase in the value of our trading securities.  This represented a
      $53 thousand decrease in net investments security gains period over
      period.





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


23
 *Index*


account
      registry service fees, and other miscellaneous service charges and
      fees.  Other service fees decreased $15 thousand or 21.7% between the
      third quarter of 2006 and the third quarter of 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, thereby
      reducing residential mortgage commissions.





*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.  Total non-interest expense increased $33
      thousand or 0.7% on a comparable quarter basis, from $5.069 million in the
      third
      quarter of 2006 to $5.102 million in the third quarter of 2007.





Salaries
      expense increased $89 thousand or 3.6% between the quarterly periods, from
      $2.459 million during the third quarter of 2006 to $2.548 million during the
      third quarter of 2007.  The increase in salaries expense between the
      comparable periods was due principally to a $100 thousand increase in base
      salaries, overtime, and commission and incentive plan costs.  This
      increase was offset, in part, by an $11 thousand net decrease in the expense
      related to the executive deferred compensation plan.





We
      recorded employee benefits expense of $526 thousand in the third quarter of
      2007
      as compared to $586 thousand in the third quarter of 2006, a $60 thousand or
      10.2% decrease.  During the third quarter of 2007, we recorded a $40
      thousand credit on the Company’s defined benefit retirement
      plan.  This compares to a $101 thousand expense recorded on the
      Company’s defined benefit plan during the third quarter of 2006.  Our
      defined benefit plan was frozen in 2006.  This improvement totaling
      $141 thousand was offset by increases in 401k plan expense, FICA expense,
      benefits expense associated with our Provantage subsidiary, and other
      benefits.





On
      a
      combined basis, occupancy expense of company premises and furniture and fixture
      expense decreased $135 thousand or 17.1%, from $788 thousand in the third
      quarter of 2006 to $653 thousand in the third quarter of 2007.  In the
      third quarter of 2006, we incurred significant premises and equipment 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.





On
      a
      combined basis, we recorded $541 thousand in computer service fees, advertising
      and marketing fees, and professional fees during the third quarter of
      2007.  This compares to $523 thousand in these same categories during
      the third quarter of 2006, an $18 thousand or 3.4% increase quarter over
      quarter.  A $51 thousand increase in professional fees between periods
      was offset, in part, by a $26 thousand decrease in computer service fees and
      a
      $7 thousand decrease in advertising and marketing expenses.





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 the three-month period ended September 30, 2007,
      other miscellaneous expenses increased $121 thousand or 17.0%, from $713
      thousand in the three-month period ended September 30, 2006 to $834 thousand
      in
      the three-month period ended September 30, 2007.  The following table
      itemizes the individual components of other miscellaneous expenses that
      increased (or decreased) significantly between comparable
      periods:


24
 *Index*





**For
                the Three**
              **Months
                Ended**
              **September
                30,****Description
                of Other Miscellaneous Expense**
            **2007**
            
            
            **2006**
            
            
            **Increase
                /**
              **(Decrease)***(dollars
                in thousands)*Directors'
                fees
            
            $
            65
            
            
            $
            51
            
            
            $
            14Donations
            
            
            71
            
            
            
            29
            
            
            
            42Postage
                and shipping
            
            
            41
            
            
            
            52
            
            
            
            (11
            )Intangible
                asset amortization expense
            
            
            30
            
            
            
            45
            
            
            
            (15
            )Minority
                interest for Mang-Wilber LLC insurance agency subsidiary
            
            
            23
            
            
            
            3
            
            
            
            20Flood
                losses, net of insurance recoveries
            
            
            0
            
            
            
            17
            
            
            
            (17
            )All
                other miscellaneous expense items, net
            
            
            604
            
            
            
            516
            
            
            
            88Total
                other miscellaneous expense
            $
            834
            
            
            $
            713
            
            
            $
            121








*Income
      Taxes.*Income tax expense increased from $485 thousand during
      the three-month period ended September 30, 2006 to $576 thousand during the
      three-month period ended September 30, 2007, a $91 thousand or 18.8%
      increase.  The increase in income tax expense was primarily due to an
      increase in income before taxes between the comparable periods.  This
      was offset, in part, by the recognition of a $64 thousand federal tax benefit
      for a tax exposure item related to our 2003 tax liability.  Income
      before taxes totaled $2.567 million in the third quarter of 2007 as compared
      to
      $2.129 million in the third quarter of 2006.** Our effective tax
      rate was 22.4% in the third quarter of 2007 as compared to 22.8% in third
      quarter of 2006.





E.
      Comparison of Results of Operations for the Nine Months Ended September 30,
      2007
      and 2006





*Overview.*During
      the nine-month period ended September 30, 2007, our net income and earnings
      per
      share were $6.347 million and $0.60, respectively.  This compares to
      net income and earnings per share of $4.951 million and $0.45, respectively,
      in
      the in the nine-month period ended September 30, 2006, resulting in a $1.396
      million or $0.15 per share improvement period over period.  Return on
      average assets and return on average equity for the nine-month period ended
      September 30, 2007 were 1.10% and 13.22%, respectively.  This compares
      to a return on average assets of 0.89% and a return on average equity of 10.31%
      for the nine-month period ended September 30, 2006.





This
      significant improvement in our operating results for the nine-month period
      ended
      September 30, 2007 versus the nine-month period ended September 30, 2006 was
      principally due to three unusual events.  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 branch
      building and contents.  Second, in May 2007, Mr. Steven A. Milavec, a
      senior executive of the Company, 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 Mr.
      Milavec.  And finally, due to a regional flood in the second quarter
      of 2006, we recorded a $320 thousand loss on disposal / impairment of fixed
      assets for two of our branch office buildings and their contents.  Due
      to the flood, we applied for various flood relief grants from various New York
      State agencies and were awarded $245 thousand in grant funding, $232 thousand
      of
      which was recorded in 2007.





*Net
      Interest Income.*  Net interest income is our most significant
      source of revenue.  During the first nine months of 2007, net interest
      income comprised 76.4% of our net revenue (net interest income plus non-interest
      income).  This compares to 81.1% in the first three quarters of
      2006.  In the nine-month period ended September 30, 2007, our net
      interest income was $18.392 million.  By comparison, for the
      nine-month period ended September 30, 2006, our net interest income was $18.751
      million.  The $359 thousand or 1.9% 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).





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


25
 *Index*


conditions,
      regional competition, capital market conditions, the national interest rate
      environment, as well as our tolerance for risk.  Throughout 2006 and
      the first nine months of 2007, our net interest income has been impacted by
      all
      of these factors, the most significant of which has been the persistence of
      a
      flat to 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.  Although the yield curve exhibited a modestly
      upward slope in the third quarter of 2007, this did not significantly affect
      net
      interest margin in the nine months ended September 30, 2007.





Between
      comparable nine-month periods, total interest and dividend income increased
      $2.212 million or 6.9%, from $32.050 million for the nine-month period ended
      September 30, 2006 to $34.262 million for the nine-month period ended September
      30, 2007.  The weighted average yield on all categories of earning
      assets, including federal funds sold, interest bearing deposits (at other
      banks), investment securities, and loans, increased between the nine-month
      periods ended September 30, 2006 and September 30, 2007.  Between the
      periods, maturing earning assets were replaced with new assets originated at
      higher rates of interest.  In addition, between comparable periods
      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 loans, our largest earning asset portfolio, increased sixteen
      basis points between comparable nine-month periods, from 7.49% in the nine-month
      period ended September 30, 2006 to 7.65% in the nine-month period ended
      September 30, 2007.  Although the prime rate remained unchanged
      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,
      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 nine-month periods, resulted in a $1.450 million increase in interest
      income on loans.  Interest income on loans totaled $23.994 million in
      the nine-month period ended September 30, 2007, as compared to $22.544 million
      in the nine-month period ended September 30, 2006.  The average volume
      of loans outstanding increased from $402.307 million in the nine-month period
      ended September 30, 2006 to $419.450 million in the nine-month period ended
      September 30, 2007.





The
      average yield on the securities portfolio increased twenty-two basis points
      between comparable nine-month periods, from 4.17% in the nine-month period
      ended
      September 30, 2006 to 4.39% in the nine-month period ended September 30,
      2007.  Between September 30, 2006 and September 30, 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 nine-month periods, it was offset, in part, by a
      reduction in the average volume of securities we maintained in our investment
      portfolio.  Between comparative nine-month periods 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 loan volumes outstanding.  The twenty-two 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 of $151 thousand between the
      nine-month periods ended September 30, 2006 and September 30,
      2007.  Interest income from securities increased from $9.197 million
      in the first three quarters of 2006 to $9.348 million in the first three
      quarters of 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 comparable nine-month periods.  In particular, the average
      volume of federal funds sold increased $11.518 million from $6.267 million
      for
      the nine-month period ended September 30, 2006 to $17.785 million for the
      nine-month period ended September 30, 2007.  In addition, the average
      yield on the federal funds sold portfolio increased twenty basis points between
      comparable periods due to a higher average federal funds rate during the first
      nine months of 2007 than in the first nine months of 2006.  The
      increase in the volume and the rate of federal funds sold resulted in a $458
      thousand improvement in interest income on federal funds sold between comparable
      periods.  Interest income on federal funds sold was $235 thousand in
      the first nine months of 2006, as compared to $693 thousand in the first nine
      months of 2007.





We
      recorded $227 thousand of interest income on interest-bearing deposits (at
      other
      banks) during the nine-month period ended September 30 2007 as compared to
      $74
      thousand during the nine-month period


26
 *Index*


ended
      September 30, 2006, a $153 thousand increase.  We increased the volume
      of interest-bearing deposits (at other banks) between comparable periods to
      mitigate interest rate risk and liquidity risk.  In addition, the
      yield on this portfolio increased from 3.57% in the nine-month period ended
      September 30, 2006 to 4.76% in the nine-month period ended September 30, 2007
      due to higher market interest rates.





Interest
      expense increased $2.571 million or 19.3% between the nine-month period ended
      September 30, 2006 and the nine-month period ended September 30,
      2007.  We recorded total interest expense of $15.870 million for the
      nine-month period ended September 30, 2007 as compared to $13.299 million for
      the nine-month period ended September 30, 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 $8.534 million in the first
      nine
      months of 2006 to $10.173 million in the first nine months of 2007, a $1.639
      million or 19.2% increase.  Second, we recorded $2.743 million of
      interest expense on our money market deposit accounts in the first nine months
      of 2007.  This compares to $1.610 million in the first nine months of
      2006, a $1.133 million 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 both periods.  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 $59.891 million in the first nine months of 2006 to $93.341
      million in the first nine months of 2007, a $33.450 million or 55.9%
      increase.





*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 $2.212 million between the nine-month period ended September
      30, 2006 and the nine-month period ended September 30, 2007 due to both an
      increase in the rate and volume of earning assets.  The yield on all
      categories of earning assets increased between comparable nine-month periods,
      including federal funds sold, interest-bearing deposits (at other banks),
      securities, and loans.  On a combined basis, the rate improvement on
      earning assets contributed an additional $998 thousand of interest income
      between comparable periods, while the increase in the volume of earning assets
      contributed $1.214 million of additional interest income.





Of
      the
      $2.212 million increase in interest income between the nine-month period ended
      September 30, 2006 and the nine-month period ended September 30, 2007, $1.450
      million or 65.6% of the total increase was due to an increase in interest income
      on loans.  Between comparable periods, the average volume of loans
      outstanding increased $17.143 million, due principally to loan growth in our
      newer markets.  The growth in the volume of loans between comparable
      periods contributed $974 thousand of the $1.450 million improvement in interest
      income on loans.  In addition, between the comparable periods,
      existing variable rate loans re-priced at higher rates of interest, helping
      to
      increase the yield on loans by sixteen basis points from 7.49% in the nine-month
      period ended September 30, 2006 to 7.65% in the nine-month period ended
      September 30, 2007.  The increase in the rate on loans between
      comparable periods contributed $476 thousand of the $1.450 million increase
      in
      interest income on loans between comparable periods.





Due
      to
      the increasing interest rate risk associated with building the loan portfolio
      and a 100 basis point increase in the target federal funds rate during the
      first
      half of 2006, we increased our average outstanding balance in federal funds
      sold
      between comparable periods.  In the nine-month period ended September
      30, 2006 we maintained an average federal funds sold position of $6.267
      million.  This compares to $17.785 million in the nine-month period
      ended September 30, 2007.  The increase in the volume and rate on
      federal funds sold between the periods contributed additional interest income
      totaling $458 thousand, $448 thousand of which was due to volume and $10
      thousand of which was due to rate.





Interest
      income on the securities portfolio increased $151 thousand between the
      nine-month period ended September 30, 2006 and the nine-month period ended
      September 30, 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 the nine-month period ended September 30, 2006, the
      average outstanding balance of the investment securities portfolio was $294.876
      million.  This compares to $284.525 million during the nine-month
      period ended September 30, 2007, a $10.351 million or 3.5%
      decrease.  The decrease in the average outstanding


27
 *Index*


balance
      of investment securities between periods negatively impacted interest income
      by
      $330 thousand.  This was offset, however, by an increase in interest
      income on securities due to rate totaling $481 thousand.





The
      $2.212 million increase in interest income between the nine-month period ended
      September 30, 2006 and the nine-month period ended September 30, 2007 was
      negated by a $2.571 million increase in the cost of interest-bearing
      liabilities, $1.407 million of which was due to the increase in rate and $1.164
      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 $1.639 million between
      the
      nine-month periods ended September 30, 2006 and September 30,
      2007.  Between comparable periods, 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 $1.061 million increase in interest expense due to
      rate.  The remaining increase in interest expense on time and other
      deposit accounts between the periods, totaling $578 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 $1.133 million between the nine-month
      periods ended September 30, 2006 and September 30, 2007.  The average
      rate paid on our money market deposit accounts increased from 3.59% for the
      nine-month period ended September 30, 2006 to 3.93% for the nine-month period
      ended September 30, 2007, while the average outstanding volume of money market
      deposit accounts increased from $59.891 million to $93.341 million over the
      same
      periods.  Of the $1.133 million increase in interest expense on money
      market deposit accounts, $973 thousand was due to an increase in volume and
      $160
      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 $92.223 million
      in
      the first nine months of 2006 to $78.224 million in the first nine months of
      2007.  The decrease in the average volume of NOW account deposits
      reduced interest expense by $128 thousand between comparable
      periods.  This improvement was offset, in part, by a $90 thousand
      increase in interest expense on NOW account deposits due to a 14 basis point
      increase in the average rate paid between the periods.





The
      weighted average rate paid on savings accounts was 0.62% for the nine-month
      period ended September 30, 2007, as compared to 0.63% for the nine-month period
      ended September 30, 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 $46 thousand between comparable nine-month
      periods.





The
      interest expense on borrowings decreased $111 thousand between the nine-month
      period ended September 30, 2006 and the nine-month period ended September 30,
      2007.  Between comparable periods, lower-cost borrowings were replaced
      by higher-cost borrowings as they matured.  This increased borrowing
      costs from 3.80% in the first nine months of 2006 to 4.00% in the first nine
      months of 2007, causing a $102 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 $68.514 million in the first nine months of 2006 to $61.293
      million in the first nine months of 2007.  The decrease in the average
      outstanding balance of borrowed funds reduced interest expense on borrowings
      due
      to volume by $213 thousand between comparable periods.





*Provision
      for Loan Losses.*We recorded a provision for loan losses of $650
      thousand for the nine-month period ended September 30, 2007.  This
      compares to $1.260 million for the nine-month period ended


28
 *Index*


September
      30, 2006.  The $610 thousand or 48.4% decrease in the provision for
      loan losses between comparable nine-month periods was principally due to a
      reduction in potential problem loans, delinquencies, 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 September 30, 2007, potential problem loans
      totaled $8.207 million, a $6.331 million or 43.5% decrease.  Net
      charge-offs for the nine-month period ended September 30, 2007 were $454
      thousand, as compared to $1.376 million for the nine-month period ended
      September 30, 2006.  Loans 30 to 89 days delinquent decreased between
      December 31, 2006 and September 30, 2007 from $6.070 million to $2.743 million,
      respectively.  The improvements in potential problem loans, delinquent
      loans, and net charge-offs between the periods were counteracted, in part,
      by an
      increase in non-performing loans.  Non-performing loans totaled $2.529
      million at December 31, 2006 as compared to $5.194 million at September 30,
      2007.





*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
      service fees, and other income.  Non-interest income improved
      significantly in the nine-month period ended September 30, 2007 as compared
      to
      the nine-month period ended September 30, 2006.  In particular, total
      non-interest income increased from $4.376 million in the nine-month period
      ended
      September 30, 2006 to $5.671 million in the nine-month period ended September
      30, 2007, a $1.295 million or 29.6% increase.  The significant
      increase in non-interest income between comparable nine-month periods was
      principally due to three unusual events: (i) a $615 thousand gain on life
      insurance coverage due the death of Mr. Milavec, 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 $435
      thousand.  These improvements were offset, in part, by decreases in
      commission income, investment security gains (net), and other service fees
      totaling $339 thousand.





Trust
      fees increased $158 thousand or 14.4% between the nine-month period ended
      September 30, 2006 and the nine-month period ended September 30,
      2007.  During the first nine months of 2006 we recorded $1.095 million
      in trust fees as compared to $1.253 million in the first nine months of
      2007.  During the first nine months of 2006 we recorded account
      termination and executor fees totaling $92 thousand.  By comparison,
      during the first nine months of 2007 we recorded account termination and
      executor fees totaling $205 thousand, a $113 thousand increase.  The
      remaining increase in trust fees between the periods, totaling $45 thousand,
      was
      due to a net increase in trust, custodial, and investment management fees
      between the periods on new and existing accounts.





During
      the nine-month period ended September 30, 2007 we recorded $1.379 million of
      service charges on deposit accounts.  This compares to $1.227 million
      in service charges on deposit accounts during the nine-month period ended
      September 30, 2006, a $152 thousand or 12.4% 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
      $140 thousand between comparable nine-month periods, from $604 thousand during
      the nine-month period ended September 30, 2006 to $744 thousand during the
      nine-month period ended September 30, 2007.





Our
      commission income is generated from the Bank’s insurance agency subsidiary,
      Mang–Wilber LLC.  During the nine-month period ended September 30,
      2007, we recorded commission income totaling $402 thousand.  This
      compares to $415 thousand in commission income during the nine-month period
      ended September 30, 2006, a $13 thousand or 3.1%
      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
      the first nine months of 2007, we recorded net investment security gains
      totaling $148 thousand, $136 thousand of which was due to an increase in the
      value of our trading securities portfolio and $12 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 the first nine months of 2006 we recorded
      $385 thousand in net investment security gains, a $237 thousand decrease period
      over period.  During the first nine months of 2006 we received
      proceeds from the sale and maturity of available-for-sale
      investment


29
 *Index*


securities
      totaling $29.242 million, which generated $271 thousand in net gains during
      the
      period.  During that same period, our trading securities generated net
      gains of $114 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 $160 thousand net gain on the
      sale of these loans.  This compares to no loans sold during
      2006.





During
      the nine-month period ended September 30, 2007, we recorded a $451 thousand
      increase in the cash surrender value of bank-owned life
      insurance.  This compares to $426 thousand during the nine-month
      period ended September 30, 2006, a $25 thousand or 5.9%
      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 $89 thousand or 33.5% between the
      nine-month periods ended September 30, 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 $99 thousand in the first nine
      months of 2006 to $19 thousand in the first nine months of 2007, an $80 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 $562 thousand in the first
      nine months of 2006 to $1.086 million in the first nine months of 2007, a $524
      thousand or 93.2% increase.  In the first quarter of 2006, 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 the first nine months of 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 decreased modestly
      between the nine-month period ended September 30, 2006 and the nine-month period
      ended September 30, 2007.  In particular, non-interest expense
      decreased from $15.414 million in the nine-month period ended September 30,
      2006
      to $15.287 million in the nine-month period ended September 30, 2007, a $127
      thousand or 0.8% decrease.  Through the first three quarters of 2006,
      we incurred non-interest expenses totaling approximately $600 thousand due
      to a
      regional flood.  Similar expenses were not incurred during the first
      nine months of 2007, thereby resulting in a general reduction in non-interest
      expense.  This decrease was negated in part by increases in salaries,
      furniture and equipment expense, advertising and marketing, professional fees,
      and other miscellaneous expenses between comparable nine-month
      periods.





Salaries
      expense increased $123 thousand or 1.7% between the comparable nine-month
      periods, from $7.172 million during the nine-month period ended September 30,
      2006 to $7.295 million during the nine-month period ended September 30,
      2007.  The increase between comparable periods was due principally to
      a $118 thousand increase in base salaries and overtime (less deferred
      amounts).  Between comparable periods we acquired Provantage and
      provided general pay raises to our employees.  In addition, we
      recorded a $47 thousand increase in executive deferred compensation plan expense
      between comparable nine-month periods.  These increases were reduced,
      in part, by a $42 thousand decrease in employee incentive and commission
      expenses between comparable nine-month periods.





Employee
      benefits expense decreased modestly between the nine-month period ended
      September 30, 2006 and the nine-month period ended September 30,
      2007.  We recorded employee benefits expense of $2.024 million in the
      nine-month period ended September 30, 2006 as compared to $1.897 million in
      the
      nine-month period ended September 30, 2007, a $127 thousand or 6.3%
      decrease.  During the first nine


30
 *Index*


months
      of
      2006, we recorded $236 thousand of expense associated with the Company’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 $119 thousand
      credit on the plan in the first nine months of 2007, reducing employee benefits
      expense by $355 thousand.  This reduction in expense was offset in
      part by a significant increase in employee health insurance costs totaling
      $247
      thousand, $233 thousand due to increases in the Bank’s plan and $14 thousand due
      to the Provantage health plan.  During the first nine months of 2007
      we experienced a significant increase in claims on the Bank’s partially
      self-insured health plan, requiring us to record $856 thousand in health
      insurance plan expenses.  This compares to $609 thousand in the first
      nine months of 2006.





During
      the first three quarters of 2007, we recorded $1.308 million in occupancy
      expense of Company premises.  This compares to $1.443 million during
      the first three quarters of 2006, a $135 thousand or 9.4%
      decrease.  In the third quarter of 2006, we incurred significant
      premises and equipment 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.





During
      the first three quarters of 2007 we recorded furniture and equipment expense
      totaling $624 thousand as compared to $581 thousand during the first three
      quarters of 2006, a $43 thousand or 7.4% increase.  Between comparable
      periods we recorded a $45 thousand increase in depreciation expense on furniture
      and equipment, due principally to increased technology demands and related
      computer equipment purchases.





Computer
      service fees decreased $46 thousand or 7.4% between comparable nine-month
      periods, from $625 thousand for the nine-month period ended September 30, 2006
      to $579 thousand for the nine-month period ended September 30,
      2007.  Between the comparable periods, we engaged a new ATM network
      provider and successfully reduced ATM vendor fees by $40 thousand.





Advertising
      and marketing expenses increased modestly between the nine-month periods ended
      September 30, 2006 and 2007.  In particular, advertising and marketing
      expenses increased from $376 thousand in the nine-month period ended September
      30, 2006 to $391 thousand in the nine-month period ended September 30, 2007,
      a
      $15 thousand or 4.0% increase.  During the fourth quarter of 2006, we
      engaged an advertising and marketing firm to assist us in improving the
      Company’s brand image.  The increase in marketing fees between the
      periods was principally due to the costs associated with this
      project.





Professional
      fees increased from $674 thousand in the nine-month period ended September
      30,
      2006 to $722 thousand in the nine-month period ended September 30, 2007, a
      $48
      thousand or 7.1% 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.





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 the nine-month period ended September 30, 2007 other
      miscellaneous expenses decreased $48 thousand or 1.9%, from $2.519 million
      in
      the nine-month period ended September 30, 2006 to $2.471 million in the
      nine-month period ended September 30, 2007.  The following table
      itemizes the individual components of other miscellaneous expenses that
      increased (or decreased) significantly between comparable
      periods:


31
 *Index*





**For
                the Nine**
              **Months
                Ended**
              **September
                30,****Description
                of Other Miscellaneous Expense**
            **2007**
            
            
            **2006**
            
            
            **Increase
                /**
              **(Decrease)***(dollars
                in thousands)*Accounts
                receivable financing program services
            
            $
            101
            
            
            $
            121
            
            
            
            (20
            )Donations
            
            
            114
            
            
            
            56
            
            
            
            58Dues
                and memberships
            
            
            54
            
            
            
            41
            
            
            
            13Office
                supplies
            
            
            252
            
            
            
            228
            
            
            
            24Postage
                and shipping
            
            
            206
            
            
            
            181
            
            
            
            25Deferred
                reserves for unfunded loan commitments
            
            
            20
            
            
            
            (22
            )
            
            
            42Software
                amortization
            
            
            131
            
            
            
            174
            
            
            
            (43
            )Other
                losses
            
            
            53
            
            
            
            7
            
            
            
            46Loss
                on disposal / impairment of fixed assets
            
            
            44
            
            
            
            266
            
            
            
            (222
            )Intangible
                asset amortization expense
            
            
            98
            
            
            
            134
            
            
            
            (36
            )Minority
                interest for Mang-Wilber LLC insurance agency subsidiary
            
            
            48
            
            
            
            66
            
            
            
            (18
            )All
                other miscellaneous expense items, net
            
            
            1,350
            
            
            
            1,267
            
            
            
            83Total
                other miscellaneous expense
            $
            2,471
            
            
            $
            2,519
            
            
            $
            (48
            )








*Income
      Taxes.*Income tax expense increased from $1.502 million during
      the nine-month period ended September 30, 2006 to $1.779 million during the
      nine-month period ended September 30, 2007.  The increase in income
      tax expense was primarily due to an increase in income before tax between the
      comparable periods.  Income before tax totaled $8.126 million in the
      first nine months of 2007, as compared to $6.453 million in the nine months
      of
      2006.** Our effective tax rate decreased between periods, from
      23.4% in the nine-month period ended September 30, 2006 to 21.9% in the
      nine-month period ended September 30, 2007.  During the second quarter
      of 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, thereby substantially reducing our effective tax rate for the
      nine
      months ended September 30, 2007.





F.
      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.


32
 *Index*





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 Asset and Liability Committee (“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 September 30,
      2007
      and December 31, 2006, the Bank was in a “1A” liquidity position, the strongest
      liquidity position based on management’s internal rating system.





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





Table
      of
      Liquidity Measures:





**Liquidity
                  Measure**Dollars in Thousands
            
            **September
                30,**
              **2007**
            
            
            **December**
              **31,
                2006**Cash
                and Cash Equivalents
            
            $
            40,750
            
            
            $
            25,859Available
                for Sale Investment Securities at Estimated Fair Value less Securities
                pledged for State and Municipal Deposits and Borrowings
            
            $
            55,246
            
            
            $
            72,240Total
                Loan to Total Asset Ratio
            
            
            54.5
            %
            
            
            53.3
            %FHLBNY
                Remaining Borrowing Capacity
            
            $
            15,104
            
            
            $
            24,128Available
                Correspondent Bank Lines of Credit
            
            $
            15,000
            
            
            $
            15,000








We
      maintained adequate amounts of cash and cash equivalents at September 30, 2007
      to meet anticipated short-term funding needs.  In addition, our
      ability to meet unanticipated funding needs was strong.  At September
      30, 2007, we maintained $55.246 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 between December 31,
      2006 and September 30, 2007, due principally to a decrease in the value of
      the
      residential mortgage collateral pledged by us as collateral for long-term
      borrowings at FHLBNY.  Our remaining borrowing capacity at FHLBNY was
      $15.104 million at September 30, 2007, as compared to $24.128 million at
      December 31, 2006, a $9.024 million decrease.  In addition, at
      September 30, 2007 and December 31,


33
 *Index*


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 September 30, 2007 and December 31, 2006, our
      total loan to total asset ratios of 54.5% 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 the first nine months of 2007.





Our
      commitments to extend credit and stand-by letters of credit increased modestly
      between December 31, 2006 and September 30, 2007.  At September 30,
      2007, commitments to extend credit and stand-by letters of credit were $101.167
      million as compared to $88.510 million at December 31, 2006, a $12.657 million
      or 14.3% increase between the periods.  The increase between December
      31, 2006 and September 30, 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.





G.
      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 September 30, 2007 our total shareholders’ equity
      increased $3.528 million or 5.6%.  Total shareholders’ equity was
      $66.860 million at September 30, 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 the first nine months of 2007, we earned $6.347 million
      in net income and declared and paid $3.012 million in cash dividends to
      shareholders, resulting in a $3.335 million or 3.7% increase in retained
      earnings.  In addition, due primarily to a decrease in general
      interest rates between December 31, 2006 and September 30, 2007, we recorded
      a
      $798 thousand decrease in accumulated other comprehensive loss during the first
      three quarters of 2007.  At December 31, 2006, accumulated other
      comprehensive loss totaled $3.247 million.  This compares to $2.449
      million at September 30, 2007.





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 a
      portion of 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 September
      30, 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
      September 30, 2007 were 12.04% and 13.29%, respectively.  This
      compares to 12.25% and 13.50%, respectively, at December 31, 2006.





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
      to
      the payment of dividends by the Company to its shareholders.  As of
      September 30, 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 $4.5 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.


34
 *Index*





ITEM
      3:  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 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 October 1, 2007 and
      ending September 30, 2008, under ramped shock scenarios.





35
 *Index*





Interest
      Rate Sensitivity Table:





Interest
                Rates
            (Dollars
                in Thousands)Interest
              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%
            10.75%
            $24,512
            ($672)
            -2.67%
            -1.01%2.00%
            9.75%
            24,273
            (911)
            -3.62%
            -1.36%1.00%
            8.75%
            24,564
            (620)
            -2.46%
            -0.93%No
                change
            7.75%
            25,184
            -
            -
            --1.00%
            6.75%
            25,558
            374
            1.49%
            0.56%-2.00%
            5.75%
            25,076
            (108)
            -0.43%
            -0.16%-3.00%
            4.75%
            24,463
            (721)
            -2.86%
            -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 $911 thousand
      or
      1.36% of total shareholders’ equity in a +2.00% ramped interest rate shock and
      by $108 thousand or 0.16% 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 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 25% of
      our total assets at September 30, 2007 were invested in adjustable rate loans
      and investments.





At
      September 30, 2007, the Treasury yield curve was generally flat.  This
      means short-term Treasury yields were approximately the same as long-term
      Treasury yields.  The one-year Treasury bill yield was approximately
      4.05% as of September 30 2007, versus 4.58% for the ten year Treasury
      note.  This 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.  If this flat interest rate environment persists, it may
      negatively impact our ability to increase net interest income for several
      quarters prospectively.





ITEM
      4: 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


36
 *Index*


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 Rule 13(a)-15(e) and 15(d)–15(e) under
      the Securities Exchange Act of 1934, as amended) as of September 30,
      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.





There
      were no changes made in the Company’s internal controls over financial reporting
      that occurred during the Company’s most recent fiscal quarter that have
      materially affected, or are reasonably likely to materially affect, the
      Company’s internal controls over financial reporting.





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 assumptions 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.





ITEM
      4T:  Controls and Procedures





This
      item
      is not applicable as the Company is an accelerated filer.








**PART
      II – OTHER INFORMATION**





ITEM
      1: Legal Proceedings





From
      time
      to time, the Company becomes subject to various legal claims that arise in
      the
      normal course of business.  At September 30, 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, result in any material liability to the
      Company and will not materially affect our financial position, results of
      operation, or cash flow.





Neither
      the Company, the Bank, 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
      1A:  Risk Factors





During
      the three-month period ended September 30, 2007, there were no material changes
      to the Company’s risk factors as disclosed in the Annual Report on Form 10-K,
      Item 1A, filed with the SEC on March 13, 2007.





ITEM
      2: Unregistered Sales of Equity Securities and Use of
      Proceeds





A.
      Not
      applicable.





B.  Not
      applicable.





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 June 30, 2007, management’s remaining
      share repurchase authority under this program was $889 thousand.





All
      shares repurchased under the repurchase program are made in the open market
      or
      through private


37
 *Index*


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 share 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 there under, and the rules of the American
      Stock Exchange.





During
      August 2007, we purchased an additional 65,478 shares at $9.25 per share through
      two separate private transactions.  This reduced management’s
      repurchase authority to $283 thousand under the stock repurchase
      program.





The
      following table summarizes the shares repurchased by the Company during the
      three-month period ended September 30, 2007 (dollars in thousands):





**Period**
              **Total**
                **Number
                  of**
                **Shares**
                **Purchased**
                **(1)**
              
              
              **Average**
                **Price
                  Paid**
                **per
                  Share**
              
              
              **Total
                  Cost**
              
              
              **Remaining**
                **Share**
                **Repurchase**
                **Authority**Stock
                  Repurchase Program:July
                  1 - July 31, 2007
              
              
              65,478
              
              
              $
              9.25
              
              
              $
              605
              
              
              $
              283August
                  1 - August 31, 2007
              
              
              0
              
              
              
              0.00
              
              
              
              0
              
              
              
              283September
                  1 - September 30, 2007
              
              
              0
              
              
              
              0.00
              
              
              
              0
              
              
              
              283Totals
              
              65,478
              
              
              
              9.25
              
              
              
              605(1)
                  These shares were purchased in two separate private transactions
                  under the
                  Company's stock repurchase plan announced on July 26, 2005.





During
      the three-month period ended September 30, 2007, the rights of holders of our
      registered securities were not modified, nor was any other class of security
      issued that could materially limit or qualify our registered
      securities.








ITEM
      3: Defaults Upon Senior Securities





The
      Company did not default on any senior securities during the three-month period
      ended September 30, 2007.








ITEM
      4: Submission of Matters to a Vote of Security
      Holders





None.








ITEM
      5: Other Information





None.








ITEM
      6: Exhibits





See
      Exhibit Index to this Form 10-Q.


38
 *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 report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





THE
                  WILBER CORPORATIONBy:
              /s/
                  Douglas C. Gulotty
              
              Dated:
              November
                  8, 2007Douglas
                  C. GulottyPresident
                  and Chief Executive OfficerBy:
              /s/
                  Joseph E. Sutaris
              
              Dated:
              November
                  8, 2007Joseph
                  E. SutarisSecretary,
                  Treasurer, and Chief Financial Officer







39
 *Index*


**EXHIBIT
      INDEX**








**No.**
            
            **Document**31.1
            
            Certification
                of Chief Executive Officer Pursuant to 302 of the Sarbanes-Oxley
                Act of
                200231.2
            
            Certification
                of Chief Financial Officer Pursuant to 302 of the Sarbanes-Oxley
                Act of
                200232.1
            
            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








40