UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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


THE
SECURITIES EXCHANGE ACT OF 1934





For
the Quarterly Period Ended March 31, 2008





OR





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


THE
SECURITIES EXCHANGE ACT OF 1934





For the
Transition Period from  ________ to ________








Commission
File Number:  001-31896








THE
WILBER CORPORATION


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





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





245 Main Street, Oneonta, NY
13820


(Address
of Principal Executive Offices) (Zip Code)





607
432-1700


(Registrant’s
Telephone Number Including Area Code)





no
changes


(Former
name, former address and former fiscal year, if changed since last
report)





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 S No £





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


Large
      accelerated filer £
            Accelerated
      filer SNon-accelerated
      filer £ (Do not
      check if a smaller reporting company)
            Smaller
      reporting company £





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes £  No
S





As of May
7, 2008, there were issued and outstanding 10,503,704 shares of the Registrant’s
Common Stock.












THE
WILBER CORPORATION


FORM
10-Q


INDEX








PART
I – FINANCIAL INFORMATION





FORWARD-LOOKING
      STATEMENTSITEM
      1:
            Interim
      Financial Statements (Unaudited)Consolidated
      Statements of ConditionConsolidated
      Statements of IncomeConsolidated
      Statements of Changes in Shareholders’ Equity and Comprehensive
      IncomeConsolidated
      Statements of Cash FlowsNotes
      to Unaudited Consolidated Interim Financial StatementsITEM
      2:
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      OperationsA.
            GeneralB.
            Financial
      Condition and Performance OverviewC.
            Comparison
      of Financial Condition at March 31, 2008 and December 31,
    2007D.
            Comparison
      of Results of Operations for the Three Months Ended March 31, 2008 and
      2007E.
            LiquidityF.
            Capital
      Resources and DividendsITEM
      3:
            Quantitative
      and Qualitative Disclosures about Market RiskITEM
      4:
            Controls
      and ProceduresITEM
      4T:
            Controls
      and ProceduresPART
      II – OTHER INFORMATIONITEM
      1:
            Legal
      ProceedingsITEM
      1A
            Risk
      FactorsITEM
      2:
            Unregistered
      Sales of Equity Securities and Use of ProceedsITEM
      3:
            Defaults
      Upon Senior SecuritiesITEM
      4:
            Submission
      of Matters to a Vote of Security HoldersITEM
      5:
            Other
      InformationITEM
      6:
            ExhibitsSignature
      PageIndex
      to Exhibits


1
 Index




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, or demand for financial services; competition; changes in the
quality or composition of the Wilber Corporation’s (“the Company’s”) loan and
investment portfolios; changes in accounting principles, policies, or
guidelines; and other economic, competitive, governmental, and technological
factors affecting the Company’s operations, markets, products, services, and
fees.





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


2
 Index




ITEM 1:  InterimFinancial Statements (Unaudited)





The
Wilber Corporation


Consolidated
Statements of Condition (Unaudited)





March 31,
            
            
            December 31,in
      thousands except share and per share data
            
            2008
            
            
            2007AssetsCash
      and Due from Banks
            
            $
            22,737
            
            
            $
            11,897Time
      Deposits with Other Banks
            
            
            10,000
            
            
            
            0Federal
      Funds Sold
            
            
            36,296
            
            
            
            7,045Total
      Cash and Cash Equivalents
            
            
            69,033
            
            
            
            18,942SecuritiesTrading,
      at Fair Value
            
            
            1,441
            
            
            
            1,430Available-for-Sale,
      at Fair Value
            
            
            239,574
            
            
            
            237,274Held-to-Maturity,
      Fair Value of $50,636 at March 31, 2008, and $51,743 at December 31,
      2007
            
            
            50,507
            
            
            
            52,202Other
      Investments
            
            
            4,932
            
            
            
            4,782Loans
      Held for Sale
            
            
            314
            
            
            
            456Loans
            
            
            454,441
            
            
            
            445,105Allowance
      for Loan Losses
            
            
            (6,965
            )
            
            
            (6,977
            )Loans,
      Net
            
            
            447,476
            
            
            
            438,128Premises
      and Equipment, Net
            
            
            6,643
            
            
            
            6,312Bank
      Owned Life Insurance
            
            
            15,936
            
            
            
            15,785Goodwill
            
            
            4,619
            
            
            
            4,619Intangible
      Assets, Net
            
            
            364
            
            
            
            394Pension
      Asset
            
            
            5,068
            
            
            
            4,872Other
      Assets
            
            
            7,726
            
            
            
            8,484Total
      Assets
            
            $
            853,633
            
            
            $
            793,680Liabilities
      and Shareholders’ EquityDeposits:Demand
            
            $
            70,018
            
            
            $
            71,145Savings,
      NOW and Money Market Deposit Accounts
            
            
            285,028
            
            
            
            254,196Certificates
      of Deposit (Over $100M)
            
            
            137,294
            
            
            
            111,949Certificates
      of Deposit (Under $100M)
            
            
            199,297
            
            
            
            198,467Other
      Deposits
            
            
            21,834
            
            
            
            21,737Total
      Deposits
            
            
            713,471
            
            
            
            657,494Short-Term
      Borrowings
            
            
            15,505
            
            
            
            15,786Long-Term
      Borrowings
            
            
            44,870
            
            
            
            41,538Other
      Liabilities
            
            
            8,723
            
            
            
            9,463Total
      Liabilities
            
            
            782,569
            
            
            
            724,281Shareholders’
      Equity:Common
      Stock, $.01 Par Value, 16,000,000 Shares Authorized,and 13,961,664 Shares
      Issued at March 31, 2008and December 31, 2007
            
            
            140
            
            
            
            140Additional
      Paid in Capital
            
            
            4,224
            
            
            
            4,224Retained
      Earnings
            
            
            93,481
            
            
            
            93,618Accumulated
      Other Comprehensive Income (Loss)
            
            
            1,530
            
            
            
            (272
            )Treasury
      Stock at Cost, 3,457,960 Shares at March 31, 2008 and December 31,
      2007
            
            
            (28,311
            )
            
            
            (28,311
            )Total
      Shareholders’ Equity
            
            
            71,064
            
            
            
            69,399Total
      Liabilities and Shareholders’ Equity
            
            $
            853,633
            
            
            $
            793,680





See
accompanying notes to interim unaudited consolidated financial
statements.


3
 Index


The
Wilber Corporation


Consolidated
Statements of Income (Unaudited)





Three
      Months EndedMarch 31,in
      thousands except share and per share data
            
            2008
            
            
            2007Interest
      and Dividend IncomeInterest
      and Fees on Loans
            
            $
            7,914
            
            
            $
            7,689Interest
      and Dividends on Securities:U.S.
      Government and Agency Obligations
            
            
            2,501
            
            
            
            2,441State
      and Municipal Obligations
            
            
            608
            
            
            
            647Other
            
            
            101
            
            
            
            101Interest
      on Federal Funds Sold and Time Deposits
            
            
            276
            
            
            
            236Total
      Interest and Dividend Income
            
            
            11,400
            
            
            
            11,114Interest
      ExpenseInterest
      on Deposits:Savings,
      NOW and Money Market Deposit Accounts
            
            
            1,094
            
            
            
            1,216Certificates
      of Deposit (Over $100M)
            
            
            1,255
            
            
            
            1,138Certificates
      of Deposit (Under $100M)
            
            
            2,036
            
            
            
            1,875Other
      Deposits
            
            
            271
            
            
            
            250Interest
      on Short-Term Borrowings
            
            
            89
            
            
            
            180Interest
      on Long-Term Borrowings
            
            
            510
            
            
            
            391Total
      Interest Expense
            
            
            5,255
            
            
            
            5,050Net
      Interest Income
            
            
            6,145
            
            
            
            6,064Provision
      for Loan Losses
            
            
            225
            
            
            
            260Net
      Interest Income After Provision for Loan Losses
            
            
            5,920
            
            
            
            5,804Non
      Interest IncomeTrust
      Fees
            
            
            395
            
            
            
            380Service
      Charges on Deposit Accounts
            
            
            461
            
            
            
            418Commission
      Income
            
            
            93
            
            
            
            146Investment
      Security Gains, Net
            
            
            183
            
            
            
            47Net
      Gain on Sale of Loans
            
            
            46
            
            
            
            32Increase
      in Cash Surrender Value of Bank Owned Life Insurance
            
            
            151
            
            
            
            149Other
      Service Fees
            
            
            56
            
            
            
            81Gain
      on Disposal of Fixed Assets and Other Real Estate
            
            
            9
            
            
            
            359Other
      Income
            
            
            145
            
            
            
            157Total
      Non Interest Income
            
            
            1,539
            
            
            
            1,769Non
      Interest ExpenseSalaries
            
            
            2,710
            
            
            
            2,348Employee
      Benefits
            
            
            650
            
            
            
            611Occupancy
      Expense of Bank Premises
            
            
            505
            
            
            
            465Furniture
      and Equipment Expense
            
            
            241
            
            
            
            210Computer
      Service Fees
            
            
            213
            
            
            
            191Advertising
      and Marketing
            
            
            192
            
            
            
            111Professional
      Fees
            
            
            251
            
            
            
            268Other
      Miscellaneous Expenses
            
            
            870
            
            
            
            772Total
      Non Interest Expense
            
            
            5,632
            
            
            
            4,976Income
      Before Taxes
            
            
            1,827
            
            
            
            2,597Income
      Taxes
            
            
            (389
            )
            
            
            (648
            )Net
      Income
            
            $
            1,438
            
            
            $
            1,949Weighted
      Average Shares Outstanding
            
            
            10,503,704
            
            
            
            10,569,182Basic
      Earnings Per Share
            
            $
            0.14
            
            
            $
            0.18





See
accompanying notes to interim unaudited consolidated financial
statements.


4
 Index


The
Wilber Corporation


Consolidated
Statements of Changes in Shareholders' Equity and Comprehensive Income
(Unaudited)





AccumulatedAdditional
            
            
            
            
            
            OtherCommon
            
            
            Paid
      in
            
            
            Retained
            
            
            Comprehensive
            
            
            Treasuryin
      thousands except per share data
            
            Stock
            
            
            Capital
            
            
            Earnings
            
            
            Income
      (Loss)
            
            
            Stock
            
            
            TotalBalance
      December 31, 2006
            
            $
            140
            
            
            $
            4,224
            
            
            $
            89,921
            
            
            $
            (3,247
            )
            
            $
            (27,706
            )
            
            $
            63,332Comprehensive
      Income:Net
      Income
            
            
            -
            
            
            
            -
            
            
            
            1,949
            
            
            
            -
            
            
            
            -
            
            
            
            1,949Change
      in Net Unrealized Loss on Securities, Net of Taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            502
            
            
            
            -
            
            
            
            502Change
      in Pension Asset, Net of Tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19
            
            
            
            
            
            
            
            19Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,470Cash
      Dividends ($.095 per share)
            
            
            -
            
            
            
            -
            
            
            
            (1,004
            )
            
            
            -
            
            
            
            -
            
            
            
            (1,004
            )Balance
      March 31, 2007
            
            $
            140
            
            
            $
            4,224
            
            
            $
            90,866
            
            
            $
            (2,726
            )
            
            $
            (27,706
            )
            
            $
            64,798Balance
      December 31, 2007
            
            $
            140
            
            
            $
            4,224
            
            
            $
            93,618
            
            
            $
            (272
            )
            
            $
            (28,311
            )
            
            $
            69,399Comprehensive
      Income:Net
      Income
            
            
            -
            
            
            
            -
            
            
            
            1,438
            
            
            
            -
            
            
            
            -
            
            
            
            1,438Change
      in Net Unrealized Gain (Loss)on Securities, Net of Taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,802
            
            
            
            -
            
            
            
            1,802Effect
      of Change in Measurement Date of Defined Benefit Pension
    Plan
            
            
            -
            
            
            
            -
            
            
            
            98
            
            
            
            -
            
            
            
            -
            
            
            
            98Adoption
      of EITF Issue No. 06-4, “Accounting for Deferred Compensation and
      Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
      Agreements”
            
            
            -
            
            
            
            -
            
            
            
            (676
            )
            
            
            -
            
            
            
            -
            
            
            
            (676
            )Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,662Cash
      Dividends ($.095 per share)
            
            
            -
            
            
            
            -
            
            
            
            (997
            )
            
            
            -
            
            
            
            -
            
            
            
            (997
            )Balance
      March 31, 2008
            
            $
            140
            
            
            $
            4,224
            
            
            $
            93,481
            
            
            $
            1,530
            
            
            $
            (28,311
            )
            
            $
            71,064





See
accompanying notes to interim unaudited consolidated financial
statements.


5
 Index




The
Wilber Corporation


Consolidated
Statements of Cash Flows (Unaudited)





Three
      Months EndedMarch 31,dollars
      in thousands
            
            2008
            
            
            2007Cash
      Flows from Operating Activities:Net
      Income
            
            $
            1,438
            
            
            $
            1,949Adjustments
      to Reconcile Net Income to Net CashUsed by Operating
      Activities:Provision
      for Loan Losses
            
            
            225
            
            
            
            260Depreciation
      and Amortization
            
            
            344
            
            
            
            263Net
      Amortization of Premiums and Accretion of Discounts on
      Investments
            
            
            112
            
            
            
            128Gain
      on Disposal of Fixed Assets
            
            
            (1
            )
            
            
            (352
            )Available-for-Sale
      Investment Security Gains, net
            
            
            (260
            )
            
            
            0Other
      Real Estate Gains
            
            
            (8
            )
            
            
            (7
            )Increase
      in Cash Surrender Value of Bank Owned Life Insurance
            
            
            (151
            )
            
            
            (149
            )Net
      (Increase) Decrease in Trading Securities
            
            
            (88
            )
            
            
            132Net
      Losses (Gains) on Trading Securities
            
            
            77
            
            
            
            (47
            )Net
      Gain on Sale of Mortgage Loans
            
            
            (46
            )
            
            
            (32
            )Originations
      of Mortgage Loans Held for Sale
            
            
            (2,047
            )
            
            
            (239
            )Proceeds
      from Sale of Mortgage Loans Held for Sale
            
            
            2,235
            
            
            
            271(Increase)
      Decrease in Other Assets
            
            
            (792
            )
            
            
            773Decrease
      in Other Liabilities
            
            
            (1,208
            )
            
            
            (2,174
            )Net
      Cash (Used by) Provided by Operating Activities
            
            
            (170
            )
            
            
            776Cash
      Flows from Investing Activities:Net
      Cash Paid for Provantage Funding Corporation
            
            
            0
            
            
            
            (155
            )Proceeds
      from Maturities of Held-to-Maturity Investment Securities
            
            
            1,670
            
            
            
            4,064Proceeds
      from Maturities of Available-for-Sale Investment
Securities
            
            
            14,038
            
            
            
            10,907Proceeds
      from Sales of Available-for-Sale Investment Securities
            
            
            10,482
            
            
            
            0Purchases
      of Available-for-Sale Investment Securities
            
            
            (23,709
            )
            
            
            (7,715
            )Net
      (Increase) Decrease in Other Investments
            
            
            (150
            )
            
            
            149Net
      Increase in Loans
            
            
            (9,615
            )
            
            
            (7,925
            )Purchase
      of Premises and Equipment, Net of Disposals
            
            
            (532
            )
            
            
            (387
            )Proceeds
      from Sale of Other Real Estate
            
            
            46
            
            
            
            27Net
      Cash Used by Investing Activities
            
            
            (7,770
            )
            
            
            (1,035
            )Cash
      Flows from Financing Activities:Net
      Increase in Demand Deposits, Savings, NOW,Money
      Market and Other Deposits
            
            
            29,802
            
            
            
            5,681Net
      Increase in Certificates of Deposit
            
            
            26,175
            
            
            
            2,321Net
      (Decrease) Increase in Short-Term Borrowings
            
            
            (281
            )
            
            
            532Increase
      in Long-Term Borrowings
            
            
            4,000
            
            
            
            10,000Repayment
      of Long-Term Borrowings
            
            
            (668
            )
            
            
            (16,026
            )Cash
      Dividends Paid
            
            
            (997
            )
            
            
            (1,004
            )Net
      Cash Provided by Financing Activities
            
            
            58,031
            
            
            
            1,504Net
      Increase in Cash and Cash Equivalents
            
            
            50,091
            
            
            
            1,245Cash
      and Cash Equivalents at Beginning of Period
            
            
            18,942
            
            
            
            25,859Cash
      and Cash Equivalents at End of Period
            
            $
            69,033
            
            
            $
            27,104Supplemental
      Disclosures of Cash Flow Information:Cash
      Paid during Period for:Interest
            
            $
            5,044
            
            
            $
            5,002Income
      Taxes
            
            $
            2,010
            
            
            $
            2,195Non
      Cash Investing Activities:Change
      in Unrealized Loss on Securities
            
            $
            2,938
            
            
            $
            822Fair
      Value of Assets Acquired
            
            $
            0
            
            
            $
            599Fair
      Value of Liabilities Assumed
            
            $
            0
            
            
            $
            444





See
accompanying notes to interim unaudited consolidated financial
statements.


6
 Index




The
Wilber Corporation


Notes to
Unaudited Consolidated Interim Financial Statements





Note
      1.
            Basis
      of Presentation





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





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





The data
in the consolidated balance sheet for December 31, 2007 was derived from the
Company's 2007 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, 2007 and 2006, and the consolidated statements of income,
consolidated statements of cash flows, and consolidated statements of
shareholders’ equity and comprehensive income for each of the years in the
three-year period ended December 31, 2007.  That data, along with the
unaudited interim financial information presented in the consolidated statements
of condition as of March 31, 2008, and the statements of income, the statements
of changes in shareholders' equity and comprehensive income, and statements of
cash flows for the three months ended March 31, 2008 and 2007 should be read in
conjunction with the 2007 consolidated financial statements, including the notes
thereto.





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





Note
      2.
            Earnings
      Per Share





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





Note
      3.
            Guarantees





Stand-by
letters of credit written are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
bond financing and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. Since some of the letters of credit are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.





The
estimated fair value of the Company’s stand-by letters of credit was $18,000 and
$16,000 at March 31, 2008 and December 31, 2007, 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.


7
 Index




Note
      4.
            Employee
      Benefit Plans





Effective
February 28, 2006, the Company's defined benefit pension plan was
frozen.  Under the frozen plan, no future benefits will be accrued for
plan participants, nor will any new participants be enrolled in the
plan.  This plan is sponsored by the Company's bank
subsidiary.  Prior to being frozen, the plan covered employees who had
attained the age of 21 and completed one year of service. Although the plan was
frozen, the Company maintains the responsibility for funding the
plan.  The Company's funding practice is to contribute at least the
minimum amount annually to meet minimum funding requirements. An annual minimum
contribution is not required in 2008.  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, based on a measurement date as of the prior
December 31, are:




Three
      Months EndedMarch 31,dollars
      in thousands
            
            2008
            
            
            2007Service
      Cost
            
            $
            39
            
            
            $
            34Interest
      Cost
            
            
            227
            
            
            
            225Expected
      Return on Plan Assets
            
            
            (364
            )
            
            
            (331
            )Net
      Amortization
            
            
            0
            
            
            
            32$
            (98
            )
            
            $
            (40
            )





The
Company recorded $98,000 as an increase to retained earnings resulting from the
change of the pension measurement date from September 30 to December 31 as
required by Statement of Financial Accounting Standards No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans" ("SFAS
No. 158").








Note
      5.
            Other
      Comprehensive Income





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





Three
      Months EndedMarch 31,dollars
      in thousands
            
            2008
            
            
            2007Unrealized
      Holding Gains Arising During the Period, Net of Tax (Pre-tax Amount of
      $3,198 and $822)
            
            $
            1,961
            
            
            $
            502Reclassification
      Adjustment for Gains Realized in Net Income During the Period, Net of Tax
      (Pre-tax Amount of ($260) and $0)
            
            
            (159
            )
            
            
            0Change
      in Pension Asset (Pre-tax Amount of $0 and $32)
            
            
            0
            
            
            
            19Other
      Comprehensive Income
            
            $
            1,802
            
            
            $
            521




8
 Index




Note
      6.
              Fair
      Value Measurements
 
 The
Company adopted Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("SFAS No. 157"), effective January 1, 2008.  SFAS No.
157 clarifies that fair value is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants.  Under SFAS No. 157, fair
value measurements are not adjusted for transaction costs.  SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value.  The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to
unobservable inputs (level 3 measurements).  The three levels of the
fair value hierarchy under SFAS No. 157 are described below:
 
 Basis of
Fair Value Measurement
 
 Level 1 -
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
 
 Level 2 -
Quoted prices for similar assets or liabilities in active markets, quoted prices
in markets that are not active, or inputs that are observable, either directly
or indirectly, for substantially the full term of the asset or
liability;
 
 Level 3 -
Prices or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported by little or no
market activity).
 
 A
financial instrument's level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value
measurement.
 
 The types
of instruments valued based on quoted market prices in active markets include
most U.S. government and agency securities, many other sovereign government
obligations, liquid mortgage products, active listed equities, and most money
market securities.  Such instruments are generally classified within
level 1 or level 2 of the fair value hierarchy.  As required by SFAS
No. 157, the Company does not adjust the quoted price for such
instruments.
 
 The types
of instruments valued based on quoted prices in markets that are not active,
broker or dealer quotations, or alternative pricing sources with reasonable
levels of price transparency include most investment-grade and high-yield
corporate bonds; less liquid mortgage products; less liquid agency securities;
less liquid listed equities; state, municipal, and provincial obligations; and
certain physical commodities.  Such instruments are generally
classified within level 2 of the fair value hierarchy.
 
 Level 3
is for positions that are not traded in active markets or are subject to
transfer restrictions, valuations are adjusted to reflect illiquidity and/or
non-transferability, and such adjustments are generally based on available
market evidence.  In the absence of such evidence, management's best
estimate will be used.  Management's best estimate consists of both
internal and external support on certain level 3
investments.  Subsequent to inception, management only changes level 3
inputs and assumptions when corroborated by evidence such as transactions in
similar instruments, completed or pending third-party transactions in the
underlying investment or comparable entities, subsequent rounds of financing,
recapitalizations and other transactions across the capital structure, offerings
in the equity or debt markets, and changes in financial ratios or cash
flows.  Currently, the Company has no assets or liabilities classified
as level 3.
  9
 Index




Note.
      6.
            Fair
      Value Measurements, Continued





The
following are the major categories of assets measured at fair value on a recurring basis
during the three months ended March 31, 2008, using quoted prices in active
markets for identical assets (Level 1), significant other observable inputs
(Level 2), and significant unobservable inputs (Level 3).





Level
      1Quoted
            
            
            Level
      2Prices
      in
            
            
            Significant
            
            
            Level
      3Active
      Markets
            
            
            Other
            
            
            Significant
            
            
            Total
      atfor
      Identical
            
            
            Observable
            
            
            Unobservable
            
            
            March 31,dollars
      in thousands
            
            Assets
            
            
            Inputs
            
            
            Inputs
            
            
            2008Trading
      Securities
            
            $
            1,441
            
            
            $
            0
            
            
            $
            0
            
            
            $
            1,441Available-for-Sale
      Securities
            
            
            0
            
            
            
            239,574
            
            
            
            0
            
            
            
            239,574Total
            
            $
            1,441
            
            
            $
            239,574
            
            
            $
            0
            
            
            $
            241,015





Fair
values for investments were based on quoted market prices, where available, as
provided by third-party vendors.  If quoted market prices were not
available, fair values provided by the vendors were based on quoted market
prices of comparable instruments in active markets and/or based on a matrix
pricing methodology which employs the Bond Market Association's standard
calculations for cash flow and price/yield analysis, or live benchmark bond
pricing, or terms/condition data available from major pricing
sources.  SFAS No. 157 requires disclosure of assets and liabilities
measured at fair value on a non-recurring basis.  As of March 31,
2008, the Company did not have any assets or liabilities measured at fair value
on a non-recurring basis.





Simultaneously
with the adoption of SFAS No. 157, the Company adopted Statement of Financial
Accounting Standards No. 159, "The Fair Value Option for Financial Assets and
Financial Liabilities" ("SFAS No. 159"), effective January 1,
2008.  SFAS No. 159 gives entities the option to measure eligible
financial assets, financial liabilities, and Company commitments at fair value
(i.e., the fair value option), on an instrument-by-instrument basis, that are
otherwise not permitted to be accounted for at fair value under other accounting
standards.  The election to use the fair value option is available
when an entity first recognizes a financial asset or financial liability or upon
entering into a Company commitment.  Subsequent changes in fair value
must be recorded in earnings.  Additionally, SFAS No. 159 allows for a
one-time election for existing positions upon adoption, with the transition
adjustment recorded to beginning retained earnings.  SFAS No. 159 does
not affect any existing accounting literature that requires certain assets and
liabilities to be carried at fair value and does not eliminate disclosure
requirements included in other accoun ting
standards.  As of March 31, 2008, the Company has not elected the fair
value option for any eligible items.





In
accordance with Financial Accounting Standards Board Staff Position No. 157-2,
"Effective Date of FASB Statement No. 157," we have delayed the application of
SFAS No. 157 for non-financial assets (such as goodwill and real property held
for sale) and non-financial liabilities until January 1, 2009.


10
 Index




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





A.
General





The
primary objective of this quarterly report is to provide: (i) an overview of the
material changes in our financial condition, including liquidity and capital
resources, at March 31, 2008 as compared to December 31, 2007; and (ii) a
comparison of our results of operations for the three-month period ended March
31, 2008 as compared to the three-month period ended March 31,
2007.





Our
financial performance is heavily dependent upon net interest income, which is
the difference between the interest and dividend income earned on our loans and
investment securities less the interest paid on our deposits and
borrowings.  Results of operations are also affected by the provision
for loan losses, investment securities gains (losses), service charges on
deposit accounts, trust and investment service fees, insurance commission
income, the net gain on sale of loans, the increase in the cash surrender value
of bank owned life insurance, the gain on disposal of fixed assets and other
real estate, other service fees, and other income.  Our non-interest
expenses consist of salaries, employee benefits, occupancy expense, furniture
and equipment expense, computer service fees, advertising and marketing,
professional fees, other miscellaneous expenses, and taxes.  Results
of operations are also influenced by general economic conditions (particularly
changes in interest rates and regional credit conditions), competitive
conditions, 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 March 31, 2008
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.  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
March 31, 2008 evaluation of collateral values was reasonable under the
circumstances, if collateral valuations were significantly lowered, our
allowance for loan losses would have also required additional provisions for
loan losses.




Adoption of New Accounting
Pronouncements.  On January 1, 2008, we adopted Emerging Issues
Task Force (“EITF”) Issue No. 06-4, “Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements” (“EITF 06-4”).  EITF 06-4 requires that the
postretirement aspects of an endorsement-type split dollar life insurance
arrangement be recognized as a liability by the employer, and that the
obligation is not effectively settled by the purchase of life
insurance.  We have 15 split-dollar life insurance arrangements with
current and former executives of the Bank that are subject to EITF
06-4.  Upon adoption, we recorded a $676 thousand liability and an
equal and offsetting reduction to our beginning retained earnings.




In the
first quarter of 2008, we adopted Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”).  This
statement defines fair value, establishes a framework for measuring fair value,
and expands the related disclosure requirements.  The expanded
disclosures include a requirement to disclose fair value measurements according
to a hierarchy, segregating measurements using (1) quoted prices in active
markets for identical assets and liabilities, (2) significant other observable
inputs, and (3) significant unobservable inputs.  SFAS No. 157 did not
have an impact on our financial condition or results of operations upon
adoption, nor did we have any assets or liabilities recorded on our March 31,
2008 unaudited consolidated statement of condition whose value was determined
utilizing significant unobservable inputs (see Note 6, Fair Value Measurements,
in Part I, Item 1 of this Form 10-Q for additional information regarding SFAS
No. 157).





Recent Accounting
Pronouncements.  In December 2007, the Financial Accounting
Standards Board (“FASB”) issued revised SFAS No. 141, “Business Combinations”
(“SFAS No. 141(R)”).  SFAS No. 141(R) retains the fundamental
requirements of SFAS No. 141 that the acquisition method of accounting (formerly
the purchase method) be used for all business combinations, that an acquirer be
identified for each business combination, and that intangible assets be
identified and recognized separately from goodwill.  SFAS No. 141(R)
requires the acquiring entity in a business combination to recognize
the


11
 Index


assets
acquired, the liabilities assumed, and any non-controlling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions.  Additionally, SFAS No. 141(R) changes the
requirements for recognizing assets acquired and liabilities assumed arising
from contingencies and recognizing and measuring contingent
consideration.  SFAS No. 141(R) also enhances the disclosure
requirements for business combinations.  SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008 and may not be applied before that date.





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





B.
Financial Condition and Performance Overview





During
the first quarter of 2008, our total assets increased $59.953 million or 7.6%,
from $793.680 million at December 31, 2007 to $853.633 million at March 31,
2008.  We did not acquire or purchase any new companies or branches
during the first quarter of 2008.  Total deposits increased $55.977
million or 8.5%.  During the first quarter of 2008, the outstanding
balances in our certificates of deposit (over $100,000), NOW account, and money
market deposit account portfolio increased substantially due principally to an
increase in municipal customer deposits.  The increase in these
deposit liability balances was principally invested in overnight federal funds
sold and short-term time deposits with other banks.  In addition,
total loans outstanding increased $9.336 million or 2.1% during the first
quarter of 2008 due to our continued effort to expand our geographic markets for
commercial real estate, commercial and industrial, and residential mortgage
loans within New York State.





Between
December 31, 2007 and March 31, 2008, the level of non-performing loans and net
charge-offs increased, while the level of delinquent loans and potential problem
loans decreased.  More specifically, non-performing loans increased
from $6.136 million at December 31, 2007 to $7.252 million at March 31, 2008, a
$1.116 million or 18.2% increase.  The increase in non-performing
loans was principally due to the downgrade of two commercial loans and four
residential mortgage loans to non-performing status during the first quarter of
2008.  The level of non-performing loans to total loans outstanding at
March 31, 2008 was 1.60%.  This compares to 1.38% of total loans
outstanding at December 31, 2007.





Potential
problem loans and delinquent loans decreased $1.966 million and $1.373 million,
respectively, during the first quarter of 2008.   Potential
problem loans are loans that are currently performing, but where known credit
problems of the related borrowers cause management to have doubts as to the
ability of such borrowers to comply with the present loan repayment terms and
which may result in disclosure of such loans as non-performing at some time in
the future.  Delinquent loans are loans that are currently performing,
but where the borrower is 30 or more days late in making a scheduled
payment.  Potential problem loans decreased from $6.325 million at
December 31, 2007 to $4.359 million at March 31, 2008, while delinquent loans
decreased from $3.917 million at December 31, 2007 to $2.544 million at March
31, 2008.





The
allowance for loan losses decreased modestly during the first quarter of
2008.  At March 31, 2008 the allowance for loan losses was $6.965
million or 1.53% of loans outstanding.  This compares to $6.977
million or 1.57% of loans outstanding at December 31, 2007, a $12 thousand or
0.2% decrease between the periods.  We recorded $237 thousand of net
charge-offs versus $225 thousand in the provision for loan losses during the
first quarter of 2008, resulting in a $12 thousand decrease in the allowance for
loan losses in the period.


12
 Index




Net
income and earnings per share were $1.438 million and $0.14, respectively, for
the three-month period ended March 31, 2008.  This compares to net
income and earnings per share of $1.949 million and $0.18, respectively, for the
three-month period ended March 31, 2007.  The decrease in net income
and earnings per share between comparable periods was attributable to two
primary factors: a significant increase in total non-interest expense, and a
decrease in total non-interest income.  During 2007, we adopted a
strategic plan to accelerate the growth of the Company’s total
assets.  In order to achieve this objective, we expanded into new
geographic markets, including the Syracuse and Capital District markets of New
York State, and hired additional sales and operations personnel to accommodate
both current and anticipated growth.  Throughout 2007 and the first
quarter of 2008, the costs related to this strategic path became increasingly
evident in our non-interest expense.  During the first quarter of
2008, we recorded total non-interest expense of $5.632 million.  This
compares to $4.976 million in the first quarter of 2007, a $656 thousand or
13.2% increase between periods.   In addition, total non-interest
income decreased between the first quarter of 2007 and the first quarter of
2008, due principally to a $350 thousand decrease in the gain on the disposal of
fixed assets and other real estate.  In the first quarter of 2007, we
recognized a deferred gain on the sale of our Norwich Town branch office
building (and other equipment) to the landowner and recorded a $352 thousand
gain on the sale.  There were no similar transactions recorded in the
first quarter of 2008.  In addition to these two factors, we operated
in a difficult interest rate environment throughout 2007 and the first quarter
of 2008.  Even though we increased our average earning assets $55.431
million or 7.7% between comparable quarters, we only recorded an $81 thousand
increase in net interest income due to a decrease in net interest
margin.  Net interest income increased from $6.064 million in the
three-month period ended March 31, 2007 to $6.145 million in the three-month
period ended March 31, 2008.





The
following tables provide readers with supplementary information that 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.


13
 Index




Asset and
Yield Summary Table:





The
following tables set forth the total dollar amount and resultant yields of
interest income from average earning assets, as well as the interest expense on
average interest bearing liabilities for the periods stated.  No tax
equivalent adjustments were made.  Average balances are daily
averages.





For
      the Three Months Ended March 31,2008
            
            
            2007Average
              Outstanding
              Balance
            
            
            Interest
              Earned
      /Paid
            
            
            Yield
      / Rate
            
            
            Average
              Outstanding
              Balance
            
            
            Interest
              Earned
      /Paid
            
            
            Yield
      / Rate(Dollars
      in thousands)Earning
      Assets:Federal
      funds sold
            
            $
            27,002
            
            
            $
            199
            
            
            
            2.96
            %
            
            $
            17,228
            
            
            $
            224
            
            
            
            5.27
            %Interest
      bearing deposits
            
            
            10,971
            
            
            
            77
            
            
            
            2.82
            %
            
            
            1,253
            
            
            
            12
            
            
            
            3.88
            %Securities
      (1)
            
            
            289,435
            
            
            
            3,210
            
            
            
            4.46
            %
            
            
            292,139
            
            
            
            3,189
            
            
            
            4.43
            %Loans
      (2)
            
            
            447,721
            
            
            
            7,914
            
            
            
            7.11
            %
            
            
            409,078
            
            
            
            7,689
            
            
            
            7.62
            %Total
      earning assets
            
            
            775,129
            
            
            
            11,400
            
            
            
            5.92
            %
            
            
            719,698
            
            
            
            11,114
            
            
            
            6.26
            %Non-earning
      assets
            
            
            43,379
            
            
            
            
            
            
            
            
            
            
            
            38,722Total
      assets
            
            $
            818,508
            
            
            
            
            
            
            
            
            
            
            $
            758,420Liabilities:Savings
      accounts
            
            $
            68,571
            
            
            $
            81
            
            
            
            0.48
            %
            
            $
            81,209
            
            
            $
            127
            
            
            
            0.63
            %Money
      market accounts
            
            
            115,923
            
            
            
            748
            
            
            
            2.60
            %
            
            
            86,721
            
            
            
            846
            
            
            
            3.96
            %NOW
      accounts
            
            
            82,094
            
            
            
            265
            
            
            
            1.30
            %
            
            
            80,280
            
            
            
            243
            
            
            
            1.23
            %Time
      & other deposit accounts
            
            
            342,453
            
            
            
            3,562
            
            
            
            4.18
            %
            
            
            312,469
            
            
            
            3,263
            
            
            
            4.24
            %Borrowings
            
            
            61,853
            
            
            
            599
            
            
            
            3.89
            %
            
            
            59,779
            
            
            
            571
            
            
            
            3.87
            %Total
      interest bearing liabilities
            
            
            670,894
            
            
            
            5,255
            
            
            
            3.15
            %
            
            
            620,458
            
            
            
            5,050
            
            
            
            3.30
            %Non-interest
      bearing deposits
            
            
            69,980
            
            
            
            
            
            
            
            
            
            
            
            70,407Other
      non-interest bearing liabilities
            
            
            7,911
            
            
            
            
            
            
            
            
            
            
            
            4,684Total
      liabilities
            
            
            748,785
            
            
            
            
            
            
            
            
            
            
            
            695,549Shareholders'
      equity
            
            
            69,723
            
            
            
            
            
            
            
            
            
            
            
            62,871Total
      liabilities and shareholders' equity
            
            $
            818,508
            
            
            
            
            
            
            
            
            
            
            $
            758,420Net
      interest income
            
            
            
            
            
            $
            6,145
            
            
            
            
            
            
            
            
            
            
            $
            6,064Net
      interest rate spread (3)
            
            
            
            
            
            
            
            
            
            
            2.77
            %
            
            
            
            
            
            
            
            
            
            
            2.96
            %Net
      earning assets
            
            $
            104,235
            
            
            
            
            
            
            
            
            
            
            $
            99,240Net
      interest margin (4)
            
            
            
            
            
            
            
            
            
            
            3.19
            %
            
            
            
            
            
            
            
            
            
            
            3.42
            %Net
      interest margin (tax-equivalent)
            
            
            
            
            
            
            
            
            
            
            3.44
            %
            
            
            
            
            
            
            
            
            
            
            3.68
            %Ratio
      of earning assets to interest bearing liabilities
            
            
            115.54
            %
            
            
            
            
            
            
            
            
            
            
            115.99
            %





(1)
Securities include trading, available-for-sale, held-to-maturity, and other
investments.  They are shown at average amortized cost with net
unrealized gains or losses on securities available-for-sale included as a
component of non-earning assets.





(2)
Average loans include loans held for sale, net deferred loan fees and costs, and
non-accrual loans and excludes the allowance for loan losses.





(3) Net
interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.





(4) The
net interest margin, also known as the net yield on average interest-earning
assets, represents net interest income as a percentage of average
interest-earning assets.


14
 Index




Table of
Non-performing Assets:





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








Dollars
      in thousands
            
            At
              March 31,
      2008
            
            
            At
              December 31,
      2007Loans
      in Non-Accrual Status:Residential
      real estate (1)
            
            $
            1,193
            
            
            $
            895Commercial
      real estate
            
            
            5,094
            
            
            
            4,341Commercial
      (2)
            
            
            827
            
            
            
            843Consumer
            
            
            26
            
            
            
            7Total
      non-accruing loans
            
            
            7,140
            
            
            
            6,086Loans
      Contractually Past Due 90 Days or More and Still Accruing
      Interest
            
            
            112
            
            
            
            50Troubled
      Debt Restructured Loans
            
            
            0
            
            
            
            0Total
      non-performing loans
            
            
            7,252
            
            
            
            6,136Other
      Real Estate Owned
            
            
            210
            
            
            
            247Total
      non-performing assets
            
            $
            7,462
            
            
            $
            6,383Total
      non-performing assets as a percentage of total assets
            
            
            0.87
            %
            
            
            0.80
            %Total
      non-performing loans as a percentage of total loans
            
            
            1.60
            %
            
            
            1.38
            %





(1)
Includes loans secured by 1-4 family dwellings, 5+ family residential dwellings,
home equity loans, and residential construction loans.





(2)
Includes commercial and industrial loans, agricultural loans, and obligations
(other than securities and leases) of states and political subdivisions in the
United States.


15
 Index


Analysis
of the Allowance for Loan Losses Table:





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








Three
      months ended March 31,2008
            
            
            2007(Dollars
      in thousands)Balance
      at beginning of period
            
            $
            6,977
            
            
            $
            6,680Charge
      offs:Residential
      real estate (1)
            
            
            7
            
            
            
            3Commercial
      real estate
            
            
            79
            
            
            
            5Commercial
      (2)
            
            
            29
            
            
            
            98Consumer
            
            
            186
            
            
            
            219Total
      charge offs
            
            
            301
            
            
            
            325Recoveries:Residential
      real estate (1)
            
            
            1
            
            
            
            5Commercial
      real estate
            
            
            0
            
            
            
            0Commercial
      (2)
            
            
            16
            
            
            
            12Consumer
            
            
            47
            
            
            
            86Total
      recoveries
            
            
            64
            
            
            
            103Net
      charge-offs
            
            
            237
            
            
            
            222Provision
      for loan losses
            
            
            225
            
            
            
            260Balance
      at end of period
            
            $
            6,965
            
            
            $
            6,718Ratio
      of net charge-offs during the period to average loans outstanding during
      the period (annualized)
            
            
            0.21
            %
            
            
            0.22
            %Allowance
      for loan losses to total loans
            
            
            1.53
            %
            
            
            1.62
            %Allowance
      for loan losses to non-performing loans
            
            
            96
            %
            
            
            133
            %(1)
      Includes loans secured by 1-4 family dwellings, 5+ family residential
      dwellings, home equity loans, and residential construction
      loans.(2)
      Includes commercial and industrial loans, agricultural loans, and
      obligations (other than securities and leases) of states and political
      subdivisions in the United States.


16
 Index




C.
Comparison of Financial Condition at March 31, 2008, and December 31,
2007





Overview.  Total
assets increased $59.953 million or 7.6% during the first quarter of
2008.  As of March 31, 2008, total assets were $853.633
million.  This compares to $793.680 million in total assets at
December 31, 2007.  Total cash and cash equivalents increased
substantially during the first quarter of 2008.  More specifically,
cash and cash equivalents increased $50.091 million during the first quarter of
2008, from $18.942 million at December 31, 2007 to $69.033 million at March 31,
2008.  Throughout the first quarter of 2008, the outstanding balances
in our interest-bearing, non-maturity deposit account liabilities and
certificates of deposit (over $100,000) increased rapidly due principally to
municipal deposit growth.  Although we anticipate deploying these
monies in our investment securities and loan portfolios in future periods, the
rapid increase in these deposit liabilities caused a sudden increase in our cash
and cash equivalents during the quarter.





During
the first quarter of 2008, we continued to focus our personnel, marketing, and
operational resources on increasing the outstanding balances in our commercial,
residential, and consumer loan portfolios.  As a result, total loans
outstanding increased by $9.336 million or 2.1% during the first quarter of
2008, from $445.105 million at December 31, 2007 to $454.441 million at March
31, 2008.





In
addition to the growth in our deposit liabilities, we also increased our
long-term borrowings during the first quarter of 2008.  As we
increased the outstanding balances in our fixed-rate residential mortgage loan
portfolio during the first quarter of 2008, we secured long-term borrowings at
the Federal Home Loan Bank of New York (“FHLBNY”) in an effort to “match fund”
the interest rate risk posed by this portfolio of loans.  This
strategy resulted in a $3.332 million or 8.0% net increase in our long-term
borrowings.





Total
shareholders’ equity increased from $69.399 million at December 31, 2007 to
$71.064 million at March 31, 2008, a $1.665 million or 2.4%
increase.  During the first quarter of 2008, the general level of
interest rates, particularly short-term interest rates, decreased due to a
slowing national economy.  This increased the fair value of our
available-for-sale investment securities portfolio, resulting in a $1.802
million net increase in accumulated other comprehensive income / (loss) between
December 31, 2007 and March 31, 2008.  Accumulated other comprehensive
income at March 31, 2008 was $1.530 million.  This compares to an
accumulated other comprehensive loss of $272 thousand at December 31,
2007.




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 impaired loans, the level of potential
problem loans, and the dollar amount and type of loan charge-offs we
experience.  Between December 31, 2007 and March 31, 2008, the level
of non-performing loans increased, while potential problems loans and delinquent
loans decreased.  Net charge-offs increased $15 thousand between the
first quarter of 2007 and the first quarter of 2008.





Total
non-performing loans, including non-accruing loans, loans 90 days or more past
due and still accruing interest, and troubled debt restructured loans, increased
$1.116 million during the quarter, from $6.136 million at December 31, 2007 to
$7.252 million at March 31, 2008.  At March 31, 2008 the total
non-performing loans as a percentage of total loans outstanding was
1.60%.  This compares to 1.38% at December 31, 2007.  During
the first quarter of 2008, two commercial loans with outstanding balances
totaling $841 thousand were moved to non-accrual status due to the deterioration
in the financial performance of the borrowers’ businesses.  In
addition, four residential mortgage loans totaling $282 thousand were moved to
non-accrual status during the first quarter of 2008.





Potential
problem loans are loans that 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 $1.000
million.  During the first quarter of 2008, potential problem loans
decreased $1.966 million, from $6.325 million at December 31, 2007 to $4.359
million at March 31, 2008.  Potential problem loans as a percent of
total loans outstanding equaled 0.96% at March 31, 2008 versus 1.42% at December
31, 2007.  During the first quarter of 2008, three loans totaling
$2.024 million in outstanding balances to one of our large commercial borrowers
were upgraded on our internal loan grading system and removed from potential
problem loan status.  This improvement was offset by the inclusion of
additional loan balances totaling $899 thousand to potential problem loan
status, as well as by the downgrading of two commercial loans with outstanding
balances totaling $841 thousand from potential problem loan status to
non-performing status.


17
 Index




We
recorded net loan charge-offs of $237 thousand during the three-month period
ended March 31, 2008.  This compares to $222 thousand for the same
period last year.  Annualized net loan charge-offs as a percent of
total loans outstanding was 0.21% for the three-month period ended March 31,
2008, versus 0.22% for the same period last year.





At March
31, 2008, loans that were 30 or more days delinquent (excluding non-performing
loans) totaled $2.544 million or 0.56% of loans outstanding.  By
comparison, at December 31, 2007 we had $3.917 million or 0.88% of loans
outstanding in this same category, a $1.373 million or 35.1%
decrease.  We considered the level of delinquent loans at March 31,
2008 to be manageable and well within management’s targeted guideline of less
than 2.0% of loans outstanding.





The
allowance for loan losses at March 31, 2008 was $6.965 million or 1.53% of gross
loans outstanding.  This compares to $6.977 million or 1.57% of gross
loans outstanding at December 31, 2007.  During the first quarter of
2008, we recorded $225 thousand in the provision for loan losses versus net
charge-offs of $237 thousand, resulting in a $12 thousand net decrease in the
allowance for loan losses.  Both our management and Board of Directors
deemed the allowance for loan losses adequate at March 31, 2008 and December 31,
2007.





The
credit quality of our debt securities is strong.  At March 31, 2008,
99.5% of the securities held in our available-for-sale and held-to-maturity
investment securities portfolios (excluding notes issued directly to the Bank by
local municipalities) were rated “A” or better by Moody’s credit rating
services; 93.3% were rated AAA.  This compares to 99.5% and 95.5%,
respectively, for the period ended December 31, 2007.  The following
table summarizes the insured and uninsured status of the Bank’s municipal
securities portfolio (excluding notes issued directly by the Bank to local
municipalities) at March 31, 2008.  The values and percentages
presented are based on the par value of the municipal securities portfolio at
March 31, 2008.





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





dollars
      in thousandsAAA
      (1)
                  
                  
                  AA
                  
                  
                  
                  A
                  
                  
                  Not
      RatedUninsured
      / Un-enhanced
                  
                  
                  Insured
      / Enhanced
                  
                  
                  Uninsured
      / Un-enhanced
                  
                  
                  Insured
      / Enhanced
                  
                  
                  Un-enhanced
                  
                  
                  Enhanced
                  
                  
                  Un-enhanced
                  
                  
                  Total$
                  7,915
                  
                  
                  $
                  28,185
                  
                  
                  $
                  9,520
                  
                  
                  $
                  2,660
                  
                  
                  $
                  1,370
                  
                  
                  $
                  3,355
                  
                  
                  $
                  490
                  
                  
                  $
                  53,49514.8
                  %
                  
                  
                  52.7
                  %
                  
                  
                  17.8
                  %
                  
                  
                  5.0
                  %
                  
                  
                  2.5
                  %
                  
                  
                  6.3
                  %
                  
                  
                  0.9
                  %Total
      AAA
                  
                  
                  $
                  36,100
                  
                  
                  Total
      AA
                  
                  
                  $
                  12,180
                  
                  
                  Total
      A
                  
                  
                  $
                  4,72567.5
                  %
                  
                  
                  
                  
                  
                  
                  22.8
                  %
                  
                  
                  
                  
                  
                  
                  8.8
                  %




(1)
            Moody's
      ratings





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





D.
Comparison of Results of Operations for the Three Months Ended March 31, 2008
and 2007





Overview.During
the first quarter of 2008, our net income and earnings per share were $1.438
million and $0.14, respectively.  This compares to $1.949 million in
net income and earnings per share of $0.18 during the first quarter of
2007.  The $511 thousand decrease in net income and the $0.04 decrease
in earnings per share between comparable quarters was significantly impacted by
a significant increase in non-interest expense.  Total non-interest
expense for the three-month period ended March 31, 2008 was $5.632 million as
compared to $4.976 million for the three-month period ended March 31, 2007, a
$656 thousand or 13.2% increase between periods.  In the first quarter
of 2008, we incurred significant non-interest expenses due to our market
expansion activities.





Also
negatively affecting first quarter 2008 earnings was a decrease in non-interest
income.  More specifically, non-interest income decreased from $1.769
million in the first quarter of 2007 to $1.539 million in the first quarter of
2008, a $230 thousand or 13.0% decrease.  During the first quarter of
2007, we recorded a $359 thousand gain on the disposal of fixed assets and other
real estate, as compared to only $9 thousand in the first quarter of 2008, a
$350 thousand decrease between comparable quarters.


18
 Index


The
increase in non-interest expense and decrease in non-interest income was offset,
in part, by an $81 thousand increase in net interest income, a $35 thousand
decrease in the provision for loan losses, and a $259 thousand decrease in
income taxes.  Although total assets and total earning assets both
increased significantly between comparable quarters, a difficult interest rate
environment curbed significant improvements in net interest income.





The
provision for loan losses decreased $35 thousand between the first quarter of
2007 and the first quarter of 2008 due primarily to a decrease in the level of
delinquent loans and potential problem loans, offset by increases in net
charge-offs and non-performing loans.  We recorded $225 thousand in
the provision for loan losses during the first quarter of 2008 as compared to
$260 thousand in the first quarter of 2007.





Income
taxes decreased from $648 thousand in the first quarter of 2007 to $389 thousand
in the first quarter of 2008, a $259 thousand decrease.  The decrease
in income taxes between comparable quarters was primarily due to a significant
decrease in income before taxes.





The
decrease in net income resulted in a decrease in both the return on average
assets and the return on average shareholders’ equity.  The return on
average assets was 0.71% in the first quarter of 2008, as compared to 1.04% in
the first quarter of 2007.  Similarly, the return on average
shareholders equity decreased from 12.57% in the first quarter of 2007 to 8.30%
in the first quarter of 2008.





Net Interest
Income.  Net interest income is our most significant source of
revenue.  During the first quarter of 2008, net interest income
comprised 80% of our net revenue (net interest income plus non-interest
income).  This compares to 77% in the first quarter of
2007.  In the three-month period ended March 31, 2008, our net
interest income was $6.145 million.  By comparison, for the
three-month period ended March 31, 2007, our net interest income was $6.064
million.  The $81 thousand or 1.3% increase in net interest income
between comparable periods was principally due to a significant increase in our
earning asset balances.  During the first quarter of 2008, average
earning assets totaled $775.129 million.  This compares to average
earning assets of $719.698 million in the first quarter of 2007, a $55.431
million or 7.7% increase between comparable quarters.





During
the first quarter of 2008, we continued to operate in a difficult interest rate
environment.  Although the Treasury yield curve was not flat or
inverted throughout the first quarter of 2008 (as in many of the quarters in the
recent past), the recent decreases in short-term interest rates, including the
federal funds and the prime lending rates, negatively affected our earning asset
yields.  Due to a slowing national economy, the Federal Open Market
Committee lowered the target federal funds interest rate by 300 basis points,
from 5.25% to 2.25%, between September 2007 and March 2008.  These
actions, coupled with decreasing interest rates on prime-based loans, caused the
yield on our earning assets to decrease from 6.26% in the first quarter of 2007
to 5.92% in the first quarter of 2008, a 34 basis point
decrease.  Although we lowered most of the interest rates offered on
our deposit accounts, our net interest margin declined on a comparable quarter
basis.  During the first quarter of 2008, our tax-equivalent net
interest margin was 3.44%.  This compares to 3.68% in the first
quarter of 2007, a 24 basis point decrease between comparable
quarters.





During
the first quarter of 2008, we recorded total interest and dividend income of
$11.400 million.  This compares to $11.114 million in the first
quarter of 2007, an increase of $286 thousand.  Although the yield on
our earning assets declined, total interest and dividend income increased $286
thousand or 2.6% due to the substantial increase in earning assets between the
periods.  The interest income recorded on loans, our highest yielding
and largest earning asset portfolio, increased from $7.689 million in the first
quarter of 2007 to $7.914 million in the first quarter of 2008 despite a 51
basis point decrease in yield between the periods.  The average
outstanding balance of our loan portfolio was $447.721 million in the first
quarter of 2008 as compared to$409.078 million in the first quarter of 2007, a
$38.643 million or 9.4% increase.





We
recorded $5.255 million in total interest expense during the first quarter of
2008 as compared to $5.050 million in the first quarter of 2007, a $205
thousand, or 4.1%, increase between the periods.  Although the average
rate on our interest-bearing liabilities decreased from 3.30% to 3.15% between
comparable quarters, total interest expense increased due to a significant
increase in the average volume of interest bearing
liabilities.  During the first quarter of 2008, the average balance of
interest-bearing liabilities was $670.894 million as compared to $620.458
million in the first quarter of 2007, a $50.436 million or 8.1% increase between
periods.  Between comparable quarters the average outstanding balances
in our most expensive interest-bearing deposit account types, namely money
market deposit accounts and time accounts, increased $59.186 million or
14.8%.


19
 Index


Rate and Volume
Analysis.The purpose of a rate volume analysis is to identify
the dollar amount of the 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 the change.  The
table has not been adjusted for tax-exempt interest.





For
      the Three Months Ended March 31,2008
      vs. 2007Rate
            
            
            Volume
            
            
            Total(In
      thousands)Earning
      assets:Federal
      Funds Sold
            
            $
            (122
            )
            
            $
            97
            
            
            $
            (25
            )Interest
      Bearing Deposits
            
            
            (5
            )
            
            
            70
            
            
            
            65Securities
            
            
            36
            
            
            
            (15
            )
            
            
            21Loans
            
            
            (516
            )
            
            
            741
            
            
            
            225Total
      earning assets
            
            
            (607
            )
            
            
            893
            
            
            
            286Interest
      bearing liabilities:Savings
      Accounts
            
            
            (28
            )
            
            
            (18
            )
            
            
            (46
            )Money
      Market Accounts
            
            
            (338
            )
            
            
            240
            
            
            
            (98
            )NOW
      Accounts
            
            
            16
            
            
            
            6
            
            
            
            22Time
      & Other Deposit Accounts
            
            
            (31
            )
            
            
            330
            
            
            
            299Borrowings
            
            
            3
            
            
            
            25
            
            
            
            28Total
      interest bearing liabilities
            
            
            (378
            )
            
            
            583
            
            
            
            205Change
      in net interest income
            
            $
            (229
            )
            
            $
            310
            
            
            $
            81





Net
interest income increased $81 thousand between the first quarter of 2007 and the
first quarter of 2008.  Between the periods, we recorded a $286
thousand increase in interest income and a $205 increase in interest
expense.  The improvement in interest income between the comparable
quarters was principally driven by an increase in average loan balances
outstanding, while the increase in interest expense was primarily driven by an
increase the average outstanding balances of money market accounts and time and
other deposit accounts.





Interest
income increased $286 thousand between the three-month period ended March 31,
2007 and the three-month period ended March 31, 2008 due to an increase in the
average volume of earning assets, offset in part by a decrease in interest
income due to a decrease in the average yield on earning
assets.  Between the first quarter of 2007 and the first quarter of
2008, interest income increased $893 thousand due to an increase in the volume
of earning assets.  Over the same period, interest income decreased
$607 thousand due to a decrease in earning asset rates.





Throughout
2007 and the first quarter of 2008, we focused our resources on increasing the
outstanding balances in our loan portfolio in order to increase interest
income.  Due to these efforts, we increased the average outstanding
balance in our loan portfolio from $409.078 million in the first quarter of 2007
to $447.721 million in the first quarter of 2008.  The growth in the
loan portfolio contributed $741 thousand of additional interest income between
comparable quarters.  This improvement was offset, in part, by a $516
thousand decrease in interest income due to a decrease in the average yield on
loans between comparable quarters.  Due to these two factors, the
interest income recorded on loans increased $225 thousand between comparable
quarters, or 78.7% of the $286 thousand improvement in total interest income
between the periods.


20
 Index


Our other
earning asset portfolios, namely federal funds sold, interest-bearing deposits
at other banks, and investment securities, contributed (on a net basis) $61
thousand of additional interest income between the first quarter of 2007 and the
first quarter of 2008.  The average outstanding balance in our federal
funds sold portfolio increased between periods, while the average rate earned on
these balances declined.  This resulted in a $97 thousand increase in
interest income on federal funds sold due to volume and a $122 thousand decrease
in interest income on federal funds sold due to rate.





Similarly,
the average outstanding balances in our interest-bearing deposits at other banks
increased from $1.253 million in the first quarter of 2007 to $10.971 million in
the first quarter of 2008.  Due to a decrease in short-term interest
rates between the periods, the average yield on this portfolio declined from
3.88% in the first quarter of 2007 to 2.82% in the first quarter of
2008.  These factors resulted in a $65 thousand increase in interest
income between the periods, of which $70 thousand was due to an increase in
volume, offset, in part, by a $5 thousand decrease due to rate.





And
finally, the change in interest income on our investment securities portfolio
between comparable quarters was modest.  We earned $3.210 million in
interest income on our securities portfolio in the first quarter of 2008, as
compared to $3.189 million in the first quarter of 2007, a $21 thousand or 0.7%
increase.  Although short-term interest rates declined precipitously
in the fourth quarter of 2007 and the first quarter of 2008, the yield on our
securities portfolio improved by 3 basis points over the comparable
period.  Approximately 99% of our investment securities portfolio is
invested in fixed-rate instruments.  Therefore, a decrease or increase
in short-term interest rates did not immediately affect the portfolio’s
yield.  Of the $21 thousand increase in interest income on the
securities portfolio between comparable quarters, $36 thousand was due to rate,
offset by a $15 thousand decrease in interest income due to volume.





We
recorded $3.562 million in interest expense on time and other accounts during
the first quarter of 2008 as compared to $3.263 million in the first quarter of
2007, a $299 thousand or 9.2% increase in interest expense between the
periods.  Due primarily to an increase in municipal customer
certificates of deposit, the average outstanding balances in time and other
deposit accounts increased $29.984 million between the first quarter of 2007 and
the first quarter of 2008.  This increase in the volume of time and
other deposit accounts increased interest expense $330 thousand between
comparable quarters.  As short-term interest rates dropped in late
2007 and the first quarter of 2008, we dropped the interest rates offered on new
and renewed certificates of deposit.  These rate factors decreased
interest expense on time and other deposit accounts $31 thousand between
comparable quarters.





Interest
expense on money market deposit accounts decreased $98 thousand between the
first quarter of 2007 and the first quarter of 2008.  As short-term
interest rates decreased between September 2007 and March 2008, we lowered the
interest rate paid on money market deposit accounts.  Although this
decreased interest expense on money market deposit accounts $338 thousand
between the first quarter of 2007 and the first quarter of 2008, the decrease in
interest expense was offset, in part, by a $240 thousand increase in interest
expense on money market deposit accounts due to volume.  The average
outstanding balance of money market accounts increased $29.202 million or 33.7%
between comparable quarters, from $86.721 million in the first quarter of 2007
to $115.923 million in the first quarter of 2008.





In the
first quarter of 2008, we decreased the interest rates paid on our statement
savings and passbook savings accounts.  The lower interest rates
offered on these accounts caused a decrease in the average outstanding balances
on these accounts.  These factors resulted in a $46 thousand decrease
in interest expense between the first quarter of 2007 and the first quarter of
2008, $28 thousand of which was due to rate and $18 thousand of which was due to
volume.





We
recorded a $22 thousand increase in interest expense on NOW accounts and a $28
thousand increase in interest expense on borrowings between the first quarter of
2007 and the first quarter of 2008 due to increases in both the rate and volume
of these portfolios.  During 2007 and the first quarter of 2008, we
successfully increased our municipal depositor base.  We also entered
into agreements with these municipal customers to provide certain minimum
interest rates (typically 2% to 3%) on their operating deposit accounts,
principally NOW accounts.  As interest rates decreased during the
fourth quarter of 2007 and the first quarter of 2008, we continued to pay the
minimum interest rates on these accounts.  These factors caused a $22
thousand increase in interest expense on NOW accounts, $16 thousand due to rate
and $6 thousand due to volume.





As we
increased the volume of our long-term fixed-rate residential mortgage portfolio
in 2007 and the first


21
 Index


quarter
of 2008, we deemed it prudent to borrow new monies at the FHLBNY to effectively
manage interest rate risk.  The new borrowings procured throughout
this period increased both the average outstanding balance and average rate of
this portfolio.  We recorded total interest expense of $599 thousand
in the first quarter of 2008 versus $571 thousand in the first quarter of 2007,
a $28 thousand increase between the periods.  Of this increase, $25
thousand was due to volume and $3 thousand was due to rate.





Provision for Loan
Losses.We recorded $225 thousand in the provision for loan
losses for the three- month period ended March 31, 2008.  This
compares to $260 thousand for the three-month period ended March 31 2007, a $35
thousand decrease.  The provision for loan losses decreased
principally because we experienced significant decreases in the level of
potential problem loans and loans 30 to 89 days delinquent.  At March
31, 2008, potential problem loans were $4.359 million.  This compares
to $6.325 million at December 31, 2007.  Loans 30 to 89 days
delinquent totaled $2.544 million at March 31, 2008, as compared to $3.917
million at December 31, 2007 and $2.787 million at March 31,
2007.  The improvement in these credit factors was offset by an
increase in non-performing loans and a modest increase in net
charge-offs.  Non-performing loans totaled $7.252 million at March 31,
2008, as compared to $6.136 million at December 31, 2007 and $5.061 million at
March 31, 2007.  We recorded net charge-offs of $237 thousand in the
first quarter of 2008 as compared to $222 thousand in the first quarter of
2007.





Non-Interest Income.
Non-interest income is comprised of trust fees, service charges on deposit
accounts, commission income, net investment securities gains, net gain on sale
of loans, income on bank-owned life insurance, other service fees, gain on
disposal of fixed assets and other real estate, and other
income.  Non-interest income decreased in the three-month period ended
March 31, 2008 as compared to the three-month period ended March 31,
2007.  Specifically, total non-interest income decreased from $1.769
million in the three-month period ended March 31, 2007 to $1.539 million in the
three-month period ended March 31, 2008, a $230 thousand or 13.0%
decrease.  Between comparable quarterly periods we recorded decreases
in commission income, other service fees, gain on the disposal of fixed assets
and other real estate, and other income.  These decreases were offset,
in part, by increases in trust fees, service charges on deposit accounts, net
investment securities gains, net gain on sale of loans, and income on bank-owned
life insurance.





Trust
fees increased $15 thousand or 3.9% between the three-month period ended March
31, 2007 and the three-month period ended March 31, 2008.  During the
first quarter of 2008, we recorded $395 thousand in trust fees as compared to
$380 thousand in the first quarter of 2007.  The increase between
comparable quarters was principally due to an increase in executor and account
termination fees.  During the first quarter of 2008, we recorded
executor and account termination fees totaling $52 thousand.  By
comparison, during the first quarter of 2007 we recorded $39 thousand of
executor and account termination fees, a $13 thousand increase between
comparable periods.





During
the first quarter of 2008, we recorded $461 thousand in service charges on
deposit accounts.  This compares to $418 thousand during the first
quarter of 2007, a $43 thousand or 10.3% increase.  The net increase
in service charges on deposit accounts was primarily due to an increase in
penalty charges on checking accounts.  In March 2007 we began offering
our courtesy overdraft service to more of our checking account customers,
causing an increase in the product’s usage and increasing deposit service
fees.





Our
commission income is generated from the Bank’s insurance agency subsidiary, Mang
– Wilber LLC.  During the first quarter of 2008 we recorded $93
thousand of commission income as compared to $146 thousand during first quarter
of 2007.  The $53 thousand or 36.3% decrease period over period was
principally due to a decrease in commissions earned by our specialty-lines
office located in Clifton Park, New York.





During
the three-month period ended March 31, 2008, we recorded $183 thousand of net
investment security gains.  Although we recorded $260 thousand of
gains on the sale of available-for-sale investment securities during the
quarter, this was offset, in part, by a $77 thousand decrease in our trading
securities portfolio.  By comparison, during the three-month period
ended March 31, 2007 we recorded $47 thousand of net investment securities
gains, all of which was due to an increase in the fair value of our trading
securities portfolio.  This portfolio consists of equity and debt
securities held by the Company’s executive deferred compensation
plan.





In the
first quarter of 2007, we acquired a subsidiary, Provantage Funding Corporation
(“Provantage”), a


22
 Index


New York
State licensed mortgage banker.  One of Provantage’s business
practices is to originate and sell residential mortgage loans to third party
commercial and savings institutions.  These mortgages are recorded in
loans held for sale and sold to these third parties at a premium (less the costs
to sell), which is recorded as net gain on sale of loans.  During the
first quarter of 2008, we recorded $46 thousand in the net gain on sale of
loans, as compared to $32 thousand in the first quarter of 2007.  The
$14 thousand increase in the net gain on sale of loans between the periods was
principally due to an increase in the volume of loans sold to third
parties.





Other
service fees are comprised of numerous types of fee income including merchant
credit card processing fees, commissions on residential mortgages, official
check and check cashing fees, travelers’ check sales, wire transfer fees, letter
of credit fees, U.S. government bond sales, certificate of deposit account
registry service fees, and other miscellaneous service charges and
fees.  Other service fees decreased $25 thousand or 30.9% between the
first quarter of 2007 and the first quarter of 2008.  The decrease in
other service fees between the periods was principally due to the decrease in
residential mortgage commissions.  During the first two months of
2007, we originated residential mortgages as an agent for a large regional bank
based in the Southeast.  In the first quarter of 2007, we acquired
Provantage and terminated our agency relationship with the large regional bank,
thereby reducing this source of revenue.





The gain
on disposal of fixed assets and other real estate decreased from $359 thousand
in the first quarter of 2007 to $9 thousand in the first quarter of 2008, a $350
thousand decrease between the periods.  During the first quarter of
2007, we recorded a $352 thousand deferred gain on the sale of a building and
certain equipment located at our Norwich Town branch site.  No similar
transactions were recorded during the first quarter of 2008.





Other
income is comprised of several types of fee and miscellaneous income including
investment service fees, lease income, check printing fees, safe deposit box
income, title insurance agency income, and rental of foreclosed real
estate.  Other income decreased from $157 thousand in the first
quarter of 2007 to $145 thousand in the first quarter of 2008, a $12 thousand or
7.6% decrease.  The decrease between comparable periods was
principally due to a decrease in investment service fees.





Non-Interest
Expense.Non-interest expense is comprised of salaries,
employee benefits, occupancy expense, furniture and equipment expense, computer
service fees, advertising and marketing expense, professional fees, and other
miscellaneous expenses.  Total non-interest expense increased $656
thousand or 13.2% on a comparable quarter basis, from $4.976 million in the
first quarter of 2007 to $5.632 million in the first quarter of
2008.  The substantial increase in total non-interest expense between
comparable quarters was principally due to market expansion, product
enhancement, and bank operating system enhancements.





Salaries
expense increased $362 thousand or 15.4% between comparable quarterly periods,
from $2.348 million in the first quarter of 2007 to $2.710 million in the first
quarter of 2008.  The increase in salaries expense between the
comparable periods was due primarily to a $480 thousand increase in base
salaries and overtime pay.  In the first quarter of 2008, we hired
eight banking professionals in the Syracuse, New York marketplace as part of our
market expansion plan, incurring significant salaries expense due to this
endeavor.  In addition, we recorded $109 thousand in salaries expense
for Provantage in the first quarter of 2008 as compared to $41 thousand in the
first quarter of 2007, a $68 thousand increase between the
periods.  And finally, throughout 2007 and the first quarter of 2008,
we hired additional sales and operations staff and provided merit pay raises to
existing staff.  The increase in base salaries and overtime pay was
offset, in part, by a $103 thousand decrease in executive deferred compensation
and a $15 thousand decrease in incentive and commission pay.





We
recorded employee benefits expense of $650 thousand in the first quarter of 2008
as compared to $611 thousand in the first quarter of 2007, a $39 thousand or
6.4% increase.  During the first quarter of 2008, we recorded a $98
thousand benefit on the Company’s defined benefit retirement
plan.  This compares to a $40 thousand benefit in the first quarter of
2007.  Our defined benefit plan was frozen in 2006 and the plan assets
have performed well.  This improvement, totaling $58 thousand, was
offset by significant increases in FICA expense, employee education,
unemployment insurance, and other benefits due principally to our market
expansion efforts.





On a
combined basis, occupancy expense of company premises and furniture and fixture
expense increased $71 thousand or 10.5%, from $675 thousand in the first quarter
of 2007 to $746 thousand in the first quarter of 2008.  During 2007,
we made various investments in our premises and equipment and


23
 Index


assumed
certain lease agreements in connection with the Provantage acquisition. These
actions increased depreciation expense, equipment maintenance costs, insurance
costs, property taxes, and rents by an aggregate of $71 thousand between
comparable periods.





Computer
service fees increased $22 thousand or 11.5% between comparable quarters, from
$191 thousand in the first quarter of 2007 to $213 thousand in the first quarter
of 2008.  In the first quarter of 2008, we converted our payroll
system from proprietary software to a third party service
provider.  Through the first quarter of 2008, we recorded $11 thousand
in computer service fees related to this service.





Advertising
and marketing expenses increased $81 thousand or 73.0% between comparable
quarters, from $111 thousand in the first quarter of 2007 to $192 thousand in
the first quarter of 2008.  To support our expansion efforts into the
Capital District of New York and the greater Syracuse market, we engaged a
professional public relations firm and purchased additional newspaper and other
advertising media spots during the first quarter of 2008.





Other
miscellaneous expenses include directors’ fees, fidelity insurance, the Bank’s
OCC assessment, FDIC premiums and assessments, bad debt collection expenses,
correspondent bank services, service expenses related to the Bank’s accounts
receivable financing services, charitable donations and customer relations,
other losses, dues and memberships, office supplies, postage and shipping,
subscriptions, telephone expense, employee travel and entertainment, software
amortization, intangible asset amortization expense, OREO expenses, minority
interest expense, stock exchange listing fees, and several other miscellaneous
expenses.  During the three-month period ended March 31 2008, other
miscellaneous expenses increased $98 thousand, or 12.7%, from $772 thousand in
the three-month period ended March 31, 2007 to $870 thousand in the three-month
period ended March 31, 2008.  The following table itemizes the
individual components of other miscellaneous expenses that increased (or
decreased) significantly between comparable periods:





For
      the Three Months Ended March 31,Description
      of Other Miscellaneous Expense
              
              2008
              
              
              2007
              
              
              Increase
      / (Decrease)Dollars
      in thousandsFidelity
      insurance
              
              $
              36
              
              
              $
              21
              
              
              $
              15Collection
      expense
              
              
              21
              
              
              
              42
              
              
              
              (21
              )Accounts
      receivable financing program services
              
              
              18
              
              
              
              32
              
              
              
              (14
              )Donations
              
              
              38
              
              
              
              24
              
              
              
              14Dues
      and memberships
              
              
              50
              
              
              
              17
              
              
              
              33Deferred
      reserves for unfunded loan commitments
              
              
              (9
              )
              
              
              11
              
              
              
              (20
              )Telephone
      and communications
              
              
              94
              
              
              
              50
              
              
              
              44Travel
      and entertainment
              
              
              55
              
              
              
              37
              
              
              
              18Software
      amortization
              
              
              69
              
              
              
              41
              
              
              
              28Other
      losses
              
              
              57
              
              
              
              41
              
              
              
              16Minority
      interest for Mang - Wilber LLC insurance agency subsidiary
              
              
              (1
              )
              
              
              20
              
              
              
              (21
              )All
      other miscellaneous expense items, net
              
              
              442
              
              
              
              436
              
              
              
              6Total
      Other Miscellaneous Expense
              
              $
              870
              
              
              $
              772
              
              
              $
              98








Income
Taxes.Income tax expense decreased from $648 thousand during
the three-month period ended March 31, 2007 to $389 thousand during the
three-month period ended March 31, 2008.  The decrease in income tax
expense was primarily due to a decrease in income before taxes.The effective tax rate
decreased between periods, from 25.0% in the three-month period ended March 31,
2007 to 21.3% in the three-month period ended March 31, 2008, due to a greater
proportion of the Company’s income being derived from tax-exempt sources such as
municipal bonds and notes and bank-owned life insurance.


24
 Index


E.
Liquidity





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




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


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


●  maintaining
adequate cash balances at our correspondent banks, and


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





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





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





In
addition to the daily funds management process, we also monitor certain
liquidity ratios and complete a liquidity assessment on a monthly
basis.  The monthly evaluation report, known as the Liquidity
Contingency Scorecard, is reviewed by the Asset and Liability Committee (“ALCO”)
and the Bank’s Board of Directors.  The report provides management
with various ratios and financial market data that are compared to limits
established within the Bank’s Asset and Liability Management
Policy.  It was designed to provide an early warning signal of a
potential liquidity crisis.  Based on the limits established in the
Asset and Liability Management Policy, we determined that the Bank was in a
level “2” liquidity position at March 31, 2008.  Although a level 2
position may portend a potential liquidity crisis based on management’s internal
rating system, the level 2 condition was triggered by market factors and not by
the Company’s current balance sheet position.  At March 31, 2008, we
maintained $69.033 million or 8.1% of total assets in cash and cash equivalents
to fund any anticipated or unanticipated growth in earning
assets.  This compares to cash and cash equivalents of $18.942 million
or 2.4% of total assets at December 31, 2007.





25
 Index


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





Table of
Liquidity Measures:





Liquidity
      MeasureDollars
      in thousands
            
            March 31,
      2008
            
            
            December 31,
      2007Cash
      and Cash Equivalents
            
            $
            69,033
            
            
            $
            18,942Available-for-Sale
      Investment Securities at Estimated Fair Value less Securities Pledged for
      State and Municipal Deposits and Borrowings
            
            $
            38,390
            
            
            $
            59,006Total
      Loan to Total Asset Ratio
            
            
            53.2
            %
            
            
            56.1
            %FHLBNY
      Remaining Borrowing Capacity
            
            $
            11,729
            
            
            $
            14,294Available
      Correspondent Bank Lines of Credit
            
            $
            15,000
            
            
            $
            15,000






Our
overall liquidity position improved significantly between December 31, 2007 and
March 31, 2008.  In addition to maintaining a strong cash and cash
equivalents position at March 31, 2008, we maintained $38.390 million of
available-for-sale investment securities that could be pledged for borrowings or
sold to meet unanticipated funding needs.  This compares to $59.006
million at December 31, 2007.  Our FHLBNY borrowing capacity decreased
between December 31, 2007 and March 31, 2008, due principally to securing
additional borrowings during the quarter to fund new residential mortgage
loans.  More specifically, our FHLBNY remaining borrowing capacity was
$14.294 million at December 31, 2007 as compared to $11.729 million at March 31,
2008, a $2.565 million decrease.  In addition, at March 31, 2008 and
December 31, 2007 we maintained a $15.000 million unsecured credit facility at a
correspondent bank in the event we needed to borrow federal funds on an
overnight basis.  And finally, at March 31, 2008 and December 31,
2007, our total loan to total asset ratio of 53.2% and 56.1%, respectively, were
low relative to our comparative peer group of financial
institutions.





Our
commitments to extend credit and stand-by letters of credit increased $1.488
million or 1.5% between December 31, 2007 and March 31, 2008.  At
March 31, 2008, commitments to extend credit and stand-by letters of credit were
$99.031 million, as compared to $97.543 million at December 31,
2007.  The slight increase was principally due to increases in unused
portions of revolving home equity lines of credit and commitments to fund
construction loans.  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.





F. Capital
Resources and Dividends





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





Between
March 31, 2008 and December 31, 2007, our total shareholders’ equity increased
$1.665 million or 2.4%.  Total shareholders’ equity was $71.064
million at March 31, 2008 as compared to $69.399 million at December 31,
2007.  The increase in shareholders’ equity between the periods was
principally due to a $1.802 million positive swing in accumulated other
comprehensive income / (loss).  At March 31, 2008, accumulated other
comprehensive income was $1.530 million, versus a $272 thousand accumulated
other comprehensive loss at December 31, 2007.  The change in other
comprehensive income / (loss) was due to a decrease in the general level of
interest rates, which increased the value of the available-for-sale investment
securities portfolio.  The $1.802 million positive swing in
accumulated other comprehensive income / (loss) was offset, in part, by a $137
thousand decrease in retained


26
 Index


earnings
during the first quarter of 2008.  During the first quarter, we
recorded net income of $1.438 million, declared and paid a $997 thousand cash
dividend, recorded a $676 thousand reduction in retained earnings to record the
change in split-dollar life insurance benefits, and posted a $98 thousand
increase to retained earnings to record the effect of a change in the
measurement date of the defined benefit plan.





The
Company and the Bank are both subject to regulatory capital
guidelines.  Under these guidelines, as established by federal bank
regulators, in order to be adequately capitalized, the Company and the Bank must
both maintain a minimum ratio of tier 1 capital to risk-weighted assets of 4.0%
and a minimum ratio of total capital to risk-weighted assets ratio of
8.0%.  Tier 1 capital is comprised of shareholders’ equity, less
intangible assets and accumulated other comprehensive income.  Total
capital for this risk-based capital standard includes tier 1 capital plus the
Company’s allowance for loan losses.  Similarly, for the Bank to be
considered “well capitalized,” it must maintain a tier 1 capital to
risk-weighted assets ratio of 6.0% and a total capital to risk-weighted assets
ratio of 10.0%.  The Company exceeded all capital adequacy guidelines
and the Bank exceeded all well-capitalized guidelines at March 31, 2008 and
December 31, 2007.  The Company’s tier 1 capital to risk-weighted
assets ratio and total capital to risk-weighted assets ratio at March 31, 2008
were 11.61% and 12.86%, respectively.  This compares to
12.04% and 13.29%, respectively, at December 31, 2007.





The
principal source of funds for the payment of shareholder dividends by the
Company has been dividends declared and paid to the Company by its subsidiary
bank.  There are various legal and regulatory limitations applicable
to the payment of dividends to the Company by its subsidiaries as well as the
payment of dividends by the Company to its shareholders.  As of March
31, 2008, under this statutory limitation the maximum amount that could have
been paid by the Bank subsidiary to the Company without special regulatory
approval was approximately $2.255 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:
            QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK





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





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





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


27
 Index


securities
held by the Bank.  Municipal investment securities and agency
securities are issued with specified call dates and call prices that are
typically exercised by the issuer when interest rates on comparable maturity
securities are lower than the current coupon rate on the security.





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





The
following table shows the projected changes in net interest income from a
parallel shift in all market interest rates.  The shift in interest
rates is assumed to occur in monthly increments of 0.50% per month until the
full shift is complete.  In other words, we assume it will take six
months for a 3.00% shift to take place.  This is also known as a
“ramped” interest rate shock.  The projected changes in net interest
income are totals for the twelve-month period beginning April 1, 2008 and ending
March 31, 2009, under ramped shock scenarios.





Interest
Rate Sensitivity Table:





Interest
      Rates
            
            
            Dollars
      in thousandsInterest
      Rate Shock (1)
            
            
            Prime
      Rate
            
            
            Projected
      Annualized Net Interest Income
            
            
            Projected
      Dollar Change in Net Interest Income
            
            
            Projected
      Percentage Change in Net Interest Income
            
            
            Projected
      Change in Net Interest Income as a Percent of Total Shareholders'
      Equity3.00%
            %
            
            8.25%
            
            
            $
            25,287
            
            
            
            29
            
            
            0.11%
            
            
            0.04%2.00%
            %
            
            7.25%
            
            
            $
            25,073
            
            
            
            (185
            )
            
            -0.73%
            
            
            -0.26%1.00%
            %
            
            6.25%
            
            
            $
            25,033
            
            
            
            (225
            )
            
            -0.89%
            
            
            -0.32%No
      change
            
            
            5.25%
            
            
            $
            25,258
            
            
            
            -
            
            
            -
            
            
            --1.00%
            %
            
            4.25%
            
            
            $
            25,171
            
            
            
            (87
            )
            
            -0.34%
            
            
            -0.12%-2.00%
            %
            
            3.25%
            
            
            $
            24,182
            
            
            
            (1,076
            )
            
            -4.26%
            
            
            -1.51%-3.00%
            %
            
            2.25%
            
            
            $
            24,012
            
            
            
            (1,246
            )
            
            -4.93%
            
            
            -1.75%(1)
      Under a ramped interest rate shock, interest rates are modeled to change
      at a rate of 0.50% per month.





Many
assumptions are embedded within our interest rate risk model.  These
assumptions are approved by the Bank’s ALCO and are based upon both management’s
experience and projections provided by investment securities
companies.  Assuming our prepayment and other assumptions are
accurate, and assuming we take reasonable actions to preserve net interest
income, we project that net interest income would decline by $185 thousand or
0.26% of total shareholders’ equity in a +2.00% ramped interest rate shock and
by $1.076 million or 1.51% 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.


28
 Index


Our
strategy for managing interest rate risk is impacted by overall market
conditions and customer demand, but we generally try to limit the volume and
term of fixed-rate assets and fixed-rate liabilities so that we can adjust the
mix and pricing of assets and liabilities to mitigate net interest income
volatility.  We also purchase investments for the securities portfolio
and structure borrowings from the FHLBNY to offset interest rate risk taken in
the loan portfolio.  We also offer adjustable rate loan and deposit
products that change as interest rates change.  Approximately 28.0% of
our total assets at March 31, 2008 was invested in adjustable rate loans and
investments.








ITEM
      4:
            Controlsand Procedures





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





Our
management, including the Chief Executive Officer and Chief Financial Officer,
evaluated the design and operational effectiveness of the Company’s disclosure
controls and procedures (as defined in Rule 13(a)-15(e) and 15(d)–15(e) under
the Securities Exchange Act of 1934, as amended) as of March 31,
2008.  Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934 are recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms.





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





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








ITEM
      4T:
            Controlsand
Procedures





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








PART
II – OTHER INFORMATION








ITEM
      1:
            Legal
      Proceedings





From time
to time, the Company becomes subject to various legal claims that arise in the
normal course of business.  At March 31, 2008, the Company was not the
subject of any material pending legal proceedings other than ordinary routine
litigation occurring in the normal course of its business.  The
various pending legal claims against the Company will not, in the opinion of
management based upon consultation with legal counsel, result in any material
liability to the Company and will not materially affect our financial position,
results of operations, or cash flow.





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


29
 Index


ITEM
      1A:
            RiskFactors





During
the first quarter of 2008 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 12, 2008.








ITEM
      2:
            UnregisteredSales of Equity Securities and Use of
      Proceeds





A.
            Not
      applicable.





B.
            Not
      applicable





C.
            Purchases
      of Equity Securities by Issuer and Affiliated
  Purchasers





In July
2005 we announced that the Company’s Board of Directors authorized management to
purchase up to $1.5 million of the Company’s common stock under a stock
repurchase program.  At December 31, 2007, management’s remaining
share repurchase authority under this program was $283 thousand due to the
purchase of treasury shares totaling $1.217 million under this program since
inception.  During the three month period ended March 31, 2008, the
Company’s management did not purchase any additional shares of common stock
under this program.  Management’s remaining share repurchase authority
was $283 thousand at March 31, 2008.





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.





During
the three-month period ended March 31, 2008, 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:
            DefaultsUpon Senior
  Securities





The
Company did not default on any senior securities during the three-month period
ended March 31, 2008.








ITEM
      4:
            Submissionof Matters to a Vote of Security
      Holders





None.








ITEM
      5:
            Other
      Information





None.








ITEM
      6:
            Exhibits





See
Exhibit Index to this Form 10-Q


30
 Index


SIGNATURES







Pursuant
to the requirements 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
            
            Date:
            May
      7, 2008Douglas
      C. GulottyPresident
      and Chief Executive OfficerBy:
            /s/
      Joseph E. Sutaris
            
            Date:
            May
      7, 2008





Joseph E.
Sutaris


Executive
Vice President, Chief Financial Officer, Treasurer, and
Secretary


31
 Index


EXHIBIT INDEX








No.
            Document





31.1
            Certification
      of Chief Executive Officer Pursuant to 302 of the Sarbanes-Oxley Act of
      2002





31.2
            Certification
      of Chief Financial Officer Pursuant to 302 of the Sarbanes-Oxley Act of
      2002





32.1
            Certification
      of Chief Executive Officer Pursuant to 18 U.S.C.
  1350





32.2
            Certification
      of Chief Financial Officer Pursuant to 18 U.S.C.
  1350




32