**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





ýQUARTERLY
      REPORT PURSUANT TO SECTION 13
      OR 15(d) OF


THE
      SECURITIES EXCHANGE ACT OF 1934





**For
      the Quarterly Period Ended June 30, 2006**





OR





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


THE
      SECURITIES EXCHANGE ACT OF 1934 [ NO FEE REQUIRED ]





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 o





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 filero
            Accelerated
                filerý
            Non-accelerated
                filero





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


Yes o No ý





As
      of
      August 3, 2006, there were issued and outstanding 10,589,182 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 Interim Unaudited Consolidated Financial StatementsITEM
                2:
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                OperationsA.Recent
                DevelopmentsB.GeneralC.Financial
                Condition and Performance OverviewD.Comparison
                of Financial Condition at June 30, 2006 and December 31,
                2005E.Comparison
                of Results of Operation for the Three Months Ended June 30, 2006
                and
                2005F.Comparison
                of Results of Operation for the Six Months Ended June 30, 2006 and
                2005G.LiquidityH.Capital
                Resources and DividendsITEM
                3:
            Quantitative
                and Qualitative Disclosures about Market RiskITEM
                4:
            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








FORWARD-LOOKING
      STATEMENTS








When
      we
      use words or phrases like "will probably result," "we expect," "will continue,"
      "we anticipate," "estimate," "project," "should cause," or similar expressions
      in this report or in any press releases, public announcements, filings with
      the
      Securities and Exchange Commission (the "SEC") or other disclosures, we are
      making "forward-looking statements" as described in the Private Securities
      Litigation Reform Act of 1995. In addition, certain information we provide,
      such
      as analysis of the adequacy of our allowance for loan losses or an analysis
      of
      the interest rate sensitivity of our assets and liabilities, is always based
      on
      predictions of the future. From time to time, we may also publish other
      forward-looking statements about anticipated financial performance, business
      prospects, and similar matters.





The
      Private Securities Litigation Reform Act of 1995 provides a safe harbor for
      forward-looking statements. We want you to know that a variety of future events
      and uncertainties could cause our actual results and experience to differ
      materially from what we anticipate when we make our forward-looking statements.
      Factors that could cause future results to vary from current management
      expectations include, but are not limited to, general economic conditions,
      legislative and regulatory changes, monetary and fiscal policies of the Federal
      government, changes in tax policies, tax rates and regulations of Federal,
      state
      and local tax authorities, changes in consumer preferences, changes in interest
      rates, deposit flows, cost of funds, demand for loan products, demand for
      financial services, competition, changes in the quality or composition of the
      Company’s loan and investment portfolios, changes in accounting principles,
      policies or guidelines and other economic, competitive, governmental and
      technological factors affecting the Company’s operations, markets, products,
      services and fees.





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





*Back
          to Index*
 2


ITEM
      1:
      Interim
      Financial Statements (Unaudited)


***The
                Wilber Corporation******Consolidated
                Statements of Condition (Unaudited)*****June
                30,**
            
            **December
                31,*****dollars
                in thousands except share and per share data***
            
            **2006**
            
            **2005****Assets**Cash
                and Due from Banks
            
            **$**
            **11,976**
            
            $
            12,817Time
                Deposits with Other Banks
            
            
            **2,300**
            
            
            2,700Federal
                Funds Sold
            
            
            **14,300**
            
            
            2,900Total
                Cash and Cash Equivalents
            
            
            **28,576**
            
            
            18,417SecuritiesTrading,
                at Fair Value
            
            
            **1,512**
            
            
            1,542Available-for-Sale,
                at Fair Value
            
            
            **229,527**
            
            
            240,350Held-to-Maturity,
                Fair Value of $54,051 at June 30, 2006,and
                $53,837 at December 31, 2005
            
            
            **56,292**
            
            
            54,939Loans
            
            
            **402,498**
            
            
            403,665Allowance
                for Loan Losses
            
            
            **(6,241**
            **)**
            
            (6,640
            )Loans,
                Net
            
            
            **396,257**
            
            
            397,025Premises
                and Equipment, Net
            
            
            **5,996**
            
            
            6,430Bank
                Owned Life Insurance
            
            
            **15,803**
            
            
            15,530Goodwill
            
            
            **4,518**
            
            
            4,518Intangible
                Assets, Net
            
            
            **609**
            
            
            698Other
                Assets
            
            
            **18,133**
            
            
            13,279Total
                Assets
            
            **$**
            **757,223**
            
            $
            752,728**Liabilities
                and Shareholders’ Equity**Deposits:Demand
            
            **$**
            **73,337**
            
            $
            72,986Savings,
                NOW and Money Market Deposit Accounts
            
            
            **255,997**
            
            
            244,484Certificates
                of Deposit (Over $100M)
            
            
            **89,990**
            
            
            78,147Certificates
                of Deposit (Under $100M)
            
            
            **184,572**
            
            
            183,716Other
                Deposits
            
            
            **26,491**
            
            
            25,625Total
                Deposits
            
            
            **630,387**
            
            
            604,958Short-Term
                Borrowings
            
            
            **12,771**
            
            
            19,357Long-Term
                Borrowings
            
            
            **47,295**
            
            
            52,472Other
                Liabilities
            
            
            **6,928**
            
            
            8,224Total
                Liabilities
            
            
            **697,381**
            
            
            685,011Shareholders’
                Equity:Common
                Stock, $.01 Par Value, 16,000,000 Shares Authorized,and
                13,961,664 Shares Issued at June 30, 2006,and
                December 31, 2005
            
            
            **140**
            
            
            140Additional
                Paid in Capital
            
            
            **4,224**
            
            
            4,224Retained
                Earnings
            
            
            **88,089**
            
            
            86,900Accumulated
                Other Comprehensive Loss
            
            
            **(5,107**
            **)**
            
            (2,409
            )Treasury
                Stock at Cost, 3,372,482 Shares at June 30, 2006,and
                2,815,727 Shares at December 31, 2005
            
            
            **(27,504**
            **)**
            
            (21,138
            )Total
                Shareholders’ Equity
            
            
            **59,842**
            
            
            67,717Total
                Liabilities and Shareholders’ Equity
            
            **$**
            **757,223**
            
            $
            752,728*See
                accompanying notes to interim unaudited consolidated financial
                statements.*




*Back
          to Index*
 3


***The
                Wilber Corporation******Consolidated
                Statements of Income (Unaudited)***
            
            **Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,*****dollars
                in thousands except share and per share data***
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005****Interest
                and Dividend Income**Interest
                and Fees on Loans
            
            **$**
            **7,471**
            
            $
            6,835
            
            **$**
            **14,781**
            
            $
            13,428Interest
                and Dividends on Securities:U.S.
                Government and Agency Obligations
            
            
            **2,428**
            
            
            2,248
            
            
            **4,868**
            
            
            4,589State
                and Municipal Obligations
            
            
            **592**
            
            
            641
            
            
            **1,189**
            
            
            1,341Other
            
            
            **60**
            
            
            56
            
            
            **120**
            
            
            100Interest
                on Federal Funds Sold and Time Deposits
            
            
            **95**
            
            
            160
            
            
            **158**
            
            
            302Total
                Interest and Dividend Income
            
            
            **10,646**
            
            
            9,940
            
            
            **21,116**
            
            
            19,760**Interest
                Expense**Interest
                on Deposits:Savings,
                NOW and Money Market Deposit Accounts
            
            
            **885**
            
            
            696
            
            
            **1,758**
            
            
            1,285Certificates
                of Deposit (Over $100M)
            
            
            **947**
            
            
            601
            
            
            **1,730**
            
            
            1,182Certificates
                of Deposit (Under $100M)
            
            
            **1,710**
            
            
            1,402
            
            
            **3,348**
            
            
            2,719Other
                Deposits
            
            
            **230**
            
            
            194
            
            
            **451**
            
            
            374Interest
                on Short-Term Borrowings
            
            
            **133**
            
            
            112
            
            
            **333**
            
            
            264Interest
                on Long-Term Borrowings
            
            
            **483**
            
            
            554
            
            
            **988**
            
            
            1,244Total
                Interest Expense
            
            
            **4,388**
            
            
            3,559
            
            
            **8,608**
            
            
            7,068**Net
                Interest Income**
            
            
            **6,258**
            
            
            6,381
            
            
            **12,508**
            
            
            12,692Provision
                for Loan Losses
            
            
            **420**
            
            
            240
            
            
            **840**
            
            
            480Net
                Interest Income After Provision for Loan Losses
            
            
            **5,838**
            
            
            6,141
            
            
            **11,668**
            
            
            12,212**Non-Interest
                Income**Trust
                Fees
            
            
            **362**
            
            
            363
            
            
            **751**
            
            
            691Service
                Charges on Deposit Accounts
            
            
            **406**
            
            
            424
            
            
            **813**
            
            
            816Commission
                Income
            
            
            **131**
            
            
            174
            
            
            **317**
            
            
            312Investment
                Security Gains, Net
            
            
            **17**
            
            
            148
            
            
            **310**
            
            
            392Increase
                in Cash Surrender Value of Bank Owned Life Insurance
            
            
            **141**
            
            
            138
            
            
            **273**
            
            
            272Other
                Service Fees
            
            
            **94**
            
            
            119
            
            
            **197**
            
            
            220Other
                Income
            
            
            **200**
            
            
            117
            
            
            **340**
            
            
            231Total
                Non-Interest Income
            
            
            **1,351**
            
            
            1,483
            
            
            **3,001**
            
            
            2,934**Non-Interest
                Expense**Salaries
            
            
            **2,323**
            
            
            2,341
            
            
            **4,713**
            
            
            4,562Employee
                Benefits
            
            
            **839**
            
            
            757
            
            
            **1,438**
            
            
            1,334Occupancy
                Expense of Bank Premises
            
            
            **401**
            
            
            378
            
            
            **855**
            
            
            848Furniture
                and Equipment Expense
            
            
            **197**
            
            
            189
            
            
            **381**
            
            
            361Computer
                Service Fees
            
            
            **193**
            
            
            183
            
            
            **397**
            
            
            314Advertising
                and Marketing
            
            
            **126**
            
            
            143
            
            
            **229**
            
            
            245Professional
                Fees
            
            
            **294**
            
            
            130
            
            
            **526**
            
            
            326Loss
                on Disposal / Impairment of Fixed Assets
            
            
            **320**
            
            
            0
            
            
            **320**
            
            
            7Other
                Miscellaneous Expenses
            
            
            **801**
            
            
            756
            
            
            **1,486**
            
            
            1,470Total
                Non-Interest Expense
            
            
            **5,494**
            
            
            4,877
            
            
            **10,345**
            
            
            9,467Income
                Before Taxes
            
            
            **1,695**
            
            
            2,747
            
            
            **4,324**
            
            
            5,679Income
                Taxes
            
            
            **(341**
            **)**
            
            (748
            )
            
            **(1,017**
            **)**
            
            (1,510
            )**Net
                Income**
            
            **$**
            **1,354**
            
            $
            1,999
            
            **$**
            **3,307**
            
            $
            4,169Weighted
                Average Shares Outstanding
            
            
            **10,966,692**
            
            
            11,171,114
            
            
            **11,055,820**
            
            
            11,178,653Basic
                Earnings Per Share
            
            **$**
            **0.12**
            
            $
            0.18
            
            **$**
            **0.30**
            
            $
            0.37*See
                accompanying notes to interim unaudited consolidated financial
                statements.*




*Back
          to Index*
 4


***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**
            
            **Income
                (Loss)**
            
            **Stock**
            
            **Total**Balance
                December 31, 2004
            
            $
            140
            
            $
            4,224
            
            $
            83,402
            
            $
            396
            
            
            ($20,557
            )
            $
            67,605Comprehensive
                Income:Net
                Income
            
            
            -
            
            
            -
            
            
            4,169
            
            
            -
            
            
            -
            
            
            4,169Change
                in Net Unrealized Loss
              on
                Securities, Net of Taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            (675
            )
            
            -
            
            
            (675
            )Total
                Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,494Cash
                Dividends ($.19 per share)
            
            
            -
            
            
            -
            
            
            (2,126
            )
            
            -
            
            
            -
            
            
            (2,126
            )Purchase
                of Treasury Stock (31,500 shares)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (388
            )
            
            (388
            )Balance
                June 30, 2005
            
            $
            140
            
            $
            4,224
            
            $
            85,445
            
            
            ($279
            )
            
            ($20,945
            )
            $
            68,585Balance
                December 31, 2005
            
            $
            140
            
            $
            4,224
            
            $
            86,900
            
            
            ($2,409
            )
            
            ($21,138
            )
            $
            67,717Comprehensive
                Income:Net
                Income
            
            
            -
            
            
            -
            
            
            **3,307**
            
            
            -
            
            
            -
            
            
            **3,307**Change
                in Net Unrealized Loss
              on
                Securities, Net of Taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            **(2,698**
            **)**
            
            -
            
            
            **(2,698**
            **)**Total
                Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **609**Cash
                Dividends ($.19 per share)
            
            
            -
            
            
            -
            
            
            **(2,118**
            **)**
            
            -
            
            
            -
            
            
            **(2,118**
            **)**Purchase
                of Treasury Stock (556,755 shares)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **(6,366**
            **)**
            
            **(6,366**
            **)****Balance
                June 30, 2006**
            
            **$**
            **140**
            
            **$**
            **4,224**
            
            **$**
            **88,089**
            
            
            **($5,107**
            **)**
            
            **($27,504**
            **)**
            **$**
            **59,842***See
                accompanying notes to interim unaudited consolidated financial
                statements.*

















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          to Index*
 5


***The
                Wilber Corporation******Consolidated
                Statements of Cash Flows (Unaudited)*****Six
                Months Ended****June
                30,*****dollars
                in thousands***
            
            **2006**
            
            **2005****Cash
                Flows from Operating Activities:**Net
                Income
            
            **$**
            **3,307**
            
            $
            4,169Adjustments
                to Reconcile Net Income to Net CashProvided
                by Operating Activities:Provision
                for Loan Losses
            
            
            **840**
            
            
            480Depreciation
                and Amortization
            
            
            **565**
            
            
            540Loss
                on Disposal / Impairment of Fixed Assets
            
            
            **320**
            
            
            0Net
                Amortization of Premiums and Accretion of Discounts on
                Investments
            
            
            **349**
            
            
            539Available-for-Sale
                Investment Security Gains, net
            
            
            **(271**
            **)**
            
            (367
            )Increase
                in Cash Surrender Value of Bank Owned Life Insurance
            
            
            **(273**
            **)**
            
            (272
            )Net
                Decrease in Trading Securities
            
            
            **69**
            
            
            76Net
                Gains on Trading Securities
            
            
            **(39**
            **)**
            
            (25
            )Increase
                in Other Assets
            
            
            **(3,111**
            **)**
            
            (179
            )Decrease
                in Other Liabilities
            
            
            **(1,435**
            **)**
            
            (1,704
            )Net
                Cash Provided by Operating Activities
            
            
            **321**
            
            
            3,257**Cash
                Flows from Investing Activities:**Net
                Cash Acquired from Acquisition of a Branch
            
            
            **0**
            
            
            22,521Proceeds
                from Maturities of Held-to-Maturity Investment Securities
            
            
            **3,954**
            
            
            4,539Purchases
                of Held-to-Maturity Investment Securities
            
            
            **(5,378**
            **)**
            
            (1,418
            )Proceeds
                from Maturities of Available-for-Sale Investment
                Securities
            
            
            **17,045**
            
            
            39,506Proceeds
                from Sales of Available-for-Sale Investment Securities
            
            
            **3,057**
            
            
            9,945Purchases
                of Available-for-Sale Investment Securities
            
            
            **(13,705**
            **)**
            
            (34,018
            )Net
                Increase in Loans
            
            
            **(72**
            **)**
            
            (8,595
            )Net
                Purchase of Premises and Equipment
            
            
            **(245**
            **)**
            
            (218
            )Net
                Cash Provided by Investing Activities
            
            
            **4,656**
            
            
            32,262**Cash
                Flows from Financing Activities:**Net
                Increase in Demand Deposits, Savings, NOW,Money
                Market and Other Deposits
            
            
            **12,730**
            
            
            477Net
                Increase (Decrease) in Certificates of Deposit
            
            
            **12,699**
            
            
            (3,872
            )Net
                Decrease in Short-Term Borrowings
            
            
            **(6,586**
            **)**
            
            (16,956
            )Increase
                in Long-Term Borrowings
            
            
            **0**
            
            
            16,900Repayment
                of Long-Term Borrowings
            
            
            **(5,177**
            **)**
            
            (24,657
            )Purchase
                of Treasury Stock
            
            
            **(6,366**
            **)**
            
            (388
            )Cash
                Dividends Paid
            
            
            **(2,118**
            **)**
            
            (2,126
            )Net
                Cash Provided by (Used by) Financing Activities
            
            
            **5,182**
            
            
            (30,622
            )Net
                Increase in Cash and Cash Equivalents
            
            
            **10,159**
            
            
            4,897Cash
                and Cash Equivalents at Beginning of Period
            
            
            **18,417**
            
            
            20,539Cash
                and Cash Equivalents at End of Period
            
            **$**
            **28,576**
            
            $
            25,436














*Back
          to Index*
 6

















***The
                Wilber Corporation***
              ***Consolidated
                Statements of Cash Flows (Unaudited),
                continued*****Six
                Months Ended****June
                30,*****dollars
                in thousands***
            
            **2006**
            
            **2005****Supplemental
                Disclosures of Cash Flow Information:**Cash
                Paid during Period for:Interest
            
            **$**
            **8,564**
            
            $
            7,178Income
                Taxes
            
            **$**
            **2,727**
            
            $
            3,085Non
                Cash Investing Activities:Change
                in Unrealized Loss on Securities
            
            
            **($4,419**
            **)**
            
            ($1,104
            )Fair
                Value of Assets Acquired
            
            **$**
            **0**
            
            $
            8,185Fair
                Value of Liabilities Assumed
            
            **$**
            **0**
            
            $
            32,967*See
                accompanying notes to interim unaudited consolidated financial
                statements.*























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 7


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 subsidiary
      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 balance sheet for December 31, 2005, was derived from the
      Company's 2005 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, 2005 and 2004, and the consolidated statements of income,
      consolidated statements of cash flows, consolidated statements of shareholders’
equity and comprehensive income for each of the years in the three-year period
      ended December 31, 2005. That data, along with the unaudited interim financial
      information presented in the consolidated statements of condition as of June
      30,
      2006, the statements of income for the three and six-month periods ended June
      30, 2006 and 2005, the statements of changes in shareholders' equity and
      comprehensive income and cash flows for the six-month periods ended June 30,
      2006 and 2005, should be read in conjunction with the 2005 consolidated
      financial statements, including the notes thereto.





Amounts
      in prior period’s 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) is 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***





The
      Company does not issue any guarantees that would require liability-recognition
      or disclosure, other than its stand-by letters of credit. Stand-by and other
      letters of credit are conditional commitments issued by the Company 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. Typically, these instruments have terms of 12 months or less
      and
      expire unused. Therefore, the total amounts do not necessarily represent future
      cash requirements.





The
      estimated fair value of the Company's stand-by letters of credit was $16
      thousand and $12 thousand at June 30, 2006, and December 31, 2005, respectively.
      The estimated fair value of stand-by letters of credit at their inception is
      equal to the fee that is charged to the customer by the Company. Generally,
      the
      Company’s stand-by letters of credit have a term of one year. In determining the
      fair values disclosed above, the fees were reduced on a straight-line basis
      from
      the inception of each stand-by letter of credit to the respective dates above.


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 8





***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
      is 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 2006 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 (Benefit), based on a September 30,
      2005
      measurement date and the subsequent amendment on February 28, 2006,
      are:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,*****dollars
                in thousands***
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**Service
                Cost
            
            **$**
            **103**
            
            $
            170
            
            **$**
            **209**
            
            $
            340Interest
                Cost
            
            
            **234**
            
            
            231
            
            
            **445**
            
            
            462Expected
                Return on Plan Assets
            
            
            **(347**
            **)**
            
            (312
            )
            
            **(681**
            **)**
            
            (622
            )Net
                Amortization
            
            
            **34**
            
            
            54
            
            
            **53**
            
            
            106Curtailment
                Expense
            
            
            **190**
            
            
            0
            
            
            **190**
            
            
            0**$**
            **214**
            
            $
            143
            
            **$**
            **216**
            
            $
            286








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





The
      following is a summary of changes in other comprehensive income for the periods
      presented:





**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,*****dollars
                in thousands***
            
            **2006**
            
            **2005**
            
            **2006**
            
            **2005**Unrealized
                Holding (Losses) Gains Arising During the Period Net of
                Tax(Pre-tax
                Amount of ($2,986), $2,572 ,($4,148), and ($737))
            
            
            **($1,823**
            **)**
            $
            1,569
            
            
            **($2,533**
            **)**
            
            ($451
            )Reclassification
                Adjustment for (Gains) Realized in Net Income During the
                Period,Net
                of Tax (Pre-tax Amount of ($74), ($120), ($271) and
                ($367))
            
            
            **(44**
            **)**
            
            (73
            )
            
            **(165**
            **)**
            
            (224
            )Other
                Comprehensive (Loss) Income, Net of Tax of ($1,192), $955,
                ($1,721)and
                ($429)
            
            
            **($1,867**
            **)**
            $
            1,496
            
            
            **($2,698**
            **)**
            
            ($675
            )







***Note
      6. Loss on Disposal / Impairment of Fixed Assets***





During
      the second quarter, our immediate market area was decimated by a flood due
      to
      torrential rains. As a result of the flood, two of our branch buildings, located
      in Sidney, NY and Walton, NY, and the contents in each office, were damaged
      or
      destroyed by floodwaters. Therefore, a loss of $320 thousand on the disposal
      and
      impairment of these assets was recorded during the second quarter of 2006.
      The
      furniture, fixtures and equipment that were components of these branches had
      a
      carrying value of $82 thousand and a related loss of $82 thousand was recorded.
      The buildings had a combined carrying amount of $592 thousand and a loss of
      $238
      thousand was recorded.


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 9


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





A.
      Recent
      Developments





*Self
      Tender Offer* .
      On June
      1, 2006 we purchased 536,155 shares of our common stock into treasury pursuant
      to a modified Dutch-auction style self-tender offer filed with the SEC on April
      4, 2006, and as amended on April 10, 2006, April 28, 2006, May 5, 2006, May
      18,
      2006 and May 25, 2006. The shares acquired under the self-tender offer were
      purchased at $11.40 per share (plus $0.07 per share in brokerage commissions)
      resulting in a $6.150 million decrease in shareholders’ equity. Pursuant to the
      offer shareholders could tender shares at any price (subject to $0.10 per share
      increments) between $9.90 and $11.40 per share. The offer expired May 18, 2006.
      All shares tendered by shareholders, totaling 536,155, were purchased by the
      Company.





*Flood
      Losses* .
      During
      the last week of June 2006 our immediate market area was decimated by flooding
      due to torrential rains. Two of our branch offices, in Sidney, New York and
      Walton, New York, and their contents were damaged by floodwaters. During the
      second quarter of 2006 we recorded a $320 thousand loss on the disposal /
      impairment of fixed assets due to flood-related damage to our branch offices
      and
      the destruction of their contents. We did not carry flood insurance on these
      properties. We estimate that we will incur an additional $125 thousand to $175
      thousand in non-interest expense during the third quarter of 2006 for the rental
      of temporary banking facilities in these two markets and additional clean-up
      costs. Although we are not aware of any flood-specific credit problems of our
      borrowers, it is possible that we will need to increase the provision for loan
      losses in the third quarter of 2006 to absorb flood-related losses.








B.
      General





The
      primary objectives of this quarterly report are to provide: (i) an overview
      of
      the material changes in our financial condition, including liquidity and capital
      resources, at June 30, 2006, as compared to December 31, 2005; (ii) a comparison
      of our results of operations for the three-month period ended June 30, 2006,
      as
      compared to the three-month period ended June 30, 2005; and (iii) a comparison
      of our results of operations for the six-month period ended June 30, 2006,
      as
      compared to the six-month period ended June 30, 2005





Our
      financial performance is heavily dependent upon net interest income, which
      is
      the difference between the interest income earned on our loans and investment
      securities less the interest paid on our deposits and borrowings. Results of
      operations are also affected by the provision for loan losses, fees collected
      for trust services, service charges on deposit accounts, insurance commission
      income, investment securities gains (losses), 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 salaries, employee benefits,
      occupancy expense, furniture and equipment expense, computer service fees,
      advertising and marketing expense, 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 June 30, 2006, evaluation of the allowance for
      loan losses indicated that the allowance was adequate, under adversely different
      conditions or assumptions, the allowance would need to be increased. For
      example, if historical loan loss experience significantly worsened or if current
      economic conditions significantly deteriorated, additional provisions for loan
      losses would be required to increase the allowance, which would negatively
      affect earnings. 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 June 30, 2006, 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.








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 10


C.
      Financial Condition and Performance Overview





Our
      financial condition has changed modestly between December 31, 2005 and June
      30,
      2006. Although total assets increased by less than 1.0% or $4.495 million
      between the periods, from $752.728 million at December 31, 2005 to $757.223
      million at June 30, 2006, we significantly decreased shareholders’ equity.
      During the second quarter we purchased 556,755 shares of our common stock,
      (536,155 of which were purchased pursuant to a self-tender offer), resulting
      in
      a $6.366 million or 30.1% increase in treasury stock. The treasury stock
      purchases were the primary reason shareholders’ equity decreased $7.875 million
      or 11.6% between the periods, from $67.717 million at December 31, 2005 to
      $59.842 million at June 30, 2006. We purchased the shares in conjunction with
      a
      strategic initiative to reduce the number of shares outstanding and
      shareholders’ equity to improve future earnings per share and return on equity
      for our shareholders.





The
      composition of our assets did not change significantly between December 31,
      2005
      and June 30, 2006. The composition of our liabilities, however, changed modestly
      between the periods. We reduced both our short-term and long-term borrowings
      and
      increased our total deposits. Total borrowings (short-term and long-term
      combined) decreased from $71.829 million at December 31, 2005 to $60.066 million
      at June 30, 2006, an $11.763 million or 16.4% decrease. Total deposits increased
      $25.429 million or 4.2% between the periods, from $604.958 million at December
      31, 2005 to $630.387 million at June 30, 2006. During the second quarter we
      opened deposit accounts for a very large estate. At June 30, 2006, this estate
      comprised $20.220 million of our total deposits. Since we anticipate that the
      executor of the estate would withdraw most of the deposits within a few weeks,
      we increased our Federal funds sold position to $14.300 million at June 30,
      2006. In addition, throughout the six-month period ended June 30, 2006,
      depositors moved their funds from low-rate interest bearing accounts such as
      savings accounts and NOW accounts to higher-rate interest bearing accounts
      such
      as money market accounts and certificates of deposit as interest rates
      increased.





The
      allowance for loan losses at June 30, 2006 was $6.241 million or 1.55% of gross
      loans outstanding. This compares to $6.640 million or 1.64% of loans outstanding
      at December 31, 2005. The decrease in the allowance for loan losses totaling
      $399 thousand was principally due to a significant increase in net charge-offs
      during the first-half of the year, offset, in part by a significant increase
      in
      the provision for loan losses. During the first-half of 2006, net charge-offs
      on
      loans totaled $1.239 million. This compares to $362 thousand in net charge-offs
      during the first-half of 2005, an $877 thousand increase.  During
      the first quarter of 2006, we recorded a $981 thousand charge-off on two loans
      to one of our large commercial borrowers. Prior to the first quarter of 2006,
      we
      allocated $826 thousand in the allowance for loan losses for the potential
      losses on these loans due to the weakened financial condition of the borrower.
      During the first quarter of 2006, we determined that a significant portion
      of
      the gross loans outstanding to this borrower were non-collectible and
      charged-off $981 thousand to the allowance for loan losses. We recorded $840
      thousand in the provision for loan losses during the first-half of 2006. This
      compares to $480 thousand in the first-half of 2005, a $360 thousand increase.
      The increase was principally due to a significant increase in potential problem
      loans during the first-half of 2006..





Net
      income decreased significantly during the first-half of 2006, as compared to
      the
      first-half of 2005. Specifically, net income decreased $862 thousand or 20.7%,
      from $4.169 million in the first-half of 2005 to $3.307 million during the
      first-half of 2006. The decrease in net income reduced earnings per share from
      $0.37 in the first-half of 2005 to $0.30 in the first-half of 2006. The net
      decrease in net income was caused by a decrease in net interest income, an
      increase in the provision for loan losses, an increase in non-interest expense,
      partially offset by an improvement in non-interest income, and a reduction
      in
      income tax expense. Throughout the first-half of 2006, the Treasury yield curve
      was very flat, which impaired our ability to improve net interest income. In
      addition, at the end of the second quarter our primary market area was affected
      by a major flood, which significantly damaged two of our branch offices and
      their contents. We recorded a $320 thousand expense at the end of the second
      quarter related to the impairment of these assets. Second quarter results were
      similar. Net income and earnings per share decreased from $1.999 million and
      $0.18 in the second quarter of 2005 to $1.354 million and $0.12 in the second
      quarter of 2006.





The
      following tables set forth in this quarterly financial report provide readers
      with supplementary information, which is not directly obtainable from the
      interim unaudited 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.


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 11


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. No tax equivalent
      adjustments were made. Average balances are daily averages.





**For
                the Three Months Ended June 30,****2006**
            
            **2005**Average
              Outstanding
              Balance
            
            Interest
              Earned
              /Paid
            
            Yield
                /
              Rate
            
            Average
              Outstanding
              Balance
            
            Interest
              Earned
              /Paid
            
            Yield
                /
              Rate(Dollars
                in thousands)**Earning
                Assets:**Federal
                funds sold
            
            $
            5,515
            
            $
            68
            
            
            4.95
            %
            $
            5,497
            
            $
            41
            
            
            2.99
            %Interest
                bearing deposits
            
            
            2,735
            
            
            27
            
            
            3.96
            %
            
            9,799
            
            
            119
            
            
            4.87
            %Securities
                (1)
            
            
            295,823
            
            
            3,080
            
            
            4.18
            %
            
            296,404
            
            
            2,945
            
            
            3.99
            %Loans
            
            
            399,223
            
            
            7,471
            
            
            7.51
            %
            
            400,757
            
            
            6,835
            
            
            6.84
            %Total
                earning assets
            
            
            703,296
            
            
            10,646
            
            
            6.07
            %
            
            712,457
            
            
            9,940
            
            
            5.60
            %Non-earning
                assets
            
            
            42,274
            
            
            
            
            
            
            
            
            41,994Total
                assets
            
            $
            745,570
            
            
            
            
            
            
            
            $
            754,451**Liabilities:**Savings
                accounts
            
            $
            88,207
            
            $
            139
            
            
            0.63
            %
            $
            98,828
            
            $
            161
            
            
            0.65
            %Money
                market accounts
            
            
            57,595
            
            
            484
            
            
            3.37
            %
            
            40,386
            
            
            238
            
            
            2.36
            %NOW
                accounts
            
            
            93,753
            
            
            262
            
            
            1.12
            %
            
            118,757
            
            
            297
            
            
            1.00
            %Time
                & other deposit accounts
            
            
            303,803
            
            
            2,887
            
            
            3.81
            %
            
            280,425
            
            
            2,197
            
            
            3.14
            %Borrowings
            
            
            64,595
            
            
            616
            
            
            3.83
            %
            
            76,396
            
            
            666
            
            
            3.50
            %Total
                interest bearing liabilities
            
            
            607,953
            
            
            4,388
            
            
            2.89
            %
            
            614,792
            
            
            3,559
            
            
            2.32
            %Non-interest
                bearing deposits
            
            
            69,776
            
            
            
            
            
            
            
            
            66,143Other
                non-interest bearing liabilities
            
            
            2,923
            
            
            
            
            
            
            
            
            5,319Total
                liabilities
            
            
            680,652
            
            
            
            
            
            
            
            
            686,254Shareholders'
                equity
            
            
            64,918
            
            
            
            
            
            
            
            
            68,197Total
                liabilities and shareholders' equity
            
            $
            745,570
            
            
            
            
            
            
            
            $
            754,451Net
                interest income
            
            
            
            
            $
            6,258
            
            
            
            
            
            
            
            $
            6,381Net
                interest rate spread (2)
            
            
            
            
            
            
            
            
            3.18
            %
            
            
            
            
            
            
            
            3.28
            %Net
                earning assets
            
            $
            95,343
            
            
            
            
            
            
            
            $
            97,665Net
                interest margin (3)
            
            
            
            
            
            
            
            
            3.57
            %
            
            
            
            
            
            
            
            3.59
            %Ratio
                of earning assets to interest bearing liabilities
            
            
            115.68
            %
            
            
            
            
            
            
            
            115.89
            %(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)
                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.(3)
                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.


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 12





**For
                the Six Months Ended June 30,****2006**
            
            **2005**Average
              Outstanding
              Balance
            
            Interest
              Earned
              /Paid
            
            Yield
                /
              Rate
            
            Average
              Outstanding
              Balance
            
            Interest
              Earned
              /Paid
            
            Yield
                /
              Rate(Dollars
                in thousands)**Earning
                Assets:**Federal
                funds sold
            
            $
            4,762
            
            $
            112
            
            
            4.74
            %
            $
            4,929
            
            $
            66
            
            
            2.70
            %Interest
                bearing deposits
            
            
            2,525
            
            
            46
            
            
            3.67
            %
            
            9,805
            
            
            236
            
            
            4.85
            %Securities
                (1)
            
            
            299,080
            
            
            6,177
            
            
            4.16
            %
            
            302,674
            
            
            6,030
            
            
            4.02
            %Loans
            
            
            400,479
            
            
            14,781
            
            
            7.44
            %
            
            398,463
            
            
            13,428
            
            
            6.80
            %Total
                earning assets
            
            
            706,846
            
            
            21,116
            
            
            6.02
            %
            
            715,871
            
            
            19,760
            
            
            5.57
            %Non-earning
                assets
            
            
            42,169
            
            
            
            
            
            
            
            
            41,384Total
                assets
            
            $
            749,015
            
            
            
            
            
            
            
            $
            757,255**Liabilities:**Savings
                accounts
            
            $
            90,295
            
            $
            281
            
            
            0.63
            %
            $
            98,691
            
            $
            314
            
            
            0.64
            %Money
                market accounts
            
            
            55,371
            
            
            935
            
            
            3.41
            %
            
            36,611
            
            
            393
            
            
            2.16
            %NOW
                accounts
            
            
            95,383
            
            
            542
            
            
            1.15
            %
            
            120,022
            
            
            578
            
            
            0.97
            %Time
                & other deposit accounts
            
            
            298,669
            
            
            5,529
            
            
            3.73
            %
            
            277,850
            
            
            4,275
            
            
            3.10
            %Borrowings
            
            
            70,019
            
            
            1,321
            
            
            3.80
            %
            
            85,582
            
            
            1,508
            
            
            3.55
            %Total
                interest bearing liabilities
            
            
            609,737
            
            
            8,608
            
            
            2.85
            %
            
            618,756
            
            
            7,068
            
            
            2.30
            %Non-interest
                bearing deposits
            
            
            69,057
            
            
            
            
            
            
            
            
            63,935Other
                non-interest bearing liabilities
            
            
            3,938
            
            
            
            
            
            
            
            
            6,460Total
                liabilities
            
            
            682,732
            
            
            
            
            
            
            
            
            689,151Shareholders'
                equity
            
            
            66,283
            
            
            
            
            
            
            
            
            68,104Total
                liabilities and shareholders' equity
            
            $
            749,015
            
            
            
            
            
            
            
            $
            757,255Net
                interest income
            
            
            
            
            $
            12,508
            
            
            
            
            
            
            
            $
            12,692Net
                interest rate spread (2)
            
            
            
            
            
            
            
            
            3.17
            %
            
            
            
            
            
            
            
            3.27
            %Net
                earning assets
            
            $
            97,109
            
            
            
            
            
            
            
            $
            97,115Net
                interest margin (3)
            
            
            
            
            
            
            
            
            3.57
            %
            
            
            
            
            
            
            
            3.58
            %Ratio
                of earning assets to interest bearing liabilities
            
            
            115.93
            %
            
            
            
            
            
            
            
            115.70
            %(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)
                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.(3)
                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.





*Back
          to Index*
 13


Table
      of
      Non-performing Assets:





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








*Dollars
                in Thousands*
            
            At
                June 30,
              2006
            
            At
                December 31,
              2005Loans
                in Non-Accrual Status:Residential
                real estate (1)
            
            $
            420
            
            $
            327Commercial
                real estate
            
            
            851
            
            
            2,287Commercial
                (2)
            
            
            643
            
            
            1,191Consumer
            
            
            8
            
            
            61Total
                non-accruing loans
            
            
            1,922
            
            
            3,866Loans
                Contractually Past Due 90 Days or More and Still Accruing
                Interest
            
            
            71
            
            
            181Troubled
                Debt Restructured Loans
            
            
            0
            
            
            871Total
                non-performing loans
            
            
            1,993
            
            
            4,918Other
                real estate owned
            
            
            20
            
            
            20Total
                non-performing assets
            
            $
            2,013
            
            $
            4,938Total
                non-performing assets as a percentage of total assets
            
            
            0.27
            %
            
            0.66
            %Total
                non-performing loans as a percentage of total loans
            
            
            0.50
            %
            
            1.22
            %(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.





*Back
          to Index*
 14


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**
              **June
                30,**
            
            **Six
                months ended**
              **June
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**(Dollars
                in thousands)
            
            (Dollars
                in thousands)Balance
                at beginning of period
            
            $
            5,976
            
            $
            6,378
            
            $
            6,640
            
            $
            6,250Charge
                offs:Residential
                real estate (1)
            
            
            40
            
            
            0
            
            
            47
            
            
            18Commercial
                real estate
            
            
            0
            
            
            0
            
            
            2
            
            
            0Commercial
                (2)
            
            
            29
            
            
            28
            
            
            1,012
            
            
            28Consumer
            
            
            188
            
            
            308
            
            
            398
            
            
            469Total
                charge offs
            
            
            257
            
            
            336
            
            
            1,459
            
            
            515Recoveries:Residential
                real estate (1)
            
            
            15
            
            
            16
            
            
            16
            
            
            36Commercial
                real estate
            
            
            0
            
            
            0
            
            
            0
            
            
            0Commercial
                (2)
            
            
            23
            
            
            19
            
            
            36
            
            
            28Consumer
            
            
            64
            
            
            51
            
            
            168
            
            
            89Total
                recoveries
            
            
            102
            
            
            86
            
            
            220
            
            
            153Net
                charge-offs
            
            
            155
            
            
            250
            
            
            1,239
            
            
            362Provision
                for loan losses
            
            
            420
            
            
            240
            
            
            840
            
            
            480Balance
                at end of period
            
            $
            6,241
            
            $
            6,368
            
            $
            6,241
            
            $
            6,368Ratio
                of net charge-offs during the period to average loans outstanding
                during
                the period (annualized)
            
            
            0.16
            %
            
            0.25
            %
            
            0.62
            %
            
            0.18
            %Allowance
                for loan losses to total loans
            
            
            1.55
            %
            
            1.56
            %
            
            1.55
            %
            
            1.56
            %Allowance
                for loan losses to non-performing loans
            
            
            313
            %
            
            191
            %
            
            313
            %
            
            191
            %


(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.


*Back
          to Index*
 15


D.
      Comparison of Financial Condition at June 30, 2006, and December 31,
      2005





*Overview.* Total
      assets did not increase significantly between December 31, 2005 and June 30,
      2006. Specifically, total assets increased only $4.495 million or less than
      1.0%
      between December 31, 2005 and June 30, 2006. Gross loans decreased slightly
      between December 31, 2005 and June 30, 2006. Specifically, gross loans decreased
      $1.167 or less than 1.0% during the period, from $403.665 million at December
      31, 2005, to $402.498 million at June 30, 2006. We attribute the very modest
      asset growth and the decrease in gross loans during the period to a lack of
      growth in the regional economy and recent increases in the Prime
      rate.





At
      June
      30, 2006 total deposits increased to $630.387 million. This compares to $604.958
      million at December 31, 2005. Although total deposits increased by $25.429
      million or 4.2% on a comparative basis, the growth was principally due to the
      establishment of one large deposit relationship in June 2006, totaling $20.220
      million. Management does not anticipate retaining the substantial majority
      of
      this customer’s deposit funds throughout the third and fourth quarters of
      2006.





During
      the first-half of 2006 we experienced modest fluctuations in total deposits
      from
      week to week due to competitive local market for deposit funding. Throughout
      the
      first-half of 2006 short-term interest rates increased, which prompted financial
      institutions to raise their short-term deposit interest rates. This environment
      increased the volatility of our deposit funding, which caused us to periodically
      borrow Federal funds from our correspondent banks on a short-term basis
      throughout the first-half of the year. In addition, the composition of our
      deposits changed during the period as an increasing number of depositors
      transferred monies from low interest-bearing non-maturity deposits to higher
      interest-bearing money market accounts and certificates of deposit as interest
      rates increased during the period.





Total
      shareholders’ equity decreased from $67.717 million at December 31, 2005 to
      $59.842 million at June 30, 2006, a $7.875 million or 11.6% decrease. The
      substantial decrease in shareholders’ equity between the periods was principally
      due to the execution of a self-tender offer for our common stock, and the
      resultant increase in treasury stock; and an increase in accumulated other
      comprehensive loss. Our treasury stock balance increased $6.366 million between
      the periods, from $21.138 million at December 31, 2005 to $27.504 million at
      June 30, 2006. Most of the increase was to due to the execution of a self-tender
      offer for our common stock. In addition, as interest rates increased during
      the
      first-half of 2006, the market value of our available-for-sale investment
      securities decreased causing an increase in accumulated other comprehensive
      loss. Between December 31, 2005 and June 30, 2006 accumulated other
      comprehensive loss increased $2.698 million, from $2.409 million to $5.107
      million. Shareholders’ equity as a percentage of total assets was 9.0% at
      December 31, 2005 versus 7.9% at June 30, 2006.




*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 or more days delinquent,
      excluding non-performing loans), the level of non-performing loans, the level
      of
      potential problem loans, and the dollar amount and type of loan charge-offs
      we
      experience. Between December 31, 2005, and June 30, 2006, the level of
      non-performing loans declined (an improvement), while several of our other
      credit quality measures worsened. Specifically, the level of delinquent loans,
      potential problem loans, and net charge-offs increased during the first-half
      of
      2006.





Total
      non-performing loans, including non-accruing loans, loans 90 days or more past
      due and still accruing interest, and troubled debt restructured loans decreased
      $2.925 million during the first-half of 2006, from $4.918 million at December
      31, 2005, to $1.993 million at June 30, 2006. During the first quarter of 2006,
      a $1.646 million commercial real estate loan in non-accrual status was paid-off
      in full by a related party of the borrower. In addition, during the first
      quarter of 2006, an $871 thousand loan, previously recorded as a troubled debt
      restructured loan, was removed from troubled debt status. At June 30, 2006,
      the
      loan was performing and yielding a market rate. And finally, during the first
      quarter, we charged-off a $746 thousand loan to one of our large commercial
      borrowers, which was previously on non-accrual status. These decreases in
      non-performing loans were offset by the addition of ten (10) loans with small
      balances being placed on non-accrual status during the first-half of
      2006.





Net
      loan
      charge-offs increased significantly during the first-half of 2006 due
      principally to a $981 thousand charge-off for loans made to one of our large
      commercial borrowers. By comparison, during the first-half of 2005 we recorded
      net charge-offs of $362 thousand. Conversely, net charge-offs decreased
      significantly in the second quarter of 2006, as compared to the second quarter
      of 2005. Specifically, net charge-offs during the second quarter of 2006 totaled
      $155 thousand, as compared to $250 thousand for the second quarter of 2005,
      a
      $95 thousand or 38.0% decrease.


*Back
          to Index*
 16


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. During the first-half
      of 2006, potential problem loans increased $7.484 million, from $7.897 million
      at December 31, 2005, to $15.381 million at June 30, 2006. The increase in
      potential problem loans from the period ended December 31, 2005, to the period
      ended June 30, 2006, was primarily due to a decline in the financial condition
      of seven (7) large commercial borrowers during the first-half of 2006 with
      combined total loan balances of $7.913 million.





At
      June
      30, 2006, loans that were 30 or more days delinquent (excluding non-performing
      loans) totaled $2.954 or 0.73% of loans outstanding. By comparison, at December
      31, 2005, we had $2.062 million or 0.51% of loans outstanding in this same
      category, a net increase of $892 thousand between the periods. Although the
      level of delinquent loans increased during the first-half of 2006, we still
      deem
      the level of delinquent loans as low and within reasonable industry
      standards.





The
      allowance for loan losses at June 30, 2006, was $6.241 million or 1.55% of
      gross
      loans outstanding. This compares to $6.640 million or 1.65% of loans outstanding
      at December 31, 2005. The decrease in the allowance for loan losses was
      principally due to a significant increase in net charge-offs recorded during
      the
      first-half of 2006, totaling $1.239 million. This amount far exceeds historical
      averages because it includes a $981 thousand charge-off on two loans to one
      of
      our large commercial borrowers. We specifically allocated $826 thousand in
      the
      allowance for loan losses for anticipated losses on these two loans to this
      borrower in prior years. Management and the Board of Directors deemed the
      allowance for loan losses as adequate at June 30, 2006 and December 31,
      2005.





The
      credit quality of the investment securities portfolios, both available-for-sale
      and held-to-maturity, remained strong. At June 30, 2006, 99.8% of the securities
      held in the Company’s bond portfolio were rated “A” or better by Moody’s credit
      rating service; 95.8% were rated AAA. By comparison, at December 31, 2005,
      99.8%
      were rated “A” or better and 95.1% were rated AAA.








E.
      Comparison of Results of Operations for the Three Months Ended June 30, 2006
      and
      2005





*Overview.* We
      experienced a substantial decrease in earnings during the second quarter of
      2006. During the second quarter of 2006, our net income and earnings per share
      were $1.354 million and $0.12, respectively. This was a $645 thousand or 32.3%
      decrease in net income and a $0.06 decrease in earnings per share as compared
      to
      the second quarter of 2005. During the second quarter of 2005, we earned $1.999
      million in net income and earnings per share of $0.18. The decrease in earnings
      was principally due to a significant increase in non-interest expense during
      the
      second quarter of 2006. Non-interest expense increased $617 thousand or 12.7%
      between the second quarter of 2006 and the second quarter of 2005, from $4.877
      million in the second quarter of 2005 to $5.494 million in the second quarter
      of
      2006. During the second quarter of 2006 we recorded three non-interest expense
      items totaling $577 thousand that comprise most of the net increase.
      Specifically, during the second quarter of 2006, we recorded: (i) a $190
      thousand employee benefit expense for the curtailment of our defined benefit
      retirement plan, (ii) $67 thousand in expense to execute a self-tender offer
      for
      the Company’s common stock, and (iii) a $320 thousand loss on disposal /
      impairment of fixed assets for damage to Company property and equipment at
      two
      of our branch offices due to a recent flood disaster experienced in our market
      area.





Net
      interest income decreased $123 thousand or 1.9% between comparable quarters
      due
      principally to a flat yield curve. Non-interest income also decreased $132
      thousand between comparable quarters as net investment securities gains
      decreased from $148 in the second quarter of 2005 to $17 thousand in the second
      quarter of 2006. We recorded $420 thousand in the provision for loan losses
      during the second quarter of 2006, a $180 thousand or 75.0% increase over the
      second quarter of 2005 due principally to an increase in potential problem
      loans. The decrease in net income caused by these factors was offset by a $407
      thousand decrease in income taxes.





The
      decrease in net income resulted in a decrease in both our return on average
      assets and return on average shareholders’ equity. More specifically, during the
      second quarter of 2006 our return on average assets and return on average equity
      were 0.73% and 8.37%, respectively, as compared to 1.06% and 11.76% during
      the
      second quarter of 2005.




*Net
      Interest Income.* Net
      interest income is our most significant source of revenue. During the
      second


*Back
          to Index*
 17


quarter
      of 2006 and second quarter of 2005, net interest income comprised 82% and 81%
      of
      our net revenue (net interest income plus non-interest income), respectively.
      In
      the three-month period ended June 30, 2006, our net interest income was $6.258
      million. By comparison, for the three-month period ended June 30, 2005, our
      net
      interest income was $6.381 million. The $123 thousand or 1.9% decrease in net
      interest income was principally due to significant increase in the cost of
      our
      interest bearing liabilities (principally deposit funding) offset by increases
      in interest income on earning assets (principally loans).





On
      June
      29, 2006 the Federal Open Market Committee raised the target Federal funds
      rate
      to 5.25%. This was the seventeenth consecutive 25 basis point increase in the
      target Federal funds rate over a 2-year period. These actions have caused the
      Treasury yield curve to become very flat, an interest rate environment which
      generally makes it difficult for us to maintain or improve net interest margin
      because a portion of our net interest margin has historically been derived
      from
      mismatching long-term earning assets with short-term interest bearing
      liabilities.





Between
      comparable quarterly periods, total interest and dividend income increased
      $706
      thousand or 7.1%, from $9.940 million for the three-month period ended June
      30,
      2005 to $10.646 million for the three-month period ended June 30, 2006. Between
      the quarterly periods, the weighted average yield on the loan portfolio
      increased 67 basis points, from 6.84% in the second quarter of 2005 to 7.51%
      in
      the second quarter of 2006. Between the periods, the prime rate, the primary
      index rate for our variable rate loans, increased significantly, which drove
      the
      increase in our loan yields. The increase in loan yields contributed $663
      thousand of additional interest income between comparable quarterly periods.





Interest
      expense increased $829 thousand or 23.3% for the quarterly period ended June
      30,
      2006, versus the quarterly period ended June 30, 2005. Between the comparable
      quarterly periods interest rates increased. This prompted us, as well as our
      competitors, to raise the interest rate paid on interest-bearing deposit
      accounts, particularly the more interest-sensitive deposit accounts, such as
      money market accounts and time accounts. Between the periods we recorded a
      $633
      thousand net increase in the cost of interest bearing deposit liabilities due
      to
      increase in interest rates. In addition, due to the higher interest rates,
      our
      customers increased the amount of deposits held in money market and time
      accounts. The combination of higher interest rates and increased deposit levels
      increased the interest expense recorded on money market accounts from $238
      thousand during the second quarter of 2005 to $484 thousand during the second
      quarter of 2006, a $246 thousand increase. Similarly, the interest expense
      recorded on time and other deposit accounts increased from $2.197 million during
      the second quarter of 2005 to $2.887 million during the second quarter of 2006,
      a $690 thousand increase.





This
      flat
      yield curve that has persisted for several quarters has eliminated wholesale
      leverage opportunities and reduced the economic benefit of borrowing funds
      throughout the period, causing us to reduce borrowings and, in turn, our earning
      assets. Wholesale leverage is a term which describes a transaction where we
      borrow monies at the Federal Home Loan Bank of New York or other wholesale
      source to purchase earning assets (typically investment securities) that yield
      a
      rate of interest that exceeds our borrowing cost. During the second quarter
      of
      2006 our total borrowings averaged $64.595 million. This compares to average
      borrowings of $76.396 million during the second quarter of 2005, an $11.801
      million or 15.4% decrease between the periods. Similarly, during the second
      quarter of 2005, our average earning assets were $712.457 million, which
      compares to $703.296 million during the second quarter of 2006. The decrease
      in
      average borrowings, offset by an increase in borrowing rates, resulted in a
      net
      decrease in interest expense on borrowings of $50 thousand between the
      periods.





*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.





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.


*Back
          to Index*
 18





**For
                the Three Months Ended**
              **June 31,**
            
            **For
                the Six Months Ended**
              **June
                30,****2006
                vs. 2005**
            
            **2006
                vs. 2005****Rate**
            
            **Volume**
            
            **Total**
            
            **Rate**
            
            **Volume**
            
            **Total****(In
                thousands)****Earning
                assets:**Federal
                Funds Sold
            
            $
            27
            
            $
            0
            
            $
            27
            
            $
            46
            
            $
            0
            
            $
            46Interest
                Bearing Deposits
            
            
            (21
            )
            
            (71
            )
            
            (92
            )
            
            (48
            )
            
            (142
            )
            
            (190
            )Securities
            
            
            141
            
            
            (6
            )
            
            135
            
            
            219
            
            
            (72
            )
            
            147Loans
            
            
            663
            
            
            (27
            )
            
            636
            
            
            1,285
            
            
            68
            
            
            1,353Total
                earning assets
            
            
            810
            
            
            (104
            )
            
            706
            
            
            1,502
            
            
            (146
            )
            
            1,356**Interest
                bearing liabilities:**Savings
                accounts
            
            
            (6
            )
            
            (16
            )
            
            (22
            )
            
            (5
            )
            
            (28
            )
            
            (33
            )Money
                market accounts
            
            
            123
            
            
            123
            
            
            246
            
            
            286
            
            
            256
            
            
            542NOW
                accounts
            
            
            32
            
            
            (67
            )
            
            (35
            )
            
            39
            
            
            (75
            )
            
            (36
            )Time
                & other deposit accounts
            
            
            484
            
            
            206
            
            
            690
            
            
            911
            
            
            343
            
            
            1,254Borrowings
            
            
            58
            
            
            (108
            )
            
            (50
            )
            
            101
            
            
            (288
            )
            
            (187
            )Total
                interest bearing liabilities
            
            
            691
            
            
            138
            
            
            829
            
            
            1,332
            
            
            208
            
            
            1,540Change
                in net interest income
            
            $
            119
            
            
            ($242
            )
            
            ($123
            )
            $
            170
            
            
            ($354
            )
            
            ($184
            )





Net
      interest income for the three-month period ended June 30, 2006 was $6.258
      million. This compares to $6.381 million for the three-month period ended June
      30, 2005, a $123 thousand or 1.9% decrease between comparable periods. Although
      the net decrease in interest income between comparable periods was not
      significant, several components of interest income and interest expense changed
      significantly between the periods due to both rate and volume factors.





Interest
      income increased $706 thousand between the periods due principally to an
      increase in the rate on earning assets. As interest rates rose between the
      periods our yield on Federal funds sold, securities, and loans all increased.
      On
      a combined basis, the rate improvement on these three categories of earning
      assets contributed an additional $831 thousand of interest income between
      comparable periods. This was offset by a $21 thousand decrease in interest
      income on interest bearing deposits due to rate between the periods. Between
      June 30, 2005 and June 30, 2006, $7.499 million of long term high-yield
      certificates of deposit matured, which decreased the average rate earned on
      interest bearing deposits. The $810 thousand net improvement in interest income
      on earning assets due to a change in rate between the periods was offset by
      a
      $104 thousand reduction in interest income due to a decrease in the average
      volume of most categories of earning assets. In particular the average volume
      of
      interest bearing deposits, securities and loans all decreased between the
      comparable periods, while the average volume of Federal funds sold increased
      slightly. Of the $104 thousand reduction in interest income due to a decrease
      in
      the average volume of earning assets, $71 thousand or 68.3% was due to the
      decrease in interest bearing deposits. The average volume of loans and
      securities, our two largest earning asset portfolios, each declined minimally.
      The average volume of loans decreased $1.534 million or 0.4% between the periods
      resulting in a $27 thousand decrease in interest income due to a change in
      volume. Similarly, the average volume of securities decreased $581 thousand
      or
      0.2% between the periods resulting in a $6 thousand decrease in interest income
      due to a change in volume.





The
      $706
      thousand increase in interest income was offset by an $829 thousand increase
      in
      the cost of interest bearing liabilities, $691 thousand due to the increase
      in
      rate and $138 thousand due to the increase in the volume of interest bearing
      liabilities. The interest expense recorded on our most interest-sensitive
      liabilities, including time and other deposits accounts and money market
      accounts, increased due to both an increase in volume and an increase in rate.
      Specifically, interest expense on time and other deposit accounts and interest
      expense on money market accounts increased $690 thousand and $246 thousand,
      respectively, over the comparable periods. Between the end of the first quarter
      of 2005 and the end of the first quarter of 2006, we raised the interest rates
      paid on our certificates of deposit to remain competitive within our market.
      This drove up the cost of time and other deposit accounts, resulting in a $484
      thousand increase in interest expense due to rate. The remaining increase in
      interest expense on time and other deposit accounts between the periods totaling
      $206 thousand was due to an


*Back
          to Index*
 19


increase
      in volume as depositors transferred their monies from low-rate interest bearing
      deposit or demand deposit accounts to higher-yield certificates of deposit.
      Money market accounts experienced similar results. As interest rates increased
      between the periods, we raised the interest rates paid on our money market
      deposits, which increased interest expense $123 thousand on a comparable period
      basis. The higher interest rates attracted additional deposits, which resulted
      in an increase in interest expense due to volume of $123 thousand. The average
      cost of our money market deposit accounts increased from 2.36% for the
      three-month period ended June 30, 2005 to 3.37% for the three-month period
      ended
      June 30, 2006, while the average volume of money market deposit accounts
      increased from $40.386 million to $57.595 million over the same
      periods.





As
      short-term interest rates increased rapidly between the periods, we only
      modestly increased the interest rate on our NOW account deposits. This caused
      some of our customers with NOW account deposits to either move their monies
      to
      another institution or transfer their NOW account funds to a higher-rate deposit
      account. This decreased the average volume of NOW accounts between the periods
      from $118.757 million in the second quarter of 2005 to $93.753 million in the
      second quarter of 2006. The decrease in the average volume of NOW account
      deposits reduced interest expense by $67 thousand between comparable periods.
      This improvement was offset, however, by a $32 thousand increase in interest
      expense on NOW account deposits due to a 12 basis point increase in the average
      rate paid between the periods.





Between
      the periods, and in spite of rising interest rates, we modestly reduced the
      average rate paid on our savings accounts from 0.65% for the three-month period
      ended June 30, 2005 to 0.63% for the three-month period ended June 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 decreased
      $22 thousand between the periods, $16 thousand due to a decrease in average
      volume and $6 thousand due to a decrease in rate.





The
      interest expense on borrowings decreased $50 thousand between comparable
      quarters due principally to the repayment of borrowed funds. Between the
      comparable periods, the average volume of borrowings decreased by $11.801
      million resulting in a $108 thousand decrease in interest expense due to changes
      in volume. This was offset by a $58 thousand increase in interest expense on
      borrowings between comparable periods due to higher interest rates.





*Provision
      for Loan Losses.* We
      recorded a provision for loan losses of $420 thousand for the three- month
      period ended June 30, 2006, as compared to $240 thousand for the three-month
      period ended June 30, 2005, a $180 thousand increase. The increase in the
      provision for loan losses between comparable periods was principally due to
      a
      significant increase in potential problem loans. Potential problem loans are
      loans which are currently performing, but where information about possible
      credit problems exists. During the first quarter of 2006, we downgraded some
      of
      our large commercial credits, which increased the level of potential problem
      loans from $7.897 million at December 31, 2005 to $15.264 million at March
      31,
      2006. At June 30, 2006 this level remained relatively unchanged, totaling
      $15.381 million. By comparison, the level of potential problem loans at June
      30,
      2005 was $9.933 million. Although the level of non-performing loans and net
      charge-offs decreased between comparable periods, we deemed it necessary to
      record $420 thousand in the provision for loan losses due to the significant
      increase in potential problem loans. The levels of delinquent loans at June
      30,
      2006 and June 30, 2005 were approximately the same at $2.954 million and $2.967
      million, respectively.





*Non-Interest
      Income.* Non-interest
      income is comprised of trust fees, service charges on deposit accounts,
      commissions income, investment security gains / (losses), income on bank-owned
      life insurance, other service fees, and other income. Non-interest income
      decreased from $1.483 million in the three-month period ended June 30, 2005
      to
      $1.351 million in the three-month period ended June 30, 2006, a $132 thousand
      or
      8.9% decrease. The net decrease in non-interest income on a comparable quarter
      basis was due to net decreases in trust fees, service charges on deposit
      accounts, commission income, investment security gains and other services fees,
      offset by a slight increase in bank-owned life insurance income and other
      income.





During
      the second quarter of 2006, we recorded $406 thousand of service charges on
      deposit accounts. This compares to $424 thousand during the second quarter
      of
      2005, an $18 thousand or 4.4% decrease. Between the second quarter of 2005
      and
      the second quarter of 2006 we reduced or eliminated select demand deposit and
      NOW account service charges to retain and attract new transaction accounts.
      A
      reduction in these service fees between comparable quarters was partially offset
      by an increase in


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 20


penalty
      charges and ATM fees.





Our
      commission income is generated from the Bank’s insurance agency subsidiary, Mang
      - Wilber LLC. During the second quarter of 2006, we recorded $131 thousand
      of
      commission income. This compares to $174 thousand during the second quarter
      of
      2005, a $43 thousand or 24.7% decrease. Between comparable periods, insurance
      account production levels decreased, principally in our Clifton Park, NY
      specialty-lines insurance agency.





During
      the second quarter of 2006, we recognized investment securities gains of $17
      thousand. This compares to $148 thousand during the second quarter of 2005,
      a
      $131 thousand decrease between the periods. The decrease in investment
      securities gains between the periods was due to two factors: an $85 thousand
      negative swing in gains / (losses) on trading securities and a $46 thousand
      decrease in gains on the sale and maturity of available-for-sale and
      held-to-maturity investment securities. In the second quarter of 2006, we
      recorded a $57 thousand loss on our trading securities portfolio. This compares
      to a $28 thousand gain in the second quarter of 2005. Our trading securities
      portfolio consists of equity and debt securities held by the Company’s executive
      deferred compensation plan. During the second quarter of 2005, we received
      proceeds from the sale and maturity of available-for-sale and held-to-maturity
      investment securities totaling $27.140 million. This generated net investment
      securities gains of $120 thousand. By comparison, during the second quarter
      of
      2006, we received proceeds from the sale and maturity of available-for-sale
      and
      held-to-maturity investment securities totaling $11.634 million, which generated
      net investment securities gains of $74 thousand.





Other
      service fees are comprised of numerous types of fee income including merchant
      credit card processing fees, residential mortgage commissions, official check
      and check cashing fees, travelers’ check sales, wire transfer fees, letter of
      credit fees, and other miscellaneous service charges, commissions and fees.
      Other service fees decreased $25 thousand or 21.0% between the second quarter
      of
      2005 and the second quarter of 2006. The decrease in other service fees between
      the periods was principally due to the decrease in residential mortgage
      commissions. We originate residential mortgages, as an agent for a large
      regional bank based in the Southeast. The number of residential mortgages we
      have originated on their behalf between the periods has decreased due to a
      general rise in mortgage interest rates.





Other
      income is comprised of numerous types of fee income, including investment
      services, lease income, safe deposit box income, title insurance agency income,
      rental of foreclosed real estate, and distributions from two insurance trusts,
      in which the Bank participates. Other income increased from $117 thousand in
      the
      second quarter of 2005 to $200 thousand in the second quarter of 2006, an $83
      thousand or 70.9% increase. The increase between the periods was principally
      due
      to two factors: a $67 thousand unanticipated recovery on a defaulted investment
      security and a $26 thousand increase in investment services income.





Trust
      fees and bank-owned life insurance income changed very slightly between
      comparable quarters. Trust fees decreased by $1 thousand, from $363 thousand
      in
      the second quarter of 2005 to $362 thousand in the second quarter of 2006,
      while
      bank-owned life insurance income increased $3 thousand from $138 thousand in
      the
      second quarter of 2005 to $141 thousand in the second quarter of
      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 expense. Total
      non-interest expense increased $617 thousand or 12.7% on a comparable quarter
      basis, from $4.877 million in the second quarter of 2005 to $5.494 million
      in
      the second quarter of 2006. The most significant increases between the
      comparable quarters were in other miscellaneous expenses, professional fees,
      and
      employee benefits.





Salaries
      expense decreased $18 thousand or 0.8% between the quarterly periods, from
      $2.341 million during the second quarter of 2005 to $2.323 million during the
      second quarter of 2006. The decrease between periods was due to both increases
      and decreases in various components of salaries expense. In particular, base
      salaries and overtime increased $99 thousand between the periods due to a slight
      increase in staff and general increases in base salary amounts. Conversely,
      due
      to weaker sales results, we recorded a $71 thousand decrease in commission
      and
      incentive pay between comparable quarters. And finally, the salaries expense
      related to the Company’s executive deferred compensation plan decreased $45
      thousand between the periods, from a $21 thousand expense during the second
      quarter of 2005 to $24 thousand credit to the plan during the second quarter
      of
      2006.


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 21


During
      the second quarter of 2006, employee benefits expense increased $82 thousand
      or
      10.8%, from $757 thousand during the second quarter of 2005 to $839 thousand
      during the second quarter of 2006. During the first quarter of 2006 we froze
      the
      Company’s defined benefit pension plan and began making employer contributions
      to our 401k retirement plan. Due principally to the curtailment charge on the
      frozen defined benefit plan, we recorded a net increase in retirement benefits
      expense (defined benefit pension expense and 401k retirement expense) of $173
      thousand between comparable periods Total retirement benefits expense increased
      from $143 thousand in the second quarter of 2005 to $316 thousand in the second
      quarter of 2006. The increase in retirement benefits expense was, in part,
      offset by a decrease in group health insurance expense. In the second quarter
      of
      2005, we recorded $271 thousand in group health insurance expense due to
      increased participant claims on our partially self-insured health insurance
      plan. This compares to $217 thousand in the second quarter of 2006, a $54
      thousand decrease. Other benefits expense also decreased $35 thousand between
      comparable quarters.





On
      a
      combined basis, occupancy of bank premises and furniture and equipment expense
      increased from $567 thousand in the second quarter of 2005 to $598 thousand
      in
      the second quarter of 2006, a $31 thousand or 5.5% increase between the
      comparable quarters. The increase was principally due to an increase in building
      repairs and utilities due to higher energy prices.





Computer
      service fees increased $10 thousand or 5.5% in the second quarter of 2006,
      from
      $183 thousand in the second quarter of 2005 to $193 thousand in the second
      quarter of 2006. During the third quarter of 2005, we converted our proprietary
      core computer operating system to a system more widely used throughout the
      banking industry. To operate the new system we entered into various software
      licensing agreements and maintenance contracts with several hardware and
      software computer system vendors resulting in an increase in computer service
      fees.





During
      the second quarter of 2006, we incurred $294 thousand of professional fees,
      as
      compared to $130 thousand during the second quarter of 2005, a $164 thousand
      or
      126.2% increase. The increase in professional fees was due to several factors.
      On April 4, 2006, we announced a self-tender offer for the Company’s common
      stock. To complete the offer we recorded $68 thousand of legal and other
      professional fees in the second quarter of 2006. In addition, in 2006 we
      outsourced the internal audit function to a third party accounting and auditing
      firm, thereby increasing professional fees. And finally, during the second
      quarter of 2006 we incurred $17 thousand of professional fees for loan review
      services, as compared to $6 thousand in the second quarter of 2005.





During
      the second quarter of 2006, we recorded a $320 thousand loss on the disposal
      /
      impairment of fixed assets. In the last week of June 2006, our immediate market
      area was decimated by a flood due to torrential rains. As a result of the flood,
      two of our branch buildings, Sidney, NY and Walton, NY, and the contents in
      each
      office, were damaged or destroyed by floodwaters. Of the $320 thousand loss,
      $82
      thousand was related to the disposal of furniture, fixtures and equipment and
      $238 thousand was due to the impairment of the two buildings.





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 second quarter of 2006, other miscellaneous expenses
      increased $45 thousand or 6.0%, from $756 thousand in the second quarter of
      2005
      to $801 thousand in the second quarter of 2006The following table itemizes
      the
      individual components of other miscellaneous expenses that increased or
      (decreased) by more than $10 thousand between comparable periods.


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 22


Table
      of
      Other Miscellaneous Expenses:






**For
                the Three**
              **Months
                Ended**
              **June
                30,**Description
                of Other Miscellaneous Expense
            
            2006
            
            2005
            
            Increase
                /
              (Decrease)*dollars
                in thousands*Directors
                fees
            
            $
            84
            
            $
            48
            
            $
            36Collection
                and non-filing expense
            
            
            76
            
            
            28
            
            
            48Charitable
                donations
            
            
            27
            
            
            15
            
            
            12Dues
                and memberships
            
            
            19
            
            
            8
            
            
            11Postage
                and shipping
            
            
            66
            
            
            87
            
            
            (21
            )Deferred
                reserves for unfunded loan commitments
            
            
            (16
            )
            
            1
            
            
            (17
            )Travel
                and entertainment
            
            
            53
            
            
            70
            
            
            (17
            )Software
                amortization
            
            
            59
            
            
            36
            
            
            23Minority
                interest for Mang - Wilber LLC insurance agency subsidiary
            
            
            24
            
            
            48
            
            
            (24
            )All
                other miscellaneous expense items, net
            
            
            409
            
            
            415
            
            
            (6
            )Total
                Other Miscellaneous Expense
            
            $
            801
            
            $
            756
            
            $
            45







*Income
      Taxes.* Income
      tax expense decreased from $748 thousand during the three-month period ended
      June 30, 2005, to $341 thousand during the three month period ended June 30,
      2006. The decrease in income tax expense was primarily due to a decreased amount
      of pre-tax income. ** Our
      effective tax rate decreased between periods, from 27.2% in the three-month
      period ended June 30, 2005, to 20.1% in the three month period ended June 30,
      2006 due to a greater percentage of our pre-tax income being generated from
      tax-exempt securities and bank-owned life insurance.





F.
      Comparison of Results of Operations for the Six Months Ended June 30, 2006
      and
      2005





*Overview.* Net
      income decreased $862 thousand or 20.7% between the six-month period ended
      June
      30, 2005 and the six-month period ended June 30, 2006. Net income for the six
      months ended June 30, 2006 was $3.307 million. This compares to $4.169 million
      for the six months ended June 30, 2005. Similarly, earnings per share decreased
      $0.07, from $0.37 for the six months ended June 30, 2005 to $0.30 for the six
      months ended June 30, 2006. The decrease in earnings was due to several factors.
      All categories of non-interest expense increased between comparable periods,
      with the exception of advertising and marketing expense, resulting in an $878
      thousand or 9.3% increase between the first-half of 2005 and the first-half
      of
      2006. The provision for loan losses increased $360 thousand, from $480 thousand
      in the first-half of 2005 to $840 thousand in the first-half of 2006 due
      principally to an increase in potential problem loans. And finally, net interest
      income decreased $184 thousand or 1.5% between comparable periods, from $12.692
      million in the first-half of 2005 to $12.508 million in the first-half of 2006.
      During the first-half of 2006, short-term interest rates continued to rise
      and
      the Treasury yield curve remained flat. This reduced loan demand and greatly
      reduced our ability to earn interest spread by mismatching short-term funding
      with long-term loans and investment securities. These negative factors were,
      in
      part, offset by a slight increase in non-interest income and a decrease in
      income taxes.





The
      decrease in net income resulted in a decrease in both our return on average
      assets and return on average shareholders’ equity. More specifically, during the
      first-half of 2006, our return on average assets and return on average equity
      were 0.89% and 10.06%, respectively, as compared to 1.11% and 12.34% during
      the
      first-half of 2005.




*Net
      Interest Income.* Net
      interest income is our most significant source of revenue. During the first-half
      of 2006 and first-half of 2005, net interest income comprised 81% of our net
      revenue (net interest income plus non-interest income). In the six-month period
      ended June 30, 2006, our net interest income was $12.508 million. By comparison,
      for the six-month period ended June 30, 2005, our net interest income was
      $12.692 million. The $184 thousand or 1.5% decrease in net interest income
      was
      principally due to a


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 23


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).





On
      June
      29, 2006 the Federal Open Market Committee raised the target Federal funds
      rate
      to 5.25%. This was the seventeenth consecutive 25 basis point increase in the
      target Federal funds rate over a 2-year period. These actions have caused the
      Treasury yield curve to become very flat, an interest rate environment which
      generally makes it difficult for us 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. Additionally, the higher interest rates have curbed the demand
      for
      new loans, which limit our ability to improve interest income. Average loans
      outstanding increased only modestly between the six-month period ended June
      30,
      2005 and the six-month period ended June 30, 2006. Specifically, average loans
      outstanding increased $2.016 million or 0.5% between the periods, from $398.463
      million for the six months ended June 30, 2005 to $400.479 million for the
      six
      months ended June 30, 2006.





Between
      comparable quarterly periods, total interest and dividend income increased
      $1.356 million or 6.9%, from $19.760 million for the six-month period ended
      June
      30, 2005, to $21.116 million for the six-month period ended June 30, 2006.
      Between the comparable periods, the weighted average yield on the loan portfolio
      increased 64 basis points, from 6.80% in the first-half of 2005 to 7.44% in
      the
      first-half of 2006. Between the periods, the prime rate, the primary index
      rate
      for our variable rate loans, increased significantly, which drove the increase
      in our loan yields. The increase in loan rates contributed $1.285 million of
      additional interest income between comparable periods.





Interest
      expense increased $1.540 million or 21.8% for the six-month period ended June
      30, 2006, versus the six-month period ended June 30, 2005. Between the
      comparable periods interest rates increased. This prompted us, as well as our
      competitors, to raise the interest rate paid on interest-bearing deposit
      accounts, particularly the more interest-sensitive deposit accounts, such as
      money market accounts and time accounts. Between the periods we recorded a
      $1.231 million net increase in the cost of interest bearing deposit liabilities
      due to increase in interest rates. In addition, due to the higher interest
      rates, our customers increased the amount of deposits held in money market
      and
      time accounts. The combination of higher interest rates and increased deposit
      levels increased the interest expense recorded on money market accounts from
      $393 thousand during the first-half of 2005 to $935 thousand during the
      first-half of 2006, a $542 thousand increase. Similarly, the interest expense
      recorded on time and other deposit accounts increased from $4.275 million during
      the first-half of 2005 to $5.529 million during the first-half of 2006, a $1.254
      million increase.





This
      flat
      yield curve that has persisted for several quarters has eliminated wholesale
      leverage opportunities and reduced the economic benefit of borrowing funds
      throughout the period, causing us to reduce borrowings and, in turn, our earning
      assets. During the first-half of 2006 our total borrowings averaged $70.019
      million. This compares to average borrowings of $85.582 million during the
      first-half of 2005, a $15.563 million or 18.2% decrease between the periods.
      The
      decrease in average borrowings, offset by an increase in borrowing rates,
      resulted in a net decrease in interest expense on borrowings of $187 thousand
      between the periods.





*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.





Net
      interest income for the six-month period ended June 30, 2006 was $12.508
      million. This compares to $12.692 million for the six-month period ended June
      30, 2005, a $184 thousand or 1.5% decrease between comparable periods. Although
      the net decrease in interest income between comparable periods was not
      significant, several components of interest income and interest expense changed
      significantly between the periods due to both rate and volume factors.





Interest
      income increased $1.356 million between the periods due principally to an
      increase in the rate on earning assets. As interest rates rose between the
      periods our yield on Federal funds sold, securities, and loans all increased.
      On
      a combined basis, the rate improvement on these three categories of earning
      assets contributed an additional $1.550 million of interest income between
      comparable periods. This was offset by a $48 thousand decrease in interest
      income on interest bearing deposits due to a change in rate between the periods.
      Between June 30, 2005 and June 30, 2006, $7.499 million of long term high-yield
      certificates of deposit matured, which decreased the average rate earned on
      interest bearing deposits. The $1.502 thousand net improvement in interest
      income on earning assets due to a change in rate


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 24


between
      the periods was offset, in part, by a $146 thousand reduction in interest income
      due to a decrease in the average volume of earning assets. During the first-half
      of 2005, our average earning assets were $715.871 million, which compares to
      $706.846 million during the first-half of 2006. The average volume of Federal
      funds sold, interest bearing deposits and securities decreased between the
      comparable periods, while the average volume of loans increased slightly. The
      decrease in the average volume of interest bearing deposits and securities
      reduced interest income by $142 thousand and $72 thousand, respectively, between
      comparable periods. This was offset, in part, by a $68 thousand increase in
      interest income between comparable periods due to the slight increase in the
      average volume of loans outstanding.





The
      $1.356 million increase in interest income was offset by a $1.540 million
      increase in the cost of interest bearing liabilities, $1.332 million due to
      the
      increase in rate and $208 thousand due to the increase in the volume of interest
      bearing liabilities. The interest expense recorded on our most
      interest-sensitive liabilities, including time and other deposits accounts
      and
      money market accounts, increased due to both an increase in volume and an
      increase in rate. Specifically, interest expense on time and other deposit
      accounts and interest expense on money market accounts increased $1.254 million
      and $542 thousand, respectively, over the comparable periods. Between the
      comparable periods, we raised the interest rates paid on our certificates of
      deposit to remain competitive within our market. This drove up the cost of
      time
      and other deposit accounts resulting in a $911 thousand increase in interest
      expense due to changes in rate. The remaining increase in interest expense
      on
      time and other deposit accounts between the periods totaling $343 thousand
      was
      due to an increase in volume as depositors transferred their monies from
      low-rate interest bearing deposit or demand deposit accounts to higher-yield
      certificates of deposit. Money market accounts experienced similar results.
      As
      interest rates increased between the periods, we raised the interest rates
      paid
      on our money market deposits, which increased interest expense $286 thousand
      on
      a comparable period basis. The higher interest rates attracted additional
      deposits, which resulted in an increase in interest expense due to a change
      in
      volume of $256 thousand. The average cost of our money market deposit accounts
      increased from 2.16% for the six-month period ended June 30, 2005 to 3.41%
      for
      the six-month period ended June 30, 2006, while the average volume of money
      market deposit accounts increased from $36.611 million to $55.371 million over
      the same periods.





As
      short-term interest rates increased rapidly between the periods we only modestly
      increased the interest rate on our NOW account deposits. This caused some of
      our
      customers with NOW account deposits to either move their monies to another
      institution or transfer their NOW account funds to a higher-rate deposit
      account. This decreased the average volume of NOW accounts between the periods
      from $120.022 million in the first-half of 2005 to $95.383 million in the
      first-half of 2006. The decrease in the average volume of NOW account deposits
      reduced interest expense by $75 thousand between comparable periods. This
      improvement was offset, however, by a $39 thousand increase in interest expense
      on NOW account deposits due to an 18 basis point increase in the average rate
      paid between the periods.





In
      spite
      of rising interest rates between periods, we modestly reduced the average rate
      paid on our savings accounts from 0.64% for the six-month period ended June
      30,
      2005 to 0.63% for the six-month period ended June 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 decreased $33
      thousand between the periods, $28 thousand due to a decrease in average volume
      and $5 thousand due to a decrease in rate.





The
      interest expense on borrowings decreased $187 thousand between comparable
      six-month periods due principally to the repayment of borrowed funds. Between
      the comparable periods, the average volume of borrowings decreased by $15.563
      million resulting in a $288 thousand decrease in interest expense due to changes
      in volume. This was offset, in part, by a $101 thousand increase in interest
      expense on borrowings between comparable periods due to higher interest
      rates.





*Provision
      for Loan Losses.* We
      recorded a provision for loan losses of $840 thousand for the six-month period
      ended June 30, 2006, as compared to $480 thousand for the six-month period
      ended
      June 30, 2005, a $360 thousand increase. The increase in the provision for
      loan
      losses between comparable periods was principally due to a significant increase
      in potential problem loans. During the first quarter of 2006, we downgraded
      some
      of our large commercial credits, which increased the level of potential problem
      loans from $7.897 million at December 31, 2005 to $15.264 million at March
      31
      2006. At June 30, 2006 this level remained relatively unchanged totaling $15.381
      million. By comparison, the level of potential problem loans at June 30, 2005
      was $9.933 million. Even though the level of non-performing


*Back
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 25


loans
      decreased between comparable periods, we deemed it necessary to record $840
      thousand in the provision for loan losses due to the significant increase in
      potential problem loans. Although the level of net charge-offs also increased
      substantially on a comparable period basis, $1.239 million for the six months
      ended June 30, 2006 versus $362 thousand for the six months ended June 30,
      2005,
      the amount recorded in the provision for loan losses was not materially modified
      for this factor since the increase was primarily due to the charge-off of one
      borrower’s loans with us, for which allowance for loan losses had been
      previously allocated.





*Non-Interest
      Income.* Non-interest
      income is comprised of trust fees, service charges on deposit accounts,
      commissions income, investment security gains / (losses), income on bank-owned
      life insurance, other service fees, and other income. Non-interest income
      increased slightly from $2.934 million in the six-month period ended June 30,
      2005 to $3.001 million in the six-month period ended June 30, 2006, a $67
      thousand or 2.3% increase. The net increase in non-interest income on a
      comparable quarter basis was due to net increases in trust fees, commission
      income, bank-owned life insurance income and other income, offset, in part,
      by a
      decrease in service charges on deposit accounts, net investment security gains
      and other services fees.





Trust
      fees increased $60 thousand or 8.7% between the comparable periods, from $691
      thousand for the six months ended June 30, 2005, to $751 thousand for the six
      months ended June 30, 2006. During the first-half of 2006, we recorded account
      termination fees totaling $45 thousand on five trust accounts and $14 thousand
      in executor fees on an estate we administered and closed. By comparison, similar
      fees were not recorded during the first-half of 2005.





During
      the first-half of 2006, we recorded $813 thousand of service charges on deposit
      accounts. This compares to $816 thousand during the first-half of 2005, a $3
      thousand or 0.4% decrease. During the third quarter of 2005 we reduced or
      eliminated select demand deposit and NOW account service charges to retain
      and
      attract new transaction accounts. A reduction in the service fees on these
      accounts between comparable periods was partially offset by an increase in
      penalty charges and ATM fees.





During
      the first-half of 2006, we recognized investment securities gains of $310
      thousand. This compares to $392 thousand during the first-half of 2005, an
      $82
      thousand decrease between the periods. The decrease in investment securities
      gains between the periods was due to two factors: a $96 thousand decrease in
      gains on the sale and maturity of available-for-sale and held-to-maturity
      investment securities and a $14 increase in gains on trading securities. During
      the first-half of 2005, we received proceeds from the sale and maturity of
      available-for-sale and held-to-maturity investment securities totaling $53.990
      million. This generated net investment securities gains of $367 thousand. By
      comparison, during the first-half of 2006, we received proceeds from the sale
      and maturity of available-for-sale and held-to-maturity investment securities
      totaling $24.056 million, which generated net investment securities gains of
      $271 thousand. In the first-half of 2006 we recorded a net gain of $39 thousand
      on our trading securities portfolio. This compares to a $25 thousand net gain
      in
      the first-half of 2005. Our trading securities portfolio consists of equity
      and
      debt securities held for the Company’s executive deferred compensation plan.





Other
      service fees are comprised of numerous types of fee income including merchant
      credit card processing fees, residential mortgage commissions, official check
      and check cashing fees, travelers’ check sales, wire transfer fees, letter of
      credit fees, and other miscellaneous service charges commissions and fees.
      Other
      service fees decreased $23 thousand or 10.5% between the first-half of 2005
      and
      the first-half of 2006. The decrease in other service fees between the periods
      was principally due to the decrease in residential mortgage commissions. During
      the first-half of 2005, we recorded $93 thousand of residential mortgage
      commissions, as compared to $73 in the first-half of 2006, a $20 thousand or
      21.5% decrease.





Other
      income is comprised of numerous types of fee income, including investment
      services, lease income, safe deposit box income, title insurance agency income,
      rental of bank real estate, and distributions from two insurance trusts, in
      which the Bank participates. Other income increased from $231 thousand in the
      first-half of 2005 to $340 thousand in the first-half of 2006, a $109 thousand
      or 47.2% increase. The increase between the periods was principally due to
      a $67
      thousand unanticipated recovery on a defaulted investment security and a $73
      thousand increase in investment services income, partially offset by a $25
      decrease in rental income.





Our
      commission income is generated from the Bank’s insurance agency subsidiary, Mang
      - Wilber LLC. During the first-half of 2006, we recorded $317 thousand of
      commission income. This compares to $312


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 26


thousand
      during the first-half of 2005, a $5 thousand or 1.6% increase. Between
      comparable periods, insurance account commission levels increased
      slightly.





Similarly,
      bank-owned life insurance income remained relatively unchanged between
      comparable periods. Specifically, bank-owned life insurance income increased
      $1
      thousand from $272 thousand in the first-half of 2005 to $273 thousand in the
      first-half of 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 expense. Total
      non-interest expense increased $878 thousand or 9.3% on a comparable period
      basis, from $9.467 million in the first-half of 2005 to $10.345 million in
      the
      first-half of 2006. Increases in all categories of non-interest expense totaling
      $894 thousand between the periods were, in part, offset by a $16 decrease in
      advertising and marketing expense.





Salaries
      expense increased $151 thousand or 3.3% between the comparable periods, from
      $4.562 million during the first-half of 2005 to $4.713 million during the
      first-half of 2006. The increase between periods was due to both increases
      and
      decreases various components of salaries expense. In particular, base salaries
      and overtime increased $217 thousand or 5.2% between the periods, from $4.210
      million for the six months ended June 30, 2005 to $4.427 million for the six
      months ended June 30, 2006, due to a slight increase in staff and general
      increases in base salary amounts. Conversely, due to decreased loan originations
      and operating performance, we recorded a $49 thousand decrease in commission
      and
      incentive pay between comparable periods. And finally, the salaries expense
      related to the Company’s executive deferred compensation plan decreased $17
      thousand between the periods, from a $55 in the first-half of 2005 to $38
      thousand in the first-half of 2006.





During
      the first-half of 2006, employee benefits expense increased $104 thousand or
      7.8%, from $1.334 million during the first-half of 2005 to $1.438 million during
      the first-half of 2006. During the first-half of 2006 we froze the Company’s
      defined benefit pension plan and began making employer contributions to our
      401k
      retirement plan. Due principally to the curtailment charge on the frozen defined
      benefit plan, we recorded a net increase in retirement benefits expense (defined
      benefit pension expense and 401k retirement expense) of $133 thousand between
      comparable periods Total retirement benefits expense increased from $287
      thousand in the first-half of 2005 to $419 thousand in the first-half of 2006.
      F.I.C.A. expense increased $23 thousand between comparable periods due to and
      increase in salaries expense. The increase in these costs was, in part, offset
      by $68 thousand decrease in other benefits due to a reduction in the amount
      recorded to fund the Company’s supplemental executive retirement plan for two
      retired executives.





On
      a
      combined basis, occupancy of bank premises and furniture and equipment expense
      increased from $1.209 million in the first-half 2005 to $1.236 million in the
      first-half of 2006, a $27 thousand or 2.2% increase between the comparable
      quarters. The increase was principally due to an increase in building repairs
      and utilities due to higher energy prices.





Computer
      service fees increased $83 thousand or 26.4% in the first-half of 2006, from
      $314 thousand in the six-month period ended June 30, 2005 to $397 thousand
      in
      the six-month period ended June 30, 2006. During the third quarter of 2005,
      we
      converted our proprietary core computer operating system to a system more widely
      used throughout the banking industry. To operate the new system we entered
      into
      various software licensing agreements and maintenance contracts with several
      hardware and software computer system vendors resulting in an increase in
      computer service fees.





Professional
      fees increased $200 thousand or 61.4% between comparable periods, from $326
      thousand for the six months ended June 30, 2005 to $526 thousand for the six
      months ended June 30, 2006. The increase in professional fees was due to several
      factors. On April 4, 2006, we announced a self-tender offer for the Company’s
      common stock. To complete the offer we recorded $82 thousand of legal and other
      professional fees during the first-half of 2006. In addition, in 2006 we
      outsourced the internal audit function to a third party accounting and auditing
      firm. This increased professional fees $79 thousand over comparable periods.
      And
      finally, during the first-half of 2006 we incurred $25 thousand of professional
      fees for loan review services, as compared to $6 thousand in the first-half
      of
      2005.





During
      the first-half of 2006, we recorded a $320 thousand loss on the disposal /
      impairment of fixed assets. In the last week of June 2006, our immediate market
      area was decimated by a flood due to torrential rains. As a result of the flood,
      two of our branch buildings, Sidney, NY and Walton, NY, and the contents in
      each
      office, were damaged or destroyed by floodwaters. Of the $320 thousand loss,
      $82


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 27


thousand
      was related to the disposal of furniture, fixtures and equipment and $238
      thousand was due to the impairment of the two buildings. By comparison, during
      the first-half of 2005, we recorded a $7 thousand net loss on the disposal
      of
      fixed assets.





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 first-half of 2006, other miscellaneous expenses increased
      $16 thousand or 1.1%, from $1.470 million in the six months ended June 30,
      2005
      to $1.486 million in the six months ended June 30, 2006. The following table
      itemizes the individual components of other miscellaneous expenses that
      increased or (decreased) by more than $10 thousand between comparable periods.





Table
      of
      Other Miscellaneous Expenses:








**For
                the Six**
              **Months
                Ended**
              **June
                30,**Description
                of Other Miscellaneous Expense
            
            2006
            
            2005
            
            Increase
                /
              (Decrease)*dollars
                in thousands*Directors
                fees
            
            $
            152
            
            $
            86
            
            $
            66Collection
                and non-filing expense
            
            
            111
            
            
            64
            
            
            47Correspondent
                bank services
            
            
            66
            
            
            77
            
            
            (11
            )Accounts
                receivable financing program services
            
            
            88
            
            
            78
            
            
            10Dues
                and memberships
            
            
            29
            
            
            18
            
            
            11Office
                supplies
            
            
            149
            
            
            170
            
            
            (21
            )Postage
                and shipping
            
            
            129
            
            
            155
            
            
            (26
            )Deferred
                reserves for unfunded loan commitments
            
            
            (23
            )
            
            2
            
            
            (25
            )Travel
                and entertainment
            
            
            103
            
            
            123
            
            
            (20
            )Check
                printing
            
            
            (14
            )
            
            36
            
            
            (50
            )Software
                amortization
            
            
            116
            
            
            77
            
            
            39Other
                losses
            
            
            (1
            )
            
            10
            
            
            (11
            )Minority
                interest for Mang - Wilber LLC insurance agency subsidiary
            
            
            66
            
            
            80
            
            
            (14
            )All
                other miscellaneous expense items, net
            
            
            515
            
            
            494
            
            
            21Total
                Other Miscellaneous Expense
            
            $
            1,486
            
            $
            1,470
            
            $
            16





*Income
      Taxes.* Income
      tax expense decreased from $1.510 million during the six-month period ended
      June
      30, 2005, to $1.017 million during the six-month period ended June 30, 2006.
      The
      decrease in income tax expense was primarily due to a decreased amount of
      pre-tax income. ** Our
      effective tax rate decreased between periods, from 26.6% in the six-month period
      ended June 30, 2005, to 23.5% in the six-month period ended June 30, 2006 due
      to
      a greater percentage of our pre-tax income being generated from tax-exempt
      securities and bank-owned life insurance.








G.
      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 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:


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 28


·
            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.





In
      addition to the daily funds management process, we also monitor certain
      liquidity ratios and complete a liquidity assessment every 90 days to estimate
      current and future sources and uses of liquidity. The 90-day sources and uses
      assessment is reviewed by our Asset and Liability Committee (“ALCO”). The ALCO,
      based on this assessment and other data, determines our future funding or
      investment needs and strategies. The results of the 90-day sources and uses
      assessment are reported to the Board of Directors of the Bank quarterly. We
      were
      in compliance with all of our internal liquidity policy limits at December
      31,
      2005, and June 30, 2006. 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 & NOW Accounts*•
                Savings & 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•
                Fed. Reserve Discount Window Borrowings•
                Sale of Loans•
                Proceeds from Issuance of Equity Securities•
                Branch Acquisition
              •
                Cash Surrender Value of Bank-Owned Life
                Insurance





Table
      of
      Liquidity Measures:





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





Liquidity
                Measure
              *Dollars
                in Thousands*
            
            June
                30,
              2006
            
            December
                31,
              2005Cash
                and Cash Equivalents
            
            $
            28,576
            
            $
            18,417Available
                for Sale Investment Securities at Estimated Fair Value less Securities
                pledged for State and Municipal Deposits and Borrowings
            
            $
            53,057
            
            $
            64,622Total
                Loan to Total Asset Ratio
            
            
            53.15
            %
            
            53.63
            %FHLBNY
                Remaining Borrowing Capacity
            
            $
            18,304
            
            $
            19,413Available
                Unsecured Correspondent Bank Lines of Credit
            
            $
            15,000
            
            $
            10,000





Between
      December 31, 2005, and June 30, 2006, our overall liquidity position did not
      change significantly. An increase in the level of cash and cash equivalents
      was
      offset by a decrease in the level of unencumbered available-for-sale investment
      securities. Although our overall liquidity position did not change significantly
      during the first-half of 2006, we experienced an increase in the volatility
      of
      our deposit funding. The increasing interest rate environment throughout the
      first-half of the year has caused depositors, particularly large depositors,
      to
“shop” their deposits more intensively. For example, at the end of the first
      quarter of 2006 we borrowed $15.0 million of short-term funds at the FHLBNY
      to
      replace


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 29


the
      maturity of several large municipal certificates of deposit. By contrast, at
      the
      end of the second quarter we had established a $20.220 million deposit
      relationship with a large estate that was subsequently withdrawn early in the
      third quarter of 2006 due to the disbursement of funds to various beneficiaries
      of the estate.





The
      substantial majority of the unencumbered available-for-sale investment
      securities are highly liquid securities and could be sold immediately or pledged
      for borrowing purposes to meet our anticipated or unanticipated loan and other
      funding requirements. In addition, the anticipated principal repayments on
      existing loans and investment securities, as well as the anticipated deposit
      retention levels, continue to provide us with an adequate amount of liquidity.
      In addition to the above table of liquidity measures, we anticipate receiving
      principal payments on our available-for-sale and held-to-maturity investment
      securities portfolio totaling approximately $58.300 million over the next
      twelve-month period. These proceeds can be used to fund net loan growth or
      a
      decrease in deposits.





Our
      commitments to extend credit and stand-by letters of credit increased $1.713
      million between December 31, 2005, and June 30, 2006. At June 30, 2006,
      commitments to extend credit and stand-by letters of credit were $87.376
      million, as compared to $85.663 million at December 31, 2005. 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 materially 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.








H.
      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
      quarterly 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.





At
      June
      30, 2006, shareholders’ equity was $59.842 million. This represents a $7.875
      million or 11.6% decrease in total shareholders’ equity of $67.717 million at
      December 31, 2005. The significant decrease in shareholders’ equity was
      primarily due to the execution of a self-tender offer for our common stock,
      and
      the resultant increase in treasury stock; and an increase in accumulated other
      comprehensive loss. Our treasury stock balance increased $6.366 million between
      the periods, from $21.138 million at December 31, 2005 to $27.504 million at
      June 30, 2006. Most of the increase was to due to the repurchase of shares
      of
      our common stock pursuant to the self-tender offer. In addition, as interest
      rates increased during the first-half of 2006, the market value of our
      available-for-sale investment securities decreased, causing an increase in
      accumulated other comprehensive loss. Between December 31, 2005 and June 30,
      2006 accumulated other comprehensive loss increased $2.698 million, from $2.409
      million to $5.107 million. Shareholders’ equity as a percentage of total assets
      was 9.0% at December 31, 2005 versus 7.9% at June 30, 2006.





The
      Company and the Bank are both subject to regulatory capital guidelines. Under
      these guidelines, as established by Federal bank regulators, to be adequately
      capitalized, the Company and the Bank must both maintain the minimum ratio
      of
      Tier 1 capital to risk-weighted assets of 4.0% and the minimum ratio of total
      capital to risk-weighted assets of 8.0%. Tier 1 capital is comprised of
      shareholders' equity, less intangible assets and accumulated other comprehensive
      income. Total capital, for this risk-based capital standard, includes Tier
      1
      capital plus the Company’s allowance for loan losses. Similarly, for the Bank to
      be considered “well capitalized,” it must maintain a Tier 1 capital to
      risk-weighted assets ratio of 6.0% and a total capital to risk-weighted assets
      ratio of 10.0%. The Company and the Bank exceeded all capital adequacy and
      well
      capitalized guidelines at June 30, 2006, and December 31, 2005. The Company’s
      Tier 1 capital to risk-weighted assets ratio and total capital to risk-weighted
      assets ratio at June 30, 2006, were 11.97% and 13.22%,
      respectively.




The
      principal source of funds for the payment of shareholder dividends by the
      Company has been


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 30


dividends
      declared and paid to the Company by its subsidiary bank. There are various
      legal
      and regulatory limitations applicable to the payment of dividends to the Company
      by its subsidiaries as well as the payment of dividends by the Company to its
      shareholders. As of June 30, 2006, under this statutory limitation, the maximum
      amount that could have been paid by the Bank subsidiary to the Company, without
      special regulatory approval, was $2.500 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.








**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 Company’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 (an asset) using the prime rate as a basis,
      while some of our deposit accounts (a liability) 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 and 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 and refinance
      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 and 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 will differ from those
      predicted by simulation modeling.


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 31


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 6 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 12-month period
      beginning July 1, 2006, and ending June 30, 2007, under ramped shock
      scenarios.





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%
            11.25%
            $26,462
            $556
            2.15%
            0.93%2.00%
            10.25%
            26,106
            200
            0.77%
            0.33%1.00%
            9.25%
            25,913
            7
            0.03%
            0.01%No
              change
            8.25%
            25,906
            -
            -
            --1.00%
            7.25%
            25,423
            (483)
            -1.86%
            -0.81%-2.00%
            6.25%
            24,238
            (1,668)
            -6.44%
            -2.79%-3.00%
            5.25%
            23,453
            (2,453)
            -9.47%
            -4.10%




(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 increase $200 thousand or 0.33% of total shareholders’ equity in a +2.00%
      ramped interest rate shock and decline by $1.668 million or 2.79% 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 general market
      conditions and customer demand. We 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. At June 30, 2006, approximately 24% of our total assets were
      invested in adjustable rate loans and investments.





At
      June
      30, 2006, the Treasury yield curve was very “flat.” 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


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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 June 30, 2006. 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.








**PART
      II - OTHER INFORMATION**





ITEM
      1:Legal
      Proceedings





From
      time
      to time, the Company becomes subject to various legal claims which arise in
      the
      normal course of business. At June 30, 2006, the Company was not the subject
      of
      any material pending legal proceedings, other than ordinary routine litigation
      occurring in the normal course of its business. The various pending legal claims
      against the Company will not, in the opinion of management based upon
      consultation with legal counsel, result in any material liability to the Company
      and will not materially affect our financial position, results of 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 second quarter of 2006 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 15, 2006.





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. From July 26, 2005 through March 31, 2006, management
      purchased 17,155 shares under this authority, which reduced the amount of
      shareholders’ equity available to management to purchase shares under the
      program to $1.308 million. On June 20, 2006 we purchased an additional 20,600
      shares at $10.52 per share (including $0.06 per share brokerage commission),
      which reduced management’s repurchase authority to $1.091 million under the
      stock repurchase program.





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





In
      addition to the stock repurchase program, on June 1, 2006, the Company purchased
      536,155 shares of its common stock into treasury pursuant to a modified
      Dutch-auction style self-tender offer filed with the SEC on April 4, 2006,
      and
      as amended on April 10, 2006, April 28, 2006, May 5, 2006, May 18, 2006
      and


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 33


May
      25,
      2006. The shares acquired by the Company under the self-tender offer were
      purchased at $11.47 per share (including brokerage commissions) resulting in
      a
      $6.150 million decrease in shareholders’ equity. The following table summarizes
      the shares repurchased by the Company during the three-month period ended June
      30, 2006:





Share
      Repurchases:





Period
              
              Total
                Number
                  of
                Shares
                Purchased
              
              Average
                Price
                  Paid
                per
                  Share
              
              Total
                  Cost
              
              Remaining
                Share
                Repurchase
                  AuthorityStock
                  Repurchase Program:April
                  1 - April 30, 2006
              
              
              0
              
              $
              0.00
              
              $
              0
              
              $
              1,307,908May
                  1 - May 31, 2006
              
              
              0
              
              
              0.00
              
              
              0
              
              
              1,307,908June
                  1 - June 30, 2006 (1)
              
              
              20,600
              
              
              10.52
              
              
              216,712
              
              
              1,091,196Totals
              
              
              20,600
              
              
              10.52
              
              
              216,712Modified
                  Dutch-Auction Self-Tender OfferJune
                  1 - June 30, 2006 (2)
              
              
              536,155
              
              
              11.47
              
              
              6,149,698Grand
                  Totals
              
              
              556,755
              
              $
              11.43
              
              $
              6,366,410(1)
                  These shares were purchased under the Company's stock repurchase
                  plan
                  announced on July 26, 2005. The total cost includes a $0.06 per
                  share
                  brokerage commission paid by the Company.(2)
                  These shares were purchased under the Company's modified Dutch-auction
                  style self-tender offer announced on April 4, 2006. The total cost
                  includes a $0.07 per share brokerage commission paid by the
                  Company.





During
      the three-month period ended June 30, 2006, 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 June 30, 2006.








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





On
      April
      29, 2006 the Company held its Annual Meeting of Shareholders. On the record
      date
      for the Annual Meeting of Shareholders, March 17, 2006, 11,145,937 shares of
      the
      Company’s common stock, par value $.01 per share, were issued and outstanding
      and eligible to be voted. At the meeting three proposals were voted upon, all
      of
      which were approved by the shareholders. A total of 8,873,655 shares were voted
      at the meeting. A summary of each proposal and the voting results are provided
      below:


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 34


Annual
      Meeting of Shareholders Voting Results:





Description
                of Matter
            For
            Withheld
                / Against
            Abstentions1.
                To fix the number of directors of the Company at twelve
                (12)
            8,827,169
            4,209
            42,2772.
                To elect the following four (4) nominees to the
              Company's
                Board of DirectorsThomas
                J. Davis
            8,793,005
            80,650
            0James
                L. Seward
            8,773,332
            100,323
            0Geoffrey
                A. Smith
            8,791,905
            81,750
            0Brian
                R. Wright
            8,792,205
            81,450
            03.
                To ratify the appointment of KPMG LLP, as our independent auditors
                for the
                fiscal year ending December 31, 2006
            8,804,419
            534
            68,702








ITEM
      5:Other
      Information





None.








ITEM
      6:Exhibits





See
      Exhibit Index to this Form 10-Q


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 35


**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:
            08/07/2006Douglas
                C. GulottyPresident
                and Chief Executive OfficerBy:
            /s/
                Joseph E. Sutaris
            
            Dated:
            08/07/2006Joseph
                E. SutarisSecretary,
                Treasurer and Chief Financial Officer


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 36


**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








37