~~THE~~UNITED ~~WILBER CORPORATION ANNUAL REPORT ON SECURITIES AND EXCHANGE COMMISSION FORM 10-K for the Year-Ended December 31, 2009~~STATES

~~The Annual~~SECURITIES ~~Report~~AND onEXCHANGE ~~Form 10-K that follows is not part of the proxy solicitation material.~~COMMISSION

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2009 Commission file number: 001-31896
The Wilber Corporation (Exact name of registrant as specified in its charter)
New York (State or other jurisdiction of incorporation or organization)	15-6018501 (I.R.S. Employer Identification No.)
245 Main Street, P.O. Box 430, Oneonta, NY (Address of principal executive offices)	13820 (Zip Code)
607-432-1700 (Registrant’s telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common Stock, $0.01 par value per share	Name of each exchange on which registered NYSE Amex
Securities registered pursuant to Section 12(g) of the Act: None

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

Commission file number: 001-31896

The Wilber Corporation

(Exact name of registrant as specified in its charter)

New York	15-6018501
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

245 Main Street, P.O. Box 430, Oneonta, NY	13820
(Address of principal executive offices)	(Zip Code)

607-432-1700

(Registrant’s telephone number, including area code)

None

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.01 par value per share	NYSE Amex

Securities registered pursuant to Section 12(g) of the Act: None

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

Yes ~~[ ]~~ o No ~~[ X ]~~x

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

Yes ~~[ ]~~ o No ~~[ X ]~~x

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 [x ~~X ]~~ No ~~[ ]~~o

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

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

Large accelerated filer ~~[ ]~~ o Accelerated filer [o ~~X ]~~ Non-accelerated filer ~~[ ]~~ o Smaller Reporting Company ~~[ X ]~~x

1-K

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

Yes ~~[ ]~~ o No ~~[ X ]~~x

As of June 30, ~~2009~~2010, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $6738.90 million, based upon the closing price as reported on the NYSE Amex [formerly the American Stock Exchange]. Although directors and executive officers of the registrant were assumed to be “affiliates” for the purposes of this calculation, the classification is not to be interpreted as an admission of such status. There were no classes of non-voting common stock authorized on June 30, ~~2009~~2010.

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

Common Stock (Common Stock, $0.01 par value per share) Outstanding at March 11, 2010 10,704,145 shares

Common Stock	Outstanding at March 24, 2011
(Common Stock, $0.01 par value per share)	10,719,382 shares

Documents Incorporated by Reference

Portions of the registrant’s definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held on April 30, 2010 are incorporated by reference.

2-K

This page intentionally left blank

3-K

THE WILBER CORPORATION

FORM 10-K

INDEX

FORWARD-LOOKING STATEMENTS

PART I

ITEM 1: BUSINESS


ITEM 1:	BUSINESS

	A.	General
	B.	Market Area
	C.	Lending Activities
		i.	Loan Products and Services
		ii.	Loan Approval Procedures and Authority
		iii.	Credit Quality Practices
	D.	Investment Securities Activities
	E.	Sources of Funds
	F.	Electronic and Payment Services
	G.	Trust and Investment Services
	H.	Insurance Services
	I.	Supervision and Regulation
		i.	The Company
		ii.	The Bank
	J.	Competition
	K.	Legislative and Regulatory Developments

ITEM 1A:	RISK FACTORS

ITEM 1B:	UNRESOLVED STAFF COMMENTS

ITEM 2:	PROPERTIES

ITEM 3:	LEGAL PROCEEDINGS

ITEM 4:	REMOVED AND RESERVED

PART II

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

	A.	Market Information; Dividends on Common Stock; and Recent Sales of Unregistered Securities
	B.	Use of Proceeds from Registered Securities
	C.	Purchases of Equity Securities by Issuer and Affiliated Purchasers

ITEM 6:	SELECTED FINANCIAL DATA

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

	A.	General
	B.	Performance Overview for the Year Ended December 31, 2010
	C.	Financial Condition
		i.	Comparison of Financial Condition at December 31, 2010 and December 31, 2009
	D.	Results of Operations
		i.	Comparison of Operating Results for the Years Ended December 31, 2010 and December 31, 2009
	E.	Liquidity
	F.	Capital Resources and Dividends

~~A. General~~3-K

B. Market Area

ITEM 7A:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8:	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9A:	CONTROLS AND PROCEDURES

ITEM 9B:	OTHER INFORMATION

PART III

ITEM 10:	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
	A.	Directors of the Registrant
	B.	Executive Officers of the Registrant Who Are Not Directors
	C.	Compliance with Section 16(a) of the Exchange Act
	D.	Code of Ethics
	E.	Corporate Governance

ITEM 11:	EXECUTIVE COMPENSATION

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

ITEM 13:	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
	A.	Related Transactions
	B.	Director Independence

ITEM 14:	PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15:	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

C. Lending Activities

i. Loan Products and Services

ii. Loan Approval Procedures and Authority

iii. Credit Quality Practices

D. Investment Securities Activities

E. Sources of Funds

F. Electronic and Payment Services

G. Trust and Investment Services

H. Insurance Services

I. Supervision and Regulation

i. The Company

ii. The Bank

J. Competition

K. Legislative and Regulatory Developments

ITEM 1A: RISK FACTORS

ITEM 1B: UNRESOLVED STAFF COMMENTS

ITEM 2: PROPERTIES

ITEM 3: LEGAL PROCEEDINGS

ITEM 4: REMOVED AND RESERVED

PART II

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

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

B. Use of Proceeds from Registered Securities

C. Purchases of Equity Securities by Issuer and Affiliated Purchasers

ITEM 6: SELECTED FINANCIAL DATA

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

A. General

B. Performance Overview for the Year Ended December 31, 2009

C. Financial Condition

i. Comparison of Financial Condition at December 31, 2009 and December 31, 2008

4-K

D. Results of Operations

i. Comparison of Operating Results for the Years Ended December 31, 2009 and December 31, 2008

E. Liquidity

F. Capital Resources and Dividends

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9A: CONTROLS AND PROCEDURES

ITEM 9B: OTHER INFORMATION

PART III

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

A. Directors of the Registrant

B. Executive Officers of the Registrant Who Are Not Directors

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

D. Code of Ethics

E. Corporate Governance

ITEM 11: EXECUTIVE COMPENSATION

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

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

A. Related Transactions

B. Director Independence

ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV

ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

5-K

Index

FORWARD-LOOKING STATEMENTS

When we use words or phrases like "will probably result," "we expect," "will continue," "we anticipate," "estimate," "project," "should cause," or similar expressions in this report or in any press releases, public announcements, filings with the Securities and Exchange Commission ("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 Company’s liquidity, 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, including volatility and disruption in national and international financial markets, legislative and regulatory changes, government intervention in the U.S. financial system, monetary and fiscal policies of the federal government, changes in tax policies, tax rates and regulations of federal, state and local tax authorities, changes in consumer preferences, changes in interest rates, deposit flows, cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental, and technological factors affecting the Company’s operations, markets, products, services and fees.

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

65-K

Index

PART I

ITEM 1: BUSINESS

A. General

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

The business of the Company consists primarily of the ownership, supervision, and control of the Bank. The Bank is chartered by the Office of the Comptroller of the Currency (“OCC”), and its deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Company, through the Bank and the Bank’s subsidiaries, offers a full range of commercial and consumer financial products, including business, municipal, and consumer loans, deposits, trust and investment services, and credit-related insurance products. The Bank serves its customers through twenty- two full-service branch banking offices located in Otsego, Delaware, Schoharie, Chenango, Ulster, Broome, Saratoga and Onondaga counties, New York, an ATM network, and electronic / Internet banking services. In addition, the Bank operates ~~two~~a representative loan production ~~offices~~office in ~~Clifton Park~~Malta, New York (Saratoga County) ~~and Kingston, New York (Ulster County)~~. The Bank’s main office is located at 245 Main Street, Oneonta, New York, 13820 (Otsego County). The Bank employed ~~277~~ 261 full-time equivalent employees at December 31, ~~2009~~2010. The Bank’s website address, which also serves as the Company’s main website address, is www.wilberbank.com.

The Bank’s subsidiaries include Wilber REIT, Inc. and Western Catskill Realty, LLC. Wilber REIT, Inc. is wholly - owned by the Bank and primarily holds mortgage-related assets. Western Catskill Realty, LLC is a wholly - owned real estate holding company, which primarily holds foreclosed and other real estate.

InThe ~~2007~~Company’s and its subsidiaries’ (collectively “we” or “our”) principal business is to act as a financial intermediary and lending institution in the communities they serve by obtaining funds through customer deposits and institutional borrowings, lending the ~~Company~~proceeds ~~acquired~~of ~~Provantage~~those ~~Funding~~funds ~~Corporation~~to our customers, aand investing excess funds in debt securities and short-term liquid investments. Our funding base consists of deposits derived principally from the central and upstate New York ~~State~~communities ~~licensed mortgage~~that ~~banking~~we ~~company~~serve. To ~~based~~a inlesser ~~Clifton~~extent, ~~Park~~we borrow funds from institutional sources, principally the Federal Home Loan Bank of New York (~~Saratoga County~~“FHLBNY”). InWe ~~2008~~target ~~Provantage~~our ~~Funding~~lending ~~Corporation~~activities ~~was~~to ~~merged~~consumers ~~into~~and municipalities in the ~~Bank~~ immediate geographic areas we serve and ~~now~~to ~~operates~~small and mid-sized businesses in the immediate geographic areas we serve as well as a broader statewide region. Our investment activities primarily consist of purchases of U.S. Treasury, U.S. Government Agency, and U.S. Government Sponsored Entities obligations, as well as municipal, mortgage-backed, and high quality corporate debt instruments. We originate one to four family residential mortgage loans through our Provantage Home ~~Loans~~Loan Division (“Provantage”), awhich ~~division~~is based out of ~~the Bank~~our loan production office in Malta, New York. Through our Trust and Investment Division, we provide personal trust, agency, estate administration, and retirement planning services for individuals, as well as custodial and investment management services to institutions. We also offer stocks, bonds, and mutual funds through a third party broker-dealer firm.

~~During 2008~~On October 25, 2010, the ~~Bank~~Company ~~sold~~reported ~~its~~that ~~62%~~it ~~ownership~~entered ~~interest~~into ina ~~Mang–Wilber LLC. Prior~~definitive tomerger ~~its~~agreement ~~sale~~(“Merger Agreement’) with Community Bank System, ~~Mang-Wilber~~Inc. ~~LLC~~(“CBSI”). Under ~~was~~the ~~operated~~terms asof the ~~Bank’s insurance~~Merger ~~agency~~Agreement, ~~subsidiary~~CBSI ~~and~~will ~~provided~~acquire athe ~~full~~Company ~~range~~for ofapproximately ~~personal~~$101.8 million, and ~~commercial property~~the Company will merge with and ~~casualty,~~into ~~life~~CBSI, ~~and~~with ~~health~~CBSI ~~insurance~~being ~~products~~the tosurviving corporation (the ~~Bank’s customers~~“Merger”). ~~Mang-Wilber~~Immediately ~~LLC~~following ~~was~~the ~~dissolved~~Merger, ~~following~~the Bank, the ~~sale~~wholly owned subsidiary of the ~~Bank~~ Company will be merged with and into CBSI’s ~~interest~~subsidiary tobank, ~~its~~Community ~~former~~Bank, ~~joint~~N.A. ~~venture~~(“Community ~~partner~~Bank”) and Community Bank will continue as the surviving bank.

The ~~Company’s~~ ~~and~~foregoing ~~its~~summary ~~subsidiaries’~~of ~~(collectively~~the ~~“we”~~Merger orAgreement ~~“our”)~~does ~~principal~~not ~~business is~~purport to ~~act~~be ascomplete, ~~a financial intermediary~~ and ~~lending~~is ~~institution~~qualified in ~~the~~its ~~communities they~~entirety ~~serve~~ by ~~obtaining~~reference ~~funds through customer deposits and institutional borrowings, lending the proceeds of those funds~~ to ~~our customers, and investing excess funds in debt securities and short-term liquid investments. Our funding base consists of deposits derived principally from~~ the ~~central~~Merger ~~and~~Agreement ~~upstate~~which ~~New~~is ~~York~~filed ~~communities~~(along ~~that~~with ~~we serve. To a lesser extent, we borrow funds from institutional sources, principally~~ the ~~Federal~~forms ~~Home Loan Bank~~ of ~~New York (“FHLBNY”). We target our lending activities to consumers and municipalities in~~ the ~~immediate~~voting ~~geographic~~agreement ~~areas we serve~~ and toaffiliates ~~small~~agreement) ~~and mid-sized businesses in the immediate geographic areas we serve~~ as ~~well~~exhibit ~~as a broader statewide region~~2. ~~Our~~1 ~~investment activities primarily consist~~ of ~~purchases~~the ofCompany’s ~~U.S.~~Form ~~Treasury, U.S. Government Agency, and U.S. Government Sponsored Entities obligations, as well as municipal, mortgage~~8-~~backed~~K, ~~and~~filed ~~high quality~~with ~~corporate~~the ~~debt~~SEC ~~instruments. Through~~on ~~our~~October ~~Trust and Investment Division~~25, ~~we provide personal trust, agency, estate administration, and retirement planning services for individuals, as well as custodial and investment management services to institutions~~2010. ~~We also offer stocks, bonds, and mutual funds through a third party broker-dealer firm.~~

B.The ~~Market Area~~Merger with Community is anticipated to be completed in the second quarter of 2011.

The Company’s market area is generally defined as central and upstate New York State. The Company’s principal office and the Bank’s main office are located in Oneonta, New York, which is approximately 70 miles southwest of Albany, New York, the state’s capital, and 170 miles northwest of New York City. Eighteen of the Company’s twenty6-two full-service branch offices are located in four rural counties north and west of the Catskill Mountains, namely Otsego, Delaware, Schoharie and Chenango. The economies in this market are driven by several small colleges; tourism; farming; hospitals; small, independently owned retailers, restaurants, motels; and light manufacturing. The National Baseball Hall of Fame (Cooperstown, New York), several youth sport camps, and outdoor recreation such as camping, hunting, fishing, and skiing, bring seasonal activity to several communities within this market area. The estimated median family income in all four of these rural counties is about 20% below the national average median family income. The combined estimated population of these four counties is 192,247 persons. Based on the June 30, 2009 FDIC deposit summary report, the combined deposits of these four rural counties was $3.093 billion. Our deposit base within this four county area totaled $709.727 million at June 30, 2009, representing a 22.95% market share.K

7-K

Index

~~The remaining four full-service offices and both representative loan production offices are located in select, more densely populated markets in central and upstate New York~~B. In ~~particular,~~Market we have a full-service branch office located in Broome County, a full-service branch office in Onondaga County, a full-service branch office and loan production office in Saratoga County and a full-service branch office and loan production office in Ulster County. The estimated median family income in Onondaga, Saratoga and Ulster Counties exceeds the national average median family income, while Broome County is slightly below the national average. The total estimated population of these four counties is 1,047,700 persons. Based on the June 30, 2009 FDIC deposit summary report, the combined deposits of these four counties was $15.952 billion. Our deposit base within this four county area totaled $75.202 million, representing less than a 1% market share.Area

InThe ~~2007 we~~Company’s ~~adopted~~market aarea ~~strategic~~is ~~plan~~generally todefined ~~increase~~as ~~the~~central and upstate New York State. The Company’s ~~geographic~~principal ~~market~~office ~~area into~~and ~~more~~the ~~densely~~Bank’s ~~populated~~main ~~markets~~office inare ~~central~~located ~~and~~in ~~upstate~~Oneonta, New York ~~State. In~~, ~~accordance~~which ~~with~~is ~~this~~approximately ~~plan~~70 miles southwest of Albany, inNew ~~2007~~York, wethe ~~acquired~~state’s ~~Provantage~~ capital, and ~~opened~~170 amiles northwest of New York City. Eighteen of the Company’s twenty-two full-service branch ~~office~~offices are located in ~~Halfmoon~~four rural counties north and west of the Catskill Mountains, ~~New~~namely ~~York~~Otsego, ~~(Saratoga~~Delaware, ~~County) in~~Schoharie ~~2008~~and Chenango. ~~Similarly,~~The weeconomies ~~opened~~in athis ~~representative~~market ~~loan~~are ~~production~~driven ~~office in~~by ~~Cicero,~~several ~~New~~small ~~York~~colleges; ~~(Onondaga~~tourism; ~~County)~~farming; ~~and~~hospitals; ~~converted~~small, itindependently ~~into~~owned aretailers, ~~full-service branch~~restaurants, inmotels; ~~2009~~and light manufacturing. The ~~central~~National ~~and~~Baseball ~~upstate~~Hall ~~markets~~of inFame ~~which~~(Cooperstown, weNew ~~operate have~~York), ~~generally~~several ~~not~~youth ~~been~~sport ~~significantly~~camps, ~~impacted~~and byoutdoor ~~the~~recreation ~~sub-prime~~such ~~mortgage~~as ~~crisis~~ camping, hunting, fishing, and ~~high~~skiing, ~~rates~~bring ofseasonal ~~foreclosure~~activity ~~experienced~~to inseveral ~~other~~communities ~~sections~~within ofthis ~~the~~market ~~United States~~area. WeThe ~~did,~~estimated ~~however,~~median ~~begin~~family toincome ~~observe~~in aall ~~noticeable~~four ~~decline~~of inthese ~~the performance~~rural ofcounties ~~some~~is ofabout ~~our~~20% ~~commercial~~below ~~real~~the ~~estate~~national ~~borrowers~~average ~~during~~median ~~2009~~family ~~due~~income. The ~~to declining~~combined ~~occupancy~~estimated ~~rates~~population ~~and~~of ~~decreases~~these infour ~~property~~counties ~~lease~~is ~~income~~192,247 persons. ~~In conjunction~~Based ~~with~~on ~~our~~the ~~strategic~~June ~~plan~~30, we2010 ~~anticipate~~FDIC ~~that~~deposit ~~our~~summary ~~expansion~~report, ~~into~~ the ~~more~~ ~~densely~~combined ~~populated~~deposits ~~markets~~of ~~throughout~~these ~~New~~four ~~York~~rural ~~State~~counties ~~will~~was ~~continue~~$2.798 ~~during~~ billion. Our deposit base within this four county area totaled $693.486 million at June 30, 2010, representing a 24.8% market share.

The remaining four full-service offices and both representative loan production offices are located in select, more densely populated markets in central and upstate New York. In particular, we have a full-service branch office located in Broome County, a full-service branch office in Onondaga County, a full-service branch office and loan production office in Saratoga County and a full-service branch office in Ulster County. The estimated median family income in Onondaga, Saratoga and Ulster Counties exceeds the national average median family income, while Broome County is slightly below the national average. The total estimated population of these four counties is 1,047,700 persons. Based on the June 30, 2010 FDIC deposit summary report, the combined deposits of these four counties was $17.387 billion. Our deposit base within this four county area totaled $93.833 million, representing less than a 1% market share.

C. Lending Activities

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

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

We periodically engage in loan participations with other banks or financial institutions both as an originator and as a participant. A participation loan is generally formed when the aggregate size of a single loan exceeds the originating bank’s regulatory maximum loan size or a self-imposed loan limit. We typically make participation loans for commercial or commercial real estate purposes. Although we do not maintain direct contact with the borrower when we are not the lead bank, credit underwriting procedures and credit monitoring practices associated with participation loans are identical in all material respects to those practices and procedures followed for loans that we originate, service, and hold for our own account. We typically buy participation loans from other commercial banks operating within New York State with whose management we are familiar. Our total participation loans represent less than 10% of our total loans outstanding and are comprised of approximately 30 borrowers.

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

8-K

Index

i. Loan Products and Services

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

7-K

Index

dictate our residential real estate lending practices. We also offer residential construction financing to borrowers that meet our credit underwriting guidelines. In the regular course of our business, we do not originate or purchase sub-prime, Alt-A, negative amortizing, or other higher risk residential mortgages.

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

Commercial Real Estate. We originate commercial real estate loans to finance the purchase of undeveloped and developed real estate. To a lesser extent, we will also provide financing for the construction of commercial real estate. Our commercial real estate loans are typically larger than those made for residential real estate. The loans are often secured by properties whose tenants include “Main Street” type small businesses, local retailers, developers and landlords for national retail chains and motels. We also finance properties for commercial office and other owner-occupied commercial space. Our commercial real estate loans are usually limited to a maximum repayment period of 20 years. Most of our commercial real estate loans are fully collateralized and further secured by the personal guarantees of the property owners. Construction loans are generally granted as a line of credit whose terms are 12 to 18 months. We typically advance funds on construction loans based upon an advance schedule, to which the borrower agrees, and physical inspection of the premises, and validated permanent take-out or source of repayment.

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

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

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

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

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

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

~~9-K~~Commercial loans and commercial real estate loans generally involve a higher degree of risk and are more complex than residential mortgages and consumer loans. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. Commercial loan repayment and interest terms are often established to meet the unique needs of the borrower and the characteristics of the business. Typically, payments on commercial real estate are dependent upon leases whose terms are shorter than the borrower’s repayment period. This places significant reliance upon the owner’s successful operation and management of the property. Accordingly, the borrower and we must be aware of the risks that affect the underlying business including, but not limited to, economic conditions, competition, product obsolescence, inventory cycles, seasonality and the business owner’s experience and expertise.

8-K

Index

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

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

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

We also offer cash secured and unsecured personal lines of credit for well-qualified borrowers, as well as an overdraft line of credit product called ChequeMate, which provides our customers with an option to eliminate overdraft fees should they overdraw their checking account. Our ChequeMate lines of credit are typically unsecured and are generally limited to less than $4 thousand per account.

ii. Loan Approval Procedures and Authority

General. The Bank’s Board of Directors delegates the authority to provide loans to borrowers through the Bank’s loan policies. The policies are modified, reviewed and approved on an as needed basis, but no less than annually, to assure that lending policies and practices meet the needs of borrowers, mitigate perceived credit risk, comply with applicable laws and regulations and reflect current economic conditions. Currently, we use ~~a six~~an eight-tier structure to approve loans. All lending authorities within this tiered structure are based on the borrower’s aggregate credit relationship, rather than on individual loan requests, and are limited to loans that are not ~~classified~~criticized ~~as “special mention”~~ or ~~worse~~classified on the Bank’s risk rating system. ~~Loans we classify as special mention are loans that are generally performing, but the borrower’s financial strength appears to be deteriorating.~~

First, the full Board of Directors of the Bank has authority to approve single loans or loans to any one borrower up to the Bank’s legal lending limit, which was $1112.~~300~~007 million for loans not fully secured by readily marketable collateral and $1820.~~800~~011 million for loans secured by readily marketable collateral at December 31, ~~2009~~2010. ~~However, during 2009 we have generally limited new single borrower credit relationships to $2.500 million to mitigate credit concentration risk.~~ The full Board of Directors also approves loans made to members of the Board of Directors, their family members, and their related businesses when the total loans exceed $500 thousand. If conditions merit, the Board of Directors may authorize exceptions to our loan policy pursuant to its special approval procedures.

Second, the Board of Directors, as required by the Bank’s ~~by-laws~~Bylaws, appoints a Loan and Investment Committee. The Loan and Investment Committee must be comprised of at least three independent directors and meets on an as-needed basis, but no less than one time per month. Its lending authority for loans not secured by readily marketable collateral is limited to $5.000 million. The Committee may also approve loans up to 100% of the Bank’s legal lending limit if the loan is secured by readily marketable collateral such as stocks and bonds. The Loan and Investment Committee is also responsible for ratifying ~~and affirming all loans made that exceed $25 thousand, approving~~ collateral releases, authorizing charge-offs in excess of $25 thousand, and annually reviewing all lines of credit that exceed the lending limit of the Officers Loan Committee. The actions of the Loan and Investment Committee are reported to and ratified by the full Board of Directors each month.

10Third, the Board of Directors has created the Officers Loan Committee. The Officers Loan Committee is comprised of four regular voting members, including the Bank’s Chief Executive Officer (“CEO”), the Regional President – Senior Lending Officer, the Regional President – Capital District and the Senior Credit Analyst. A Regional Vice President can substitute for any of the voting members in their absence. The Chief Financial Officer and the Senior Credit Officer are not voting members of the Officers Loan Committee, but have veto authority over approvals. The Officers Loan Committee may approve secured and unsecured loans up to $3.750 million and up to 100% of the Bank’s legal lending limit if the loan is secured by readily marketable collateral. The Committee also has the authority to adjust loan rates from time to time as market conditions dictate. Loan charge-Koffs up to $25 thousand and collateral releases within prescribed limits established by the Board of Directors are also approved by the Officers Loan Committee. All actions of the Officers Loan Committee are reported to the Loan and Investment Committee for ratification.

9-K

Index

~~Third, the~~Additional ~~Board~~loan ofapproval ~~Directors~~limits ~~has~~are ~~created~~established the Officers Loan Committee. The Officers Loan Committee is comprised of four voting members, including the Bank’s Chief Executive Officer (“CEO”), the Regional President – Senior Lending Officer, the Regional President – Commercial Lending and the Regional President – Capital District. A Regional Vice President can substitute for ~~any~~five ofadditional ~~the voting~~tiers ~~members in their absence. The Officers Loan Committee may approve secured and unsecured loans~~ up to $3.750 ~~million~~thousand. Each ~~and up to 100%~~ of ~~the Bank’s~~these ~~legal~~tiers ~~lending~~have ~~limit~~specific ifapproval ~~the~~limits ~~loan~~based ison ~~secured by readily marketable collateral. The Committee also has~~ the lending authority ~~to adjust loan rates from time to time as market conditions dictate. Loan charge-offs up to $25 thousand~~ and ~~collateral~~expertise ~~releases within prescribed limits established by the Board~~ of ~~Directors are also approved by~~ the ~~Officers~~Bank’s ~~Loan Committee. All~~lending ~~actions of the Officers Loan Committee are reported to the Loan and Investment Committee for ratification~~staff.

Fourth, the CEO, a Regional President and the Senior V.P. and Senior Credit Officer by unanimous vote may approve secured and unsecured loans up to $1.250 million. The lending authority of this group is limited to loans and credit relationships that have not been classified as criticized on the Bank’s risk rating system.

Fifth, the senior officers and loan officers of the Bank may combine their lending authority within certain predetermined limits established in the Bank’s loan policy up to $750 thousand.

Sixth, through the loan policy, individual loan officers are provided specific loan limits by category of loan. Each officer’s lending limits are determined based on the individual officer’s experience, past credit decisions, and expertise.

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

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

iii. Credit Quality Practices

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

11-K

Index

Delinquent Loans and Collection Procedures. When a borrower fails to make a required payment on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. Our management continuously monitors the past due status of the loan portfolio. Criticized loans, nonperforming loans and delinquent loans are reported to the Directors’ Loan and Investment Committee monthly. Separate collection procedures have been established for residential mortgage, consumer, and commercial loans.

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

On consumer loans 10 days past due, we send the borrower a notice that requests immediate payment. If the loan remains past due, an employee of the Bank’s Collection Department or the approving loan officer will usually contact the borrower before day 30 of past due status. Loans 60 to 90 days past due are generally subject to repossession of collateral. Consumer loan risk ratings are generally determined by their past due status.

We send past due notices to borrowers with commercial term loans, demand notes, and time notes (including commercial real estate) when the loan reaches 10 days past due. Between days 15 to 30, borrowers are contacted by telephone by an employee of the Bank’s Collection Department or by the approving loan officer to attempt to return the account to current status. After 30 days past due, the loan officer, the supervising Regional President and the Senior Credit Officer decide whether to pursue further action against the borrower.

Loan Portfolio Monitoring Practices. Our loan policy requires that management continually monitor the status of the loan portfolio by regularly reviewing and analyzing reports that include information on delinquent loans, criticized loans and foreclosed real estate. We risk rate our loan portfolios and individual loans based on their perceived risks and historical losses. For commercial borrowers whose aggregate loans exceed $50 thousand, we assign an individual risk rating annually. We arrive at a risk rating based on current payment performance and payment history, the current financial strength of the borrower, and the value of the collateral securing the loan, and the strength of the secondary payment resources including, but not limited to, the ability and willingness of the loan guarantors to make timely principal and interest payments on the loan. Loans classified as “substandard” typically exhibit some or all of the following characteristics:

10-K

Index

strength of the borrower, and the value of the collateral securing the loan, and the strength of the secondary payment resources including, but not limited to, the ability and willingness of the loan guarantors to make timely principal and interest payments on the loan. Loans classified as “substandard” typically exhibit some or all of the following characteristics:

• the borrower lacks current financial information;

• the business of the borrower is poorly managed;

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

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

• the loan is chronically delinquent; or

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

Loans we categorize as a “pass” are generally performing per contractual terms and do not exhibit the characteristics of ~~special~~criticized ~~mention~~ or substandard loans.

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

12-K

Index

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

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

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

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

Our goal is to minimize the number of nonperforming loans because of their negative impact on the Company’s earnings and capital.

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

11-K

Index

collateral on loans that we have acquired through foreclosure proceedings or acceptance of a deed-in-lieu of foreclosure are called Other Real Estate Owned (“OREO”). OREO is initially recorded and subsequently carried at the fair value of the real estate, less estimated costs to sell. Write-downs from the unpaid loan balance to fair value are charged to the allowance for loan losses. Subsequent decreases in the fair value of an OREO property are generally recorded as a loss through the Company’s income statement. In situations when the OREO is sold shortly after it is received in a foreclosure and the holding period was minimal (less than 90 days), a subsequent loss in value may be charged against the allowance for loan losses. In certain situations, where the fair value of the property (less the costs to sell) exceed the borrower’s loan balance at the time a property is transferred to OREO, we will record a gain through the Company’s income statement to write-up the value of the asset to its fair value (less costs to sell).

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

D. Investment Securities Activities

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

13-K

Index

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

(i)

minimize risk through strong credit quality;

(ii)

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

(iii)

diversify the Bank’s assets;

(iv)

generate a favorable investment return;

(v) ~~meet~~support the ~~pledging~~Bank’s ~~requirements~~capital ~~of state, county and municipal depositors~~objectives;

(vi) ~~manage~~meet the ~~risk~~pledging ~~associated~~requirements ~~with~~of ~~changing~~state, ~~interest~~county ~~rates;~~ and municipal depositors;

(vii) ~~match~~manage the ~~maturities~~risk ofassociated ~~securities~~ with ~~deposit~~changing ~~and~~interest ~~borrowing~~rates; ~~maturities.~~and

(viii)

match the maturities of securities with deposit and borrowing maturities.

Our current investment policy generally limits securities investments to U.S. Government, U.S. Agency and U.S. Sponsored Entity securities, corporate debt, municipal bonds, pass-through mortgage backed securities issued by Government National Mortgage Association (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), and collateralized mortgage obligations issued by these same entities.

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

From time to time we purchase and hold certificates of deposit with banks domiciled in the United States. These obligations are all insured by the FDIC. On a limited basis, we also invest in permissible types of equity securities, including, but not limited to equity securities required for membership in the Federal Reserve Bank of New York and FHLBNY.

12-K

Index

E. Sources of Funds

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

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

Brokered deposits are deposit accounts acquired through brokers. These depositors do not typically reside in the Bank’s geographic market or maintain other account relationships with the Bank. The interest rates paid on brokered deposits can be higher or lower than local interest rates for similar accounts, however, the account retention rates on brokered deposits are typically lower than the account retention rates on non-brokered deposits held by customers residing in our geographic markets. Due to these factors, we limit, but do not exclude, the use of brokered deposits. At December 31, 2010, brokered deposits comprised approximately 2% of our total deposit liabilities.

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

14-K

Index

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

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

F. Electronic and Payment Services

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

G. Trust and Investment Services

General. We offer various personal trust and investment services through our Trust and Investment Division, including both fiduciary and custodial services. At December 31, ~~2009~~2010 and December 31, ~~2008~~2009, we had $~~336~~362.~~949~~544 million and $~~300~~336.~~840~~ 949 million, respectively, of assets under management in the Bank’s Trust and Investment Division. The following chart summarizes the Trust and Investment Division assets under management or held for safekeeping as of the dates noted:

13-K

Index

Trust Assets Summary Table:

	~~December 31,~~	December 31,
	2009		2008
		2010					2009
in thousands	Number of Accounts	Estimated Market Value	Number of Accounts	Estimated Market Value
		Number of Accounts			Estimated Market Value		Number of Accounts		Estimated Market Value
Trusts	344	$157,590	348	$140,413
		(in thousands)
Estates	2	143	2	519
Trusts			355		$	161,304		344	$	157,590
Custodian, Investment Management and Others	260	179,216	245	159,908
Estates			2			668		2		143
Total	606	$336,949	595	$300,840
Custodian, Investment Management and Others			272			200,572		260		179,216
Total			629		$	362,544		606	$	336,949

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

H. Insurance Services

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

From 1998 through the second quarter of 2008, the Bank operated an insurance agency through a joint venture with a regional independent insurance agency. The agency, Mang–Wilber LLC, was licensed to sell, within New York State, various insurance products including life, health, property, and casualty insurance products to both consumers and businesses. The Bank sold its interest in the agency in June 2008.

15-K

Index

I. Supervision and Regulation

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

i. The Company

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

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

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

14-K

Index

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

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

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

~~Newly Adopted SEC Rules.~~ In December 2009, the SEC adopted certain proxy disclosure rules regarding compensation and corporate governance, with which the Company must comply. They include: (i) increased disclosure as it relates to stock and option award compensation; (ii) disclosure regarding any potential conflict of interest of any compensation consultants of the Company; (iii) enhanced disclosure regarding experience, qualifications, skills and diversity of its directors and any director nominees; and (iv) information relating to the leadership structure of the Company’s ~~board~~Board of ~~directors~~Directors and the Board’s role in the risk management process. Additionally, the new rules require the Company and other registrants to report the voting results of annual meetings in a much more timely manner on Form 8-K, rather than on a quarterly or annual report.

16-K

Index

Sarbanes-Oxley Act of 2002. The Company is also subject to the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The Sarbanes-Oxley Act revised the laws affecting public companies’ corporate governance, accounting obligations, and corporate reporting by: (i) creating a new federal accounting oversight body; (ii) revamping auditor independence rules; (iii) enacting new corporate responsibility and governance measures; (iv) enhancing disclosures by public companies, their directors, and their executive officers; (v) strengthening the powers and resources of the SEC; and (vi) imposing new criminal and civil penalties for securities fraud and related wrongful conduct.

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

ii. The Bank

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

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

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

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

Branching. Generally, national banks may establish branch offices within New York to the same extent as New York chartered banks may do so. Additionally, national banks may generally branch into other states that permit interstate branching to the same extent as commercial banks chartered under the laws of that state.15-K

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

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

On October 13, 2010, the Bank entered into a Formal Agreement with the OCC requiring the Bank to take the following actions: (i) adopt and implement a written action plan detailing the Board’s assessment of actions required to correct the Bank’s deficiencies noted in certain OCC exams, along with a timeline for the implementation of such a plan; (ii) ensure continuation of a competent full-time President to carry out the Board’s policies and adequately manage the day-to-day operations of the Bank; (iii) develop, implement and adhere to a written program to improve the Bank’s loan portfolio management and correct each deficiency cited in certain OCC exams; (iv) develop, implement and adhere to a written program to reduce the high level of credit risk; (v) make a diligent effort to obtain credit information on all loans lacking such information and ensure that proper collateral documentation is in place; (vi) protect the Bank’s interest in assets criticized by the OCC; (vii) review and revise its written loan policy; (viii) reverse or charge off all interest that has accrued and is contrary to regulatory call report requirements; (ix) adopt, implement and adhere to a policy to ensure proper management of other real estate owned; (x) continue to review the adequacy of the Bank’s allowance for loan losses and maintain a program to ensure an adequate allowance; (xi) develop, implement and adhere to a three year capital program to include, without limitation, specific plans for maintaining adequate capital, remain “well capitalized”, and a dividend policy that permits declaration of dividends only when in compliance with the capital program and when certain other conditions are met; (xii) adopt, implement and adhere to a written strategic plan establishing, among other things, objectives for the Bank’s overall risk profile, earnings performance and growth and (xiii) correct each violation of law, rule or regulation cited in the two most recent regulatory examination reports and implement procedures to avoid future violations.

Entry into the Formal Agreement did not change the Bank’s “well-capitalized” status. The Formal Agreement is based on the findings of the OCC during their on-site examination of the Bank as of March 22, 2010. Since the completion of the examination (the “OCC Exam”), the Board of Directors of the Bank (the “Bank Board”) and its management have aggressively worked to address the findings of the OCC Exam, and have already implemented initiatives and strategies to address and resolve a number of the issues noted in the Formal Agreement. The Bank continues to work in cooperation with its regulators to bring its policies and procedures into conformity with directives.

Under the terms of the Formal Agreement, the Bank is required to take the following actions: (i) adopt and implement a written action plan detailing the Board’s assessment of actions required to correct the Bank’s deficiencies noted in certain OCC exams, along with a timeline for the implementation of such a plan; (ii) ensure continuation of a competent full-time President to carry out the Board’s policies and adequately manage the day-to-day operations of the Bank; (iii) develop, implement and adhere to a written program to improve the Bank’s loan portfolio management and correct each deficiency cited in certain OCC exams; (iv) develop, implement and adhere to a written program to reduce the high level of credit risk; (v) make a diligent effort to obtain credit information on all loans lacking such information and ensure that proper collateral documentation is in place; (vi) protect the Bank’s interest in assets criticized by the OCC; (vii) review and revise its written loan policy; (viii) reverse or charge off all interest that has accrued and is contrary to regulatory call report requirements; (ix) adopt, implement and adhere to a policy to ensure proper management of other real estate owned; (x) continue to review the adequacy of the Bank’s allowance for loan losses and maintain a program to ensure an adequate allowance; (xi) develop, implement and adhere to a three year capital program to include, without limitation, specific plans for maintaining adequate capital, remain “well capitalized”, and a dividend policy that permits declaration of dividends only when in compliance with the capital program and when certain other conditions are met; (xii) adopt, implement and adhere to a written strategic plan establishing, among other things, objectives for the Bank’s overall risk profile, earnings performance and growth and (xiii) correct each violation of law, rule or regulation cited in the two most recent regulatory examination reports and implement procedures to avoid future violations.

Additionally, the Bank is required to submit periodic progress reports to the OCC regarding various aspects of the foregoing actions. The Bank’s Board shall appoint a compliance committee to monitor and coordinate the Bank’s performance under the Formal Agreement. As of the date of this document, Wilber has developed and submitted a detailed action plan to address the Formal Agreement. The action plan included activities to cure the deficiencies delineated within the Formal Agreement. The Board of Directors and management believes that it has made significant progress with respect to the Formal Agreement and is now in substantial compliance with a majority of the requirements contained within the Formal Agreement.

16-K

Index

In particular,

(i) The Bank’s Board and management adopted and implemented a written action plan and timeline to correct the Bank’s deficiencies noted in certain OCC exams. The plan was initially completed and submitted on October 30, 2010 and addressed each Article of the Formal Agreement including the expected date that Wilber would be in compliance with the Article. A subsequent update to the written action plan was submitted on January 28, 2011 detailing all actions taken by the through December 31, 2010.

(ii) On November 22, 2010 the Bank appointed James M. Mack to succeed Alfred S. Whittet as the full-time President of the Bank to carry out the Board’s policies and adequately manage the day-to-day operation of the Bank. Mr. Mack has extensive experience in managing troubled institutions, including extensive loan and credit experience, as well as experience in integrating banking company mergers. The Bank’s management believes it is in full compliance with this provision of the Formal Agreement.

(iii) The Board of Directors approved and management implemented a written program to improve the Bank’s loan portfolio management and correct deficiencies prior to the issuance of the Formal Agreement. The written program included improving the Bank’s management information systems to more closely monitor problem credits, provide regular written updates and formal reviews of criticized assets and hiring loan “work out” specialists to concentrate on problem credit loss mitigation. These efforts have been effective in reducing the level of the Bank’s nonperforming loans and potential problem loans through December 31, 2010. At December 31, 2010,the Bank’s nonperforming assets totaled $21.872 million. This compares to $25.442 million at September 30, 2010, a $3.570 million decrease between the periods. In addition, loans 30-89 days delinquent (in performing status) at December 31, 2010 totaled $2.442 million or 0.47% of total loans outstanding. This compares to $8.469 million or 1.44% of total loans outstanding at December 31, 2009. The Bank’s management believes it is in full compliance with this provision of the Formal Agreement.

(iv) A written program to reduce the level of credit risk was developed by management and approved by the Board of Directors prior to the issuance of the Formal Agreement. In addition to regularly reviewing all credits, management has been actively implementing risk mitigation strategies on each of the problem credits, including, but not limited to foreclosure, obtaining additional collateral from borrowers and pursuing the sale of borrowers’ notes. At December 31, 2010, the Bank’s potential problem loan pool decreased to $8.597 million or 1.7% of total loans outstanding. By comparison the potential problem loan pool totaled $24.866 million or 4.2% of total loans outstanding at December 31, 2009. The Bank’s management believes it is in full compliance with this provision of the Formal Agreement.

(v) In connection with its written program to improve the Bank’s loan portfolio management, management has been actively tracking and pursuing the acquisition of improved credit and collateral documentation. This included an improvement to the Bank’s management information systems to assure more timely credit and collateral documentation is on file. Management believes it is actively complying with this provision of the Formal Agreement.

(vi) As part of written program to reduce the level of credit risk, the Bank’s management team has actively implemented and managed action plans with each of the assets criticized by the OCC. This includes more frequent contact with each of the criticized borrowers, monthly written updates by the Bank’s loan officers to each borrower’s criticized asset report log and definitive action plans to mitigate the Bank’s potential loss in each of the criticized credits. Management believes it is in full compliance with this provision of the Formal Agreement.

(vii) The Bank’s Board reviewed and approved revised general and commercial loan policies before and after issuance of the Formal Agreement to assure compliance with all regulatory standards. The revised policies were written and implemented to improve the control systems for reviewing, underwriting, renewing, approving and closing loans. The Board of Directors through its compliance and loan and investment committees have worked closely with management to assure that these policies are effectively administered and implemented through the reduction of policy exceptions and credit mitigation tactics, including close monitoring and stricter enforcement of borrower’s loan covenants. Management believes it is in full compliance with this provision of the Formal Agreement.

(viii) Prior to the issuance of the Formal Agreement management evaluated and enhanced its nonaccrual loan policy in conjunction with the OCC’s requirements. In implementing the improved policy and related procedures management now meets monthly to review all of the Bank’s criticized assets to determine their nonaccrual status. In addition, in compliance with the Formal Agreement, during the third and fourth quarters of 2010 management engaged a third party accounting firm to conduct an internal audit review of the Bank’s nonaccrual classifications and the related reversal of interest, if any. The interest that was accrued contrary to the instructions of the call report for 2009 and 2010, totaled $53 thousand and $78 thousand, respectively. These amounts were determined not to be material, and as such, adjustments to

17-K

Index

~~Capital~~previously ~~Requirements.~~filed ~~Capital adequacy~~call isreport ~~measured~~income ~~within~~statement ~~guidelines~~schedules ~~defined~~were asnot either Tier 1 capital (primarily shareholders’ equity), Tier 2 capital (certain debt instruments and a portion of the reserve for loan losses). There are two measures of capital adequacy for banks: i) the Tier 1 leverage ratio and ii) the risk-based requirements. Most banks must maintain a minimum Tier 1 leverage ratio of 4%. In addition, Tier 1 capital must equal 4% of risk-weighted assets, and total capital (sum of Tier 1 plus Tier 2) must equal 8% of risk-weighted assets. Federal banking agencies are required to take prompt corrective action, such as imposing restrictions, conditions, and prohibitions, to deal with banks that fail to meet their minimum capital requirements or are otherwise in troubled condition. ~~The~~Management ~~regulators have~~believes also established different capital classifications for banking institutions, the highest being “well capitalized.” Under regulations adopted by the federal bank regulators, a banking institution is considered well capitalized if it ~~has a total risk adjusted capital ratio of 10% or greater, a Tier 1 risk adjusted capital ratio of 6% or greater and a leverage ratio of 5% or greater, and~~ is not subject to any regulatory order or written directive regarding capital maintenance. The Bank qualified as well capitalized at December 31, 2009 and 2008. See Part II, Item 7.F. entitled "Capital Resources and Dividends" and Note 14 of the Consolidated Financial Statements contained in ~~Part~~full ~~II,~~compliance ~~Item~~with ~~8, of~~ this ~~document~~provision ~~for~~of ~~additional information regarding~~ the ~~Bank’s~~Formal ~~capital levels~~Agreement.

~~Payment~~(ix) ~~of Dividends. The~~During ~~OCC regulates~~ the ~~amount~~third quarter of ~~dividends~~2010, ~~and other capital distributions that~~ the Bank’s ~~may~~Board ~~pay~~adopted toa ~~its~~new ~~shareholders.~~policy Afor ~~national~~other ~~bank may~~real ~~not~~estate ~~pay dividends from its capital~~owned. ~~All~~The ~~dividends~~new ~~must~~policy beand ~~paid out~~related ofprocedures ~~undivided~~were ~~profits. In~~immediately ~~general~~implemented, ifand ~~the~~included enhancements ~~Bank~~to ~~satisfies~~assure ~~all~~proper ~~OCC capital~~and ~~requirements~~timely ~~both~~insurance ~~before~~protection ~~and~~was ~~after~~established afor ~~dividend~~each ~~payment~~property, ~~the~~property ~~Bank~~tax ~~may~~bills ~~pay a~~and ~~dividend~~payments towere ~~its~~administered ~~shareholder~~timely inand ~~any~~effectively, ~~year~~property ~~equal~~rent torolls ~~the~~were ~~current~~obtained, tenants ~~year's~~were ~~net~~properly ~~income plus retained net income for the preceding two years.~~notified Aof ~~Bank~~their ~~may~~rights, ~~not declare~~property ormarketing ~~pay~~and ~~any~~listing ~~dividend~~plans ifwere itdeveloped, isother ~~“undercapitalized”~~real ~~under~~estate ~~OCC~~owned ~~regulations. The~~related ~~OCC~~accounting ~~also~~was ~~may~~recorded ~~restrict~~appropriately, ~~the~~updated ~~Bank’s~~appraisals ~~ability~~were toobtained ~~pay~~on ~~dividends~~a iftimely ~~the~~basis ~~OCC~~and ~~has reasonable~~authority ~~cause~~for todetermining ~~believe~~property ~~that~~disposal ~~such~~values ~~payment~~was ~~would~~properly ~~constitute~~granted. anManagement ~~unsafe~~believes ~~and unsound~~it ~~practice. The Bank~~ is ~~not~~in ~~undercapitalized,~~full ~~however,~~compliance ~~pursuant to~~with anthis ~~informal~~provision ~~agreement~~of ~~executed between~~ the ~~Bank~~Formal ~~and the OCC during 2009, the OCC must approve dividends prior to being declared by the Bank’s Board of Directors~~Agreement.

~~Insurance~~(x) ofPrior ~~Deposit Accounts. The Bank is an insured depository institution subject~~ to ~~assessment by, and~~ the ~~payment~~issuance of ~~deposit insurance premiums to,~~ the ~~FDIC.~~ ~~Deposit~~Formal ~~insurance premiums are determined by a number of factors~~Agreement, ~~including~~ the ~~insured depository~~Bank’s ~~supervisory~~Board ~~condition~~ and ~~several~~management ofevaluated ~~its financial~~enhancements ~~ratios. During 2005, the Federal Deposit Insurance Reform Act of 2005 (“FDIRA”) was enacted into law. Under FDIRA, when the FDIC Deposit Insurance Fund~~ to ~~industry-wide~~its ~~aggregate~~allowance ~~insured~~for ~~deposits~~loan ~~or reserve~~loss ~~ratio~~methodology ~~falls~~as ~~below~~recommended ~~1.15%,~~by the ~~FDIC is required to establish a plan to restore the fund to 1~~OCC.~~15% within five years.~~ ~~Due~~The toOCC ~~the~~did ~~high~~not ~~rate~~deem ~~of bank failures during~~ the ~~second~~allowance ~~half~~for ofloan ~~2008~~losses ~~and throughout 2009, the Deposit Insurance Fund reserve ratio was underfunded at -0.39% at December 31, 2009 as compared~~ to ~~0.36%~~be ~~at December 31~~inadequate, ~~2008. To~~but ~~address~~recommended ~~this~~that ~~anticipated undercapitalized position the FDIC approved an interim rule in February 2009 to charge~~ a ~~special~~more ~~assessment~~robust ofhistorical 20loss ~~cents~~migration ~~per~~methodology ~~$100~~be ofincluded ~~domestic deposits on the banking industry~~ in ~~order~~future toallowance ~~quickly~~for ~~restore~~loan ~~its~~loss ~~Deposit Insurance Fund~~calculations. ~~Immediately following the FDIC~~Management’s ~~special~~evaluation ~~assessment announcement,~~included ~~several comments were provided by member institutions and banking industry advocates, including~~ the ~~American~~incorporation ~~Bankers~~of ~~Association,~~historical ~~recommending that~~loss ~~the~~data ~~FDIC~~stratified ~~consider~~by ~~alternative~~loan ~~Deposit~~type ~~Insurance~~and ~~Fund~~applied ~~funding~~or ~~options including~~“migrated” anback ~~increase~~to in the ~~FDIC’s~~prior ~~line~~year ofend ~~credit~~loan ~~with~~risk ~~the U~~rating.~~S. Department of Treasury.~~ ~~After~~Prior ~~further deliberations, the FDIC announced a final rule that required member institutions~~ to ~~pay~~implementation ~~a special assessment~~ of 5the ~~basis points~~enhanced ~~based~~methodology, onfor ~~each~~internal ~~member~~analytical ~~institution’s total assets less its Tier 1 capital at June 30~~purposes, ~~2009. In~~it ~~addition a final rule~~ was ~~issued,~~applied ~~which required member institutions~~ to ~~re-capitalize~~ the ~~Deposit~~December ~~Insurance~~31, ~~Fund~~2009 ~~through~~period. ~~a special~~Under ~~prepaid~~the ~~assessment. The~~new ~~special~~methodology ~~prepaid~~it ~~assessment~~ was ~~collected~~ ~~from~~determined ~~member~~that ~~institutions~~the in December 31, 2009 ~~and~~allowance ~~included estimated quarterly premiums~~ for ~~the~~loan ~~fourth~~losses ~~quarter~~ of ~~2009 and for all quarterly periods in 2010, 2011 and 2012. The Bank’s prepaid assessment amount was~~ $68.~~687~~622 million~~. We~~ ~~recorded~~remained anadequate, ~~immediate~~with ~~charge~~only ~~(expense)~~insignificant ofchanges ~~$439 thousand against this amount on December 31, 2009~~ to ~~recognize~~ the ~~fourth quarter~~unallocated ~~2009~~component, ~~premium~~which ~~assessment. The~~decreased ~~remaining~~from ~~prepaid premium totaling $6~~3.~~248~~9% ~~million~~of ~~will~~the betotal ~~amortized~~allowance ~~quarterly~~for ~~during~~loan ~~2010,~~losses ~~2011~~to ~~and 2012 until it is fully exhausted~~1. In3% ~~addition,~~of ~~under~~ the ~~final~~total ~~rule~~allowance ~~the FDIC will increase member premiums by 3 basis points~~ for ~~2011~~loan ~~and 2012~~losses. ~~Due~~Management tobegan ~~the~~utilizing ~~weakened state of~~ the ~~banking~~revised ~~industry,~~methodology ~~current~~in ~~and anticipated~~2010. ~~Deposit~~The ~~Insurance~~Bank’s ~~Fund~~management ~~capitalization~~is ~~levels~~in ~~and~~full ~~other~~compliance ~~factors,~~with ~~we anticipate~~this ~~incurring~~provision ~~significant~~of ~~FDIC~~the ~~premium~~Formal ~~assessment expenses for several quarters prospectively~~Agreement.

~~In addition~~(xi) Prior to ~~the~~issuance ~~Deposit~~of ~~Insurance~~the ~~Fund~~Formal ~~premiums~~Agreement, the ~~FDIC~~Board ~~levies~~of anDirectors ~~assessment based~~adopted onan ~~the~~amended ~~Bank’s~~Capital ~~deposit~~Management ~~accounts~~Plan. The ~~under~~Capital ~~the~~Management ~~Deposit~~Plan, ~~Insurance~~as ~~Funds~~amended, ~~Act~~included ~~of 1996. Under~~specific ~~the~~plans ~~Deposit~~and ~~Insurance~~actions ~~Funds~~for ~~Act,~~maintaining ~~deposits~~adequate ~~that were insured~~capital byover ~~the~~a ~~Bank~~three-year ~~Insurance~~period, ~~Fund~~maintaining (“~~BIF~~well capitalized”), ~~such~~status asand ~~the~~complying ~~deposits~~with of the Bank,’s ~~were~~dividend ~~subject~~policy. After toissuance anof ~~assessment~~the ~~for~~Formal ~~payment~~Agreement, onmanagement ~~bond~~further ~~obligations financing~~enhanced ~~the~~its ~~FDIC’s~~Capital ~~Savings~~Management ~~Association~~Plan ~~Insurance~~to ~~Fund~~more ~~(“SAIF”). The assessment~~clearly ~~rate~~delineate isadministrative ~~adjusted~~responsibilities ~~quarterly,~~and ~~depending~~specifically onaddress actions the ~~need~~Board of ~~the fund~~Directors and management would take upon triggering certain contingent events. At December 31, ~~2009~~2010, the Bank’s tier 1 leverage ratio, tier 1 risk-based capital ratio and ~~2008~~total risk based capital ratios were 8.45%, ~~the~~13.22% ~~assessment~~and ~~rate~~14.48%, ~~was~~respectively. This 1compares to 7.0672% , 11.34% and 112.1459% ~~cents~~at ~~per~~December ~~$100~~31, 2009. The Bank’s management believes it is in full compliance with this provision of ~~insured~~the ~~deposits,~~Formal ~~respectively~~Agreement.

~~Federal~~(xii) ~~Reserve System. All~~The ~~depository~~Formal ~~institutions~~Agreement ~~must~~with ~~maintain~~the ~~with~~OCC ~~a Federal~~requires ~~Reserve~~the Bank ~~reserves~~to ~~against~~adopt, ~~their~~amend ~~transaction~~and ~~accounts~~adhere ~~(primarily checking,~~to ~~NOW,~~a ~~and~~three ~~Super~~year ~~NOW~~strategic ~~accounts)~~plan. In ~~and~~connection ~~nonpersonal~~with ~~time~~this ~~accounts.~~article Inof ~~all years~~the ~~preceding~~Formal ~~2008~~Agreement, ~~these~~the ~~reserves~~Bank’s ~~were~~Board ~~maintained~~elected asto ~~vault~~pursue ~~cash~~merging ~~or noninterest-bearing~~the ~~accounts~~Company, ~~thereby~~in ~~reducing~~lieu ~~the~~of ~~Bank’s~~maintaining ~~earnings potential~~an independent company. In ~~the~~light ~~fourth~~of ~~quarter~~this ofstrategic ~~2008~~decision, ~~the~~management ~~Federal~~with ~~Reserve~~subsequent ~~Banks announced~~concurrence ~~that~~from ~~they~~the ~~would~~OCC ~~begin~~has todeferred ~~pay~~development ~~interest~~of ona ~~member~~three ~~banks’,~~year ~~required reserve~~strategic ~~balances,~~plan aspending ~~well~~the asoutcome ~~excess~~of ~~reserve~~the ~~balances~~merger with CBSI. AsManagement ofanticipates ~~December 31,~~that ~~2009,~~it will comply fully with this provision of the ~~Bank~~Formal ~~was~~Agreement in ~~compliance~~the event the merger with ~~applicable~~CBSI ~~reserve requirements~~is not consummated.

(xiii) The Bank’s management has taken all necessary corrective action to correct each violation of law, rule or regulation cited in its two most recent regulatory examination reports and has implemented procedures to avoid future violations. This included adoption of an enhanced appraisal policy, nonaccrual loan policy, other real estate owned policy and several procedures to assure adherence to these policies.

The actions taken by the Bank’s management and Board of Directors with respect to the Formal Agreement may impact several aspects of the Bank’s future financial results. We expect that the active management of the criticized assets will, over time, lower the Bank’s overall credit risk profile. At December 31, 2010, the Bank’s level of loans 30 to 89 days delinquent in performing status was less than 1% of total loans outstanding. In addition, nonperforming loans and potential problem loans decreased as compared to period ended September 30, 2010. Although there exists a fair amount of uncertainty regarding the future trend for these credit quality measures, management anticipates improvements to continue, particularly if the commercial real estate markets stabilize. The stricter credit monitoring practices, underwriting standards and loan closing controls developed and implemented by the Bank during 2009 and 2010, however, may continue to curb new loan generation and, in turn, net interest margin as customers seek out more flexible borrowing arrangements. If the Bank is successful, in reducing its problem loan levels, however, the requirements to fund the allowance for loan losses may be reduced in future periods. In addition, the legal expenses associated with pursuing remedies with our borrowers may decrease.

During 2011, however, the active management of problem loans is expected to increase the amount of other real estate owned due to an increase in foreclosure actions pursued by the Bank. In addition, the costs associated with maintaining these other real estate assets may increase. Similarly, the level of charge-offs may remain elevated during 2011 as we migrate some of our problem credits through the foreclosure process.

18-K

Index

~~Loans~~As ~~to One Borrower. The Bank generally may not make~~ a ~~loan~~result orof ~~extend credit~~the toFormal aAgreement, ~~single~~the orBank ~~related~~has ~~group~~significantly ofincreased ~~borrowers in excess of 15% of~~ its ~~unimpaired~~ regulatory capital ~~and surplus~~ratios. UpThe toincreased ~~an additional 10% of unimpaired~~ capital ~~and~~levels, ~~surplus~~although ~~can~~necessary beto ~~lent~~mitigate ifa ~~the~~higher ~~additional~~risk ~~amount~~profile, iscould ~~fully~~negatively ~~secured~~impact ~~by readily marketable collateral. At December 31, 2009,~~ the ~~Bank~~Company’s ~~legal lending~~return ~~limit~~ on ~~loans~~equity to one borrower was $11.274 million for loans not fully secured by readily marketable collateral and $18.790 million for loans secured by readily marketable collateral. At that date, the Bank did not have any loans or agreements to extend credit to a single or related group of borrowers in ~~excess~~future ~~of its legal lending limit~~periods.

Branching. Generally, national banks may establish branch offices within New York to the same extent as New York chartered banks may do so. Additionally, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, national banks may generally branch into other states to the same extent as commercial banks chartered under the laws of that state.

Capital Requirements. Capital adequacy is measured within guidelines defined as either Tier 1 capital (primarily shareholders’ equity), or Tier 2 capital (certain debt instruments and a portion of the reserve for loan losses). There are two measures of capital adequacy for banks: i) the Tier 1 leverage ratio and ii) the risk-based requirements. Most banks must maintain a minimum Tier 1 leverage ratio of 4%. In addition, Tier 1 capital must equal 4% of risk-weighted assets, and total capital (sum of Tier 1 plus Tier 2) must equal 8% of risk-weighted assets. Federal banking agencies are required to take prompt corrective action, such as imposing restrictions, conditions, and prohibitions, to deal with banks that fail to meet their minimum capital requirements or are otherwise in troubled condition. The regulators have also established different capital classifications for banking institutions, the highest being “well capitalized.” Under regulations adopted by the federal bank regulators, a banking institution is considered well capitalized if it has a total risk adjusted capital ratio of 10% or greater, a Tier 1 risk adjusted capital ratio of 6% or greater and a leverage ratio of 5% or greater, and is not subject to any regulatory order or written directive regarding capital maintenance. The Bank qualified as well capitalized at December 31, 2010 and 2009. See Part II, Item 7.F. entitled "Capital Resources and Dividends" and Note 16 of the Consolidated Financial Statements contained in Part II, Item 8, of this document for additional information regarding the Bank’s capital levels.

Payment of Dividends. The OCC regulates the amount of dividends and other capital distributions that the Bank may pay to its shareholders, (e.g., the Company). A national bank may not pay dividends from its capital. All dividends must be paid out of undivided profits. In general, if the Bank satisfies all OCC capital requirements both before and after a dividend payment, the Bank may pay a dividend to its shareholder in any year equal to the current year's net income plus retained net income for the preceding two years. A Bank may not declare or pay any dividend if it is “undercapitalized” under OCC regulations. The OCC also may restrict the Bank’s ability to pay dividends if the OCC has reasonable cause to believe that such payment would constitute an unsafe and unsound practice. The Bank is not undercapitalized, however, pursuant to the October 13, 2010 Formal Agreement executed between the Bank and the OCC, the OCC must approve dividends prior to being declared by the Bank’s Board of Directors.

Insurance of Deposit Accounts. The Bank is an insured depository institution subject to assessment by, and the payment of deposit insurance premiums to, the FDIC. Deposit insurance premiums are determined by a number of factors, including the insured depository’s supervisory condition and several of its financial ratios. During 2005, the Federal Deposit Insurance Reform Act of 2005 (“FDIRA”) was enacted into law. Under FDIRA, when the FDIC Deposit Insurance Fund to industry-wide aggregate insured deposits or reserve ratio falls below 1.15%, the FDIC is required to establish a plan to restore the fund to 1.15% within five years. Due to the high rate of bank failures in recent years the Deposit Insurance Fund reserve ratio was underfunded at -0.21% at December 31, 2010 as compared to 0.39% at December 31, 2009. To address this undercapitalized position the FDIC has approved a restoration plan which is designed to restore the Deposit Insurance Fund to the levels required under the FDIRA. The restoration plan, coupled with the Bank’s present supervisory condition, have caused significant increases in the Bank’s FDIC premium assessments during 2010 and 2009. Due to the weakened state of the banking industry, current and anticipated Deposit Insurance Fund capitalization levels and other factors, we anticipate incurring significant FDIC premium assessment expenses for several quarters prospectively.

19-K

Index

In addition to the Deposit Insurance Fund premiums, the FDIC levies an assessment based on the Bank’s deposit accounts under the Deposit Insurance Funds Act of 1996. Under the Deposit Insurance Funds Act, deposits that were insured by the Bank Insurance Fund (“BIF”), such as the deposits of the Bank, were subject to an assessment for payment on bond obligations financing the FDIC’s Savings Association Insurance Fund (“SAIF”). The assessment rate is adjusted quarterly, depending on the need of the fund. At December 31, 2010 and 2009, the assessment rate was 1.02 cents and 1.06 cents per $100 of insured deposits, respectively.

The Emergency Economic Stabilization Act of 2008 (EESA) enacted on October 3, 2008 included a provision for an increase in the amount of deposits insured by the FDIC to $250,000 until December 2009 to strengthen confidence in the banking system. This program was subsequently extended to December 31, 2013 as enacted by the Helping Families Save Their Homes Act of 2009. On October 14, 2008, the FDIC announced a new program, the Temporary Liquidity Guarantee Program (TLGP) that provides unlimited deposit insurance on funds that meet the definition of a noninterest-bearing transaction deposit account not otherwise covered by the existing deposit insurance limit of $250,000. This program ended on December 31, 2010. The recently enacted “Dodd-Frank Wall Street Reform and Consumer Protection Act” provides unlimited deposit insurance coverage for two years (from December 31, 2010 to December 31, 2012) for noninterest–bearing transaction accounts, and is similar in the protection under TLGP.

Federal Reserve System. All depository institutions must maintain with a Federal Reserve Bank reserves against their transaction accounts (primarily checking, NOW, and Super NOW accounts) and nonpersonal time accounts. In all years preceding 2008, these reserves were maintained as vault cash or noninterest-bearing accounts, thereby reducing the Bank’s earnings potential. In the fourth quarter of 2008 the Federal Reserve Banks announced that they would begin to pay interest on member banks’, required reserve balances, as well as excess reserve balances. As of December 31, 2010 and 2009, the Bank was in compliance with applicable reserve requirements.

Loans to One Borrower. The Bank generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. Up to an additional 10% of unimpaired capital and surplus can be lent if the additional amount is fully secured by readily marketable collateral. At December 31, 2010, the Bank’s legal lending limit on loans to one borrower was $12.007 million for loans not fully secured by readily marketable collateral and $20.011 million for loans secured by readily marketable collateral. At that date, the Bank did not have any loans or agreements to extend credit to a single or related group of borrowers in excess of its legal lending limit.

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

Community Reinvestment Act. Under the federal Community Reinvestment Act (the “CRA”), the Bank, consistent with its safe and sound operation, must help meet the credit needs of its entire community, including low and moderate income neighborhoods. The OCC periodically assesses the Bank's compliance with CRA requirements. The Bank received a satisfactory rating for CRA on its last performance evaluation conducted by the OCC as of ~~March~~April 207, ~~2006~~ 2010.

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

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

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

20-K

Index

their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes. The Bank’s privacy policy complies with OCC regulations.

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

J. Competition

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

19-K

Index

K. Legislative and Regulatory Developments

~~Deposit Insurance~~Dodd-Frank Wall Street Reform and Consumer Protection Act. On ~~January~~July 1221, 2010, ~~the~~President ~~FDIC~~Obama ~~issued~~signed aninto ~~advance notice~~law ofthe ~~proposed~~Dodd-Frank ~~rulemaking~~Wall ~~(“ANPR”)~~Street ~~seeking~~Reform ~~comment~~and onConsumer ~~ways~~Protection ~~that~~Act (the ~~FDIC's risk~~"Dodd-~~based~~Frank ~~deposit~~Act"), ~~insurance~~which ~~assessment~~significantly ~~system~~changes ~~could~~the beregulation ~~changed~~of tobanks, ~~account~~bank ~~for the~~holding ~~risks~~companies ~~posed~~and bythe ~~certain~~broader ~~employee~~financial ~~compensation~~services ~~programs~~industry. The ~~FDIC~~Dodd-Frank isAct ~~exploring whether~~includes ~~and~~provisions ~~how~~affecting tolarge ~~incorporate~~and ~~employee~~small ~~compensation~~financial ~~criteria~~institutions ~~into~~alike, ~~the risk-based~~including ~~assessment~~several ~~system~~provisions tothat ~~adequately~~will ~~compensate~~profoundly ~~the~~affect ~~Deposit~~how ~~Insurance~~community ~~Fund for~~banks ~~the~~and ~~risks~~bank ~~inherent~~holding incompanies, ~~the~~such ~~design~~as ofthe ~~certain~~Company, ~~compensation~~will ~~programs.~~be ~~The~~regulated ~~FDIC states~~ in the ~~ANPR~~future. ~~that~~Among itother ~~seeks~~things, tothese ~~provide~~provisions: ~~incentives~~i) ~~for~~abolish ~~institutions~~the toOffice ~~adopt compensation~~of ~~programs~~Thrift ~~that~~Supervision ~~better~~and ~~align~~transfer ~~employees'~~its ~~interests~~functions ~~with~~to ~~the~~other ~~long-term interests~~federal ofbanking ~~the~~agencies; ~~bank~~ii) ~~and~~relax ~~its~~rules ~~stakeholders,~~regarding ~~including~~interstate ~~the~~branching; ~~FDIC.~~iii) allow ~~Should~~financial ~~the~~institutions ~~ANPR result~~to inpay ~~the~~interest ~~adoption~~on ofbusiness achecking ~~final~~accounts; ~~regulation~~iv) bychange the ~~FDIC,~~scope ~~the~~of ~~Company~~federal ~~will evaluate~~deposit ~~the~~insurance ~~effect,~~coverage; ifv) ~~any,~~and ~~that~~impose ~~the~~new ~~regulation~~capital ~~will~~requirements ~~have~~ on ~~its~~bank ~~deposit insurance~~holding ~~premiums~~companies.

The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve Board, which will be given the authority to promulgate consumer protection regulations applicable to banks and other providers offering consumer financial services or products. This includes the authority to prohibit "unfair, deceptive or abusive" acts and practices. Banks with $10 billion or less in assets, such as Wilber National Bank will continue to be examined for compliance with the consumer laws by their primary bank regulators. The Dodd-Frank Act also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives.

Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards, and pre-payments. The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, many of which may materially affect the Company’s business, compliance responsibilities, human resources and operating environment. Consequently, the Dodd-Frank Act is likely to affect our cost of doing business, it may limit or expand our permissible activities, and it may affect the competitive balance within our industry and market areas.

Certain provisions of the Dodd-Frank Act are expected to have a near term impact on the Company. For example, effective July 21, 2011, a provision of the Dodd-Frank Act eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on the Company’s interest expense.

The Dodd-Frank Act also broadens the base for Federal Deposit Insurance Corporation insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2008,and non-interest bearing transaction accounts and IOLTAs have unlimited deposit insurance through December 31, 2013.

It is difficult to predict at this time with specificity the full range of the impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on the Company. The legislation and any implementing rules that are ultimately

21-K

Index

issued could have adverse implications on the financial industry, the competitive environment, and the Company’s ability to conduct business. The Company will have to apply resources to ensure that it is in compliance with all applicable provisions of the Dodd-Frank Act and any implementing rules, which may increase its costs of operations and adversely impact its earnings.

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

ITEM 1A: RISK FACTORS

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

Merger Execution Risk. On October 25, 2010, the Company announced that it entered into a Merger Agreement with CBSI. In connection with the Merger Agreement, CBSI filed a securities registration statement on Form S-4 with the SEC on January 11, 2011, a first amendment on February 15, 2011 and a second amendment on February 17, 2011. The merger is expected to close during the second quarter of 2011. This merger will be accompanied by the risks commonly encountered in similar business combinations. These risks include, among other things: the difficulty of integrating operations and personnel, the potential disruption of ongoing business relationships, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with employees and customers as a result of changes in ownership and management.

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

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

Real Estate Market Conditions. At December 31, ~~2009~~2010, real estate served as the principal source of collateral with respect to approximately 7173.72% of the Bank’s loan portfolio. A prolonged depression in the value of residential and commercial real estate securing its loans could adversely impact our consolidated financial condition and results of operations. Given our heavy reliance on real estate lending, this could have a significant adverse affect on our financial condition and results of operations.

Credit Risk. One of our main functions as a financial intermediary is to extend credit, in the form of loans, commitments and investments, to individuals, businesses, state, local and federal government and U.S. Government Sponsored Entities within and outside of our primary market area. The risk associated with these extensions of credit pose significant risks to earnings and capital that need to be controlled and monitored by management. Losses incurred by us due to the failure by borrowers to repay loans or other extensions of credit, and the reliance on customer information being correct in cases where it may not be, will negatively affect our financial condition and results of operations.

The Financial Performance of Large Borrowers. Our financial condition and results of operations are highly dependent upon the credit worthiness and financial performance of our borrowers. The Bank has many borrowers or groups of related borrowers whose total indebtedness with the Bank exceeds $1.000 million. The financial performance of these borrowers is a material risk factor that may affect our financial condition or results of operations.

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

2022-K

Index

management’s experience and assumptions, there is no certainty that the allowance for loan losses will be sufficient to cover actual loan losses. Actual loan losses in excess of the allowance for loan losses would negatively impact our financial condition and results of operations.

Changes in Interest Rates and Capital Markets. Our financial condition and results of operations are highly dependent upon the amount of the interest income we receive on our earning assets and the interest we pay for our funding and capital resources. Accordingly, changes in interest rates and capital markets can affect our financial condition and results of operations.

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

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

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

Financial Condition of New York State. The Company operates in the central and upstate regions of New York State. New York State is currently operating with significant budget deficits that have and are expected to continue to negatively affect the households, businesses and municipalities operating within the State. Many of the school districts, town and city governments and not-for-profit organizations who benefit from State funding to balance their operating budget or finance an infrastructure improvement are our customers. Reductions in funding from New York State to these entities can negatively impact the operations and credit-worthiness of these customers, and potentially, our results of operation, particularly if an investment security we hold, issued by a New York State municipality, were to be downgraded or the issuer defaulted on its debt payments.

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

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

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

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

Dividend Policy. The Company historically has paid a quarterly dividend to its common stockholders. A reduction or discontinuation of this practice could negatively affect the value of our common stock.

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

2123-K

Index

Changes to the Markets or Exchanges On Which the Company’s Common Shares Are Traded. The Company’s common shares trade on the NYSE Amex. Changes to the NYSE Amex trading practices or systems, reputation or financial condition, or rules which govern trading on the NYSE Amex may impact our shareholders’ ability to buy or sell their common shares at a suitable price. In addition, the Company’s common stock is included in the broad-market Russell 3000 Index®. In the event the Company’s common stock was dropped from inclusion in the Russell 3000 Index® it could negatively affect the market price and liquidity of the stock.

Goodwill Impairment. Annually, we evaluate goodwill for impairment. In addition, if our common stock were to trade consistently below book value, or other triggering events were to occur, we would re-evaluate the amount of goodwill and any related impairment. If impairment is warranted, the amount would be recorded through the income statement as a reduction to current period earnings.

ITEM 1B: UNRESOLVED STAFF COMMENTS

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

ITEM 2: PROPERTIES

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

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

ITEM 3: LEGAL PROCEEDINGS

~~From~~On ~~time to~~November ~~time~~3, ~~the~~2010, ~~Company~~a ~~becomes~~shareholder ~~subject~~of toWilber ~~various~~filed ~~legal~~a ~~claims~~lawsuit ~~that arise~~ in the ~~normal~~ ~~course~~New ofYork ~~business~~Supreme Court. AtOn ~~December~~November 3117, ~~2009~~2010, ~~the~~another ~~Company~~shareholder ~~was~~filed ~~not the~~a ~~subject~~lawsuit ~~of any material pending legal proceedings, other than ordinary routine litigation occurring~~ in the ~~normal~~New ~~course~~York ofSupreme ~~its business~~Court. ~~The~~Both ~~various~~lawsuits ~~pending~~were ~~legal~~brought ~~claims~~on ~~against~~behalf ~~the~~of ~~Company~~a ~~will not,~~putative inclass ~~the opinion~~ of ~~management~~Wilber’s ~~based~~common ~~upon~~shareholders ~~consultation with legal counsel, result in any material liability to the Company~~ and ~~will~~seek ~~not~~an ~~materially~~order ~~affect our~~that ~~financial~~they ~~position,~~are ~~results~~properly ofmaintainable ~~operations~~as orclass ~~cash flow~~actions.

Both complaints name Wilber, Wilber’s Directors, and CBSI as defendants and allege that the Director Defendants breached their fiduciary duties by failing to maximize shareholder value in connection with the Merger and allege that CBSI aided and abetted those alleged breaches of fiduciary duty. The complaints allege that the Director Defendants improperly favored CBSI and discouraged alternative bids by agreeing to the Merger Agreement’s non-solicitation provision and termination fee provision. Plaintiffs allege that pursuant to the Merger Agreement, CBSI agreed to appoint two of Wilber’s directors to the Boards of CBSI and Community Bank N.A. effective upon the closing of the Merger. Plaintiffs further allege that CBSI agreed to establish an advisory board of Community Bank N.A, made up of the current directors of Wilber. The complaints also allege that the directors and officers of Wilber entered into voting agreements to vote their shares of Wilber common stock in favor of the Merger Agreement. In addition, the complaints allege that the consideration to be received by Wilber’s common shareholders is inadequate and unfair. The complaints seek declaratory and injunctive relief to prevent the consummation of the Merger, a constructive trust over any benefits improperly received by defendants, and costs including plaintiffs’ attorneys’ and experts’ fees.

CBSI and Wilber have answered the complaints and moved for summary judgment dismissing the cases. The Plaintiff in the first action has served discovery demands requesting the production of documents by Defendants. The Plaintiffs have moved to consolidate these two lawsuits into one action. The Plaintiffs have moved for leave to amend their complaints, to file one consolidated amended complaint. The Plaintiffs also seek permission to file an amended pleading given that the Form S-4 Registration Statement is already filed. Each of Community Bank System and Wilber believes the claims asserted are without merit and intends to vigorously defend against these lawsuits.

Also from time to time, the Company becomes subject to various legal claims that arise in the normal course of business. At December 31, 2010, the Company was not the subject any other material pending legal proceedings, other than ordinary routine litigation occurring in the normal course of its business. These other 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, nor any of the Bank’s subsidiaries have been subject to review by the Internal Revenue Service of any transactions that have been identified as abusive or that have a significant tax avoidance purpose.

ITEM 4. REMOVED AND RESERVED

24-K

Index

PART II

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

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

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

Common Stock Market Price and Dividend Table:

	2009						2008
	2010						2009
	High		Low		Dividend		High		Low		Dividend
4th Quarter	$	811.6535	$	5.5293	$	0.~~060~~000	$	78.9065	$	5.5452	$	0.~~095~~060
3rd Quarter	$	126.0040	$	75.7656	$	0.060	$	812.9800	$	7.7076	$	0.~~095~~060
2nd Quarter	$	147.1500	$	65.7860	$	0.060	$	914.0015	$	86.3178	$	0.~~095~~060
1st Quarter	$	8.4002	$	6.7121	$	0.~~095~~060	$	98.1040	$	86.5271	$	0.095

~~22-K~~At March 24, 2011, there were 480 holders of record of our common stock (excluding beneficial owners who hold their shares in nominee name through brokerage accounts). The closing price of the common stock at March 24, 2011 was $9.32 per share.

Index

At March 9, 2010, there were 523 holders of record of our common stock (excluding beneficial owners who hold their shares in nominee name through brokerage accounts). The closing price of the common stock at March 9, 2010 was $6.63 per share.

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

B. Use of Proceeds from Registered Securities

None.

C. Purchases of Equity Securities by Issuer and Affiliated Purchasers

None.

ITEM 6: SELECTED FINANCIAL DATA

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

2325-K

Index

Five-Year Summary Table of Selected Financial Data:

The Wilber Corporation and Subsidiary	As of and for the Year Ended December 31,
	2009			2008			2007			2006			2005
	2010			2009			2008			2007			2006
	(in thousands, except per share data)
Consolidated Statements of Income Data:
Interest and Dividend Income	$	4642,~~838~~194		$	46,~~392~~838		$	46,~~030~~392		$	4346,~~341~~030		$	4043,~~310~~341
Interest Expense		1411,~~502~~442			1914,~~958~~502			2119,~~474~~958			1821,~~360~~474			1418,~~930~~360
Net Interest Income		3230,~~336~~752			2632,~~434~~336			2426,~~556~~434			24,~~981~~556			2524,~~380~~981
Provision for Loan Losses		3,~~570~~825			13,~~530~~570			~~900~~1,530			~~1,560~~900			1,~~580~~560
Net Interest Income After Provision for Loan Losses		2826,~~766~~927			2428,~~904~~766			2324,~~656~~904			23,~~421~~656			23,~~800~~421
Noninterest Income (Excl. Investment Securities Gains, Net)		5,~~484~~697			65,~~227~~484			6,~~956~~227			56,~~455~~956			5,~~156~~455
Investment Securities Gains, Net		34,~~850~~632			823,850			8082			~~514~~80			~~469~~514
Noninterest Expense		28,~~110~~690			2328,~~724~~110			2023,~~857~~724			20,~~032~~857			1820,~~966~~032
Income Before Provision for Income Taxes		98,~~990~~566			79,~~489~~990			97,~~835~~489			9,~~358~~835			109,~~459~~358
Provision for Income Taxes		2,~~589~~242			12,~~673~~589			21,~~128~~673			2,~~206~~128			2,~~715~~206
Net Income	$	76,~~401~~324		$	57,~~816~~401		$	75,~~707~~816		$	7,~~152~~707		$	7,~~744~~152
Per Common Share:
Earnings (Basic)	$	0.70		$	0.55		$	0.73		$	0.66		$	0.69
Earnings (Basic and Diluted)	$	0.59		$	0.70		$	0.55		$	0.73		$	0.66
Cash Dividends		0.~~275~~18			0.~~380~~275			0.380			0.380			0.380
Book Value		6.8297			6.4282			6.6142			56.9961			65.0899
Tangible Book Value ¹		6.3954			56.9739			65.1397			56.5213			5.6152
Consolidated Period-End Balance Sheet Data:
Total Assets	$	~~906~~869,~~577~~386		$	~~924~~906,~~874~~933		$	~~793~~924,~~680~~874		$	~~761~~793,~~981~~680		$	~~752~~761,~~728~~981
Securities Available-for-Sale		~~173~~204,~~302~~782			~~216~~173,~~744~~302			~~237~~216,~~274~~744			~~228~~237,~~959~~274			~~235~~228,~~097~~959
Securities Held-to-Maturity		6962,~~391~~961			4469,~~454~~391			5244,~~202~~454			6252,~~358~~202			5462,~~939~~358
Gross Loans		~~587~~522,~~237~~416			~~583~~587,~~861~~237			~~445~~583,~~105~~861			~~406~~445,~~920~~105			~~404~~406,~~958~~920
Allowance for Loan Losses		89,~~622~~657			78,~~564~~622			67,~~977~~564			6,~~680~~977			6,~~640~~680
Deposits		~~753~~716,~~740~~447			~~765~~753,~~873~~740			~~657~~765,~~494~~873			~~629~~657,~~044~~494			~~604~~629,~~958~~044
Long-Term Borrowings		6055,~~627~~972			5960,~~970~~939			4159,~~538~~970			4241,~~204~~538			5242,~~472~~204
Short-Term Borrowings		1215,~~650~~960			2112,~~428~~650			1521,~~786~~428			1815,~~459~~786			1918,~~357~~459
Shareholder's Equity		7274,~~919~~725			6772,~~459~~919			6967,~~399~~459			6369,~~332~~399			6763,~~717~~332
Selected Key Ratios:
Return on Average Assets		0.7969	%		0.6779	%		0.9967	%		0.9599	%		10.0295	%
Return on Average Equity		108.6329	%		810.3563	%		118.8435	%		11.2084	%		11.4020	%
Net Interest Margin (tax-equivalent)		3.7764	%		3.4677	%		3.6246	%		3.8162	%		3.8281	%
Efficiency Ratio ²		7175.2594	%		6871.4225	%		6168.7642	%		61.1476	%		5761.6714	%
Dividend Payout		3930.2951	%		6939.0929	%		5269.0509	%		5752.5805	%		5557.0758	%
Asset Quality:
Nonperforming Loans ³		1219,~~880~~960			712,~~211~~880			67,~~136~~211			26,~~529~~136			42,~~918~~529
Nonperforming Assets ⁴		1421,~~564~~872			714,~~369~~564			67,~~383~~369			26,~~632~~383			42,~~938~~632
Net Loan Charge-Offs to Average Loans		0.4250	%		0.1942	%		0.1419	%		0.3814	%		0.3038	%
Allowance for Loan Losses to Period-End Loans		1.4785	%		1.3047	%		1.5730	%		1.6457	%		1.64	%
Allowance for Loan Losses to Nonperforming Loans		6748	%		~~105~~67	%		~~114~~105	%		~~264~~114	%		~~135~~264	%
Nonperforming Loans to Period-End Loans		23.1982	%		12.2419	%		1.3824	%		01.6238	%		10.2162	%

¹	Tangible book value numbers exclude goodwill and intangible assets associated with prior business combinations.
²	The efficiency ratio is calculated by dividing total noninterest expense less amortization of intangibles and other real estate expense by tax-equivalent net interest income plus noninterest income other than securities gains and losses.
³	Nonperforming loans include nonaccrual loans, troubled debt restructured loans and accruing loans 90 days or more delinquent.
⁴	Nonperforming assets include nonperforming loans and OREO properties acquired through insubstance foreclosure, voluntary deed transfer, legal foreclosure or similar proceedings. Excludes properties acquired by the Company for its own development.

¹	Tangible book value numbers exclude goodwill and intangible assets associated with prior business combinations.

24² The efficiency ratio is calculated by dividing total noninterest expense less amortization of intangibles and other real estate expense by tax-Kequivalent net interest income plus noninterest income other than securities gains and losses.

³	Nonperforming loans include nonaccrual loans, troubled debt restructured loans and accruing loans 90 days or more delinquent.

⁴	Nonperforming assets include nonperforming loans and OREO properties acquired through foreclosure, voluntary deed transfer or similar proceedings.

26-K

Index

Table of Selected Quarterly Financial Data:

	2009												2008
	2010												2009
Selected Unaudited Quarterly Financial Data	Fourth			Third			Second			First			Fourth			Third			Second			First
	Fourth			Third			Second			First			Fourth			Third			Second			First
	(in thousands)
Interest income	$	119,~~448~~926		$	1110,~~858~~473		$	1110,~~765~~804		$	1110,~~767~~991		$	11,~~890~~448		$	11,~~804~~858		$	11,~~298~~765		$	11,~~400~~767
Interest expense		2,~~938~~745			32,~~263~~884			32,~~826~~942			42,~~475~~871			42,~~804~~938			43,~~960~~263			43,~~939~~826			54,~~255~~475
Net interest income		87,~~510~~181			87,~~595~~589			7,~~939~~862			78,~~292~~120			78,~~086~~510			68,~~844~~595			67,~~359~~939			67,~~145~~292
Provision for loan losses		~~850~~400			~~570~~750			~~950~~1,875			~~1,200~~800			~~630~~850			~~500~~570			~~175~~950			~~225~~1,200
Net interest income afterprovision for loan losses		7,660			8,025			6,989			6,092			6,456			6,344			6,184			5,920
Net interest income after provision for loan losses		6,781			6,839			5,987			7,320			7,660			8,025			6,989			6,092
Investment security gains(losses), net		1,228			1,172			1,009			441			4			(86	)		(19	)		183
Investment security gains, net		941			1,944			1,120			627			1,228			1,172			1,009			441
Other noninterest income		1,~~451~~578			1,~~425~~432			1,~~418~~359			1,~~190~~328			1,~~298~~451			1,~~460~~425			21,~~122~~418			1,~~347~~190
Noninterest expense		7,~~494~~908			76,~~049~~826			7,~~186~~133			6,~~381~~823			57,~~719~~494			67,~~001~~049			67,~~381~~186			56,~~623~~381
Income before income tax expense		21,~~845~~392			3,~~573~~389			21,~~230~~333			12,~~342~~452			2,~~039~~845			13,~~717~~573			12,~~906~~230			1,~~827~~342
Income tax expense		~~844~~333			~~839~~1,003			~~637~~218			~~269~~688			~~451~~844			~~334~~839			~~499~~637			~~389~~269
Net income	$	21,~~001~~059		$	2,~~734~~386		$	1,~~593~~115		$	1,~~073~~764		$	12,~~588~~001		$	12,~~383~~734		$	1,~~407~~593		$	1,~~438~~073
Basic earnings per share	$	0.1910		$	0.2622		$	0.1510		$	0.1016		$	0.1519		$	0.1326		$	0.1315		$	0.1410
Basic weighted average sharesoutstanding		10,582,917			10,512,987			10,503,704			10,503,704			10,503,704			10,503,704			10,503,704			10,503,704
Basic weighted average shares outstanding		10,719,382			10,715,841			10,707,015			10,698,126			10,582,917			10,512,987			10,503,704			10,503,704
Net interest margin (tax equivalent) ¹		43.0148	%		3.9256	%		3.6761	%		3.4690	%		34.5401	%		3.4892	%		3.3667	%		3.4246	%
Return on average assets		0.8769	%		1.1504	%		0.6848	%		0.4777	%		0.7187	%		01.6315	%		0.6668	%		0.7147	%
Return on average equity		105.9037	%		1512.5917	%		95.3496	%		69.4468	%		910.0990	%		715.9359	%		89.0834	%		86.3044	%
Efficiency ratio ²		7280.2457	%		6773.5595	%		7375.7037	%		7168.7478	%		6472.6424	%		6867.1655	%		7073.8870	%		7071.1074	%

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

25² The efficiency ratio is calculated by dividing total noninterest expense less amortization of intangibles, other real estate and merger expenses by tax-Kequivalent net interest income plus noninterest income other than securities gains and losses

27-K

Index

ITEM 7:

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

A. General

The primary objective of this financial review is to provide an overview of the financial condition and results of operations of The Wilber Corporation and its subsidiary for each of the years in the two-year period ended December 31, ~~2009~~ 2010. This discussion and tabular presentations should be read in conjunction with the accompanying Consolidated Financial Statements and Notes presented in PART II, Item 8, of this document.

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

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

Our policy on the allowance for loan losses is disclosed in Note 16 of the Consolidated Financial Statements. A more detailed description of the allowance for loan losses is included in PART II, Item 7 C.i., of this document. All accounting policies are important, and as such, we encourage the reader to review each of the policies included in Note 1 of the Consolidated Financial Statements (provided in PART II, Item 8, of this document) to obtain a better understanding of how our financial performance is reported.

Recently Issued Accounting Pronouncements not Yet Adopted. InASU ~~June~~2010-28, ~~2009~~When ~~the~~to ~~FASB~~Perform ~~issued two~~Step ~~new~~2 ~~accounting~~of ~~standards,~~the ~~which~~Goodwill ~~change~~Impairment ~~the~~Test ~~way~~for ~~entities~~Reporting ~~account~~Units ~~for securitizations~~with ~~and~~Zero ~~special~~or ~~purpose~~Negative ~~entities. The first~~Carrying ~~standard enhances~~Amounts, ~~the~~an ~~reporting for~~amendment ~~transfers~~to ofASC ~~financial~~Topic ~~assets~~350, ~~including securitization~~Intangibles-Goodwill ~~transactions~~and Other, was issued in December 2010. ItThe ~~also~~update ~~requires~~was ~~companies~~intended to ~~report where~~address ~~they~~entities ~~have~~with ~~continuing~~zero ~~exposure~~or negative carrying amounts because some entities came to the ~~risks~~conclusion ~~related~~that toStep ~~transferred financial~~1 ~~assets~~of ~~and~~the ~~eliminates~~goodwill impairment test passed because the ~~concept~~fair value of atheir ~~"qualifying~~reporting ~~special-purpose entity~~unit will generally be greater than zero." InThis ~~addition, it~~update ~~changes~~would ~~the~~require ~~requirements~~that for ~~derecognizing~~ ~~financial~~those ~~assets~~reporting ~~and~~units ~~requires~~where ~~additional~~the ~~disclosures~~carrying ~~about~~amounts ~~all continuing~~are ~~involvements~~zero ~~with~~or ~~transferred~~negative ~~financial~~and ~~assets,~~qualitative ~~including~~factors ~~information about~~indicate ~~gains~~that, ~~and~~it ~~losses~~is ~~resulting~~more ~~from~~likely ~~transfers~~than ~~during~~not ~~the period. This~~that ~~standard~~an ~~also~~impairment ~~requires~~may ~~additional~~exist, ~~year-end~~the ~~and~~second ~~interim disclosures. It~~step ~~became~~of ~~effective~~impairment ~~for~~testing ~~our~~is ~~Company~~required onto ~~January~~be 1,performed. The ~~2010 and~~qualitative ~~must~~factors to be ~~applied~~considered toare ~~transfers~~consistent ~~that~~with ~~occurred~~the ~~before~~current ~~and~~interim ~~after~~impairment ~~its~~triggers ~~effective date~~for goodwill. ~~Based~~This onupdate ~~our~~is ~~current~~effective ~~activities~~for public entities, ~~adoption~~for offiscal ~~this~~years ~~standard~~and ~~had no~~interim ~~impact~~periods onwithin ~~our~~those ~~financial~~years, ~~condition~~beginning orafter ~~results~~December of15, ~~operation~~2010. Early adoption is not permitted.

~~The second~~ASU ~~new~~No. ~~standard~~2010-29, ~~amends~~Disclosure aof ~~previous~~Supplementary ~~standard~~Pro toForma ~~change~~Information ~~how~~for aBusiness ~~company determines~~Combinations, ~~when~~ an amendment ~~entity~~to ~~that~~ASC isTopic ~~insufficiently~~805, ~~capitalized~~Business orCombinations iswas ~~not controlled~~issued ~~through~~in ~~voting~~December ~~(or~~2010. The ~~similar~~update ~~rights)~~specifies ~~should~~that beif ~~consolidated. The determination~~a ofpublic ~~whether~~entity apresents ~~company~~comparative isfinancial ~~required~~statements, tothe ~~consolidate~~entity an(acquirer) ~~entity~~should isdisclose ~~based on,~~revenue ~~among~~and ~~other~~earnings ~~things,~~of anthe combined entity’s ~~purpose~~as ~~and~~though ~~design~~the ~~and~~business ~~a company’~~combination(s) ~~ability to~~that ~~direct~~occurred during the ~~activities~~current year had occurred as of the ~~entity~~beginning ~~that~~of ~~most~~the ~~significantly~~comparable ~~impact~~prior ~~the entity’s~~annual ~~economic~~reporting ~~performance~~period only. ~~This~~ ~~standard~~It also ~~requires~~expands ~~additional disclosures~~the ~~about~~supplemental ~~the~~pro ~~reporting~~forma ~~entity’s~~disclosures ~~involvement~~under ~~with~~ASC ~~variable-interest entities~~Topic ~~and~~805 ~~any~~to ~~significant~~include ~~changes~~a indescription ~~risk~~of ~~exposure~~the ~~due~~nature toand ~~that~~amount ~~involvement~~of ~~as well~~material, asnonrecurring ~~its~~pro ~~effect~~forma onadjustments directly attributable to the ~~entity’s~~business ~~financial~~combination ~~statements. This standard~~included ~~also~~in ~~requires~~the ~~additional~~reported ~~year-end~~pro forma revenue and ~~interim disclosures~~earnings. It ~~became~~This update is effective prospectively for ~~our~~business ~~Company~~combinations onfor ~~January~~which ~~1, 2010. Based~~the acquisition date is on ~~our~~or ~~current~~after ~~activities,~~the ~~adoption~~beginning of ~~this~~the ~~standard~~first ~~had no~~annual ~~impact~~reporting onperiod ~~our~~beginning ~~financial~~on ~~condition~~ or ~~results~~after ofDecember ~~operation~~15, 2010.

2628-K

Index

~~In January~~ASU ~~2010~~No. ~~FASB~~2011-01, ~~issued~~Deferral aof ~~clarification~~the ~~and~~Effective ~~amendment~~Date toof ~~its~~Disclosures ~~accounting standard~~about ~~regarding~~Troubled ~~disclosure~~Debt ofRestructurings ~~assets~~in ~~and~~Update ~~liabilities~~No. ~~measured~~2010-20, atan ~~fair value. The~~ amendment ~~requires companies~~ to ~~provide~~ASC aTopic ~~separate disclosure~~310, ~~for~~Receivables ~~transfers~~was issued in ~~and~~January ~~out~~2011. The ofupdate ~~Levels~~temporarily 1delays ~~and~~the 2,effective ~~including~~date afor ~~description~~ public entities of the ~~reasons~~disclosures for ~~the~~troubled ~~transfer. It~~debt ~~also~~restructurings ~~requires companies to report activity~~ in ~~Level~~ASU 32010-20, ~~fair~~Disclosures ~~value~~about ~~measurements~~the onCredit aQuality ~~gross~~of ~~basis,~~Financing ~~including information~~Receivables ~~about~~and ~~purchases,~~the ~~sales,~~Allowance ~~issuances~~for ~~and~~Credit ~~settlements~~Losses. The ~~amendments~~ ~~also~~delay ~~clarify~~is ~~existing~~intended ~~disclosures~~to ~~related~~allow the Board time to ~~disaggregated~~complete ~~reporting, model~~its ~~inputs~~deliberations ~~and~~on ~~valuation~~what ~~techniques. The~~constitutes ~~new~~a ~~disclosures~~troubled ~~are~~ debt restructuring. The effective ~~for~~date of the ~~first~~new ~~quarter~~disclosures ofabout ~~2010,~~troubled ~~except~~debt ~~for~~restructurings and the ~~gross~~guidance ~~reporting~~for ofdetermining ~~Level 3~~what ~~activity,~~constitutes ~~which~~a istroubled ~~effective~~debt ~~beginning~~restructuring ~~the~~will ~~first~~then ~~quarter~~be ~~of 2011~~coordinated. ~~Upon~~ ~~implementation~~Currently, ~~these~~that ~~amendments~~guidance ~~may~~is ~~result~~anticipated into ~~additional disclosures~~be ineffective ~~our~~for interim and annual ~~reports~~periods ending after June 15, 2011.

B. Performance Overview for the Year Ended December 31, ~~2009~~2010

Most of our earnings performance measures ~~improved~~weakened ~~during~~in ~~2009~~2010, as compared to ~~2008~~2009, including, net income, earnings per share, return on assets and return on equity. We recorded $76.~~401~~324 million in net income during ~~2009~~2010, as compared to $57.~~816~~401 million in ~~2008~~2009, a $1.~~585~~077 million or 2714.36% ~~increase~~decrease between comparable periods. Similarly, earnings per share ~~increased~~decreased $0.1511 per share or 27 15.37%, from $0.5570 in ~~2008~~2009 to $0.7059 in ~~2009~~2010. During ~~2009~~2010 return on assets and return on equity were 0.7969% and 108.6329%, respectively, as compared to 0.6779% and 810.3563% during ~~2008~~2009, respectively. The ~~improvements~~decrease in these key performance measures were largely driven by ~~significant~~a ~~improvements~~decrease in net interest income and to a lesser extent an increase in noninterest ~~income,~~expense driven by a substantial increase in professional fees. These factors were offset, in part, by ~~significant increases~~an increase in ~~the~~noninterest ~~provision~~income, ~~for~~due ~~loan~~principally ~~losses~~to ~~and~~an ~~noninterest~~increase ~~expense~~in investment securities gains between comparable years.

~~During 2009,~~Several factors contributed to the decrease in net interest income ~~improved~~between ~~significantly~~2010 and 2009. During 2010 the nominal level of market interest rates remained low due to anthe ~~increase~~weak instate of the ~~average~~ ~~volume~~national economy. This interest rate environment drove down the yield on both of our key earning asset portfolios, namely loans ~~outstanding~~and investments, as existing variable rate loans repriced and payments on fixed-rate loans were replaced with new loans at lower rates of interest. Second, during 2010 we sold significant amounts of our ~~highest~~available-for-sale ~~yielding~~investment ~~earning~~securities ~~asset~~portfolio to increase noninterest income and improve our regulatory capital ratios. The reinvestment yields on these proceeds were generally lower than the yields on the maturing and sold amounts. Third, during 2010 the amount of nonaccrual loans and nonperforming assets increased causing a ~~significant~~ ~~decrease~~reduction in interest income. Fourth, the ~~expense~~average ~~recorded~~balance onof our ~~interest-bearing~~overnight ~~liabilities due~~funds, ~~primarily~~a low yield asset, increased between periods as we targeted higher levels of balance sheet liquidity. Fifth, and most significantly, we reduced the level of earning assets throughout 2010, in connection with our strategy to deleverage the Company’s balance sheet to meet targeted capital objectives. In 2010, we maintained $873.579 million in average earning assets, versus $896.548 million in average earning assets during 2009, a ~~general~~$22.969 ~~decline~~million or 2.6% decrease between comparable years. These factors were offset, in ~~deposit~~part, by lower funding costs resulting in a $1.584 million or 4.9% decrease in net interest income between comparable periods.

The increase in noninterest income between ~~2008~~2009 and ~~2009~~2010 was largely attributed to a significant increase in net investment securities gains. As interest rates ~~dropped in 2008 and~~ remained low during ~~2009~~2010, the market value on many of our available-for-sale investment securities increased. We sold or had called $~~120~~171.~~286~~769 million of these available-for-sale securities throughout ~~2009~~ 2010 and recorded net investment securities gains totaling $34.~~676~~542 million, a an $~~3.166~~866 ~~million~~thousand increase over ~~2008. We~~2009 ~~sold~~during ~~primarily~~which ~~mortgage-backed securities~~time ~~where~~we ~~underlying~~sold ~~mortgage~~or ~~rates~~had ~~were~~called 6%$120.286 ormillion ~~higher,~~of ~~anticipating~~available-for-sale ~~that market~~securities ~~values~~and ~~would~~recorded ~~decline~~net ~~due~~investment tosecurities ~~high~~gains ~~levels~~totaling of$3.676 ~~refinancing~~million.

During ~~2009~~ 2010, we recorded $3.~~570~~825 million in the provision for loan losses, as compared to $13.~~530~~570 million in ~~2008~~2009, a $~~2.040~~255 ~~million~~thousand or 7.1% increase between the annual periods. The ~~significant~~ increase in the provision for loan losses between the periods was attributable to a decline in the general credit quality of our loan portfolio between the periods, charge-offs and other asset quality indicators.

Total noninterest expense increased from $2328.~~724~~110 million in ~~2008~~2009 to $28.~~110~~690 million in ~~2009~~ 2010, a $~~4.386~~580 ~~million~~thousand or 182.51% increase between the periods. We recorded a $1.~~981~~132 million or 120.4% increase in ~~our~~professional ~~FDIC~~fees ~~premium~~between ~~assessment~~2009 and $12010.~~175 million~~ We attribute the increase in ~~employee~~professional ~~benefits~~fees ~~expense~~to ~~due~~(i) tothe ~~both~~increase ~~increased~~in ~~pension~~problems loans and ~~split-dollar~~ ~~life~~the ~~insurance~~related ~~buy-out~~legal ~~settlement~~and ~~costs~~other services required to pursue appropriate remedies with the problem borrowers, ~~between~~(ii) ~~2008~~the significant amount of legal expenses incurred in connection with our anticipated merger with CBSI, and ~~2009~~ (iii) legal and professional services incurred to meet the objectives of the Formal Agreement with the OCC.

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

C. Financial Condition

i. Comparison of Financial Condition at December 31, ~~2009~~2010, and December 31, ~~2008~~ 2009

29-K

Index

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

Summary of Financial Condition

Due to generally weak economic conditions and deteriorating asset quality during ~~2009~~2010, we curbed our asset growth rate targets, deleveraged the balance sheet and focused the Company’s resources on increasing ~~current~~shareholders’ ~~period~~equity, ~~net income~~as ~~and~~well ~~shareholders~~as the Bank’s ~~equity~~regulatory capital ratios. Due to these efforts, total assets decreased ~~from~~ $~~924~~37.~~874~~547 million ator ~~December 31~~4.1%, ~~2008~~from to $906.~~577~~933 million at December 31, 2009, anto $18869.~~297~~386 million orat ~~2.0%~~December ~~decrease~~31, 2010. Conversely, shareholders’ equity increased $51.~~460~~806 million or 82.15%, from $6772.~~459~~919 million at December 31, ~~2008~~2009 to $7274.~~919~~725 million at December 31, 2010. Similarly, the Bank’s tier 1 leverage ratio, tier 1 risk-based capital ratio and total risk based capital ratio increased to 8.45%, 13.22% and 14.48%, respectively, for the period ended December 31, 2010, as compared to 7.72%, 11.34% and 12.59%, respectively, for the period ended December 31, 2009.

~~Between December~~The ~~31,~~credit ~~2008~~quality ~~and~~of ~~2009~~our loan portfolio weakened during 2010. Most notably, the level of nonperforming loans, ~~potential~~which ~~problem loans,~~include ~~delinquent~~nonaccrual loans, ~~impaired~~ loans ~~and~~90 ~~net~~days ~~charge-offs increased. Although~~or wemore ~~did~~past ~~not~~due ~~originate~~and orstill ~~hold~~accruing ininterest, ~~the~~and ~~normal~~troubled ~~course of~~debt ~~our~~restructured ~~business~~loans, ~~subprime~~increased $7.080 million or ~~Alt-A~~55.0% ~~residential~~during ~~mortgage~~2010, ~~loans~~from or$12.880 ~~investment securities~~million ~~backed~~at byDecember ~~subprime~~31, or2009 ~~Alt-A~~to ~~mortgage~~$19.960 ~~loans,~~million ~~and~~at ~~have~~December ~~not~~31, ~~experienced any~~2010. At ~~significant~~December ~~losses~~30, ~~due~~2010, tothe ~~these~~total ~~practices,~~nonperforming ~~during~~loans ~~2009~~as wea ~~recorded~~percentage ~~increases in~~of ~~net~~total ~~loan~~loans ~~charge-offs~~outstanding onwere ~~our~~3.82%. This ~~consumer~~compares ~~installment~~to ~~loans~~2.19% ~~(primarily~~at ~~secured~~December ~~by automobiles)~~31, ~~commercial~~2009. ~~loans~~Of ~~and~~the ~~commercial~~$19.960 ~~real~~million ~~estate~~of nonperforming loans, 99. ~~Due to~~4% ~~the~~or ~~economic~~$19.833 ~~recession,~~million ~~increased~~was ~~rates~~classified ofas ~~unemployment~~nonaccrual. In ~~and~~total, aat ~~decline~~December in31, ~~the operating~~2010 ~~performance~~we ofclassified ~~many~~94 ofloans ~~our~~to ~~commercial~~72 borrowers’ ~~business~~or ~~operations, the~~group ~~overall quality~~ of ~~our~~related ~~portfolio~~borrowers ~~declined~~as ~~during 2009~~nonaccrual. IfThis ~~the credit~~included ~~quality~~6 ofborrowers ~~the~~with ~~loan~~total ~~portfolio~~indebtedness ~~weakened~~to ~~further,~~us itin ~~could~~excess ~~negatively affect the results~~ of ~~operations~~$1.0 inmillion, ~~future~~as ~~periods~~nonaccrual.

~~27-K~~We monitor our liquidity position on a regular basis and do not unduly rely on the wholesale credit markets for our funding. The substantial majority of our funding is provided through customer deposits. Although liquidity remained strong throughout 2010, we were advised by two of our correspondent banks that our line of credit was terminated due to the Bank’s Formal Agreement with OCC and the related “troubled condition” status. In particular, one of our correspondent banks provided a $12.0 million unsecured overnight demand borrowing facility that could be accessed upon request. Although the line was rarely utilized the correspondent bank provided notice that the facility was no longer available. Secondly, we maintained a credit facility with a broker deposit network that would allow us to purchase brokered deposits up to 10% of the Bank’s total assets, approximately $90 million. This facility was terminated upon announcement of our Formal Agreement with the OCC. For these reasons, we maintained greater amounts of overnight funds at the Federal Reserve Bank of New York throughout 2010. We maintained adequate amounts of liquidity to fund our business operations throughout 2010 and expect this condition to be maintained throughout 2011.

Index

We monitor our liquidity position on a regular basis and do not unduly rely on the wholesale credit markets for our funding. The substantial majority of our funding is provided through customer deposits. For these reasons, we maintained adequate amounts of liquidity to fund our business operations throughout 2009 and expect this condition to be maintained in 2010 and beyond.

Asset Composition

Our assets are comprised of earning and nonearning assets. Earning assets include our investment securities, performing loans, interest-bearing deposits at other banks and federal funds sold. Nonearning assets include OREO and other assets acquired as the result of repossession or foreclosure, ~~nonperforming~~ ~~loans,~~ facilities, equipment, goodwill and other intangibles, noninterest bearing deposits at other banks and cash. We generally maintain approximately 92% to 96% of our total assets in earning ~~assets. During~~ ~~2009 the composition of our~~ assets ~~did not change significantly~~. The average earning assets to average total assets ratio atfor the twelve-month period ended December 31, ~~2009~~2010 was 95.84%, as compared to 9596.23% atfor the twelve-month period ended December 31, ~~2008~~2009. ~~The~~During ~~total~~2010 ~~loans~~the ~~to total~~composition ~~assets~~of ~~ratio~~our ~~was~~earning 64assets changed moderately.8% In atparticular, ~~December~~in 31connection with our plan to deleverage the Company’s balance sheet, ~~2009~~lower our credit risk profile and improve our regulatory capital ratios, aswe ~~compared~~reduced tothe ~~63.1%~~average ~~at December~~outstanding 31balance of our loan portfolio throughout 2010, ~~2008. The~~increased the average outstanding balance in interest bearing deposits at other banks to improve on balance sheet liquidity (our overnight cash position) and increased the average outstanding balance of our investment securities portfolio, including trading, available-for-sale, held-to-maturity and other investments~~, comprised 27~~.6% The ofearning ~~our~~asset ~~total~~composition ~~assets~~table atbelow ~~December~~summarizes ~~31,~~the ~~2009,~~Company’s ~~versus~~primary ~~29.0%~~earning atasset composition for the twelve-month periods ended December 31, ~~2008~~ 2010 and 2009.

30-K

Index

Earning Asset Composition Table:

	2010					2009
	Average Outstanding Balance		Percent of Average Total Assets			Average Outstanding Balance		Percent of Average Total Assets


	(in thousands)
Average total assets	$	915,642				$	931,471
Average earning assets		873,579		95.4	%		896,548		96.2	%
Average overnight funds ¹		39,182		4.3	%		28,230		3.0	%
Average loans outstanding		558,911		61.0	%		598,359		64.2	%
Average investment securities outstanding		275,486		30.1	%		269,959		29.0	%

¹ Includes interest bearing bank balances and federal funds sold.

Total Assets

At Total assets decreased $37.547 million or 4.1% between December 31, 2010 and December 31, 2009. At December 31, 2010 total assets were $~~906~~869.~~577~~386 million. This compares to total assets of $~~924~~906.~~874~~933 million at December 31, ~~2008~~2009. During ~~2009~~ 2010, we tempered our asset growth plan and actively deleveraged the Company. This entailed targeting strategic reductions in the Company’s total deposits and borrowings in concert with decreases in selected asset categories, namely loans, particularly those with higher credit risk characteristics. The deleveraging plan was executed in an effort to mitigate credit risk and increase ~~our~~the Bank’s regulatory capital ~~position~~ratios in light of weaker asset quality and challenging economic conditions. By contrast, total assets increased $131.194 million or 16.5% during 2008 due to our expansion into new markets throughout the central and upstate New York marketplace and company-wide focus on growth. During ~~2009~~2010, deposit liabilities decreased $1237.~~133~~293 million or 1 4.69%, from $~~765~~753.~~873~~740 million at December 31, ~~2008~~2009 to $~~753~~716.~~740~~447 million at December 31, ~~2009~~2010. On a combined basis, short-term and long-term borrowings also decreased $81.~~121~~657 million or 102.03% between December 31, ~~2008~~2009 and December 31, ~~2009~~2010. Our short-term borrowings consist of overnight repurchase agreements between the Bank and its business customers. We attribute this decrease to a reduction in our business customers’ working capital levels, and to a lesser extent, interest rates paid on our repurchase agreements.

Investment Securities

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

28-K

Index

Summary of Investment Securities:

	At December 31,
	2009				2008				2007
	2010				2009				2008
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(in thousands)
Trading ¹:	$	1,194	$	1,165	$	1,391	$	1,155	$	1,167	$	1,430
Trading¹:	$	1,030	$	1,068	$	1,194	$	1,165	$	1,391	$	1,155
Available-for-Sale:
Available-for-sale:
U.S. Treasuries	$	-	$	-	$	-	$	-	$	5,997	$	6,070
Obligations of States and Political Subdivisions	$	10,841	$	11,010	$	32,872	$	32,956	$	36,205	$	36,776
Obligations of U.S. Government Corporations and Agencies		-		-		-		-		7,997		8,015
Mortgage-Backed Securities		194,509		192,439		139,192		140,268		176,116		178,828
Obligations of States and Political Subdivisions (Municipal Bonds)		32,872		32,956		36,205		36,776		48,861		48,718
Corporate Securities		-		-				-		1,047		1,012
Mortgage - Backed Securities		139,192		140,268		176,116		178,828		172,719		171,395
Equity Securities		1,333		1,333		78		78		128		128
Corporate Securities		-		-		1,047		1,012		2,294		2,293
Total Available-for-Sale	$	206,683	$	204,782	$	172,142	$	173,302	$	213,496	$	216,744
Equity Securities		78		78		128		128		866		783
Held-to-maturity:
Total Available-for-Sale	$	172,142	$	173,302	$	213,496	$	216,744	$	238,734	$	237,274
Obligations of States and Political Subdivisions	$	9,200	$	9,405	$	14,407	$	14,678	$	13,961	$	14,146
Held-to-Maturity:
Mortgage-Backed Securities		53,761		54,628		54,984		55,469		30,493		30,863
Obligations of States and Political Subdivisions (Municipal Bonds)	$	14,407	$	14,678	$	13,961	$	14,146	$	17,874	$	18,018
Total Held-to-Maturity	$	62,961	$	64,033	$	69,391	$	70,147	$	44,454	$	45,009
Mortgage-Backed Securities		54,984		55,469		30,493		30,863		34,328		33,725
Total Held-to-Maturity	$	69,391	$	70,147	$	44,454	$	45,009	$	52,202	$	51,743

¹	These securities are held by the Company for its non-qualified Executive Deferred Compensation plan.

~~Between December~~ 31~~, 2008 and December 31, 2009, our total investment securities portfolio (including trading, available~~-for-sale, and held-to-maturity) decreased $18.495 million or 7.0%. During 2009 we received proceeds from sales, maturities and calls of securities totaling $190.319 million, versus new purchases of $170.862 million. During 2009, particularly during the third and fourth quarters, we actively reduced our total assets as part of our plan to deleverage the Company and improve our earnings and capital ratios. This included selling significant portions of our available-for-sale investment securities portfolio and realizing gains to increase net income and our regulatory capital levels. During 2009, we sold or had called $120.286 million of available-for-sale securities, which represented approximately 55% of our total available-for-sale securities balance at December 31, 2008. On a net basis, including purchases, sales and changes in fair value due to changes in market interest rates, the fair value of our available-for-sale securities portfolio decreased $43.442 million or 20.0% during 2009, from $216.744 million at December 31, 2008 to $173.302 million at December 31, 2009.K

The estimated fair value of the investment portfolio is largely dependent upon the interest rate environment at the time the market price is determined. As interest rates decline, the estimated fair value of bonds generally increases, and conversely, as interest rates increase, the estimated fair value of bonds generally decreases. At December 31, 2009, the net unrealized gain on the available-for-sale investment securities portfolio was $1.160 million. By comparison, at December 31, 2008, the net unrealized gain on the available-for-sale investment securities portfolio was $3.247 million. Although we sold or had called $120.286 million of available-for-sale securities throughout 2009 and recorded gains on the sale totaling $3.676 million, low market interest rates at December 31, 2009 resulted in a net unrealized gain on the available-for-sale securities portfolio.

During 2009 we continued to maintain a concentration in mortgage-backed securities. These included both mortgage pass-through securities and collateralized mortgage obligations. At the end of 2009, our mortgage-backed securities portfolio comprised 80.0% of the carrying value of our investment securities portfolio. This compares to 79.8% and 70.7% at the end of 2008 and 2007, respectively. Approximately 78.2% of our mortgage-backed securities were backed by the full faith and credit of the U.S. Government through a GinnieMae guarantee. Of the remaining 21.8% of our mortgage-backed securities portfolio, 19.9% (or $38.188 million at par value) was guaranteed by Fannie Mae and Freddie Mac, which are U.S. Government Sponsored Enterprises. Only 1.9% (or $3.621 million at par value) of the mortgage-backed securities portfolio was guaranteed by private-label issuers rated AAA and AA-1 by Moodys.

29-K

Index

~~Although 98.1%~~Between ofDecember 31, 2009 and December 31, 2010, our ~~mortgage-backed~~total investment securities ~~were~~portfolio ~~guaranteed~~(including bytrading, Uavailable-for-sale, and held-to-maturity) increased $24.S.953 ~~Government Agencies~~million ~~and~~or U10.S2%. During ~~Government~~2010 ~~Sponsored~~we ~~Enterprises~~received proceeds from sales, ~~they~~maturities ~~are~~and ~~susceptible~~calls ~~to prepayment~~of ~~risk~~securities totaling $240. ~~For~~956 ~~example~~million, ifversus ~~residential~~new ~~mortgage~~purchases ~~interest~~of ~~rates dropped~~$265.379 ~~significantly~~million. Throughout 2010, we actively reduced the ~~yield~~total onassets as part of our ~~mortgage-backed~~plan ~~securities~~to ~~would~~deleverage ~~likely decline~~the Company and increase our regulatory capital ratios. ~~When~~This ~~mortgage~~included ~~rates~~a ~~are~~reduction ~~low~~in loans to mitigate credit risk, ~~homeowners~~as ~~often~~well ~~refinance their~~as ~~existing~~selling ~~mortgage~~significant ~~loans~~portions orof ~~purchase~~our ~~new~~available-for-sale ~~homes. This~~investment ~~increases the~~securities ~~amount~~portfolio ofand ~~principal~~realizing ~~payments~~gains weto ~~receive~~increase onnet income and our ~~mortgage-backed~~regulatory ~~securities~~capital levels. On a net basis, ~~which~~ including purchases, sales and changes in ~~turn,~~fair ~~increases~~value due to changes in market interest rates, the ~~amount~~fair value of ~~net~~our ~~amortization~~available-for-sale ~~expense~~securities weportfolio ~~record~~increased as$31.480 ~~an offset~~million toor ~~interest~~18.2% ~~income~~during 2010, ~~thereby~~from ~~decreasing~~$173.302 ~~the~~million ~~yield~~at onDecember ~~these securities~~31, 2009 to $204.782 million at December 31, 2010.

The ~~overall~~ ~~credit~~estimated ~~quality~~fair value of ~~our~~the ~~debt~~investment ~~securities~~portfolio is ~~strong~~largely dependent upon the interest rate environment at the time the market price is determined. AtAs ~~December 31,~~interest ~~2009~~rates decline, ~~99.6%~~the ofestimated ~~the~~fair ~~securities~~value ~~held~~of inbonds ~~our~~generally ~~available-for-sale~~increases, and ~~held-to-maturity~~ ~~investment~~conversely, ~~securities~~as ~~portfolios~~interest ~~(excluding~~rates ~~notes~~increase, ~~issued directly~~the byestimated ~~the~~fair ~~Bank~~value toof ~~local~~bonds ~~municipalities)~~generally ~~were~~decreases. At ~~rated~~December ~~“A”~~31, or2010, ~~better~~the bynet ~~Moodys credit~~unrealized ~~rating~~loss ~~services~~on ~~and~~the ~~89.4%~~available-for-sale ~~were~~investment ~~rated~~securities ~~“AAA.” This~~portfolio ~~compares~~was ~~to 99~~$1.8%900 ~~and 85~~million.~~8%,~~ By ~~respectively~~comparison, at December 31, ~~2008~~2009, the net unrealized gain on the available-for-sale investment securities portfolio was $1.160 million.

~~Although the~~During ~~economic~~2010 ~~recession~~we ofcontinued ~~2009~~to ~~has~~maintain ~~negatively~~a ~~affected~~concentration ~~the~~in ~~financial~~mortgage-backed ~~strength~~securities. These ~~of most~~included ~~states~~both mortgage pass-through securities and ~~municipalities~~collateralized mortgage obligations. At the end of 2010, our mortgage-backed securities portfolio comprised 91.6% of the ~~credit~~carrying ~~quality~~value of our ~~municipal~~investment ~~bond~~ securities portfolio. This ~~remained~~compares ~~strong~~to 80% at ~~December~~the ~~31,~~end of 2009. Approximately We48.5% ~~purchase~~of our ~~municipal~~ mortgage-backed securities ~~based~~were onbacked by the ~~underlying~~full ~~creditworthiness~~faith and credit of the ~~issuing~~U.S. ~~municipality and~~Government ~~have~~through ~~not~~a ~~relied~~GinnieMae onguarantee. The ~~the~~remaining ~~insurance~~51.5% ~~enhancement~~of ~~attached~~our tomortgage-backed ~~the security. The~~securities ~~following~~portfolio ~~table~~was ~~summarizes~~guaranteed ~~the~~by ~~amounts~~Fannie atMae ~~their~~and ~~par value~~Freddie ~~and~~Mac. We ~~associated~~did ~~credit~~not ~~rating~~hold onany ~~our~~private ~~municipal~~label securities ~~portfolio~~ at December 31, 2010.

Although all of our mortgage-backed securities were guaranteed by U.S. Government Agencies and U.S. Government Sponsored Enterprises, they are susceptible to prepayment risk. For example, if residential mortgage interest rates dropped significantly, the yield on our mortgage-backed securities would likely decline. When mortgage rates are low, homeowners often refinance their existing mortgage loans or purchase new homes. This increases the amount of principal payments we receive on our mortgage-backed securities, which, in turn, increases the amount of net amortization expense we record as an offset to interest income, thereby decreasing the yield on these securities.

The overall credit quality of our debt securities is strong. At December 31, 2010, 99.6% of the securities held in our available-for-sale and held-to-maturity investment securities portfolios (excluding notes issued directly by the Bank to local municipalities) were rated “A” or better by Moody’s credit rating services and 96.2% were rated “AAA.” This compares to 99.6% and 89.4%, respectively, at December 31, 2009.

Although the economic recession of 2010 has negatively affected the financial strength of most states and municipalities, the credit quality of our municipal bond portfolio remained strong at December 31, 2010. 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. The following table summarizes the amounts at their par value and associated credit rating on our municipal securities portfolio.

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

December 31, 2009
December 31, 2010
AAA ¹		AA		A		BAA	Not Rated	Total
AAA1								AA1						A1						Not Rated			Total
Uninsured / Un- enhanced	Insured / Enhanced	Uninsured / Un- enhanced	Insured / Enhanced	Un- Enhanced	Enhanced	Enhanced	Un- Enhanced
Uninsured / Unenhanced				Insured / Enhanced				Uninsured / Unenhanced			Insured / Enhanced			Unenhanced			Enhanced			Unenhanced
(in thousands)
$ 12,480	$ 800	$ 5,160	$ 13,585	$ 810	$ 3,925	$ 480	$ 380	$37,620
$	5,585			$	-			$	1,165		$	7,905		$	-		$	480		$	315		$	15,450
33.2%	2.1%	13.7%	36.1%	2.2%	10.4%	1.3%	1.0%
	36.10	%			0.00	%			7.50	%		51.20	%		0.00	%		3.10	%		2.00	%
~~Total AAA~~	~~$13,280~~Total AAA	~~Total AA~~	~~$ 18,745~~	~~Total A~~$	~~$ 4~~5,~~735~~585				Total AA		$	9,070			Total A		$	480
	35.3%		49.8%		12.6%
					36.10	%						58.70	%					3.10	%
¹ Moody’s ratings

¹The ~~Moodys~~following ~~ratings~~table sets forth information regarding the carrying value, weighted average yields and anticipated principal repayments of the Bank’s investment securities portfolio as of December 31, 2010. All amortizing security principal payments, including collateralized mortgage obligations and mortgage pass-through securities, are included based on their expected average lives. Callable securities, primarily callable agency securities and municipal bonds are assumed

The following table sets forth information regarding the carrying value, weighted average yields and anticipated principal repayments of the Bank’s investment securities portfolio as of December 31, 2009. All amortizing security principal payments, including collateralized mortgage obligations and mortgage pass32-through securities, are included based on their expected average lives. Callable securities, primarily callable agency securities and municipal bonds are assumed to mature on their maturity date. Available-for-sale securities are shown at fair value. Held-to-maturity securities are shown at their amortized cost. The yields on debt securities shown in the table below are calculated by dividing annual interest, including accretion of discounts and amortization of premiums, by the amortized cost of the securities at December 31, 2009. Yields on obligations of states and municipalities exempt from federal taxation were not tax-effected.K

Investment Securities Maturity Table:

	At December 31, 2009
	In One Year or Less		After One Year through Five Years		After Five Years through Ten Years		After Ten Years		Total
	Carrying Value	Weighted Average Yield	Carrying Value	Weighted Average Yield	Carrying Value	Weighted Average Yield	Carrying Value	Weighted Average Yield	Carrying Value	Weighted Average Yield
	(in thousands)
Obligations of States and Political Subdivisions (Municipal Bonds)	$10,744	3.32%	$ 15,411	4.51%	$14,686	4.10%	$ 6,522	4.53%	$ 47,363	4.12%
Mortgage-Backed Securities	32,708	4.69%	94,197	3.99%	43,109	3.92%	25,238	4.42%	195,252	4.15%
Total securities¹	$43,452	4.35%	$109,608	4.06%	$57,795	3.97%	$31,760	4.44%	$242,615	4.14%

¹ This table excludes trading securities totaling $1.165 million and equity securities totaling $78 thousand at December 31, 2009.

30-K

Index

~~At December~~to ~~31,~~mature ~~2009,~~on ~~the~~their ~~approximate~~maturity ~~weighted average life for all of the Bank’s available~~date. Available-for-sale ~~and held-to-maturity debt~~ securities ~~was~~are ~~3.7 years. By~~shown ~~comparison,~~ at ~~December~~fair ~~31, 2008 the approximate weighted average life for the Bank’s available~~value. Held-~~for-sale and held-~~to-maturity ~~debt~~ securities ~~was~~are ~~2.4~~shown ~~years. These~~at ~~estimates:~~their ~~(i)~~amortized ~~were~~cost. The ~~provided~~yields byon ~~a third~~debt ~~party investment~~ securities ~~analyst~~shown ~~and are used to provide comparisons with other companies~~ in the ~~banking~~table ~~industry,~~below ~~(ii)~~ are ~~based~~calculated ~~upon~~by ~~the~~dividing ~~projected cash~~annual ~~flows~~interest, ~~(to~~including ~~the~~accretion ~~most likely call date)~~ of ~~our~~discounts ~~investment~~and ~~securities~~amortization ~~portfolio taking into consideration the unique characteristics~~ of ~~the~~premiums, ~~individual securities held~~ by ~~us, and (iii) may fluctuate significantly from period to period due to our concentration in mortgage-backed securities. The increase in~~ the ~~weighted~~amortized ~~average~~cost ~~life~~ of the ~~portfolio between the comparable periods was principally due to decreases in both anticipated cash flows from our mortgage-backed~~ securities ~~portfolio~~at ~~and expected calls of municipal securities. Between~~ December 31, ~~2008 and December 31, 2009, we received proceeds totaling $190~~2010.~~319~~ Yields ~~million~~on ~~from~~obligations ~~principal payments and prepayments~~ of ~~the~~states ~~available-for-sale~~ and ~~held-to-maturity~~municipalities ~~investment~~exempt ~~securities portfolio~~from ~~and~~federal ~~sales~~taxation ~~of the available-for-sales security portfolio. This represents a 73% turnover of the investment securities portfolio during 2009. A significant portion of these proceeds~~ were ~~reinvested~~not ~~in pass~~tax-~~through mortgage backed securities with longer average lives than those securities that amortized, matured or were sold during 2009~~effected.

Investment Securities Maturity Table:

	At December 31, 2010
	In One Year or Less					After One Year through Five Years					After Five Years through Ten Years					After Ten Years					Total
	Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield			Carrying Value		Weighted Average Yield
	(in thousands)
Obligations of States and Political Subdivisions	$	4,819		3.78	%	$	9,544		3.71	%	$	3,366		4.21	%	$	2,480		4.75	%	$	20,209		3.94	%
Mortgage-Backed Securities		7,090		4.68	%		178,132		3.17	%		60,979		3.12	%		-		0.00	%		246,201		3.20	%
Total securities¹	$	11,909		4.32	%	$	187,676		3.20	%	$	64,345		3.18	%	$	2,480		4.75	%	$	266,410		3.26	%

¹	This table excludes trading securities totaling $1.068 million and equity securities totaling $1.333 thousand at December 31, 2010.

At December 31, 2010, the approximate weighted average life for all of the Bank’s available-for-sale and held-to-maturity debt securities was 4.7 years. By comparison, at December 31, 2009 the approximate weighted average life for the Bank’s available-for-sale and held-to-maturity debt securities was 3.7 years. These estimates: (i) were provided by a third party investment securities analyst and are used to provide comparisons with other companies in the banking industry, (ii) are based upon the projected cash flows (to the most likely call date) of our investment securities portfolio taking into consideration the unique characteristics of the individual securities held by us, and (iii) may fluctuate significantly from period to period due to our concentration in mortgage-backed securities. The increase in the weighted average life of the portfolio between the comparable periods was principally due to decreases in both anticipated cash flows from our mortgage-backed securities portfolio and expected calls of municipal securities. Between December 31, 2009 and December 31, 2010, we received proceeds totaling $240.956 million from principal payments and prepayments of the available-for-sale and held-to-maturity investment securities portfolio and sales of the available-for-sales security portfolio; and purchased new securities totaling $265.649 million. Throughout 2010, we sold available-for-sale securities to generate realized gains to improve our regulatory capital ratios. These proceeds were used to purchase new securities, generally with longer average lives than the securities sold.

Other Investments

At December 31, ~~2009~~2010 we held $5.~~941~~744 million of non-marketable equity securities including: $3.~~881~~682 million in FHLBNY stock; a $1.833 million equity interest in a small business investment company, Meridian Venture Partners II, L.P; $~~158~~ 165 thousand of Federal Reserve Bank of New York stock; $3435 thousand in New York Business Development Corporation stock; and $3529 thousand in a small title insurance agency. By comparison, at December 31, ~~2008~~2009, the estimated fair value of our nonmarketable equity securities totaled $5.~~693~~941 million~~, a $248 thousand or 4~~.~~4% net increase between the periods.~~ ~~Due~~We todecreased ~~minimum membership stock requirements, we increased~~ our capital stock in the FHLBNY from $3.~~667~~881 million at December 31, ~~2008~~2009 to $3.~~881~~683 million at December 31, ~~2009~~2010, a $~~214~~198 thousand ~~increase~~decrease.

We own common stock of FHLBNY which enables us to borrow funds under the FHLBNY advance program and qualify for membership. Published reports indicate that certain member banks of the Federal Home Loan Bank system, which include eleven other regionally based Federal Home Loan Banks, may be subject to accounting rules and asset quality risks that could result in materially lower regulatory capital levels. In an extreme situation, it is possible that the capitalization of one of the banks in the Federal Home Loan Bank system, including FHLBNY could be substantially diminished or reduced to zero. Consequently, given that there is no market for our FHLBNY common stock, we believe that there is a risk that our investment could be deemed other than temporarily impaired at some time in the future. In addition, it is possible that the FHLBNY will discontinue or suspend its dividend payments to members in the event its regulatory capital levels diminish. If either of these events occur, it may adversely affect our results of operations and financial condition.

Interest Bearing Balances with Banks and Federal Funds Sold

Interest bearing balances with (other) banks and federal funds sold are the assets that we generally rely on to meet our daily funding needs. Prior to 2009, in the normal course of our business, we primarily sold and purchased federal funds to and from other banks to meet these funding needs. We only sold federal funds to well-capitalized banks that carried strong credit ratings because federal funds sold are generally an unsecured obligation of the counterparty. Due to the global financial crisis in the second half of 2008 and related tightness in the inter-bank credit markets, during the fourth quarter of 2008 the Federal Reserve Banks announced a program whereby they would begin to pay interest on members’ required and excess reserves. Due to the safety of the Federal Reserve Bank of New York, we began leaving most of our excess reserves on deposit at the Federal Reserve Bank of New York, in lieu of selling unsecured federal funds to other commercial banks. These excess reserves were classified as interest bearing balances with banks. On a combined basis, at December 31, ~~2009~~2010 we held $2420.~~039~~560 million in interest bearing balances at other banks and federal funds sold, versus $3524.~~954~~039 million at December 31, ~~2008~~2009. Due to significant volatility in our daily overnight funds position it is most appropriate to compare our average outstanding balances in these categories. During ~~2009~~2010 our average overnight funds position, including federal funds sold and interest bearing balances at other banks, was $2839.~~230~~182 million or 34.03% of average total assets. By comparison, during ~~2008~~2009 our average overnight funds position was $2328.~~376~~230 million or 23.70% of average total assets. ~~These~~During ~~levels~~2010, ~~were within~~ management’s ~~informal target~~slightly ofincreased ~~maintaining~~its ~~approximately~~target ~~$10.0~~level ~~to $30.0 million~~ of available overnight funds due to ~~meet~~ the anticipated ~~and~~reduction ~~unanticipated~~in ~~short-term~~its ~~liquidity~~available ~~needs~~lines of ~~the Company~~credit.

~~Loan Portfolio~~33-K

General. The average outstanding balance of our loan portfolio was $597.762 million during 2009, as compared to $498.997 million during 2008, a $98.765 million or 19.8% increase. During 2007, we adopted a strategic plan that focused the Company’s resources on increasing earning assets by acquiring new lines of business and expanding our geographic markets into more populated and growing regions of upstate and central New York State. In line with this strategy, in 2007 we acquired Provantage, a New York State licensed mortgage bank located in Saratoga County, New York. In 2008 we established a representative loan production office in Cicero, New York (Onondaga County) and hired several experienced commercial and residential mortgage lenders. We also aggressively marketed our small business, consumer, and residential mortgage loans in both our core rural markets and more densely populated markets, including Johnson City, New York (Broome County) and Kingston, New York (Ulster County).

31-K

Index

~~These efforts~~Loan resulted in substantial growth in our total loans outstanding. Although we generated significant increases in interest income due to an increase in the volume of loans outstanding, we began to experience deterioration in most of our credit quality measures in early 2009 related, in part, to the slowing economy and its effect on our borrowers. Accordingly, we modified our strategic plan during the first quarter of 2009. In particular, we changed our focus to improve current period earnings, increase shareholders’ equity and raise our regulatory capital ratios in light of the economic recession. This modification of our strategy resulted in only a moderate increase in loans outstanding between the periods ended December 31, 2008 and 2009. Total loans increased from $583.861 million at December 31, 2008 to $587.237 million at December 31, 2009, a $3.376 million or 0.6% increase between the periods.Portfolio

General. During 2010 our total loans outstanding decreased significantly. The average outstanding balance of our loan portfolio was $558.418 million during 2010, as compared to $597.762 million during 2009, a $39.344 million or 6.6% decrease. Similarly, total period-end loans decreased $64.821 million or 11.0%, from $587.237 million at December 31, 2009 to $522.416 million at December 31, 2010. During 2007, we adopted a strategic plan that focused the Company’s resources on increasing earning assets by acquiring new lines of business and expanding our geographic markets into more populated and growing regions of upstate and central New York State. In line with this strategy, in 2007 we acquired Provantage, a New York State licensed mortgage bank located in Saratoga County, New York. In 2008 we established a representative loan production office in Cicero, New York (Onondaga County) and hired several experienced commercial and residential mortgage lenders. We also aggressively marketed our small business, consumer, and residential mortgage loans in both our core rural markets and more densely populated markets, including Johnson City, New York (Broome County) and Kingston, New York (Ulster County). These efforts resulted in substantial growth in our total loans outstanding. Although we generated significant increases in interest income due to an increase in the volume of loans outstanding, we began to experience deterioration in most of our credit quality measures in early 2009 related, in part, to the slowing economy and its effect on our borrowers. Accordingly, we modified our strategic plan during the first quarter of 2009. In particular, we focused our resources on strategies to mitigate credit risk and raise our regulatory capital ratios in light of the economic recession and the deteriorating credit quality of the loan portfolio, including tighter lending standards and reducing our exposure to loans with unfavorable credit characteristics. This strategy, coupled with weak demand resulted in a substantial decrease in our loan balances outstanding during 2010.

The following table summarizes the composition of our loan portfolio over the prior five-year period.

Distribution of Loans Table:

	At December 31,
	2009						2008						2007						2006						2005
	2010						2009						2008						2007						2006
	Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
	(in thousands)
Residential real estate ¹	$	~~177~~171,~~720~~072			3032.370	%	$	~~171~~177,~~061~~720			2930.330	%	$	~~127~~171,~~113~~061			2829.630	%	$	~~117~~127,~~815~~113			2928.060	%	$	~~124~~117,~~367~~815			3029.700	%
Commercial real estate		~~240~~211,~~823~~836			4140.050	%		~~229~~240,~~867~~823			3941.400	%		~~161~~229,~~071~~867			3639.240	%		~~152~~161,~~128~~071			3736.420	%		~~143~~152,~~552~~128			3537.440	%
Commercial ²		9384,~~928~~643			16.020	%		9993,~~397~~928			1716.000	%		8399,~~622~~397			1817.800	%		7483,~~033~~622			18.280	%		6974,~~651~~033			1718.220	%
Consumer		7454,~~766~~865			1210.750	%		8374,~~536~~766			1412.370	%		7383,~~299~~536			1614.530	%		6273,~~944~~299			1516.550	%		6762,~~388~~944			1615.650	%
Total loans	$	~~587~~522,~~237~~416			100.000	%	$	~~583~~587,~~861~~237			100.000	%	$	~~445~~583,~~105~~861			100.000	%	$	~~406~~445,~~920~~105			100.000	%	$	~~404~~406,~~958~~920			100.000	%
Less:
Allowance for loan losses		(89,~~622~~657	)					(78,~~564~~622	)					(67,~~977~~564	)					(6,~~680~~977	)					(6,~~640~~680	)
Net loans	$	~~578~~512,~~615~~759					$	~~576~~578,~~297~~615					$	~~438~~576,~~128~~297					$	~~400~~438,~~240~~128					$	~~398~~400,~~318~~240

Includes loans secured by 1-4 family residential dwellings, 5+ family residential dwellings, home equity loans and residential construction loans. Excludes residential mortgage loans held for sale.

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

¹	Includes loans secured by 1-4 family residential dwellings, 5+ family residential dwellings, home equity loans and residential construction loans. Excludes residential mortgage loans held for sale.

~~Between December~~² ~~31,~~Includes ~~2005~~commercial and ~~December~~industrial 31loans, ~~2009~~agricultural ~~our~~loans ~~commercial~~and ~~real~~obligations ~~estate~~(other ~~portfolio increased~~than ~~$97.271~~securities ~~million~~and orleases) ~~67.8%. At December 31, 2009, commercial real estate loans comprised 41.0%~~ of ~~our~~states ~~total loan portfolio. This compares to 35.4% at December 31, 2005. Throughout the period covered in the table above, we concentrated our efforts on opening new offices~~ and ~~hiring~~ ~~commercial~~political ~~lenders~~subdivisions in ~~large, more densely populated markets. These efforts also contributed to~~ the ~~increase~~United ~~in the outstanding balances in our commercial loan portfolio~~States. ~~At December 31, 2009, commercial loan balances outstanding totaled $93.928 million. This compares to $69.651 million at December 31, 2005.~~

~~In addition,~~During ~~during~~2010 the ~~first~~amount ~~quarter~~ of ~~2007~~commercial wereal ~~acquired~~estate ~~Provantage~~originations toand ~~improve~~balances ~~our residential~~decreased ~~mortgage~~significantly ~~lending~~as ~~capabilities~~we ~~and~~focused ~~increase~~our ~~the~~resources ~~outstanding~~on ~~balances in~~reducing our ~~residential~~credit ~~mortgage~~exposure ~~portfolio~~to the commercial real estate market. At December 31, ~~2009~~2010, ~~the outstanding~~our ~~balance~~commercial ofreal ~~our~~estate ~~residential~~loan ~~mortgage~~ portfolio ~~was~~ balances were $~~177~~211.~~720~~ 836 million, representing 40.5% of our total loan portfolio. This compares to $~~117~~240.~~815~~823 million in commercial real estate loan balances outstanding at December 31, ~~2006~~2009, a $5928.~~905~~987 million or 5012.80% ~~increase~~decrease ~~over~~in commercial real estate loans outstanding between the ~~three-year~~periods. Trends ~~period~~were ~~since~~ similar for our commercial loan portfolio. Outstanding loan balances in the ~~acquisition~~portfolio ofdecreased ~~Provantage~~from $93.928 million at December 31, 2009 to $84.643 million at December 31, 2010, a $9.285 million or 9.9% decrease between the periods.

During 2009, we tightened our underwriting standards for consumer lending, principally installment-type loans secured by new and used automobiles, due to increased loan charge-off levels and challenges posed by the economic recession. These ~~actions,~~underwriting asstandards ~~well~~coupled aswith astrong ~~decline~~interest rate competition in ~~demand~~our ~~for~~primary ~~consumer credit,~~market area during 2010 resulted in ana $819.~~770~~901 million or 1026.56% decrease in consumer loans outstanding between December 31, ~~2008~~2009 and December 31, ~~2009~~2010. The substantial majority of our consumer loans outstanding are indirect loans originated through automobile dealerships located in our central and upstate New York markets. At December 31, ~~2008~~2009, our indirect automobile loan portfolio was comprised of 5,~~576~~382 accounts, totaling $6255.~~713~~582 million. This compares to 54,~~382~~307 accounts ~~totaling $55.582 million at December 31, 2009, a 3.5% net decrease in accounts and an 11.4% net decrease in indirect automobile loans outstanding.~~

The following table sets forth the amount of loans maturing in our portfolio. The full principal amounts outstanding for all loans are shown based on their final maturity date. The full principal amounts outstanding on demand loans without a repayment schedule and no stated maturity, financed accounts receivable, and overdrafts are reported as due within one year. The table has not been adjusted for scheduled principal payments or anticipated principal prepayments.34-K

32-K

Index

totaling $39.394 million at December 31, 2010, a 20.0% net decrease in accounts and a 29.1% net decrease in indirect automobile loans outstanding.

Although the balances in our residential real estate portfolio decreased moderately between December 31, 2009 and December 31, 2010, our residential real estate lending practices remained largely unchanged resulting in a slight increase in the portfolio as a percentage of loans outstanding. Residential real estate loans comprised 32.7% of our total loan portfolio at December 31, 2010, as compared to 30.3% at December 31, 2009. At December 31, 2009, the outstanding balance of our residential mortgage portfolio was $177.720 million. This compares to $117.815 million at December 31, 2006, a $53.257 million or 45.2% net increase over the four-year period since the acquisition of Provantage.

Loan Maturity Table:

	Within One Year		One Through Five Years		More Than Five Years		Total
	(in thousands)
Residential real estate	$	2,662	$	24,583	$	150,475	$	177,720
Residential Real Estate	$	3,079	$	24,660	$	143,332	$	171,071
Commercial real estate		22,331		22,269		196,223		240,823
Commercial Real Estate		9,976		22,414		179,446		211,836
Commercial		4538,~~311~~247		1915,~~729~~744		2830,~~888~~653		9384,~~928~~644
Consumer		4,~~834~~321		5943,~~275~~657		106,~~657~~887		7454,~~766~~865
Total loans receivable	$	75,138	$	125,856	$	386,243	$	587,237
Total Loans Receivable	$	55,623	$	106,475	$	360,318	$	522,416

The following table sets forth fixed and adjustable rate loans with maturity dates after December 31, 2010.

Table of Fixed and Adjustable Rate Loans:

	Due After December 31, 2010
	Due After December 31, 2011
	Fixed		Adjustable		Total
	(in thousands)
Residential real estate	$	122,131	$	52,928	$	175,059
Residential Real Estate	$	121,273	$	46,719	$	167,992
Commercial real estate		131,729		86,763		218,492
Commercial Real Estate		119,695		82,165		201,860
Commercial		3835,~~439~~960		10,~~178~~437		4846,~~617~~397
Consumer		6748,~~122~~819		21,~~809~~725		6950,~~931~~544
Total loans	$	359,421	$	152,678	$	512,099
Total Loans	$	325,747	$	141,046	$	466,793

Commitments and Lines of Credit. Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including bond financing and similar transactions. The credit risk involved in issuing standby and commercial letters of credit is essentially the same as that involved in extending loans to customers. Since most of the standby letters of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At December 31, ~~2009~~2010 and December 31, ~~2008~~2009, standby and commercial letters of credit totaled $1310.~~451~~165 million and $1213.~~779~~451 million, respectively. At December 31, ~~2009~~2010 and December 31, ~~2008~~2009, the fair value of the Bank’s standby letters of credit was not significant. The following table summarizes the expirations of our standby and commercial letters of credit as of December 31, ~~2009~~2010.

~~Standby and Commercial Letters of Credit Expiration Table:~~35-K

Commitment Expiration of Standby Letters of Credit
(in thousands)
Within one year	$	1,564
After one but within three years		263
After three but within five years		5,445
Five years or greater		6,179
Total	$	13,451

In addition to standby letters of credit, we have issued lines of credit and other commitments to lend to our customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. These include home equity lines of credit, commitments for residential and commercial construction loans, commercial letters of credit, and other personal and commercial lines of credit. At December 31, 2009 and December 31, 2008, we had outstanding unfunded loan commitments of $96.859 million and $126.717 million, respectively, representing a $29.858 million or 23.6% decrease period over period. The significant decrease in the unfunded loan commitments was primarily due to a decrease in commercial real estate and other construction loan commitments, and to a lesser extent, a decrease in the unused portion of commercial lines of credit.

33-K

Index

Standby and Commercial Letters of Credit Expiration Table:

Commitment Expiration of Standby Letters of Credit
(in thousands)
Within one year	$	222
After one but within three years		3,617
After three but within five years		5,785
Five years or greater		541
Total	$	10,165

In addition to standby letters of credit, we have issued lines of credit and other commitments to lend to our customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. These include home equity lines of credit, commitments for residential and commercial construction loans, commercial letters of credit, and other personal and commercial lines of credit. At December 31, 2010 and 2009, we had outstanding unfunded loan commitments of $75.009 million and $96.859 million, respectively, representing a $21.850 million or 22.6% decrease. The significant decrease in the unfunded loan commitments was primarily due to a decrease in the unused commitments on lines of credit for our commercial borrowers.

Asset Quality and Risk Elements

General. ~~One~~We ~~of our~~use ~~key~~several ~~objectives~~measures is to ~~maintain~~determine ~~strong~~the overall credit quality of ~~the~~our ~~Bank’s~~ loan portfolio~~. The~~, ~~following~~including ~~narrative~~the ~~provides~~level ~~summary~~of ~~information~~delinquent ~~and describes~~loans ~~our~~(those ~~experience~~30 ~~regarding~~to 89 days delinquent, excluding nonperforming loans), the ~~quality~~level ~~and~~of ~~risk~~nonperforming ~~elements~~loans, the level of ~~our~~impaired loans, the level of potential problem loans, and the dollar amount and type of loan ~~portfolio~~ charge-offs we experience.

~~Delinquent Loans. At~~The ~~December~~overall ~~31,~~credit ~~2009,~~quality weof ~~had~~the ~~$8.469~~loan ~~million~~portfolio ofweakened ~~loans that~~between ~~were~~December 3031, to2009 89and ~~days~~December ~~past~~31, ~~due (excluding nonperforming loans)~~2010. ~~This~~During ~~equaled~~the ~~1.44%~~first half of ~~total loans outstanding. By comparison~~2010, atin ~~December 31~~particular, ~~2008~~ we ~~had~~experienced ~~$6.095~~a ~~million~~significant ofincrease ~~loans~~in ~~that~~the ~~were~~level 30of ~~to 89 days past due (excluding~~ nonperforming loans~~). This~~, ~~equaled~~which ~~1.04% of~~include ~~total~~nonaccrual loans, ~~outstanding. The~~loans ~~increase~~90 indays ~~delinquent~~or ~~loans~~more ~~between the~~past ~~periods~~due ~~was~~and ~~principally~~still ~~due~~accruing tointerest, anand ~~increase~~troubled indebt restructured loans. Although the level of ~~delinquent~~nonperforming loans in ~~the~~decreased ~~commercial~~during ~~real~~the ~~estate~~fourth ~~loan~~quarter ~~portfolio~~of ~~and~~2010, as compared to athe ~~lesser~~third ~~extent~~quarter, ~~an increase~~the inlevel ~~delinquency~~remained inelevated ~~the~~based ~~1-4~~on ~~family~~our ~~residential~~historical ~~mortgage loans~~experience. WeSimilarly, ~~attribute~~during ~~the~~2010, ~~increase~~we inrecorded ~~delinquency~~$2.790 inmillion ~~these~~or ~~sectors~~0.50% ~~of the~~in ~~loan~~net ~~portfolio~~charge-offs tobased ~~the~~on ~~regional~~average ~~and~~loans ~~national~~outstanding. This ~~economic~~level ~~recession~~is ~~and~~high ~~the related~~based ~~difficulties it has placed~~ on ~~many~~our ofhistorical ~~our~~experience ~~borrowers’~~and ~~ability~~compares to ~~repay their~~$2.412 ~~loans~~million or 0.42% in anet ~~timely~~charge-offs ~~manner~~in 2009.

Conversely, throughout 2010 we focused our resources on reducing the Bank’s level of problem loans. These efforts were successful in reducing the level of potential problem loans in 2010, particularly in the second half of the year. Similarly, due a concentrated focus on problem loan mitigation, the level of loans 30 to 89 days delinquent decreased between December 31, 2009 and December 31, 2010 and remained relatively low throughout 2010.

The following narrative provides summary information and describes our experience regarding each of the quality and risk elements of our loan portfolio.

Delinquent Loans. At December 31, 2010, we had $2.442 million of loans that were 30 to 89 days past due (excluding nonperforming loans). This equaled 0.47% of total loans outstanding. By comparison, at December 31, 2009 we had $8.469 million of loans that were 30 to 89 days past due (excluding nonperforming loans). This equaled 1.44% of total loans outstanding. Throughout 2010, we focused the Bank’s resources on problem credit identification and mitigation, including past due loan payment collection. These collection efforts allowed us to maintain low levels of delinquency. In addition due to strong problem credit identification efforts, several large borrowers, particularly loans to large commercial real estate borrowers with moderate delinquency history were classified to nonaccrual status, resulting in small number of borrowers in 30 to 89 day delinquent status.

Nonaccrual, Past Due and Restructured Loans. The following chart sets forth information regarding nonperforming assets for the periods stated.

36-K

Index

Table of Nonperforming Assets:

	At December 31,
	2009			2008			2007			2006			2005
	2010			2009			2008			2007			2006
	(in thousands)
Loans in Nonaccrual Status:
Residential real estate	$	702		$	439		$	895		$	450		$	327
Residential Real Estate	$	1,769		$	702		$	439		$	895		$	450
Commercial real estate		9,843			4,516			4,341			1,626			2,287
Commercial Real Estate		17,045			9,843			4,516			4,341			1,626
Commercial		~~1,568~~925			~~843~~1,568			843			~~271~~843			~~1,191~~271
Consumer		3694			4736			747			-7			61-
Total nonaccruing loans		12,149			5,845			6,086			2,347			3,866
Total Nonaccruing Loans		19,833			12,149			5,845			6,086			2,347
Loans Contractually Past Due 90 Days or More and Still Accruing Interest		~~731~~127			~~1,366~~731			501,366			~~182~~50			~~181~~182
Troubled Debt Restructured Loans		-			-			-			-			~~871~~-
Total nonperforming loans		12,880			7,211			6,136			2,529			4,918
Total Nonperforming Loans		19,960			12,880			7,211			6,136			2,529
Other Real Estate Owned ¹		1,~~684~~912			~~158~~1,684			~~247~~158			~~103~~247			20103
Total nonperforming assets	$	14,564		$	7,369		$	6,383		$	2,632		$	4,938
Total Nonperforming Assets	$	21,872		$	14,564		$	7,369		$	6,383		$	2,632
Total nonperforming assets as a percentage of total assets		1.61	%		0.80	%		0.80	%		0.35	%		0.66	%
Total Nonperforming Assets as a Percentage of Total Assets		2.52	%		1.61	%		0.80	%		0.80	%		0.35	%
Total nonperforming loans as a percentage of total loans		2.19	%		1.24	%		1.38	%		0.62	%		1.21	%
Total Nonperforming Loans as a Percentage of Total Loans		3.82	%		2.19	%		1.24	%		1.38	%		0.62	%

¹ Includes only properties and assets acquired through ~~insubstance~~in-substance foreclosure, voluntary deed transfer, legal foreclosure or similar proceedings. Excludes properties acquired by the Company for its own development.

Total nonperforming loans, including ~~nonaccruing~~nonaccrual loans and loans 90 days or more past due and still accruing interest, increased from $712.~~211~~880 million at December 31, ~~2008~~ 2009 to $1219.~~880~~960 million at December 31, ~~2009~~2010, a $57.~~669~~080 million or 7855.60% increase between the periods. ~~The~~During ~~increase~~2010, inwe ~~nonperforming~~transferred ~~loans~~several ~~between~~large ~~the comparable periods was principally due to an increase in nonperforming loans secured by~~ commercial real estate ~~properties. In~~loans ~~particular,~~that ~~during 2009,~~were ~~three~~previously ~~commercial~~identified ~~real~~as ~~estate~~potential ~~borrowers~~problems ~~with~~loans aninto ~~outstanding~~nonaccrual ~~loan~~status. The ~~balance~~weakened ~~at December~~state ~~31,~~of ~~2009~~the ~~totaling~~regional ~~$6.241~~economy ~~million~~has ~~were~~impaired ~~moved~~our ~~from~~borrowers’ ~~accrual~~ability to ~~nonaccrual status. We~~meet ~~recorded~~their ~~partial~~debt ~~charge-offs~~obligations ~~totaling~~with ~~$514~~us ~~thousand~~and ontheir ~~the loans~~other creditors, leading to ~~two~~delinquent oftax ~~these~~payments, ~~borrowers~~loan ~~during~~covenant ~~2009~~violations and ~~identified~~doubts ~~$77~~as ~~thousand~~to ~~of specific impairment in~~ the ~~allowance~~borrower’s ~~for~~ability ~~loans~~to ~~losses~~continue onto ~~the~~make ~~third~~scheduled ~~borrower~~principal ~~at December~~and 31interest ~~2009~~payments. ~~These~~More ~~amounts~~specifically, ~~were~~many ~~determined based on the estimated fair value~~ of ~~the~~these ~~properties~~borrowers wehave ~~hold~~experienced assignificant ~~collateral~~operating ondifficulties, ~~these loans~~including, ~~less~~ ~~the~~but ~~estimated~~not ~~costs~~limited to, ~~sell. The~~increased ~~economic~~levels ~~slowdown~~of ~~experienced in~~vacancy, ~~the~~lower ~~central~~than ~~and~~expected ~~upstate~~rental ~~New~~payments, ~~York~~slower ~~State~~than ~~markets~~expected inproperty ~~which~~rental weabsorption ~~operate~~rates ~~have negatively~~or ~~impacted~~stalled ~~the~~construction ~~operating~~efforts ~~cash~~causing ~~flows~~them ofto ~~many~~violate ofthe ~~our~~debt ~~commercial~~service ~~real estate~~coverage ~~borrowers,~~ratio ~~including~~requirements ~~these~~and ~~three~~/ ~~borrowers,~~or ~~which~~other ~~contributed significantly~~financial tocovenants ~~the~~we ~~increase~~place inon ~~nonperforming~~them ~~loans~~as ina ~~this~~condition ~~category~~of ~~during 2009. Nonperforming~~the ~~loans were 2~~loan.~~19%~~ ofThe ~~total~~nonperforming ~~loans~~loan ~~outstanding~~chart ~~at December~~below ~~31,~~provides ~~2009~~a ~~and~~historical ~~1.24%~~summary of ~~total~~our nonperforming loans ~~outstanding~~over atthe ~~December~~last ~~31, 2008~~eight quarters.

~~34-K~~Nonperforming Loan History:

	2010												2009
	Fourth			Third			Second			First			Fourth			Third			Second			First
	(in thousands)
Total Nonperforming Loans	$	19,960		$	23,736		$	22,429		$	14,018		$	12,880		$	12,108		$	12,016		$	7,166
Change in Nonperforming Loans from Prior Quarter-End		(3,776	)		1,307			8,411			1,138			772			92			4,850			45
Total Nonperforming Loans as a Percentage of Total Loans		3.82	%		4.39	%		4.01	%		2.43	%		2.19	%		2.03	%		1.98	%		1.19	%

Several borrowers, although not delinquent in their payments to us, were past due on their property tax obligations providing us reasonable doubt as to whether or not they could continue to service all of their debt obligations. We also have several borrowers within our nonperforming loan pool who have defaulted on various provisions of their loan agreement with us, including, but not limited to providing us with copies of their most recent federal tax returns, periodic financial statements, certified rent rolls or other operational performance information, which allow us to monitor their creditworthiness. We have classified several of the loans to these borrowers to nonperforming status and are actively pursuing our legal remedies on a case-by-case basis, including foreclosure proceedings. Although the level of nonperforming assets has increased significantly between December 31, 2009 and December 31, 2010, only 28.1% of the total outstanding balances at December 31, 2010 were 90 or more days past due. The nonperforming loans past due status table below summarizes the amount and percent of nonperforming loans by past due status at December 31, 2010.

37-K

Index

Nonperforming Loans Past Due Status Table:

	December 31, 2010
	Outstanding
	Balance		Percent
	(in thousands)
Less than 30 Days Past Due	$	9,360		46.89	%
30 - 89 Days Past Due		4,986		24.98	%
90 + Days Past Due		5,614		28.13	%
Total Nonperforming Loans	$	19,960		100.00	%

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

	As of and for the Year EndedDecember 31,
	As of and for the Year Ended December 31,
	2009		2008
	2010		2009
	(in thousands)
Impaired Loans	$	1219,~~957~~674	$	812,~~620~~957
Allowance for Impaired Loans		~~721~~1,421		~~1,160~~721
Average Recorded Investment in Impaired Loans		1220,~~171~~333		712,~~327~~171

The level of impaired loans increased from $812.~~620~~957 million at December 31, ~~2008~~2009 to $1219.~~957~~ 674 million at December 31, ~~2009~~2010. In spite of the significant increase in total impaired loans, only $54.~~844~~713 million of the impaired loans required specific reserve allocations totaling $~~721~~1.421 ~~thousand~~million. By comparison, at December 31, ~~2008~~2009, $5.~~120~~844 million of the impaired loans had a specific allowance for loan loss reserve allocation of $~~1.160~~721 ~~million~~thousand. ~~We attribute~~Although the ~~decrease in~~ specific reserve allocations toincreased ~~management’s~~$700 ~~general practice~~thousand ofbetween ~~obtaining~~periods, ~~strong~~the ~~collateral~~allowance ~~positions~~for inimpaired ~~the~~ loans ~~it originates~~only represented 7. In2% ~~addition~~of total impaired loans at December 31, ~~during~~2010. ~~2009~~We weattribute ~~recorded~~these ~~charge-offs~~low ~~on several~~specific ~~loans~~reserve inallocations ~~which~~to ~~allowance~~management’s ~~for~~general ~~loan~~practice ~~loss~~of ~~impairment~~obtaining ~~amounts~~strong ~~were identified~~collateral positions in ~~previous~~the ~~periods~~loans it originates.

~~OREO~~In ~~and~~spite ~~Repossessed Assets. OREO~~of ~~and~~the ~~repossessed~~relatively ~~assets~~low ~~consists~~levels of ~~real~~specifically ~~estate and~~identified ~~other~~reserves ~~property~~for ~~formerly~~impaired ~~pledged~~loans asat ~~collateral~~December on31, ~~loans~~2010, we recognized that ~~have~~the ~~been acquired~~fair byvalue usof ~~through~~the ~~foreclosure~~collateral ~~proceedings~~we orhold ~~repossession,~~against asour ~~well~~borrowers’ asloans, including commercial real estate, ~~properties~~can ~~acquired~~deteriorate byrapidly usas ~~through~~the andeterminations ~~acceptance~~ of avalue ~~deed~~often inrely ~~lieu~~on the income potential of ~~foreclosure~~ orthe ~~in-substance~~underlying ~~foreclosure~~property. ~~OREO~~In addition, it is ~~carried~~common atfor ~~the~~borrowers ~~lower~~ experiencing operating difficulties to defer maintenance of the ~~recorded~~property ~~investment~~we inhold ~~the~~as ~~loan~~collateral orleading ~~the~~to ~~fair~~significant ~~value~~physical ofdeterioration. Also, a general awareness in the regional real estate~~, less~~ ~~estimated~~markets ~~costs~~that toa ~~sell. Between~~particular ~~December~~property 31is experiencing difficulties, ~~2008~~such as increased tenant vacancy rates and ~~December 31,~~the ~~2009~~potential for a bank foreclosure, wecan ~~recorded~~accelerate the devaluation of a ~~significant~~property. For ~~increase~~this inreason, ~~OREO~~we ~~due~~may ~~largely~~need to ~~the in-substance~~continue ~~acquisition~~to record large amounts of aprovision ~~building~~for ~~formerly~~loan ~~used~~losses for several quarters prospectively to ~~collateralize~~maintain athe allowance for loan losses at levels adequate to an ~~automobile~~absorb ~~dealership~~probable and estimable losses, particularly if the level of nonperforming loans and anticipated losses on those loans increase.

~~Potential~~OREO ~~Problem Loans~~and Repossessed Assets. ~~Potential~~OREO ~~problem~~and ~~loans~~repossessed ~~are~~assets ~~loans~~consists ~~that are currently performing, but where known information about possible credit problems~~ of ~~the related~~real ~~borrowers~~estate ~~causes~~and ~~management~~other toproperty ~~have~~formerly ~~doubts~~pledged as tocollateral ~~the~~on ~~ability~~loans ofthat ~~such borrowers~~have tobeen ~~comply~~acquired ~~with~~by ~~the~~us ~~present~~through ~~loan~~foreclosure ~~repayment~~proceedings ~~terms~~or ~~and may result~~repossession, inas ~~disclosure~~well ~~of such loans~~ as, ~~nonperforming~~real atestate ~~some~~properties ~~time~~acquired inby ~~the future. Potential~~us ~~problem~~through ~~loans~~an ~~are~~acceptance ~~typically~~of ~~loans~~a ~~classified~~deed byin ~~our loan~~lieu ~~rating~~of ~~system as “substandard~~foreclosure.” ~~Potential~~OREO ~~problem~~is ~~loans~~carried ~~may fluctuate~~at ~~significantly~~the ~~from~~lower ~~period~~of tothe ~~period~~recorded ~~due~~investment toin athe ~~rating~~loan ~~upgrade of loans previously classified as substandard~~ or athe ~~rating~~fair ~~downgrade~~value of ~~loans~~the ~~previously carried~~real inestate, a less ~~risky~~estimated ~~credit~~costs ~~classification,~~to ~~particularly those with balances in excess of $1~~sell.~~000~~ Between ~~million. We~~December ~~have~~31, ~~identified through~~2009 ~~normal~~and ~~credit~~December ~~review~~31, ~~procedures~~2010, ~~potential~~we ~~problem~~recorded ~~loans~~a ~~totaling~~ $~~24.866 million~~228 orthousand ~~4.2%~~net ofincrease ~~total~~in ~~loans~~our ~~outstanding at December 31, 2009~~OREO. ~~By comparison,~~At at December 31, ~~2008~~2010, ~~potential~~the ~~problem~~OREO ~~loans~~portfolio ~~totaled~~totaling $161.~~099~~ 913 million orconsisted ~~2.8%~~ of ~~total~~six ~~loans~~properties, ~~outstanding. This~~including ~~represents~~two anresidential ~~$8.767 million~~properties ~~or 54.4% increase in potential problem loans between December 31, 2008~~ and ~~December~~four ~~31,~~commercial ~~2009~~properties. WeOne ~~generally~~of ~~attribute~~ the ~~increase~~commercial ~~in potential~~properties ~~problem~~with ~~loans~~a tocarrying ~~the~~value ~~weak and/or declining operating performance~~ of ~~many~~ of$562 ~~our~~thousand ~~commercial~~was ~~borrowers’~~under ~~due~~contract to ~~difficult~~be ~~economic conditions. Management~~sold ~~cannot~~and ~~predict~~is ~~economic~~expected ~~conditions~~to orclose ~~other factors~~in ~~that~~the ~~may~~first ~~impact~~quarter ~~each~~of ~~potential problem loan~~2011. ~~Accordingly, there~~We ~~can~~anticipate bethat nothe ~~assurance~~Bank’s ~~that~~OREO ~~other~~portfolio ~~loans~~ will ~~not~~increase ~~become~~during 902011, ~~days~~as orwe ~~more~~have ~~past due,~~fifteen benonaccrual ~~placed~~loans onwith ~~nonaccrual~~a ~~status,~~carrying ~~become~~amount ~~restructured,~~of or$8.552 ~~require~~million ~~increased allowance~~in ~~coverage~~various ~~and~~stages ~~provision~~of ~~for~~foreclosure ~~loan~~at ~~losses~~December 31, 2010.

~~Loan Concentrations~~Potential Problem Loans. WePotential ~~classify~~problem ~~our~~loans ~~loan~~are ~~portfolio~~loans bythat ~~collateral type~~are ~~and~~currently ~~industry~~performing, tobut ~~determine~~where ~~and~~known ~~monitor~~information ~~the~~about ~~level~~possible ofcredit ~~our~~problems ~~loan concentrations. We~~of ~~generally~~the ~~consider~~related ~~industry~~borrowers ~~concentrations~~causes management to ~~exist~~ ~~when~~have ~~the~~doubts ~~total~~as ~~loan~~to ~~obligations~~the ~~(outstanding~~ability ~~loans~~of ~~and~~such ~~unfunded commitments)~~borrowers to comply with the ~~industry~~present ~~exceed~~loan ~~25%~~repayment ofterms ~~the~~and may ~~Bank’s~~result ~~total~~in ~~risk-based capital. The~~disclosure ~~Bank’s~~of ~~total~~such ~~risk-based~~loans ~~capital~~as nonperforming at ~~December~~some ~~31,~~time ~~2009~~in ~~was $77~~the future.~~780~~ Potential ~~million,~~problem ~~which~~loans ~~established~~are typically loans classified by our ~~industry~~loan ~~concentration~~rating ~~threshold~~system ~~at $19.445~~as ~~million~~“substandard,” but are performing. InPotential ~~addition,~~problem ~~our~~loans ~~policy~~may onfluctuate ~~loan~~significantly ~~concentrations targets~~from ~~maximum~~period ~~industry~~to ~~concentration~~period atdue ~~50%~~to a rating upgrade of ~~the~~loans ~~Bank’s~~previously ~~total~~classified ~~risk-based capital~~as substandard or ~~$38.890~~a ~~million~~rating atdowngrade ~~December~~of ~~31,~~loans ~~2009. We~~previously ~~also~~carried ~~review~~in ~~the geographic~~a ~~concentration~~less ~~and~~risky ~~economic~~credit ~~trends~~classification, ~~within~~particularly ~~each~~those ~~industry~~with ~~concentration to~~balances ~~further~~in ~~segment~~excess ~~and~~of ~~analyze~~$1.000 ~~the risk~~million. At December 31, 2010, we have

~~Furthermore, the OCC generally considers construction and development loans in excess of 100% of the Bank’s risk~~38-based capital and nonowner occupied commercial real estate loans, including multi-family and construction and development, in excess of 300% of the Bank’s risk-based capital ($233.340 million at December 31, 2009) to be concentrations of credit. We did not exceed either of the OCC benchmarks during 2009 and actively monitor our portfolio diversification by loan-type, as well as industry type. The following narrative summarizes our concentrations of credit.K

35-K

Index

~~At December~~identified ~~31,~~through ~~2009~~normal ~~our~~credit ~~outstanding~~review ~~loan~~procedures ~~and~~potential ~~unfunded~~problem ~~commitments~~loans tototaling ~~nonowner occupied commercial real estate borrowers, as defined in regulatory, guidance totaled~~ $~~185~~8.~~922~~597 million or ~~239~~1.6% of total ~~risk-based capital~~loans outstanding. ~~Although~~By ~~non-owner~~comparison, ~~occupied~~at ~~commercial~~December ~~real~~31, ~~estate~~2009, ~~loans have~~potential ~~been~~problem ~~identified~~loans bytotaled ~~the~~$24.866 ~~OCC~~million asor a4.2% ~~higher~~of ~~risk~~total ~~loan~~loans ~~type~~outstanding. This ~~than~~represents ~~owner~~a ~~occupied commercial~~$16.269 ~~real~~million ~~estate,~~decrease ~~our~~in ~~historical~~potential ~~experience~~problem ~~does~~loans ~~not~~between ~~support this conclusion. Between~~ December 31, ~~2008~~2009 and December 31, ~~2009~~2010. We ~~the~~generally ~~level of~~attribute ~~delinquent~~the ~~loans,~~decrease ~~nonperforming~~in ~~loans and~~ potential problem loans ~~secured~~to ~~by owner~~the ~~and~~credit ~~nonowner~~work-out ~~occupied~~efforts ~~commercial~~put ~~real~~forth ~~estate~~by ~~has~~management ~~increased~~in ~~markedly due to difficult economic conditions~~2010. ~~Commercial~~In ~~real~~addition, ~~estate~~several ~~secured delinquent~~ loans 30that towere 89classified ~~days~~as ~~past~~potential ~~due~~problem ~~(excluding nonperforming~~ loans~~) increased~~ ~~from~~in ~~$996~~previous ~~thousand~~periods orwere ~~0.4%~~transferred ofto ~~commercial~~nonaccrual ~~real~~status ~~estate~~during ~~loans~~2010. We ~~outstanding at~~cannot ~~December~~predict ~~31,~~economic ~~2008~~conditions ~~to $4.692 million~~ or ~~1.9%~~other offactors ~~commercial~~that ~~real~~may ~~estate~~impact ~~loans outstanding~~each atpotential ~~December~~problem ~~31, 2009~~loan. ~~Similarly~~Accordingly, ~~nonperforming~~there ~~commercial real~~can ~~estate~~be ~~loans~~no ~~increased~~assurance ~~from~~that ~~$5.438~~other ~~million or 2.4% of commercial real estate~~ loans ~~outstanding~~will atnot ~~December~~become ~~31,~~90 ~~2008~~days ~~to $6.716 million~~ or ~~2.8%~~more ~~of commercial~~past ~~real~~due, ~~estate~~be ~~loans~~placed ~~outstanding~~on atnonaccrual ~~December 31~~status, ~~2009. Accordingly,~~ webecome ~~closely~~restructured, ~~monitor~~or ~~the~~require ~~financial~~increased ~~condition~~allowance ~~of borrowers~~coverage ~~whose~~and ~~loans~~provision ~~are~~for ~~secured~~loan ~~by commercial real estate~~losses.

Due to ~~weakening~~ ~~economic~~these ~~conditions,~~increased ~~during~~levels ~~2009~~of wecredit ~~did~~risk ~~not~~in ~~proactively~~our ~~seek~~loan ~~new construction~~portfolio ~~and~~during ~~development~~2010, ~~loans. This~~we ~~decreased~~are ~~aggregate outstanding~~proactively ~~loan balances~~ and ~~unfunded~~continually ~~commitments~~managing ~~from~~our ~~$47.137~~credit ~~million~~relationships orwith 65borrowers.~~0% of~~ This ~~the~~includes ~~Bank’s~~monitoring ~~total~~our ~~risk-based~~borrowers’ ~~capital~~financial ~~at December 31~~condition, ~~2008~~particularly tothose ~~$24.538~~exhibiting ~~million~~ weak or ~~31.6%~~deteriorating ~~of the Bank’s total risk-based capital at December 31~~creditworthiness, ~~2009. These~~ ~~levels~~evaluating ~~are well within~~ the ~~100%~~collateral ofvalues ~~risk~~on collateral-~~based~~dependent ~~capital benchmark~~loans, ~~established~~obtaining byadditional ~~the~~collateral ~~OCC. However~~and, ~~similar~~when tonecessary, ~~our~~providing ~~commercial real~~forbearance ~~estate~~for ~~secured~~borrowers ~~loan~~or ~~portfolio,~~restructuring ~~the~~loans ~~level~~when ofwe ~~nonperforming~~believe ~~loans~~it is in ~~this loan~~our ~~type~~best ~~increased~~interest. In ~~significantly between December 31~~addition, ~~2008~~we ~~and~~have ~~December~~implemented ~~31, 2009. Nonperforming~~several ~~construction~~new systems and ~~development~~procedures ~~loans~~to ~~outstanding~~improve ~~at December~~credit 31monitoring, ~~2009~~hired ~~totaling~~and ~~$3.604~~trained ~~million~~asset ~~were~~quality ~~comprised~~staff ofmembers ~~loans~~and toamended ~~two borrowers,~~our asloan ~~compared~~policies to nomitigate ~~nonperforming~~further ~~loan~~deterioration ~~balances~~in atasset ~~December 31 2008~~quality. ~~Accordingly,~~Although we ~~closely~~believe ~~monitor~~our ~~the~~credit ~~progress~~risk ofmitigation ~~construction and~~strategies ~~the~~have ~~financial~~been ~~condition~~effective, ofthere ~~borrowers~~are ~~whose~~no ~~loans~~assurances ~~are~~that ~~secured~~our byoverall ~~undeveloped or~~credit ~~underdeveloped~~quality ~~commercial~~will ~~real~~improve ~~estate~~over coming quarters.

~~At December~~Loan ~~31, 2009 we had 94 loans with $34~~Concentrations.~~945~~ We ~~million~~classify inour ~~total~~ loan ~~obligations to~~portfolio ~~borrowers~~by ~~who~~collateral ~~operate~~type ~~in the automotive~~ and ~~other vehicle dealership~~ industry~~. The~~ ~~total loan obligations~~ to ~~this~~determine ~~industry sector represented 44.9% of the Bank’s total risk-based capital~~ and ~~consisted~~monitor ~~of more than 45 borrowers whose primary revenue is derived from~~ the ~~retail~~level ~~sale and servicing~~ of ~~new~~our ~~and~~loan ~~used motor vehicles, motorcycles, commercial and/or recreational vehicles~~concentrations. ~~Loans~~We togenerally ~~this~~consider industry ~~consist~~concentrations ofto ~~commercial real~~exist ~~estate~~when ~~mortgages,~~the ~~equipment~~total ~~financing,~~loan ~~working~~obligations ~~capital~~(outstanding ~~lines~~loans ~~of credit,~~ and ~~inventory~~ ~~lines~~unfunded ~~(dealer floor plans~~commitments)~~. We~~ ~~maintained~~to 21the ~~dealer~~industry ~~floor plan~~exceed ~~lines~~25% ~~within~~of ~~this~~the ~~portfolio~~Bank’s ~~totaling~~total ~~$16.220~~risk-based ~~million, $12~~capital.~~649~~ The ~~million~~Bank’s ~~of which~~total ~~was~~risk-based ~~outstanding~~capital at December 31, ~~2009. Due~~2010 towas ~~the~~$81.947 ~~significant risk posed by dealer floor plan lending~~million, ~~management~~which ~~monitors~~established ~~the~~our ~~dealer~~industry ~~floor plan~~concentration ~~loans~~threshold byat ~~conducting~~$20.487 ~~inventory reviews on a monthly basis~~million. At December 31, ~~2009,~~2010 ~~there were 11 loans to 7 borrowers within~~ the ~~automotive~~bank ~~and other~~no ~~vehicle~~longer ~~industry~~had ~~concentration~~reportable ~~with~~concentrations ~~$5.689 million~~ in ~~aggregate~~three ~~loan obligations~~specific ~~outstanding~~categories, ~~that~~Healthcare, ~~were~~Residential ~~classified~~Care asFacilities ~~substandard~~and Finance. ~~Consumer demand~~In ~~for~~addition, ~~new~~our ~~and~~policy ~~used~~on ~~automobiles~~loan ~~and~~concentrations ~~recreational~~targets ~~vehicles~~maximum ~~can~~industry ~~vary significantly~~concentration ~~from~~at ~~period~~50% ~~to period due to a variety~~ of ~~factors~~the ~~including,~~Bank’s ~~but not~~total ~~limited,~~risk-based tocapital ~~consumer~~or ~~spending,~~$40.974 ~~employment,~~million ~~inflation~~at ~~and~~December ~~fuel prices. In addition~~31, ~~changes in market interest rates can affect consumer demand and inventory carrying costs~~2010. We ~~monitor~~also ~~these factors~~review ~~and~~the ~~adjust~~geographic ~~our~~concentration ~~lending policies~~ and ~~practices~~economic totrends ~~borrowers~~within ineach ~~this sector~~industry inconcentration anto ~~effort~~further tosegment ~~mitigate~~and ~~credit~~analyze the risk.

~~At December 31~~Furthermore, ~~2009,~~the weOCC ~~had~~generally 68considers ~~loans~~construction ~~with~~and ~~$33.443~~development ~~million~~loans in ~~total~~excess ~~loan obligations~~of ~~or 43.0~~100% of the Bank’s ~~total~~ risk-based capital toand ~~borrowers~~nonowner ~~who operate~~occupied incommercial ~~the~~real ~~lodging~~estate ~~industry~~loans, including ~~hotels,~~multi-family ~~motels,~~and ~~bed~~construction and ~~breakfast inns~~development, ~~and~~in aexcess ~~limited~~of ~~number~~300% of ~~campgrounds and boarding houses. At December 31, 2009~~ the ~~loans~~Bank’s torisk-based ~~this~~capital ~~industry sector were comprised of 48 borrowers. The single largest borrower has~~ ($5244.~~977~~491 million inat ~~total loans~~December ~~outstanding~~31, on2010) 6to ~~separate~~be ~~motel~~concentrations ~~properties. Another~~of ~~9 borrowers have loans exceeding $1~~credit.~~000 million.~~ ~~The~~We ~~lodging~~did ~~properties~~not ~~that~~exceed ~~we finance~~either ~~are~~of ~~geographically dispersed throughout our market area and~~ the ~~broader statewide~~OCC ~~region. Many~~benchmarks ofduring ~~these~~2010 ~~properties, however, are dependent upon tourism~~ and ~~have~~actively amonitor ~~seasonality~~our ~~that~~portfolio ~~peaks~~diversification ~~in July and August. In addition, the lodging industry, particularly the luxury segment, is affected~~ by ~~personal~~ ~~income~~loan-type, ~~employment~~as ~~levels~~well ~~and~~as ~~corporate~~industry ~~profits, all of which experienced declines during 2009~~type. AtThe ~~December~~following ~~31,~~narrative ~~2009,~~summarizes ~~$30.009 million of these loans were deemed to be of acceptable risk (“pass-rated”) by~~ our ~~management,~~concentrations ~~with no delinquency noted. Five loans in the hotel/motel sector with an outstanding balance~~ of $2credit.~~798 million were risk rated as substandard at December 31, 2009 due to insufficient cash flow generated by the operations of the business.~~

At December 31, ~~2009,~~2010 our outstanding loan ~~obligations~~and unfunded commitments to ~~the~~nonowner ~~healthcare~~occupied ~~industry~~commercial real estate borrowers, ~~including~~ ~~hospitals~~as ~~and medical~~defined ~~practices~~in regulatory guidance, totaled $17162.~~438~~036 million or ~~22.4~~198% of ~~the Bank’s~~ total risk-based capital. ~~This~~Although ~~portfolio~~non-owner ~~was~~occupied ~~comprised~~commercial ofreal ~~approximately~~estate 58 loans ~~including~~have 7been ~~loans~~identified toby ~~hospitals~~the OCC as a higher risk loan type than owner occupied commercial real estate, our historical experience has shown these loan types display similar risks, when dealing with classified credits. ~~The~~Between ~~largest~~December ~~borrower~~31, in2009 ~~this industry~~and ~~was~~December ~~also~~31, 2010 the ~~Bank’s~~level ~~largest~~of ~~borrower~~delinquent loans, nonperforming loans and ~~had~~potential ~~outstanding~~problem loans secured by owner and ~~unfunded~~ ~~commitments~~nonowner ~~totaling~~occupied commercial real estate have increased markedly due to difficult economic conditions. Commercial real estate secured delinquent loans 30 to 89 days past due (excluding nonperforming loans) decreased from $84.~~998~~692 million or 1.9% of commercial real estate loans outstanding at December 31, 2009 to $841 thousand or 0.4% of commercial real estate loans outstanding at December 31, 2010; primarily due to the downgrading of several loans less than 90 days past due to nonaccrual status. ~~Within~~Nonperforming ~~this~~commercial ~~industry~~real ~~sector~~estate ~~only~~loans 1increased ~~borrower~~from ~~with~~$6.716 million or 2.8% ~~outstanding~~ of commercial real estate loans ~~totaling~~outstanding at December 31, 2009 to $~~179~~17.045 ~~thousand~~million ~~were~~or ~~nonperforming~~8.05% ~~and~~of ~~classified~~commercial ~~as substandard~~real estate loans outstanding at December 31, 2010. Accordingly, we closely monitor the financial condition of borrowers whose loans are secured by commercial real estate.

~~At December~~Due ~~31,~~to ~~2009~~continued weak economic conditions, ~~loan~~the ~~obligations~~bank continued to ~~the~~employ ~~residential~~a strategy of not proactively seeking new construction and ~~independent~~development ~~care facilities~~loans. This ~~totaled~~decreased aggregate outstanding loan balances and unfunded commitments from $2024.~~478~~538 million or 2631.35% of the Bank’s total risk-based capital at December 31, 2009 to $12. ~~This~~431 ~~portfolio~~million ~~was~~or ~~comprised~~15.17% of ~~approximately~~the 64Bank’s ~~loans~~total risk-based capital at December 31, ~~2009~~2010. ~~The~~These ~~residential,~~levels ~~independent~~are ~~and~~well ~~assisted~~within ~~care living~~the ~~facilities~~100% ~~depend~~of ~~significantly~~risk-based oncapital ~~Medicare~~benchmark ~~and~~established ~~other~~by ~~government reimbursement~~the ~~rates,~~OCC. Nonperforming ~~which~~construction ~~are~~and ~~projected~~development toloans ~~decrease~~outstanding ~~moderately~~at ~~during~~ December 31, 2010~~. One~~ ~~loan~~totaling ~~within~~$925 ~~this~~thousand ~~portfolio~~were ~~with~~comprised anof ~~outstanding~~loans ~~balance~~to of three borrowers, as compared to $13.~~821~~604 million ~~was~~nonperforming ~~classified~~construction asand adevelopment ~~special~~loan ~~mention~~balances ~~credit~~ at December 31, 2009. Accordingly, we closely monitor the progress of construction and the financial condition of borrowers whose loans are secured by undeveloped or underdeveloped commercial real estate.

~~36-K~~At December 31, 2010 we had 80 loans with $33.600 million in total loan obligations to borrowers who operate in the automotive and other vehicle dealership industry. The total loan obligations to this industry sector represented 41.0% of

39-K

Index

~~At December~~the ~~31,~~Bank’s ~~2009,~~total ~~loan~~risk-based ~~obligations~~capital toand consisted of more than 40 borrowers whose primary revenue is derived from the ~~finance~~retail sale and ~~insurance~~servicing ~~industry totaled~~of ~~$19.514~~new ~~million~~and used motor vehicles, motorcycles, commercial and/or 25recreational vehicles.1% Loans to this industry consist of ~~the~~commercial ~~Bank’s~~real ~~total~~estate ~~risk-based~~ mortgages, equipment financing, working capital lines of credit, and inventory lines (dealer floor plans). ~~This~~We maintained 21 dealer floor plan lines within this portfolio istotaling ~~comprised~~$18.370 million, $13.970 million of 31which ~~loans~~was outstanding at December 31, ~~2009~~ 2010. ~~Since~~Due to the ~~substantial~~significant ~~majority~~risk ofposed by dealer floor plan lending, management monitors the ~~loan~~dealer ~~obligations~~floor toplan ~~this sector~~loans ~~are~~by conducting inventory reviews on a monthly basis. At December 31, 2010, there were 5 loans to 4 borrowers ~~who~~within ~~provide~~the ~~short~~automotive and ~~long~~other ~~term~~vehicle ~~financing~~industry concentration with $337 thousand in aggregate loan obligations outstanding that were classified as substandard. Consumer demand for ~~the construction~~new and ~~acquisition~~used automobiles and recreational vehicles can vary significantly from period to period due to a variety of ~~real~~factors ~~property~~including, ~~this~~but ~~industry~~not ~~sector~~limited, ~~is inherently~~to ~~dependent~~consumer onspending, ~~the~~employment, ~~residential~~inflation and ~~commercial~~fuel ~~real estate markets~~prices. ~~For~~In ~~these reasons~~addition, ~~the~~changes ~~financing~~in ~~provided~~market byinterest ~~our~~rates ~~borrowers to~~can ~~their~~affect ~~customers~~consumer ~~are~~demand ~~closely~~and ~~monitored~~inventory carrying costs. ~~Two~~We ~~loans~~monitor ~~within~~these ~~this industry~~factors ~~sector~~and ~~with~~adjust anour ~~outstanding~~lending ~~balance~~policies ~~totaling~~and ~~$230~~practices ~~thousand~~to ~~were classified~~borrowers asin ~~special~~this ~~mention~~sector atin ~~December~~an ~~31,~~effort ~~2009~~to mitigate credit risk.

~~Although~~ At December 31, 2010, we ~~have~~had ~~not~~57 ~~identified~~loans ~~“strip~~with ~~malls”~~$29.814 asmillion ~~its~~in ~~own~~total loan obligations or 36.38% of the Bank’s total risk-based capital to borrowers who operate in the lodging industry, ~~classification~~including hotels, motels, bed and ~~therefore~~ breakfast inns, ~~not~~and ~~subject~~a tolimited ~~our~~number ~~single~~of ~~industry~~campgrounds ~~concentration~~and ~~limit~~boarding houses. At December 31, we2010 ~~have identified~~the loans to this industry sector were comprised of more than 35 borrowers (including related entities). The single largest borrower has $375.~~071~~432 million ofin total ~~loan~~loans ~~obligations~~outstanding toon 6 separate motel properties. Another 9 individual borrowers inhave ~~this~~loans ~~sector at~~exceeding ~~December~~$1.000 31million. The lodging properties that we finance are geographically dispersed throughout our market area and the broader statewide region. Many of these properties, ~~2009~~however, are dependent upon tourism and have a seasonality that peaks in July and August. ~~Within~~In ~~this~~addition, the lodging industry, particularly the luxury segment, 1is ~~borrower~~affected ~~with~~by personal income, employment levels and corporate profits, all of which continued to experience economic difficulties during 2010. At December 31, 2010, $328.~~875~~ 050 million inof these loans ~~outstanding~~were ~~was~~deemed ~~classified~~to asbe ~~substandard~~of acceptable risk (“pass-rated”) by our management, with no delinquency noted. AFour ~~second borrower~~loans in ~~this~~the hotel/motel sector with an outstanding ~~loan~~ balance of $~~170~~1.740 ~~thousand~~million ~~was classified~~were risk rated as ~~nonperforming~~substandard at December 31, 2010 due to insufficient cash flow generated by the operations of the business.

~~At December~~Although ~~31, 2009,~~ we ~~had~~have 25not ~~borrowers~~identified ~~whose~~“strip ~~total~~malls” ~~loan~~as ~~obligations~~its ~~were~~own ~~equal to~~industry orclassification, ~~exceeded~~and ~~$3.889~~therefore, ~~million~~not orsubject ~~5.0%~~to of our ~~total~~single ~~risk-based capital. In~~industry ~~aggregate~~concentration limit, ~~these~~we ~~borrowers’~~have ~~total~~identified ~~loan obligations were~~ $~~129~~30.~~720~~897 million ~~comprised~~ of ~~$105.488~~total ~~million~~loan inobligations ~~outstanding~~to ~~loans and $24.233 million in unfunded commitments. Although these large relationships were dispersed among~~ borrowers ~~who operate~~ in ~~various~~this ~~industries,~~sector ~~the~~at ~~decline in the financial condition of one or more of our large borrowers could significantly impact the credit quality of our loan portfolio. At~~ December 31, ~~2009,~~2010. Within 1this ~~of these large borrowers~~sector, ~~with~~$3.212 ~~total~~million in loans outstanding ~~of $1.598~~to ~~million~~2 ~~was~~borrowers were classified as substandard. ~~In addition, there was an additional $3.469 million in unfunded commitments to this borrower.~~

At December 31, 2010, we had 18 borrowers whose total loan obligations were equal to or exceeded $4.097 million or 5.0% of our total risk-based capital. In aggregate, these borrowers’ total loan obligations were $98.525 million comprised of $85.416 million in outstanding loans and $13.109 million in unfunded commitments. Although these large relationships were dispersed among borrowers who operate in various industries, the decline in the financial condition of one or more of our large borrowers could significantly impact the credit quality of our loan portfolio.

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

40-K

Index

Analysis of the Allowance for Loan Losses Table:

	Years Ended December 31,
	2009			2008			2007			2006			2005
	2010			2009			2008			2007			2006
	(in thousands)
Balance at beginning of year	$	78,~~564~~622		$	67,~~977~~564		$	6,~~680~~977		$	6,~~640~~680		$	6,~~250~~640
Charge offs:
Charge-offs:
Residential real estate		2335			372			~~109~~37			56109			2056
Commercial real estate		1,~~660~~849			871,660			~~120~~87			2120			-2
Commercial		~~160~~377			~~234~~160			~~216~~234			~~1,161~~216			~~364~~1,161
Consumer		1,~~378~~014			1,~~028~~378			~~721~~1,028			~~887~~721			~~1,091~~887
Total charge offs		3,200			1,386			1,166			2,106			1,475
Total charge-offs		3,575			3,200			1,386			1,166			2,106
Recoveries:
Residential real estate		842			~~104~~8			22104			3122			3931
Commercial real estate		73251			4373			~~105~~43			73105			-73
Commercial		6471			4164			~~137~~41			~~143~~137			29143
Consumer		~~543~~421			~~255~~543			~~299~~255			~~339~~299			~~217~~339
Total recoveries		~~688~~785			~~443~~688			~~563~~443			~~586~~563			~~285~~586
Net charge-offs		2,~~512~~790			~~943~~2,512			~~603~~943			~~1,520~~603			1,~~190~~520
Provision for loan losses		3,~~570~~825			13,~~530~~570			~~900~~1,530			~~1,560~~900			1,~~580~~560
Balance at end of year	$	89,~~622~~657		$	78,~~564~~622		$	67,~~977~~564		$	6,~~680~~977		$	6,~~640~~680
Ratio of net charge-offs during the year to average loans outstanding during the year		0.4250	%		0.1942	%		0.1419	%		0.3814	%		0.3038	%
Allowance for loan losses to total loans		1.4785	%		1.3047	%		1.5730	%		1.6457	%		1.64	%
Allowance for loan losses to nonperforming loans		67	%		105	%		114	%		264	%		135	%
Allowance for loan losses to non-performing loans		48	%		67	%		105	%		114	%		264	%

37We recorded $2.790 million in net charge-Koffs on loans during 2010. Based on $558.418 million of average loans outstanding during 2010, this represents 0.50% in net charge-offs. By comparison, during 2009 we recorded $2.512 million in net charge-offs or 0.42% on average loans outstanding totaling $597.762 million. During 2010, we experienced a significant amount of net charge-offs on loans secured by commercial real estate. Net charge-offs on commercial real estate loans were $1.598 million during 2010, representing 57.3% of the net charge-offs recorded during the year. The weak national and regional economy negatively affected the operating cash flows of many businesses and industries, including most sectors of the commercial real estate market. The operating performance of a significant number of our commercial real estate borrowers continued to weaken during 2010 causing significant increases in nonperforming loans and ultimately charge-offs.

Net charge-offs on consumer loans decreased from $835 thousand in 2009 to $593 thousand in 2010, a $242 thousand or 29.0% decrease. We attribute the decrease in net charge-offs on consumer loans to the more restrictive lending standards established during 2008 and the general decrease in the level of consumer loans outstanding. Net charge-offs on consumer loans as a percent of average consumer loans outstanding totaled 0.87% during 2010, versus 1.01% during 2009.

Although net charge-offs on residential mortgage loans and commercial loans increased between 2009 and 2010, the level remained low. We recorded $293 thousand in net charge-offs on residential mortgage loans and $306 thousand in net-charge offs on commercial loans during 2010.

The allowance for loan losses was $9.657 million or 1.85% of total loans outstanding at December 31, 2010. This compares to $8.622 million or 1.47% of total loans outstanding at December 31, 2009. During 2010, particularly during the first half of the year, we identified a significant number and amount of substandard loans. The identification of these loans coupled with a significant increase in nonperforming loans and continued weak economic conditions, required an increase in the allowance for loan losses. We recorded $3.825 million in the provision for loan losses during 2010. By comparison, we recorded $3.570 million in the provision for loan losses during 2009.

The allowance for loan losses to nonperforming loans decreased from 67% at December 31, 2009 to 48% at December 31, 2010. This ratio was generally lower than peer financial institutions due to two primary factors. First, our practice of

41-K

Index

~~We recorded~~maintaining ~~$2.512~~strong ~~million~~collateral positions in ~~net~~the ~~charge-offs~~loans onwe ~~loans~~originate ~~during 2009. Based~~has onreduced ~~$597.762~~the ~~million~~amounts ofwe ~~average~~have ~~loans~~reserved ~~outstanding~~through ~~during 2009,~~the ~~this~~allowance ~~represents~~for ~~0.42%~~loan inloans ~~net~~for ~~charge~~specifically-~~offs~~identified impaired credits. ByAt ~~comparison~~December 31, ~~during 2008~~2010, wethe ~~recorded $943 thousand in net charge~~specifically-~~offs~~identified onimpairment ~~loans~~amount orset ~~0.19%~~aside onfor ~~average loans~~impaired ~~outstanding~~credits oftotaled $~~498~~1.~~997~~421 million~~. During~~ ~~2009,~~or we14.7% ~~experienced~~of ~~a significant~~the ~~increase~~allowance infor ~~the~~loan ~~amount~~losses ofat ~~net~~December ~~charge-offs~~31, on2010. Second, ~~loans~~although ~~secured~~our ~~by commercial~~nonperforming ~~real~~loan ~~estate~~amounts ~~and,~~increased tosignificantly abetween ~~lesser~~the ~~extent,~~two anperiod ~~increase~~ends indecreasing ~~net~~the ~~charge-offs on~~allowance ~~consumer~~for ~~loans. The~~loan ~~weak~~losses ~~national~~to ~~and~~nonperforming ~~regional~~loans ~~economy~~ratio, ~~negatively affected~~at ~~the~~December ~~operating~~31, ~~cash~~2010 ~~flows~~only 28.1% of ~~many~~the ~~businesses~~total ~~and~~nonperforming ~~industries,~~loans ~~including most~~were ~~sectors~~90 ofdays ~~the~~or ~~commercial~~more ~~real~~past ~~estate market~~due. The ~~operating performance~~analysis ofwe aperform ~~significant~~on ~~number~~many of ~~our~~these ~~commercial real estate~~ borrowers ~~weakened~~ ~~during~~does ~~2009~~not ~~causing~~portend ~~significant~~that ~~increases~~we inwill ~~delinquent~~ultimately ~~loans, nonperforming~~record ~~loans~~significant ~~and ultimately charge-offs~~losses.

~~Net charge-offs~~Both onour ~~consumer~~management ~~loans~~and ~~increased~~Board ~~from~~of ~~$773~~Directors ~~thousand~~deemed inthe ~~2008~~allowance tofor ~~$835 thousand~~loan inlosses ~~2009~~adequate at December 31, a2010 ~~$62~~and ~~thousand~~December or31, 82009.0% Our ~~increase.~~determination Weof ~~attribute~~the adequacy of the ~~increase~~allowance ~~in net~~for ~~charge-offs~~loan losses is based on ~~consumer~~our ~~loans~~evaluation toof athe ~~weak~~credit ~~economy~~quality of the loan portfolio, ~~higher~~our ~~levels~~historical loss experience, current economic conditions, current and past underwriting and credit administration practices. However, because the allowance for loan losses is an estimate of ~~unemployment~~ probable losses and ~~underemployment~~is based on management’s experience and aassumptions, ~~moderate~~there ~~increase~~is inno certainty that the ~~average outstanding~~allowance ~~balance~~for loan losses will be sufficient to cover actual loan losses. Actual loan losses in excess of ~~consumer~~the ~~loans~~allowance ~~between~~for ~~2008~~loan losses would negatively impact our financial condition and ~~2009~~results of operations.

During 2009 net charge-offs on residential mortgage loans and commercial loans were low. We recorded a $6 thousand net recovery in residential mortgage loans and $96 thousand in net-charge offs on commercial loans. We do anticipate, however, greater amounts of net charge-offs on commercial loans during 2010 due to an increase in delinquency and increased operating difficulties among our commercial borrowers.

The allowance for loan losses was $8.622 million or 1.47% of total loans outstanding at December 31, 2009. This compares to $7.564 million or 1.30% of total loans outstanding at December 31, 2008. During 2009 we identified a significant number and amount of substandard loans, which in combination with other weaker credit quality measures, including a significant increase in nonperforming loans, required an increase in the allowance for loan losses. We recorded $3.570 million in the provision for loan losses during 2009 due to these factors, an increase in substandard loans and a weakened credit and economic environment. By comparison, we recorded $1.530 million in the provision for loan losses during 2008.

The allowance for loan losses to nonperforming loans decreased from 105% at December 31, 2008 to 67% at December 31, 2009. During 2009, we charged-down the balances on several nonperforming loans, which reduced the allowance for loan losses and the ratio of the allowance for loan losses to nonperforming loans to. Most of these charge-downs included specific impairment amounts identified in previous periods.

Both our management and Board of Directors deemed the allowance for loan losses adequate at December 31, 2009 and December 31, 2008. In spite of overall weaker loan quality during 2009 and an increase in total impaired loans to $12.957 million we only identified $721 thousand of specific reserves on impaired loans at December 31, 2009. Of the $12.957 million of impaired loans, only $5.844 million of the impaired loans required specific allowance for loan loss reserve allocations. By comparison, at December 31, 2008, $5.120 million of the $8.620 million in impaired loans had a specific allowance for loan loss reserve allocation of $1.160 million. This means that at December 31, 2009, we allocated $7.901 million of the allowance for loans losses to factors other than specifically identified loan impairment amounts, versus $6.404 million at December 31, 2008. This represents a $1.497 million or 23.4% increase attributed to these other factors, including increases in charge-offs, nonperforming, delinquent and potential problem loans. We attribute the decrease in specific reserve allocations to our general practice of obtaining strong collateral positions in the loans we originate. Our determination of the adequacy of the allowance for loan losses is based on our evaluation of the credit quality of the loan portfolio, our historical loss experience, current economic conditions, current and past underwriting and credit administration practices. However, because the Allowance for Loan Losses is an estimate of probable losses and is based on management’s experience and assumptions, there is no certainty that the allowance for loan losses will be sufficient to cover actual loan losses. Actual loan losses in excess of the allowance for loan losses would negatively impact our financial condition and results of operations.

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

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

38-K

Index

Loan Loss Summary Allocation Table:

	~~At December 31,~~	At December 31,
	2009		2008		2007		2006		2005
		2010								2009					2008					2007					2006
	~~Amount of Allowance for Loan Losses~~	~~Percent~~Amount of Allowance for Loan Losses ~~in Each Category~~	~~Amount of Allowance for Loan Losses~~	~~Percent of Allowance for Loan Losses in Each Category~~	~~Amount of Allowance for Loan Losses~~	Percent of Allowance for Loan Losses in Each Category	~~Amount of Allowance for Loan Losses~~	~~Percent of Allowance for Loan Losses in Each Category~~	~~Amount of Allowance for Loan Losses~~	~~Percent~~Amount of Allowance for Loan Losses ~~in Each Category~~		Percent of Allowance for Loan Losses in Each Category			Amount of Allowance for Loan Losses		Percent of Allowance for Loan Losses in Each Category			Amount of Allowance for Loan Losses		Percent of Allowance for Loan Losses in Each Category			Amount of Allowance for Loan Losses		Percent of Allowance for Loan Losses in Each Category
	~~(in thousands)~~	(in thousands)
Residential real estate	$ 820	9.5%	$ 538	7.1%	$ 607	8.7%	$ 501	7.5%	$ 595	9.0%
Residential Real Estate		$	1,429				14.80	%		$	820		9.50	%	$	538		7.10	%	$	607		8.70	%	$	501		7.50	%
Commercial real estate	4,587	53.2%	3,143	41.6%	2,969	42.6%	3,083	46.2%	3,171	47.8%
Commercial Real Estate			4,689				48.60	%			4,587		53.20	%		3,143		41.60	%		2,969		42.60	%		3,083		46.20	%
Commercial	~~1,436~~	~~16.7%~~	21,~~108~~118	~~27.9%~~	~~1,799~~	~~25.8%~~	~~1,462~~11.60	~~21.9~~%	~~1,512~~	~~22.8%~~	1,436		16.70	%		2,108		27.90	%		1,799		25.80	%		1,462		21.90	%
Consumer	~~1,443~~	~~16.7%~~	1,~~540~~107	~~20.4%~~	~~1,383~~	~~19.8%~~	~~1,114~~11.50	~~16.7~~%	~~1,114~~	~~16.8%~~	1,443		16.70	%		1,540		20.40	%		1,383		19.80	%		1,114		16.70	%
Unallocated	~~337~~	~~3.9%~~	~~235~~1,314	~~3.1%~~	~~219~~	~~3.1%~~	~~520~~13.60	~~7.8~~%	~~248~~	~~3.7%~~	336		3.90	%		235		3.10	%		219		3.10	%		520		7.80	%
Total	~~$ 8,622~~	~~100.0%~~$	~~$ 7~~9,~~564~~657	~~100.0%~~	~~$ 6,977~~	~~100.0%~~	~~$ 6,680~~100.00	~~100.0~~%	~~$ 6,640~~	~~100.0%~~$	8,622		100.00	%	$	7,564		100.00	%	$	6,977		100.00	%	$	6,680		100.00	%

~~During 2009~~At December 31, we2010, ~~significantly~~$4.689 ~~increased~~million or 48.6% of our allowance for loan losses ~~allocation~~was on allocated to our commercial real estate ~~loans~~portfolio. The ~~due~~level toof ~~increases~~nonperforming inloans and net charge-offs, ~~delinquent~~in ~~loans, and~~the ~~nonperforming~~commercial ~~loans. In~~real ~~addition,~~estate ~~due~~portfolio tobecame ~~weak~~elevated ~~economic conditions,~~during ~~including~~2009 ~~higher~~and ~~vacancy~~2010 ~~rates~~requiring onthat ~~commercial~~we ~~real~~allocate ~~estate~~a ~~properties, we~~significant ~~raised~~portion of the ~~allocation~~allowance ~~amounts~~for inloan ~~this~~losses ~~sector~~to ofthis ~~the portfolio~~sector. ~~Between~~Similarly, ~~December~~during ~~31,~~2010 ~~2008~~we experienced an increase in nonaccrual loans and ~~December~~net ~~31,~~charge-offs ~~2009,~~on the ~~allocation~~ ~~for~~residential ~~commercial~~mortgage ~~real~~portfolio, ~~estate~~resulting ~~loans~~in ~~increased~~a ~~from~~ $~~3.143~~609 ~~million~~thousand or 41 74.63% increase ofin the ~~allowance~~allocation for ~~loan~~this ~~losses~~sector towithin ~~$4.587 million or 53.2% of~~ the allowance for loan losses. Conversely, afor ~~smaller~~the ~~proportion~~commercial ofloan ~~the allowance~~portfolio ~~for~~sector ~~loan~~we ~~losses~~recorded ~~was~~decreases ~~allocated~~in toboth ~~commercial~~the level of nonperforming loans ~~due~~and tototal outstanding balances between December 31, 2009 and December 31, 2010, resulting in a decrease in the ~~historical~~allocation ~~loss~~within ~~factor~~the ~~applied~~allowance for loan losses to ~~this~~the commercial loan portfolio sector. During of2010 the outstanding balances on the consumer loan portfolio, ~~offset,~~decreased ~~in part~~significantly. This trend, bycoupled anwith ~~increase~~a decrease in ~~allocation~~the ~~amounts~~net ~~due~~charge-offs toand ~~weak~~low ~~economic conditions~~delinquency levels resulted in a $336 thousand or 23. ~~The~~3% ~~change~~decrease in the amount allocated within the allowance for loan ~~loss~~losses ~~amounts allocated~~ to the ~~residential~~consumer ~~real~~loan ~~estate~~sector ~~loans~~of ~~and~~the ~~consumer~~portfolio. And ~~loans~~finally, ~~were generally~~ due to ~~changes~~the significant increase in nonperforming loans, an increase in foreclosure actions (particularly in the ~~composition~~second-half of ~~our~~2010) ~~loan~~and ~~portfolio. During~~the ~~2009~~ related uncertainty regarding the ~~outstanding~~ultimate ~~balance~~loss ofthat ~~consumer~~will ~~loans,~~be asincurred ~~well~~on asthese loans, the ~~amounts~~unallocated ~~allocated~~portion ~~in the~~of our allowance for loan losses ~~for~~increased ~~consumer~~from ~~loans, decreased. Conversely,~~$337 ~~the~~thousand ~~outstanding~~or ~~balance~~3.9% of ~~residential mortgage~~the ~~loans~~allowance ~~and~~for ~~the~~loan ~~amounts~~losses ~~allocated~~at December 31, 2009 to $1.314 million or 13.6% of the allowance for ~~loans~~loan losses ~~for residential~~at ~~mortgage~~December ~~loans~~31, ~~increased~~2010.

42-K

Index

Other Nonearning Assets and Bank-Owned Life Insurance

Cash and Due from Banks. In order to operate the Bank on a daily basis, it is necessary for us to maintain a limited amount of cash at our teller stations and within our vaults and ATMs to meet customers’ demands. In addition, we always maintain an amount of check and other presentment items in the process of collection (or float). We are also required to maintain minimum noninterest bearing target balances at our correspondent banks. At December 31, ~~2009~~2010, we maintained $10.~~004~~883 million or 1.13% of total assets in these categories of nonearning assets. This compares to $810.~~467~~ 004 million or 01.91% of total assets at December 31, ~~2008~~2009.

Premises and Equipment. The net book value of premises and equipment decreased $~~478~~537 thousand or 78.49%, from $6.~~482~~004 million at December 31, ~~2008~~2009 to $65.~~004~~467 million at December 31, ~~2009~~2010. During ~~2009~~2010 we did not purchase, dispose or sell any Company or Bank premises. The decrease in premises and equipment between December 31, ~~2008~~2009 and December 31, ~~2009~~2010 was due principally to an increase in the accumulated depreciation on the Company’s equipment.

Bank-Owned Life Insurance. The cash surrender value of bank-owned life insurance at December 31, ~~2009~~2010 was $1617.~~994~~594 million, as compared to $16.~~402~~ 994 million at December 31, ~~2008~~2009, a $~~592~~600 thousand or 3.65% increase. Throughout ~~2009~~2010, the Bank held policies on 15 former and current members of the Bank’s senior management. The cash surrender value on each policy was increased throughout the year at the net crediting rate applied by the various insurance carriers. The policies’ were issued by five life insurance companies who all carry strong financial strength ratings. The net crediting rates applied on each policy were determined by each insurance carrier based on the performance of their general account.

Goodwill and Other Intangible Assets. Goodwill was unchanged between December 31, ~~2008~~2009 and December 31, ~~2009~~2010. During ~~2009~~2010 we did not acquire any new businesses, nor did we incur any impairment on previous acquisitions. Goodwill totaled $4.619 million at December 31, ~~2009~~2010 and ~~2008~~2009.

The Company has only one reporting unit. Annually we test the Company’s goodwill for impairment. Based on our testing, no impairment was warranted during ~~2009~~2010. Should our common stock value trade consistently below our book value, or other triggering event occur, we would re-evaluate the amount of goodwill through an impairment test. If impairment is warranted, the amount would be recorded through the income statement as a reduction to current period earnings. At December 31, 2010 there were no other intangible assets recorded on the books of the Company.

~~39-K~~Pension Asset. At December 31, 2010, our pension plan assets exceeded our pension plan liabilities by $2.747 million resulting in the recording of a pension asset. By comparison at December 31, 2009, our pension asset totaled $1.247 million. The change in the pension asset between December 31, 2009 and December 31, 2010 was due to several factors. During 2010, the assets held by our pension plan generated strong investment returns. In addition during the fourth quarter of 2010, we contributed $3.000 million toward the plan. The increase in the plan’s assets due to these factors was offset, in part, by an increase in the plan’s pension benefit obligation. See Note 12 of the Consolidated Financial Statements contained in PART II, Item 8, of this document for additional detail on the Company’s defined benefit pension plan.

Other Assets Comparative Table:

	At December 31,
	2010		2009			Difference
	(in thousands)
Accounts Receivable	$	2,706	$	23		$	2,683
Prepaid Items - Other		1,477		216			1,261
NY Franchise Tax Receivable (Payable)		261		(65	)		326
Federal Income Tax Receivable		1,373		421			952
Prepaid FDIC Assessment		4,566		6,248			(1,682	)
Other Miscellaneous Assets		8,576		8,193			383
Total	$	18,959	$	15,036		$	3,923

43-K

Index

~~During 2008~~The ~~other~~increase ~~intangible~~in ~~assets~~accounts ~~decreased~~receivable totaling $992.683 ~~thousand,~~million ~~from~~between ~~$107~~the ~~thousand~~periods ~~at December~~was ~~31,~~primarily ~~2008~~due to the establishment of a $82.618 ~~thousand~~million ataccounts ~~December~~receivable ~~31,~~during ~~2009~~the fourth quarter of 2010 in connection with the January 2011 distribution from a bankruptcy trustee on a loan previously classified as nonaccrual. The ~~decrease~~ $1.261 million increase in other prepaid items was ~~due~~primarily attributable to the ~~amortization~~$1.199 ofmillion ~~core~~in ~~the~~liquidation ~~deposit~~damages ~~intangible~~we ~~asset~~remitted ~~recorded~~to our core processing information system vendor in ~~prior~~ ~~period~~connection ~~bank~~with ~~branch~~our ~~acquisitions~~anticipated merger with CBSI.

Pension Asset. At December 31, 2009, our pension plan assets exceeded our pension plan liabilities by $1.247 million resulting in the recording of a pension asset. By comparison at December 31, 2008, our pension plan liabilities exceeded our pension plan assets by $869 thousand, resulting in a plan liability. The swing between a pension liability at December 31, 2008 and pension asset at December 31, 2009 was due to several factors. During 2009, the assets held by our pension plan generated strong investment returns. In addition during the fourth quarters of 2009 and 2008, we contributed $1.000 million and $2.000 million, respectively, toward the plan. The increase in the plan’s assets due to these factors was offset, in part, by an increase in the plan participant liability. See Note 11 of the Consolidated Financial Statements contained in PART II, Item 8, of this document for additional detail on the Company’s defined benefit pension plan.

Other Assets. Other assets are principally comprised of OREO, interest receivable, prepaid taxes, prepaid insurance, prepaid FDIC insurance premiums, computer software, net deferred tax assets, deferred taxes on investment securities, deferred taxes on the pension plan, other assets, returned/rejected check items, other prepaid items, other intangible assets and other accounts receivable. Other assets increased $6.191 million or 72.9%, from $8.489 million at December 31, 2008 to $14.680 million at December 31, 2009. The substantial increase in other asset between the periods was due in large part to our FDIC prepaid deposit insurance assessment. In the fourth quarter of 2009, the FDIC adopted a final rule to assess and collect from its member institutions a special prepaid deposit insurance assessment to replenish its Deposit Insurance Fund. The special prepaid assessment was collected from member institutions in December 2009 and included estimated quarterly FDIC insurance premiums for the fourth quarter of 2009 and for all quarterly periods in 2010, 2011 and 2012. The Bank’s prepaid deposit insurance assessment totaled $6.248 million at December 31, 2009 and will be amortized quarterly during 2010, 2011 and 2012 until it is fully exhausted.

Composition of Liabilities

Deposits. Deposits are our primary funding source. At December 31, ~~2009~~2010 and December 31, ~~2008~~ 2009 deposits represented approximately 90% of our total liabilities. Total deposits at December 31, ~~2009~~2010 were $~~753~~716.~~740~~ 447 million. This compares to $~~765~~753.~~873~~740 million at December 31, ~~2008~~2009, a $1237.~~133~~293 million or 14.69% decrease. During ~~2009~~2010, we tempered our asset growth plan and actively deleveraged the Company’s balance sheet. This entailed targeting strategic reductions in certain categories of deposit liabilities, as well as selected asset categories. The deleveraging plan was executed in an effort to mitigate risk, ~~increase net income~~ and boost our capital position in light of challenging economic conditions. The execution of the plan included ~~significant~~ interest rate reductions in all of our deposit liability categories, including, savings accounts, NOW accounts, money market deposits and certificates of deposit. There is an inherent lag between our deposit pricing actions and the flow of customer deposits. For this reason and our 2008 growth strategy, our average outstanding deposit balances increased from $714.015 million in 2008 to $779.430 million in 2009. Conversely, due to the implementation of our deleveraging strategy our 2009 year end deposit liability balances dropped below 2008 year-end deposit liability balances.

During ~~2009~~ 2010 the composition of our deposit liabilities changed significantly. In particular, ~~our~~in ~~interest-bearing~~connection ~~nonmaturity deposit~~with ~~balances~~our ~~increased~~deleveraging ~~$35.750~~plan ~~million~~we ordecreased ~~10.8%~~the ~~between~~interest ~~December~~rates ~~31,~~paid ~~2008 and~~on ~~December~~our ~~31,~~money ~~2009,~~market ~~while~~deposit ~~our~~accounts ~~certificate~~and certificates of deposit ~~portfolio (including certificates~~ over ~~and under~~ $100 thousand). These ~~decreased~~categories ~~$50.755~~of ~~million~~deposits ortend ~~14.9% over~~to ~~the~~be ~~same~~more ~~period. We~~interest ~~decreased~~rate ~~the~~sensitive ~~interest~~than ~~rates~~savings, ~~paid~~NOW onand ~~our short-term~~retail certificates of deposit ~~and~~under ~~maintained~~$100 ~~relatively~~thousand. Hence, ~~competitive~~ as we decreased the interest rates paid on ~~our~~the ~~money~~more ~~market~~interest ~~and~~rate ~~NOW~~sensitive ~~accounts~~products during ~~2009. Our depositors~~2010, ~~reacted~~the bybalances ~~increasing~~declined. At ~~their~~December ~~NOW~~31, ~~and~~2010, money market deposit ~~account balances,~~accounts and tocertificates aof ~~lesser~~deposit ~~extent~~greater than $100 thousand comprised 39.9% of our total deposit liabilities. By comparison, ~~savings~~at ~~accounts~~December 31, ~~while~~2009, ~~reducing~~money ~~the~~market ~~funds invested~~deposit inaccounts and certificates of deposit, ~~particularly~~greater ~~those~~than ~~with~~$100 ~~maturities~~thousand comprised 35.3% of ~~one year~~our ortotal ~~less~~deposit liabilities.

~~40-K~~The following table indicates the amount of our time accounts by time remaining until maturity as of December 31, 2010.

Index

The following table indicates the amount of our time accounts by time remaining until maturity as of December 31, 2009.

Time Accounts Maturity Table:

	Maturity as of December 31, 2009
	Maturity as of December 31, 2010
	3 Months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
	(in thousands)
Certificates of Deposit of $100,000 or more	$	4622,~~833~~652	$	1514,~~417~~015	$	1615,~~757~~198	$	4653,~~411~~240	$	~~125~~105,~~418~~105
Certificates of Deposit less than $100,000		1627,~~326~~205		1721,~~571~~098		3530,~~181~~774		9697,~~200~~038		~~165~~176,~~278~~115
Total of time accounts	$	63,159	$	32,988	$	51,938	$	142,611	$	290,696
Total of Time Accounts	$	49,857	$	35,113	$	45,972	$	150,278	$	281,220

Borrowings and Other Contractual Obligations. Total borrowed funds consist of short-term and long-term borrowings. Short-term borrowings consist primarily of securities sold under agreements to repurchase with our customers and other third parties. Long-term borrowings consist of monies we borrowed from the FHLBNY for various asset funding requirements and wholesale funding strategies. Total borrowed funds were $7371.~~277~~932 million or 89.80% of total liabilities at December 31, ~~2009~~2010, as compared to $8173.~~398~~589 million or 98.58% of total liabilities at December 31, ~~2008~~2009, ana $81.~~121~~657 million or 102.03% decrease between the periods.

Short-term borrowings ~~decreased~~increased from $2112.~~428~~650 million at December 31, ~~2008~~2009 to $1215.~~650~~ 960 million at December 31, ~~2009~~2010, a $83.~~778~~310 million or 4126.02% ~~decrease~~increase. The ~~decrease~~ increase was principally due to aan ~~decrease~~increase in customer repurchase agreement balances.

Long-term borrowings ~~increased~~decreased $~~657~~4.967 ~~thousand~~million between December 31, ~~2008~~2009 and December 31, ~~2009~~ 2010. During ~~2009~~2010 we ~~secured~~did ~~$5.000~~not ~~million~~secure ofany new long-term advances at the FHLBNY, ~~principally~~due to ~~fund~~our ~~the~~strategy ~~origination~~to ofdeleverage ~~new~~the ~~fixed-rate residential mortgage loans~~Company. ~~This~~The ~~increase~~decrease in long-term balances was ~~offset~~primarily bydue ~~the~~to ~~repayment~~contractual ofprincipal ~~$4.343 million~~amortization inon ~~amortizing~~our FHLBNY advances originated ~~during~~in ~~the current and~~ prior periods. See Note 1011 of the Consolidated Financial Statements contained in PART II, Item 8, of this document for additional detail on our borrowed funds.

In connection with our financing and operating activities, we have entered into certain contractual obligations. At December 31, ~~2009~~2010, our future minimum cash payments, excluding interest, associated with these contractual obligations, which include borrowed funds, capital and operating leases, were as follows:

44-K

Index

Contractual Obligations:

	Payments Due by Period
	2010		2011		2012		2013		2014		Thereafter		Total
	2011		2012		2013		2014		2015		Thereafter		Total
	(in thousands)
Long-term debt obligations	$	4,939	$	4,664	$	26,642	$	7,548	$	3,733	$	13,101	$	60,627
Long-Term Debt Obligations	$	4,662	$	26,640	$	4,046	$	3,732	$	8,489	$	8,174	$	55,743
Operating lease obligations		353		337		306		158		109		887		2,150
Capital Lease Obligations		104		77		34		12		2		-		229
Capital lease obligations		124		96		67		24		1		-		312
Operating Lease Obligations		441		430		289		240		240		1,465		3,105
Total contractual obligations	$	5,416	$	5,097	$	27,015	$	7,730	$	3,843	$	13,988	$	63,089
Total Contractual Obligations	$	5,207	$	27,147	$	4,369	$	3,984	$	8,731	$	9,639	$	59,077

D. Results of Operations

i. Comparison of Operating Results for the Years Ended December 31, ~~2009~~2010 and December 31, ~~2008~~2009

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

Summary. We recorded net income and earnings per share of $76.~~401~~324 million and $0.7059, respectively, for ~~2009~~2010. This compares to $57.~~816~~401 million in net income and $0.5570 in earnings per share in ~~2008~~2009. The $1.~~585~~077 million or 2714.36% ~~increase~~ decrease in net income and $0.1511 ~~increase~~decrease in earnings per share between comparable periods were due to several factors. WeBetween the periods we recorded ~~significant~~ ~~increases~~a decrease in ~~both~~ net interest income, an increase in the provision for loans losses and ~~noninterest~~an ~~income~~increase in ~~2009~~ noninterest expense. These were offset, asin ~~compared~~part, toby ~~2008. The~~an increase in ~~net~~noninterest ~~interest~~ income ~~totaling~~ ~~$5.902~~and ~~million~~a ordecrease ~~22.3%~~in ~~was~~income ~~due,~~taxes inon ~~large~~a ~~part~~comparable period basis. During 2010, towe afocused significant ~~increase~~ inresources ~~average~~on ~~loans~~reducing ~~outstanding~~our (credit risk profile and improving our ~~highest~~regulatory ~~yield~~capital ~~earning~~ratios. To ~~asset)~~mitigate credit risk, we hired problem loan work-out specialists and ~~a significant~~actively ~~decrease~~pursued instrategies to reduce the ~~cost~~level of ~~interest-bearing~~problem ~~liabilities~~loans. ~~In addition~~This included, ~~due~~but ~~primarily~~was not limited to, ~~the~~modifying ~~low~~our ~~interest~~loan ~~rate~~policy, ~~environment~~increasing ~~that~~our ~~prevailed~~credit ~~in 2009~~monitoring activities, wereducing ~~sold~~available orlines ~~had~~of ~~called~~credit, ~~$120.286~~establishing ~~million~~new ofloan ~~our~~covenants ~~available-~~for~~-sale investment~~ ~~securities~~our ~~and~~borrowers, ~~recorded~~entering ~~$3.676~~into ~~million~~forbearance inagreements ~~gains~~with onour ~~the~~troubled ~~sale~~borrowers, ofpursing ~~these securities.~~foreclosure ~~This~~actions, ~~compares~~selling toborrower ~~sales~~notes, orrestructuring ~~calls~~loans, securing additional collateral on ~~available~~existing loans and cross-~~for-sale~~obligating ~~securities totaling~~related ~~$32~~entities of our borrowers.~~632~~ These ~~million~~activities ~~during~~resulted ~~2008~~in ~~and~~a ~~$510~~significant ~~thousand~~decrease in ~~gains~~loans outstanding and increases in loan-related noninterest expenses, including legal and professional fees.

41In order to improve our regulatory capital ratios during 2010, we actively deleveraged the Company’s balance sheet by lowering deposit interest rates. In addition, during 2010 we sold significant amounts of our available-Kfor-sale investment securities portfolio to generate current period revenue and, in turn, retained earnings. This resulted in a significant decrease in net interest income over comparable annual periods. In addition, during 2010 we expended significant resources and effort to comply with the Formal Agreement issued by the OCC on October 13, 2010.

~~Index~~Our return on average assets and return on average equity were 0.69% and 8.29%, respectively, for 2010, as compared to 0.79% and 10.63%, respectively, during 2009. Our dividend payout ratio was 31% during 2010. We declared and paid dividends totaling $0.18 per share during 2010 on earnings per share of $0.59. Due to the need to preserve the Company’s capital resources, due to the pending merger with CBSI, the Company’s Board of Directors did not declare a quarterly dividend during the fourth quarter of 2010. During 2009, we declared and paid dividends totaling $0.275 per share on earnings per share of $0.70, resulting in a 39% dividend payout ratio.

Net Interest Income. The ~~improvements~~ inamount of net interest income ~~and~~we ~~noninterest~~record ~~income~~during ~~were~~a ~~offset,~~given inperiod ~~part, by~~is ~~significant~~dependent ~~increases~~on inseveral ~~the~~factors ~~provision for loan losses~~including, ~~noninterest~~but ~~expense and~~not ~~income~~limited ~~taxes.~~to: ~~The~~our ~~increase~~ability into ~~the~~attract ~~provision~~and ~~for~~retain ~~loan~~deposits, ~~losses~~our ~~was due~~ability to ~~the~~generate ~~general~~and ~~deterioration~~retain inloans, ~~most~~regional ofand ~~our~~local ~~loan~~economic ~~quality~~conditions, ~~metrics~~regional ~~between comparable years~~competition, ~~and~~capital ~~the~~market ~~need~~conditions, ~~to replenish~~ the ~~allowance~~national ~~for~~interest ~~loan~~rate ~~losses~~environment, ~~for charge-offs~~as ~~recorded~~well as ~~determined by~~ our ~~allowance~~tolerance ~~model~~for risk. ~~The increase~~Throughout in2010 ~~noninterest~~and ~~expense between comparable years was largely attributable to significant increases in the FDIC premium assessment~~2009, ~~employee benefits~~our ~~expense,~~net ~~and~~interest toincome awas ~~lesser~~affected ~~extent,~~by ~~salaries,~~all ~~computer~~of ~~service~~these ~~fees and loan collection expense~~factors.

Our return on average assets and return on average equity were 0.79% and 10.63%, respectively, for 2009, as compared to 0.67% and 8.35%, respectively, during 2008. Our dividend payout ratio was 39% during 2009. We declared and paid dividends totaling $0.275 per share during 2009 on earnings per share of $0.70. Due to the need to preserve the Company’s capital resources, particularly in these uncertain economic times, the Company’s Board of Directors declared a quarterly dividend of $0.06 per share for the last three quarters of 2009. This compares to a $0.095 dividend per share in the first quarter of 2009 and all four quarters of 2008, a $0.035 decrease in the quarterly dividend.

Net Interest Income. Net interest income is our most significant source of revenue. Net interest income is comprised of the interest and dividend income generated on our earning assets, including, but not limited to, loans and investment securities, less interest expense on our interest bearing liabilities, including, customer deposits and borrowings. During 2009, net interest income comprised 77% of our total revenues (net interest income plus noninterest income). The remaining 23% was due to noninterest income. This compares to 81% and 19%, respectively, for 2008. The decrease in net interest income to total revenues between 2008 and 2009 was largely due to the significant increase in net gains recorded on the sale, maturity and call of the available-for-sale investment securities portfolio between periods.

The following Asset and Yield Summary Table, and Rate and Volume Table and the associated narrative provide detailed net interest income information and analysis that are important to understanding our results of operations.

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

4245-K

Index

Asset and Yield Summary Table:

	For the Years Ended December 31,
	2009								2008
	2010								2009 ⁵
	Average Outstanding Balance			Interest Earned / Paid		Yield / Rate			Average Outstanding Balance			Interest Earned / Paid		Yield / Rate	~~Yield / Rate~~
	(in thousands)
Earning Assets:
Federal funds sold	$	821		$	-		0.00	%	$	16,399		$	391			2.38	%
Federal Funds Sold	$	1,128		$	2		0.18	%	$	821		$	-			0.00	%
Interest- bearing deposits		27,409			63		0.23	%		6,977			193			2.77	%
Interest Bearing Deposits		38,054			92		0.24	%		27,409			63			0.23	%
Securities ¹		~~269~~275,~~959~~486			119,~~221~~882		43.1659	%		~~296~~269,~~988~~959			1311,~~002~~221			4.3816	%
Loans ²		~~598~~558,~~359~~911			3532,~~554~~218		5.9476	%		~~499~~598,~~163~~359			3235,~~806~~554			65.5794	%
Total earning assets		896,548			46,838		5.22	%		819,527			46,392			5.66	%
Total Earning Assets		873,579			42,194		4.83	%		896,548			46,838			5.22	%
Nonearning assets		35,936								43,050
Nonearning Assets		42,063								34,923
Total assets	$	932,484							$	862,577
Total Assets	$	915,642							$	931,471
Liabilities:
Savings accounts	$	70,901		$	205		0.29	%	$	69,557		$	291			0.42	%
Savings Accounts	$	76,572		$	191		0.25	%	$	70,901		$	205			0.29	%
Money market accounts		195,613			1,845		0.94	%		135,770			2,802			2.06	%
Money Market Accounts		172,456			741		0.43	%		195,613			1,845			0.94	%
NOW accounts		114,106			831		0.73	%		87,680			1,021			1.16	%
NOW Accounts		117,235			469		0.40	%		114,106			831			0.73	%
Time & other deposit accounts		327,932			8,924		2.72	%		347,238			13,126			3.78	%
Time and Other Deposit Accounts		325,215			7,425		2.28	%		327,932			8,924			2.72	%
Borrowings		7471,~~346~~311			2,~~697~~616		3.6367	%		7174,~~557~~594			2,~~718~~697			3.8062	%
Total interest-bearing liabilities		782,898			14,502		1.85	%		711,802			19,958			2.80	%
Total Interest Bearing Liabilities		762,789			11,442		1.50	%		783,146			14,502			1.85	%
Noninterest bearing deposits		70,878								73,770
Noninterest Bearing Deposits		70,706								70,878
Other noninterest bearing liabilities		9,103								7,330
Other Noninterest Bearing Liabilities		5,906								7,842
Total liabilities		862,879								792,902
Total Liabilities		839,401								861,866
Shareholders' equity		69,605								69,675
Shareholders' Equity		76,241								69,605
Total liabilities and shareholders' equity	$	932,484							$	862,577
Total Liabilities and Shareholders' Equity	$	915,642							$	931,471
Net interest income				$	32,336							$	26,434
Net Interest Income				$	30,752							$	32,336
Net interest rate spread ³							3.37	%								2.86	%
Net interest Rate Spread ³							3.33	%								3.37	%
Net earning assets	$	113,650							$	107,725
Net Earning Assets	$	110,790							$	113,402
Net interest margin 4							3.61	%								3.23	%
Net Interest Margin ⁴							3.52	%								3.61	%
Net interest margin (tax-equivalent)							3.7764	%								3.4677	%
Ratio of earning assets to interest-bearing liabilities		114.52	%							~~115~~114.1348	%

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, nonaccrual 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.

43² Average loans include loans held for sale, net deferred loan fees and costs, non-Kaccrual 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

⁵	Certain figures have been reclassified to conform with current period presentation.

46-K

Index

~~The~~Net ~~level of~~interest income is our most significant source of revenue. During 2010, net interest income iscomprised ~~dependent~~75% onof ~~several~~our ~~factors~~net ~~including,~~revenue ~~but~~(net ~~not limited~~interest ~~to:~~income plus noninterest income). ~~our~~This ~~ability~~compares to ~~attract~~78% ~~and~~in ~~retain~~2009. Net ~~deposits,~~interest ~~our~~income ~~ability to~~was ~~generate~~$30.752 ~~and~~million ~~retain~~for ~~loans~~2010, ~~regional~~as ~~and~~compared ~~local~~to ~~economic~~$32.336 ~~conditions,~~million ~~regional competition,~~for ~~capital~~2009. The ~~market~~$1.584 ~~conditions,~~million ~~the~~decrease ~~national~~in net interest ~~rate~~income ~~environment, as~~between ~~well~~comparable asyears ~~our~~also ~~tolerance~~resulted ~~for~~in ~~risk. Throughout~~a ~~2009~~decrease ~~and~~in ~~2008,~~the ~~our~~net interest margin. Our net interest ~~income~~margin was ~~affected~~3.52% by(3.64% ~~all~~tax ofequivalent) ~~these~~in ~~factors~~2010, as compared to 3.61% (3.77% tax equivalent) in 2009.

We recorded $3242.~~336~~194 million inof ~~net~~ interest income during ~~2009~~2010, ~~versus~~as compared to $2646.~~434~~ 838 million during ~~2008,~~2009. This represented a $54.~~902~~644 million or 229.39% ~~increase~~decrease in interest income between comparable periods. ~~Similarly, tax-equivalent~~During ~~net~~2010 market interest ~~margin~~rates ~~increased~~remained ~~from~~at 3or near historical lows.~~46%~~ This incoupled ~~2008~~with toa ~~3.77%~~decrease in ~~2009.~~ ~~The~~earning ~~increase~~assets inand ~~net~~high ~~interest~~levels ~~income~~of ~~and~~turnover ~~tax-equivalent~~within ~~net~~our investment securities portfolio led to a precipitous drop in interest ~~margin~~ income between comparable years. During 2010, the yield on earning assets was ~~due~~4.83%, as compared to 5.22% for 2009, a ~~significant~~39 ~~increase~~basis inpoint decrease between the periods. Between comparable years our average outstanding balance of loans, our highest yield earning asset ~~balances~~portfolio, ~~particularly~~decreased ~~loans~~$39.448 million, ~~and~~from a$598.359 ~~significant decrease~~million induring ~~funding~~2009 ~~costs~~to $558.911 million during 2010. During the second half of 2009 and 2010, we ~~recorded~~tightened ~~$46.838~~our ~~million~~credit underwriting standards for loans in ~~interest~~ ~~income~~an ~~versus~~effort ~~$46.392~~to ~~million~~mitigate an anticipated deterioration in ~~2008,~~asset aquality ~~$446~~and ~~thousand~~improve orour 1regulatory capital ratios.0% As ~~increase in~~the ~~spite~~loan ofportfolio ~~significant~~amortized ~~decreases~~between inthese periods, we purchased investment securities with strong credit quality features, but at lower effective yields than the ~~yield~~loan onportfolio, ~~all~~in ~~categories~~effect, changing the composition of our earning assets. ~~Interest~~In ~~expense,~~addition byand ~~comparison,~~in ~~decreased~~connection ~~$5.456~~with ~~million~~this ~~or 27.3%~~risk-mitigation strategy, ~~from~~the ~~$19.958~~average ~~million~~outstanding inbalance ~~2008~~of toour total earning assets decreased $1422.~~502~~969 million inor ~~2009~~2.6%.

~~During 2009,~~We ~~average~~recorded ~~outstanding earning assets increased~~ $7711.~~021~~442 million orof ~~9.4%~~interest expense during 2010, ~~from~~ as compared to $~~819~~14.~~527~~502 million induring ~~2008~~2009. This torepresented a $~~896~~3.~~548~~060 million or 21.1% decrease in ~~2009,~~interest ~~while~~expense between comparable periods. Similarly, the ~~average~~rates ~~yield~~paid on our ~~earning~~total ~~assets~~interest bearing liabilities decreased 4435 basis points ~~between comparable periods~~, from 5 1.6685% in ~~2008~~2009 to 51.2250% in ~~2009~~2010. ~~During~~ Between ~~2008~~comparable periods, we ~~embarked~~reduced onthe aaverage ~~market expansion~~rate ~~and~~paid ~~asset~~on ~~growth~~all ~~strategy. The~~categories ~~strategy included the hiring~~ of ~~several~~our ~~lending~~interest-bearing ~~professionals~~deposit ~~and~~liabilities, ~~establishment~~including ofmoney ~~branch~~market ~~offices~~deposit inaccounts ~~Greater Syracuse~~and time and ~~Capital~~other ~~District~~deposit ~~markets~~accounts, ofour ~~central~~two largest and ~~upstate~~highest ~~New York. Although~~cost weinterest-bearing ~~curbed~~deposit ~~our~~liabilities. During ~~growth~~2010, ~~strategy~~we ~~during~~recorded ~~the~~$741 ~~first~~thousand ~~half~~ of ~~2009,~~ ~~average~~interest ~~earning~~expense ~~assets~~on ~~increased~~our ~~between~~money ~~comparable~~market ~~years~~deposit ~~due~~accounts toat ~~the inherent~~an ~~lag~~average inrate ~~implementing~~of ~~these strategies~~0.43%. ~~Between~~By ~~September 2007 and December 2008~~comparison, ~~the~~during ~~Federal~~2009 ~~Open~~we ~~Market~~recorded ~~Committee~~$1.845 ~~lowered~~million ~~the~~of ~~target~~interest ~~federal funds~~expense ~~interest~~on ~~rate~~money bymarket ~~500~~deposit ~~basis~~accounts ~~points,~~at ~~from~~an ~~5.25%~~average torate of 0.2594%~~, due to a rapidly slowing national economy~~. ~~This,~~The in51 ~~turn,~~basis ~~caused~~point a decrease in the ~~national~~ ~~prime~~average ~~lending~~ rate, anon ~~interest~~these ~~rate~~deposit toliabilities ~~which~~was aprincipally ~~significant~~due ~~portion~~to ~~of our~~a ~~loan~~significant ~~portfolio~~reduction ~~is indexed. These actions, along with decreases~~ in ~~other~~ ~~short-term~~the interest ~~rates,~~rate ~~reduced~~offered ~~the yield~~ on ~~all~~our ~~categories~~“Wealth ofManagement” ~~our earning~~money ~~assets~~market ~~between~~deposit ~~comparable years~~account. Similarly, ~~including~~the ~~federal~~interest ~~funds~~expense ~~sold,~~recorded ~~interest bearing~~on ~~deposits~~time ~~(at~~and other ~~banks),~~deposit ~~investment~~accounts ~~securities~~decreased ~~and loans~~$1. ~~Our~~499 ~~strategy~~million tobetween ~~grow~~comparable ~~the~~periods. During ~~earning~~2010 ~~assets,~~the ~~with~~average arate ~~special emphasis~~paid on ~~loans,~~time ~~our~~and ~~highest~~other ~~yielding~~deposit ~~portfolio,~~accounts ~~counteracted~~was ~~the~~2.28%, ~~precipitous drop~~versus 2.72% in ~~earning~~2009, ~~asset~~a ~~yields~~44 ~~between~~basis ~~comparable~~point ~~years~~decrease.

We recorded $35.554 million of interest income on loans during 2009, as compared to $32.806 million in 2008, a $2.748 million or 8.4% increase despite a 63 basis point decrease in yield between the periods. The average outstanding balance of our loan portfolio was $598.359 million in 2009, as compared to $499.163 million in 2008, a $99.196 million or 19.9% increase, while loan yields decreased from 6.57% in 2008 to 5.94% in 2009. During 2008, we hired several experienced commercial lenders to staff our Cicero, New York office and continued to originate new loans in our core markets and the Capital District. These actions resulted in an increase in the average outstanding balance of loans in each successive quarter of 2008 and the first two quarters of 2009, in spite of our decision to curb our growth strategy during 2009. The persistence of very low market interest rates throughout 2009 resulted in a drop in the average yield on loans.

We recorded $11.221 million in interest income on our investment securities portfolio during 2009. By comparison, we recorded $13.002 million in interest income on our investment securities portfolio during 2008. The decrease in interest income on the investment securities portfolio totaling $1.781 million or 13.7% was due primarily to decreases in both investment securities market yields and the average outstanding balance in our investment securities portfolio. The average yield on the investment securities portfolio decreased from 4.38% in 2008 to 4.16% in 2009, while the average outstanding balance of the portfolio decreased from $296.988 million in 2008 to $269.959 million in 2009. During 2009, we experienced significant turnover in our investment securities portfolio due to sales, maturities or calls and increased the average outstanding balances of the loan portfolio. These factors drove down the average outstanding balance of the investment securities portfolio. In addition, the proceeds from these activities were reinvested into new investment securities at lower effective yields.

On a combined basis, we recorded $63 thousand in interest income on federal funds sold and interest-bearing deposits (at other banks) during 2009. This compares to $584 thousand in interest income during 2008. The decrease in interest income on federal funds sold and interest-bearing deposits (at other banks) between comparable years was principally due to a precipitous drop in market interest rates between 2008 and 2009.

Between 2008 and 2009, the rate on all categories of interest bearing liabilities decreased. The weighted average rate on all interest bearing liabilities totaled 2.80% in 2008, as compared to 1.85% in 2009. Similarly, total interest expense decreased $5.456 million between comparable years in spite of a $71.096 million or 10.0% increase in average outstanding interest bearing liabilities. We recorded $14.502 million in total interest expense during 2009, as compared to $19.958 million in 2008. The significant decrease in market interest rates between comparable years allowed us to reduce the average rate paid on all categories of our interest-bearing liabilities, including money market deposit accounts and time and other deposit accounts, our two largest and highest cost interest-bearing deposit liabilities.

44-K

Index

During 2009, we recorded $1.845 million of interest expense on our money market deposit accounts at an average rate of 0.94%. By comparison, during 2008 we recorded $2.802 million of interest expense at an average rate of 2.06%. The 112 basis point decrease in the average rate on these deposit liabilities was principally due to a significant reduction in the interest rate offered on our “Wealth Management” money market deposit account. The average outstanding balance of money market accounts increased from $135.770 million in 2008 to $195.613 million in 2009. We attribute this increase to our depositors’ willingness to hold investable funds in readily available money market accounts and their corresponding reluctance to invest funds into certificates of deposit during a time when market interest rates for short-term time deposits were at historical lows.

Similarly, the interest expense recorded on time and other deposit accounts decreased $4.202 million between comparable years. During 2009 the average rate paid on time and other deposit accounts was 2.72%, versus 3.78% in 2008, a 106 basis point decrease. As market rates for certificates of deposit remained very low during 2009 our maturing certificates of deposit were renewed or replaced by new certificates at lower rates of interest. The average outstanding balance of time and other deposits decreased from $347.238 million in 2008 to $327.932 million in 2009 because certificate of deposit yields were low, which, we believe, caused our depositors to invest their funds into NOW and money market accounts that could be accessed quickly without penalty.

Between 2008 and 2009, the average outstanding balance of NOW accounts increased $26.426 million or 30.1%, but the average interest rate paid decreased 43 basis points, from 1.16% during 2008 to 0.73% during 2009. As a result of these changes, interest expense on NOW accounts decreased from $1.021 million in 2008 to $831 thousand in 2009, a $190 thousand or 18.6% decrease between comparable years. During 2009, our municipal depositors increased the level of their operating account balances held in NOW accounts due to significant reductions in short-term certificate of deposit rates. The effective yield on municipal NOW accounts exceeded the effective yield on certificates of deposits with maturities of one year or less throughout most of 2009.

Between comparable years, the average rate paid on savings accounts decreased from 0.42% in 2008 to 0.29% in 2009. Although the interest rate offered on savings accounts were at historical lows throughout 2009, the average outstanding balance in savings accounts increased slightly from $69.557 million during 2008 to $70.901 million during 2009, a $1.344 million or 1.9% increase. Interest expense on savings accounts decreased from $291 thousand in 2008 to $205 thousand in 2009. We attribute the slight increase in average outstanding savings account deposits between 2008 and 2009 to our depositors’ reluctance to invest their funds in short-term certificates of deposit at historically low rates of interest.

Interest expense on borrowings decreased slightly from $2.718 million during 2008 to $2.697 million during 2009, a $21 thousand or 0.8% decrease. Although average total borrowings outstanding increased between periods, the average rate paid on borrowings decreased from 3.80% in 2008 to 3.63% in 2009 due to a precipitous decrease in the interest rates paid on repurchase agreements with our customers.

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

45-K

Index

Rate and Volume Table:

	Year Ended December 31,
	2009 vs. 2008
	2010 vs. 2009
	Rate			Volume			Total
	(in thousands)
Earning assets:
Earning Assets
Federal funds sold	$	(197	)	$	(194	)	$	(391	)
Federal Funds Sold	$	1		$	1		$	2
Interest-bearing deposits		(302	)		172			(130	)
Interest Bearing Deposits		3			26			29
Securities		(~~636~~1,564	)		~~(1,145~~225	)		(1,~~781~~339	)
Loans		(31,~~350~~040	)		6(2,~~098~~296	)		2(3,~~748~~336	)
Total earning assets		(4,485	)		4,931			446
Total Earning Assets		(2,600	)		(2,044	)		(4,644	)
Interest bearing liabilities:
Interest Bearing Liabilities
Savings accounts		(91	)		5			(86	)
Savings Accounts		(30	)		16			(14	)
Money market accounts		(1,900	)		943			(957	)
Money Market Accounts		(906	)		(198	)		(1,104	)
NOW accounts		(443	)		253			(190	)
NOW Accounts		(384	)		22			(362	)
Time & other deposit accounts		(3,410	)		(792	)		(4,202	)
Time and Other Deposit Accounts		(1,510	)		11			(1,499	)
Borrowings		~~(124~~32	)		~~103~~(113	)		(2181	)
Total interest bearing liabilities		(5,968	)		512			(5,456	)
Total Interest Bearing Liabilities		(2,798	)		(262	)		(3,060	)
Change in net interest income	$	1,483		$	4,419		$	5,902
Change in Net Interest Income	$	198		$	(1,782	)	$	(1,584	)

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

Net interest income increased $5.902 million between 2008 and 2009. Between the periods we recorded a $446 thousand increase in interest income and a $5.456 million decrease in interest expense. The increase in interest income between comparable periods was driven by a significant increase in the average loan balances outstanding. The decrease in interest expense was driven by a reduction in the average interest paid on all categories of interest-bearing liabilities, offset, in part, by an increase in the average volume of money market accounts, NOW accounts and borrowings, and to a much lesser extent, savings.

Between September 2007 and December 2008, the Federal Open Market Committee lowered the federal funds target rate by 500 basis points due to a weakening national economy. The precipitous drop in the federal funds rate and other market interest rates caused a significant reduction in both our interest-earning asset yields and interest-bearing liability costs. Conversely, the strategy adopted in 2008 to increase the Company’s earning assets contributed to increases in both interest income and interest expense due to volume factors. More specifically, net interest income increased $4.419 million between the years due to volume factors, as compared to $1.483 million due to rate factors. Between 2008 and 2009, the volume of earning assets (on a net basis) increased $77.021 million, including a $99.196 million increase in average loans outstanding between the periods.

Throughout 2007, 2008 and the first quarter of 2009, we focused our personnel and marketing resources on increasing the outstanding balances in our loan portfolio with the goal of increasing interest income. Due to these efforts, we steadily increased the average outstanding balances in our loan portfolio. Although we curbed the rate of asset growth during the last three quarters of 2009, on a comparable period basis, average outstanding loan balances increased from $499.163 million in 2008 to $598.359 million in 2009. The growth in the average outstanding loan balances contributed $6.098 million of additional interest income between comparable years. This improvement, however, was offset by a $3.350 million decrease in interest income due to a decrease in the average yield on loans between comparable years as market interest rates dropped. Due to these two factors, the interest income recorded on loans increased $2.748 million between comparable years.

We recorded only $63 thousand in interest income on federal funds sold and interest bearing deposits (at other banks) during 2009. During the fourth quarter of 2008, the Federal Reserve Bank of New York changed its long standing policy of not paying interest on required and excess reserves held by member institutions to paying interest on required and excess reserves. Given the comparable Federal Reserve deposit interest rate and the open market rates for federal funds sold during 2009, we invested the large majority of our overnight excess reserve balances at the Federal Reserve Bank of New York. Due to these factors, the combined interest income on federal funds sold and interest bearing deposits decreased $521 thousand, $499 thousand attributable to rate and $22 thousand attributable to volume.

46-K

Index

The interest income recorded on the investment securities portfolio decreased $1.781 million between 2008 and 2009 due to both rate and volume factors. During the last three quarters of 2008 and the first two quarters of 2009, we significantly increased the average volume of loans outstanding. To help fund this growth in loans outstanding and take advantage of an increase in the value of our available-for-sale investment securities portfolio, we reduced our average investment securities balances outstanding by $27.029 million between comparable years. Similarly, due to a declining interest rate environment and the high level of turnover within the investment securities portfolio during 2009, the yield on our investment securities portfolio decreased from 4.38% in 2008 to 4.16% 2009. Between comparable years, the interest income earned on investment securities decreased $1.145 million due to volume and $636 thousand due to rate factors.

We recorded $8.924 million in interest expense on time and other deposit accounts during 2009, as compared to $13.126 million in 2008. We offered lower rates of interest on new and renewed certificates as interest rates dropped between the later part of 2007 and December 31, 2009. As interest rates dropped, many of our customers opted to deposit their funds in nonmaturity deposit accounts, primarily money market deposit accounts. The decrease in interest rates and the corresponding decline in time and other deposit account balances drove down interest expense $4.202 million or 32.0% between comparable periods, $3.410 million due to rate and $792 thousand due to volume.

Interest expense on money market deposit accounts decreased $957 thousand between 2008 and 2009. As short-term interest rates decreased between comparable periods, we lowered the interest rate paid on money market deposit accounts causing a $1.900 million decrease in interest expense due to rate factors. Between comparable periods, however, we increased the average volume of money market accounts outstanding due to an increase in municipal deposits and our Wealth Management accounts. This increased interest expense on this deposit liability portfolio $943 thousand between comparable years due to volume factors.

As interest rates dropped over the last several quarters we decreased the interest rates paid on statement savings and passbook savings accounts, resulting in a $91 thousand decrease in interest expense between 2008 and 2009. This was offset, in part, by an increase in interest expense on savings accounts due to an increase in average outstanding balances totaling $5 thousand.

The average rate paid on NOW accounts decreased from 1.16% in 2008 to 0.73% in 2009. Despite the decrease in the average rate paid on these accounts, the average outstanding balance in the NOW account portfolio increased from $87.680 million in 2008 to $114.106 million in 2009 due principally to an increase in municipal deposit accounts. Between comparable periods, interest expense on NOW accounts decreased $190 thousand. The increase in the volume of NOW accounts increased interest expense $253 thousand between comparable periods, but was offset by a $443 thousand decrease in interest expense due to a decrease in rate.

In the second half of 2008, we secured long-term borrowings to fund our long-term fixed-rate residential mortgage and commercial real estate loans. The interest rates on these new long-term borrowings were generally less than the interest rates on maturing long-term borrowings. In addition, due to lower market interest rates between 2008 and 2009, we decreased the average rate paid on our customer repurchase agreements. These actions caused a drop in our average cost of borrowings from 3.80% in 2008 to 3.63% in 2009. An increase in the average volume of borrowings increased interest expense by $103 thousand, while the decrease in the average rate paid on borrowings decreased interest expense by $124 thousand, resulting in a $21 thousand net decrease in interest expense on borrowings.

Provision for Loan Losses. We recorded $3.570 million in the provision for loan losses during 2009. This compares to $1.530 million during 2008, a $2.040 million increase. During 2009, we experienced a significant decline in most of our loan quality metrics, nonperforming loans, delinquent loans, impaired loans and potential problem loans. This trend, coupled with deteriorating economic conditions and a significant increase in net charge-offs during 2009, resulted in a substantial increase in the provision for loan losses. We recorded $2.512 million in net charge-offs during 2009 versus $943 thousand in net charge-offs in 2008, a $1.569 million increase. Net charge-offs to average loans outstanding totaled 0.42% in 2009, as compared to 0.19% in 2008, a 23 basis point increase. Loans 30 to 89 days delinquent increased from $6.095 million or 1.04% of total loans outstanding at December 31, 2008 to $8.469 million or 1.44% of total loans outstanding at December 31, 2009. Nonperforming loans totaled $12.880 million or 2.19% of total loans outstanding at December 31, 2009, as compared to $7.211 million or 1.24% of total loans outstanding at December 31, 2008. This represents a $5.669 million increase in nonperforming loans and a 95 basis point increase in nonperforming loans to total loans outstanding between the periods. Although total impaired loans increased from $8.620 million at December 31, 2008 to $12.957 million at December 31, 2009, the allowance for impaired loans decreased from $1.160 million at December 31, 2008 to $721 thousand at December 31, 2009. Lastly, potential problem loans increased from $16.099 million or 2.76% of loans outstanding at December 31, 2008 to $24.866 million or 4.23% of loans outstanding at December 31, 2009.

47-K

Index

~~Noninterest Income. Noninterest~~The ~~income~~purpose ~~is comprised~~ of ~~trust~~a ~~fees,~~rate ~~service charges~~volume onanalysis ~~deposit~~is ~~accounts,~~to ~~net~~identify ~~investment securities gains (losses), net gain on sale of loans, income on bank-owned life insurance, other service fees and other income. In addition, during~~ the ~~first~~dollar ~~two~~amount ~~quarters~~ of ~~2008~~change ~~we held~~in anet ~~majority ownership~~ interest ~~in an insurance agency subsidiary. During that period we recorded commission~~ income ondue ~~the policies~~to ~~sold~~changes ~~through~~in ~~the~~interest ~~agency,~~rates asversus ~~well~~changes asin ~~a gain on~~ the ~~sale~~volume of ~~the~~earning ~~agency~~assets ~~in the~~and ~~second~~interest ~~quarter~~bearing ~~of 2008~~liabilities.

~~We recorded~~Net interest income decreased $91.~~334~~584 million inbetween ~~noninterest income during~~ 2009, ~~versus~~and $62010.~~309~~ This ~~million in~~included ~~2008,~~ a $34.~~025~~644 million ordecrease ~~47.9% increase between comparable years. The largest contributing factor toward the increase~~ in ~~noninterest~~ ~~income~~interest ~~was a substantial increase in net investment securities gains between comparable periods~~income, ~~and to a lesser extent~~offset, ~~increases~~ in ~~service~~part ~~charges on~~by ~~deposit~~a ~~accounts, the net gain on sale of loans and other service fees. We recorded~~ $3.~~850~~060 million indecrease ~~net investment securities gains during 2009, as compared to $82 thousand~~ in ~~2008. Service~~interest ~~charges on deposit accounts, net gain on sale of loans and other service fees increased $143 thousand, $125 thousand and $39 thousand, respectively, between 2008 and 2009~~expense. The ~~improvements~~decrease in ~~these~~interest ~~items~~income ~~were~~between ~~offset,~~comparable inperiods ~~part,~~was driven by adecreases ~~$133 thousand decrease~~ in ~~trust~~both ~~fees,~~the avolume ~~$25~~and ~~thousand~~yield ~~decrease in income~~ on ~~bank-owned life~~earning ~~insurance and a $18 thousand decrease in other income~~assets. ~~In addition~~Similarly, ~~during~~the ~~2008~~decrease wein ~~recorded~~interest ~~$246~~expense ~~thousand~~was indriven ~~commission~~by ~~income~~decreases in ~~our former~~both ~~insurance~~the ~~agency~~volume ~~subsidiary~~ and arate ~~$628 thousand gain~~ on ~~the sale of our ownership~~ interest inbearing ~~the agency~~liabilities. ~~There were no revenues earned on this activity in 2009.~~

InMarket ~~2009, we~~interest ~~recorded~~rates ~~$3.676~~generally ~~million~~remained oflow ~~net~~throughout ~~gains~~2009 onand ~~$120.286~~2010 ~~million~~due ofto ~~sales~~continued ~~and~~weak ~~calls of~~economic ~~our available-for-sale investment securities~~conditions. ~~This~~Throughout ~~compares~~2009 ~~to $510~~and ~~thousand~~2010, inwe ~~net~~reduced ~~gains~~the ~~recorded~~interest ~~during~~rates ~~2008~~paid on ~~the~~our ~~sales~~interest ~~and~~bearing ~~calls~~deposit ~~totaling $32.632~~liability ~~million~~accounts. AsSimilarly, ~~interest~~the ~~rates~~yields ~~remained~~on ~~near~~our ~~historical~~loans ~~lows during~~and ~~2009,~~investment wesecurities ~~captured~~decreased ~~gains~~as byprincipal ~~selling~~amounts ~~selected~~matured, ~~available~~continued re-~~for-sale~~indexing ~~investment securities. In~~or ~~addition,~~were wesold ~~recorded~~and ~~$174~~reinvested. Interest ~~thousand~~income ofdecreased ~~net~~$4.644 ~~investment securities~~million ~~gains~~between oncomparable ~~our~~years ~~trading~~with ~~portfolio in 2009~~$2. ~~This~~600 ~~compares~~million relating to ~~$428~~ ~~thousand~~changes in ~~net~~rate ~~investment~~factors ~~securities~~and ~~losses~~$2.044 onmillion ~~the~~due ~~trading~~to ~~portfolio during~~volume ~~2008~~factors. ~~Our~~The ~~trading~~volume ~~securities portfolio consists~~ of ~~mutual funds~~earning ~~and~~assets ~~individual~~decreased ~~equity~~$22.969 ~~and~~million, ~~debt~~from ~~securities~~$896.548 ~~held~~million byin ~~the~~2009 ~~Company’s~~to ~~executive deferred compensation plan~~$873. ~~Gains~~579 ~~recorded~~million onin ~~trading securities are offset by equal amounts of salaries expense~~2010. Similarly, ~~losses recorded~~the onaverage ~~trading~~outstanding ~~securities~~balance ~~are~~of ~~offset~~our byinterest ~~equal~~bearing ~~amounts~~liabilities ofdecreased ~~decreases~~$20.357 ~~in salaries~~million, ~~expense~~from $783. ~~The~~146 ~~executive~~million ~~deferred~~during ~~compensation~~2009 ~~plan~~to is$762.789 ~~not~~million ~~a funded~~during ~~plan~~2010.

~~During 2009~~Interest weIncome. The ~~recorded~~interest aincome ~~net~~recorded ~~gain~~ on the ~~sale~~loan ofportfolio ~~loans~~decreased ~~totaling~~ $~~383 thousand~~4. ~~This~~644 ~~compares~~million between 2009 and 2010 due to both rate and volume factors. We recorded $~~258~~32.218 ~~thousand~~million in ~~2008,~~interest aincome ~~$125~~on ~~thousand~~loans ~~or 48.4%~~during ~~increase~~2010, ~~between~~as ~~the~~compared ~~comparable~~to ~~periods~~$35. ~~The~~554 ~~premiums~~million weduring ~~earn on~~2009. We ~~residential~~continued ~~mortgage~~to ~~loans~~curtail ~~originated~~certain bylending ~~Provantage~~activities ~~and~~in ~~sold~~2010 ~~into~~to ~~the secondary~~mitigate ~~residential~~credit ~~mortgage~~risk ~~market~~and ~~increased~~improve ~~substantially~~our ~~between~~regulatory ~~comparable years~~capital ratios. ~~Residential~~This ~~mortgage~~resulted ~~interest~~in ~~rates~~a ~~dropped~~decrease ~~precipitously between~~in ~~2008~~the ~~and~~average ~~2009~~outstanding balance of loans between comparable periods, ~~spurring~~which led to a ~~moderate~~decrease ~~wave~~in ofinterest ~~refinancing~~income ~~activity~~due into ~~our markets~~volume factors totaling $2.296 million. In addition, toas ~~mitigate~~new ~~our~~loans ~~interest~~replaced maturing loans and variable rate ~~risk~~loans ~~exposure,~~re-indexed ~~we increased~~at the ~~proportion~~current oflower ~~residential~~market ~~mortgage~~rates, the yield on our loan ~~originations~~portfolio ~~sold~~decreased ~~into~~18 ~~the secondary~~basis ~~market~~points, from 5.94% in 2009 to 5.76% in 2010. These rate factors decreased interest income $1.040 million between comparable periods.

We The interest income recorded on the investment securities portfolio decreased $21.~~291~~339 million between 2009 and 2010. Throughout 2009 and 2010, we sold significant amounts of our available-for-sale securities portfolio to increase current period earnings and shareholders’ equity, as well as to improve our regulatory capital ratios, in ~~service~~alignment ~~charges~~with onour ~~deposit~~strategic ~~accounts~~plan. The ~~during~~proceeds ~~2009~~from these sales, ~~versus~~ $2as well as the proceeds from other scheduled principal payments and prepayments, were largely reinvested in new available-for-sale securities.~~148~~ Most ~~million~~of ~~during~~the ~~2008~~newly purchased securities were invested at lower rates of interest which have negatively impacted interest income. ~~The~~These ~~$143~~activities, ~~thousand~~coupled orwith 6a low interest rate environment, decreased the yield on our investment securities portfolio by 57 basis points, from 4.716% ~~increase~~ in ~~service~~2009 ~~charges~~to on3.59% ~~deposit~~in ~~accounts~~2010. Due ~~was~~to ~~due~~these ~~principally~~rate tofactors, ~~fee~~interest ~~increases~~income on ~~business~~ ~~checking~~securities ~~accounts~~decreased ~~implemented~~$1.564 bymillion ~~management~~between incomparable ~~2008~~periods. Conversely, the average outstanding balance of our investment portfolio increased $5.527 million between 2009 and an2010, which resulted in a $225 thousand increase in ~~ATM~~ ~~fees~~interest ~~between~~income, offsetting, in part, the ~~periods~~decrease in interest income related to the decrease in the yield on investment securities.

~~During 2009~~The weaverage ~~earned~~outstanding ~~$1.514~~balances ~~million~~we maintained in ~~trust~~federal ~~fees. This~~funds ~~compares~~sold toand ~~$1.647 million~~interest ~~during~~bearing ~~2008,~~deposits aincreased ~~$133~~moderately ~~thousand~~between or2009 ~~8.1%~~and ~~decrease. The~~2010 ~~decrease~~ in ~~trust~~connection ~~fees~~with ~~between~~our ~~comparable~~strategy ~~periods was due largely~~ to amaintain ~~decline~~slightly inhigher ~~estate settlement~~levels ~~fees~~of ~~between~~balance ~~the~~sheet ~~periods~~liquidity. ~~During~~The ~~2008,~~increase ~~we recorded $182 thousand~~ in ~~estate~~the ~~settlement~~volume ~~fees,~~of asthese ~~compared~~earning toassets comprised $3427 thousand inof ~~estate settlement~~the ~~fees~~$32 inthousand ~~2009,~~increase ain ~~$148~~interest ~~thousand~~income orfrom ~~81.3%~~these ~~decrease~~categories ~~between~~of ~~the comparable~~earning ~~periods~~assets.

~~During 2009~~Interest weExpense. We recorded a $~~592~~7.425 ~~thousand~~million ~~increase~~ in ~~the~~interest ~~cash~~expense ~~surrender~~on ~~value~~time ~~of bank-owned~~and ~~life~~other ~~insurance. This~~deposit ~~compares~~accounts toduring a2010, as compared to $~~617~~8.924 ~~thousand~~million ~~increase~~ during ~~2008,~~2009. This represents a $251.499 ~~thousand~~million or 416.18% decrease between ~~comparable~~ the periods. ~~Due~~During to2010 ~~general~~market ~~declines~~interest inrates ~~the~~for ~~financial~~time ~~markets~~deposits ~~and~~were ~~the related~~low. The ~~decrease~~certificates inopened ~~crediting~~or ~~rates~~renewed onduring ~~the~~2010 ~~cash~~were ~~surrender~~at ~~value~~lower rates of ~~our bank-owned~~interest ~~life~~than ~~insurance~~maturing ~~policies~~certificates, wewhich ~~experienced~~drove adown ~~moderate~~the ~~drop~~interest inexpense ~~our income~~ on ~~our~~these ~~life~~deposit ~~insurance~~accounts ~~policies~~on ~~between~~a ~~2008~~comparable ~~and~~period ~~2009~~basis.

~~Other service~~Interest ~~fees~~expense ~~are~~on ~~comprised~~money ofmarket ~~numerous~~deposit ~~types~~accounts ofdecreased ~~fee~~$1.104 ~~income~~million ~~including~~between ~~merchant credit~~2009 ~~card~~and ~~processing~~2010. As ~~fees,~~short-term ~~official~~interest ~~check~~rates ~~and~~decreased ~~check~~between ~~cashing~~comparable ~~fees~~periods, ~~travelers’ check~~we ~~sales,~~lowered ~~wire~~the ~~transfer~~interest ~~fees,~~rate ~~letter~~paid ofon ~~credit~~money ~~fees,~~market ~~U.S.~~deposit ~~government bond sales~~accounts, ~~certificate~~causing ofan ~~deposit~~$906 ~~account~~thousand ~~registry~~decrease ~~service~~in ~~fees,~~interest ~~and~~expense ~~other miscellaneous~~due ~~service~~to ~~charges~~rate ~~and fees~~factors. ~~Other~~Due ~~service~~to ~~fees~~the ~~increased $39~~lower ~~thousand~~interest orrates ~~17.5%~~offered on the money market accounts between ~~2008~~comparable ~~and~~periods, ~~2009~~average ~~due~~outstanding ~~principally~~balances todecreased an$23.157 ~~increase~~million, ~~in letter~~further ofreducing ~~credit~~interest ~~fees~~expense ~~between~~by ~~comparable~~an ~~years~~additional $198 thousand.

The average rate paid on NOW accounts decreased from 0.73% in 2009 to 0.40% in 2010. This rate reduction resulted in a decrease in interest paid on NOW accounts of $384 thousand during 2010. Although we continued to reduce our rates on these accounts, the average outstanding balance in these accounts increased period over period by $3.129 million, which lead to increased interest expense of $22 thousand.

48-K

Index

~~Other income~~Although isthe ~~comprised~~yield ofon ~~numerous~~our ~~types~~savings ofaccounts ~~fee~~averaged ~~income,~~only ~~including~~0.25% ~~investment services~~during ~~income~~2010, ~~rental~~we ~~income,~~experienced ~~safe deposit box income, check printing fee income, title insurance agency income and profit sharing distributions from~~ a ~~life~~ ~~and~~$5.671 ~~disability~~million ~~credit~~or ~~insurance~~8.0% ~~trust~~increase in ~~which~~the weaverage ~~hold~~outstanding anbalances ~~ownership interest~~over 2009. ~~Other~~This ~~income~~volume ~~decreased~~increase ~~from~~on ~~$460~~savings ~~thousand~~accounts incontributed ~~2008~~a to $~~442~~ 16 thousand increase in ~~2009,~~interest anexpense ~~$18~~recorded ~~thousand~~during ~~or 3~~2010.~~9% decrease.~~ ~~Several~~This ~~small positive~~increase ~~and negative variances on these items contributed to the net decrease~~ in ~~other~~interest ~~income~~expense, ~~the~~however, ~~most~~was ~~significant~~offset ofby ~~which was~~ a $3230 thousand decrease in ~~the~~ ~~profit~~interest ~~share~~expense ~~distributions~~as ~~from~~a ~~the~~result ~~credit~~of ~~insurance~~lower ~~trusts~~interest inrates ~~which~~paid weon ~~hold a~~savings ~~small~~accounts ~~ownership~~between ~~interest~~the comparable years.

~~Noninterest Expense~~Provision for Loan Losses. ~~Noninterest~~We ~~expense~~recorded is$3.825 ~~comprised~~million ofin ~~salaries, employee~~the ~~benefits,~~provision ~~occupancy~~for ~~expense,~~loan ~~furniture~~losses ~~and~~during ~~equipment~~2010. This ~~expense,~~compares ~~computer service~~to ~~fees,~~$3.570 ~~advertising~~million ~~and~~during ~~marketing expense~~2009, ~~professional~~a ~~fees,~~$255 ~~FDIC~~thousand ~~premium assessments,~~or ~~loan~~7.1% ~~collection~~increase ~~expense~~between ~~and~~the ~~other~~comparable ~~miscellaneous expenses~~periods. ~~Total~~This ~~noninterest~~increase ~~expense~~was ~~increased~~due ~~$4.386~~principally ~~million~~to orincreases ~~18.5% on~~in anonperforming ~~comparable~~loans ~~period~~and ~~basis~~net charge-offs, ~~from~~as well as continued difficult economic conditions. During 2010, we recorded $232.~~724~~790 million in ~~2008~~net charge-offs. This compares to net charge-offs of $282.~~110~~512 million in during 2009. The ~~substantial~~ increase in ~~total~~net ~~noninterest~~charge-offs ~~expense~~ between the comparable periods was principally due to ~~several~~an ~~factors,~~increase ~~including~~in ~~significant~~charge-offs ~~increases~~ in our ~~FDIC~~commercial ~~premium~~and ~~assessment,~~residential ~~salaries~~real ~~expense~~estate portfolios. During 2010, ~~employee~~$1.891 ~~benefits~~million ~~expense,~~ or 67.8% of our net charge-offs were attributable to losses on our real estate secured loan ~~collection~~portfolios. The ~~expense~~amount of nonperforming loans increased $7.080 million or 55.0%, ~~computer~~from ~~service~~$12.880 ~~fees~~million at December 31, ~~and~~2009 to a$19.960 ~~lesser~~million ~~extent~~at December 31, ~~occupancy~~ ~~expense~~2010. The negative trend in these credit metrics were mitigated by a decrease in potential problem loans and ~~professional~~a ~~fees~~low level of delinquent loans in performing status.

Noninterest Income. Noninterest income is comprised of trust fees, service charges on deposit accounts, net investment securities gains (losses), net gain on sale of loans, income on bank-owned life insurance, other service fees and other income. During ~~2009~~ 2010, we recorded $1210.~~040~~329 million inon ~~salaries~~noninterest ~~expense~~income, ~~versus~~as compared to $119.~~281~~334 million in ~~2008~~ 2009, a $~~759~~995 thousand or 610.7% increase between the periods. ~~Between comparable~~The ~~periods,~~largest wecontributing ~~recorded~~factor atoward ~~$636~~the ~~thousand net~~ increase onin ~~our~~noninterest ~~executive deferred~~income ~~compensation~~was ~~plan~~a ~~due~~substantial toincrease ~~increases~~ in ~~plan~~net ~~asset~~investment ~~values~~securities ~~carried~~gains inbetween ~~our trading~~comparable ~~account. During 2009~~periods, weand ~~recorded~~to a ~~$219~~lesser ~~thousand~~extent, ~~increase~~increases in ~~salaries~~ ~~expense~~trust ~~due~~fees, tonet angain ~~increase~~on insale ~~the value~~ of ~~our executive deferred compensation plan assets~~loans, asother ~~compared~~service tofees aand ~~net~~the ~~reduction~~increase in ~~expense~~the ~~totaling $417~~cash ~~thousand~~surrender ~~during~~value ~~2008~~of ~~due~~bank-owned tolife ainsurance. The ~~decrease~~improvements in ~~the~~these ~~value~~items ofwere ~~our~~offset, ~~executive deferred~~in ~~compensation~~part, ~~plan~~by ~~assets. The~~a ~~remainder~~decrease ~~of the increase~~ in ~~salaries~~ ~~expense~~service ~~was~~charges ~~principally~~on ~~due~~deposit toaccounts ~~employee~~and ~~wage~~slight ~~increases~~decrease ~~between~~in ~~the annual~~other ~~periods~~income.

We recorded $34.~~624~~632 million in ~~employee~~net ~~benefits~~investment ~~expense~~securities gains during ~~2009~~2010, ~~versus~~as compared to $23.~~449~~ 850 million during ~~2008~~2009, a $~~1.175~~782 ~~million~~thousand or 4820.03% increase between the ~~periods. The~~ ~~increase in employee benefits expense between the~~ comparable years. In ~~was~~2010, ~~largely~~we ~~due~~recorded a$4.542 ~~significant~~million ~~increase~~of innet ~~pension~~gains ~~expense~~on ~~and other benefits~~$171. ~~During~~769 ~~2009,~~million weof ~~recorded~~sales aand ~~$470~~calls ~~thousand~~of ~~pension expense,~~our asavailable-for-sale ~~compared~~investment tosecurities. This acompares to $~~393~~3.676 ~~thousand~~million in net ~~pension~~gains ~~benefit~~recorded during ~~2008. The~~ ~~Company’s~~2009 ~~defined~~on ~~benefit~~the ~~plan~~sales ~~pension~~and ~~assets~~calls ~~performed well~~totaling ~~for~~$120.286 ~~several years preceding 2008~~million. ~~Due~~As tointerest ~~significant~~rates ~~declines~~remained ~~in the~~near ~~equity~~historical ~~markets,~~lows ~~however~~during 2010, ~~the~~we ~~pension~~captured ~~assets~~gains ~~lost substantial value~~ by ~~the end~~selling ofselected ~~2008,~~available-for-sale ~~causing~~investment ussecurities. These toactions ~~record~~were aprincipally ~~net~~taken ~~expense~~to inimprove ~~2009~~the ~~despite~~Bank’s ~~freezing~~regulatory ~~plan benefits~~capital inratios ~~2006~~during 2010. In addition, ~~during~~we ~~the~~recorded ~~third~~$90 ~~quarter~~thousand of ~~2009,~~net ~~we executed~~investment asecurities ~~cash~~gains ~~buy-out~~on ofour atrading ~~split-dollar~~portfolio ~~life~~in ~~insurance~~2010. This ~~benefit~~compares ~~program~~to ~~with~~$174 ~~10 senior~~thousand ~~managers~~in ofnet ~~the~~investment ~~Bank~~securities ~~under~~losses ~~agreements~~on ~~originally~~the ~~established~~trading inportfolio ~~the~~during ~~late 1990’s~~2009. WeOur ~~recorded~~trading ~~$312~~securities ~~thousand~~portfolio inconsists ~~other~~of ~~benefits~~mutual ~~during~~funds ~~the~~and ~~third quarter~~individual ofequity ~~2009~~and indebt ~~connection~~securities ~~with~~held by the ~~termination~~Company’s ofexecutive ~~these benefits. No~~deferred ~~similar~~compensation ~~transactions were recorded during 2008~~plan. ~~Finally,~~Gains ~~F.I.C.A.~~recorded ~~expense~~on ~~and~~trading ~~group~~securities ~~health~~are ~~insurance~~offset ~~increased $42~~by ~~thousand~~equal ~~and~~amounts ~~$26~~of ~~thousand,~~salaries ~~respectively~~expense. Similarly, ~~between~~losses ~~the periods. These~~recorded ~~increases~~on ~~were~~trading ~~partially~~securities are offset by aequal ~~$30~~amounts ~~thousand decrease~~of decreases in ~~our~~salaries ~~group life insurance costs between the periods~~expense.

~~We recorded~~During 2010 we earned $21.~~080~~763 million in ~~FDIC~~trust ~~premium~~fees. This ~~assessment~~compares ~~expense~~to $1.514 million during 2009, ~~as compared~~a to $99249 thousand inor ~~2008~~16.4% increase. The increase in ~~the~~trust ~~FDIC~~fees ~~premium assessment~~between comparable years was ~~due~~attributable to ~~several~~a few factors. ~~In the fourth quarter of 2008 we exhausted our FDIC insurance premium credit~~First, ~~which~~between ~~was~~comparable ~~initially~~years ~~provided in 2007, and began to incur premium expense to recapitalize~~ the ~~Deposit~~value ~~Insurance Fund. During the second quarter~~ of ~~2009,~~ the ~~FDIC~~securities ~~levied~~held ain ~~special assessment~~our ~~upon~~trust ~~its~~and ~~member~~investment ~~banks~~division toincreased ~~restore~~substantially ~~the~~due ~~Deposit Insurance Fund~~ to ~~required~~ ~~capitalization~~an ~~levels. We~~improvement ~~recorded~~in ~~$437~~the ~~thousand~~United ofStates ~~FDIC premium~~and ~~expense~~global ~~due~~capital ~~to this special assessment~~markets. InSince ~~December~~our ~~2009,~~trust ~~the FDIC assessed~~ and ~~collected~~investment amanagement ~~special~~fees ~~prepaid~~are ~~assessment~~based, ~~from~~in ~~its member institutions~~part, ~~which~~on ~~included estimated quarterly premiums for~~ the ~~fourth~~value ~~quarter~~ of ~~2009~~the ~~and~~assets ~~for~~held ~~all~~by ~~quarterly~~the ~~periods~~various ~~in 2010~~accounts, ~~2011~~we ~~and~~experienced ~~2012. The Bank’s prepaid assessment amount was $6.687 million. We recorded~~ an ~~immediate~~ ~~charge~~increase ~~(expense)~~in ~~against~~these ~~this~~fees ~~amount~~between oncomparable ~~December 31, 2009 to recognize the fourth quarter 2009 premium assessment~~years. ~~And finally~~Second, ~~between comparable~~we ~~years~~implemented ~~the~~fees ~~average~~increases ~~outstanding~~in ~~balance~~mid-2009 ofresulting ~~our insurable deposits increased substantially~~ in ~~connection~~greater ~~with~~fees ~~the~~for ~~Bank’s growth strategy. Due to~~ the ~~weakened~~full-year ~~state~~ of the banking industry, current and anticipated Deposit Insurance Fund capitalization levels and other factors, we anticipate incurring significant FDIC premium assessment expenses for several quarters prospectively2010. InAnd ~~addition~~third, the ~~FDIC~~trust ~~has~~division ~~announced~~was itsuccessful ~~will increase~~in ~~member~~procuring ~~premiums~~several bynew 3accounts ~~basis~~during ~~points for 2011 and 2012~~2010.

~~Loan collection~~During ~~expense~~2010 ~~includes~~we ~~the~~recorded ~~payment~~a ofnet ~~various~~gain ~~insurance~~on ~~and~~the ~~tax~~sale ~~payments on behalf~~ of ~~our~~loans ~~borrowers~~totaling to$471 ~~protect~~thousand. This ~~the~~compares ~~Bank’s~~to ~~interest~~$383 thousand in ~~its loan collateral. During~~ 2009, wean ~~incurred~~$88 ~~and~~thousand ~~paid~~or ~~past~~23.0% ~~due~~increase ~~taxes~~between ~~and lapsed~~the ~~insurance~~comparable periods. The premiums ~~for~~we ~~several~~earn ~~large~~on orresidential ~~delinquent~~mortgage ~~borrowers~~loans originated by Provantage and ~~incurred $694~~sold ~~thousand~~into inthe ~~expense~~secondary ~~related~~residential tomortgage ~~these~~market ~~payments~~increased substantially between comparable years. ByResidential ~~comparison,~~mortgage ~~we incurred~~interest ~~$188~~rates ~~thousand~~were inlow ~~similar~~for ~~expenses~~much ~~during~~of ~~2008. The~~2010, ~~increase between~~spurring ~~periods~~a ~~was~~moderate ~~due~~wave toof ~~the~~refinancing ~~general~~activity ~~decline~~ in ~~the~~our ~~credit~~markets. In ~~quality~~addition, ofto mitigate our ~~loan portfolio~~interest ~~during~~rate ~~2009~~risk ~~and~~exposure, ~~the~~we ~~related~~increased ~~inability~~the proportion of ~~our~~residential ~~borrowers~~mortgage toloan ~~meet~~originations ~~their tax~~sold ~~and~~into ~~insurance~~the ~~obligations~~secondary market between comparable periods.

~~Computer service~~We ~~fees~~recorded ~~increased~~ $~~259~~1.661 ~~thousand~~million orin ~~17.9%~~service ~~between~~charges ~~comparable~~on ~~years,~~deposit ~~from $1.447~~accounts ~~million~~during in2010, ~~2008~~as compared to $1.~~706~~837 million ~~2009. During~~in ~~2008~~2009, ~~we transferred~~a ~~our~~$176 ~~core~~thousand ~~computer~~or ~~system~~9.6% ~~from~~decrease ~~our~~between ~~main~~the ~~office~~periods. The ~~location~~decrease in ~~Oneonta, New York to a~~ service ~~bureau~~charges ~~environment~~on indeposit ~~Albany,~~accounts ~~New~~was ~~York~~principally due to ~~reduce~~a ~~operating risk,~~decrease ~~enhance~~in ~~our~~overdraft ~~business~~charges ~~continuity~~on ~~plan~~checking ~~and~~accounts ~~minimize~~due ~~disruption of customer service. Due~~ to the ~~change~~implementation inof ~~our~~new ~~core~~federal ~~operating~~overdraft ~~system~~rules ~~environment, we~~regarding ~~incurred $348 thousand~~ point-of ~~additional vendor~~-~~related~~sale ~~expenses between 2008~~ and ~~2009. This~~ ~~increase~~ATM ~~was~~transactions ~~partially offset by an $89 thousand net decrease~~ in ~~other~~the ~~computer~~second ~~related~~half ~~service~~of ~~fees~~2010.

Other service fees are comprised of numerous types of fee income including merchant credit card processing fees, official check and check cashing fees, travelers’ check sales, ATM fees, 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

49-K

Index

~~During 2009,~~service wefees ~~incurred~~increased $~~528~~50 thousand ofor ~~advertising and marketing expenses~~7. ~~This~~0%, ~~compares~~from to $~~656~~716 thousand in ~~2008,~~2009 ato $~~128~~766 thousand ~~or 19.5%~~in ~~decrease. During 2008~~2010, wedue ~~incurred~~principally ~~significant advertising expenses~~ to ~~launch~~an ~~our~~increase ~~entry~~in ~~into~~ATM ~~the~~fees ~~Greater~~between ~~Syracuse~~comparable ~~and Capital District, New York markets~~years. ~~These efforts were substantially curtailed during 2009.~~

~~We recorded~~Other ~~$940~~income ~~thousand~~is incomprised ~~professional~~of ~~fees~~numerous ~~during~~types ~~2009,~~of ~~versus~~fee ~~$871~~income, ~~thousand~~including ~~in professional~~investment ~~fees~~services ~~during 2008~~income, arental ~~$69~~income, ~~thousand~~safe ordeposit ~~7.9%~~box ~~increase~~income, ~~between comparable~~check ~~periods. We~~printing ~~incurred~~fee aincome, ~~significant~~title ~~increase~~insurance inagency ~~legal~~income and ~~other~~ ~~professional~~profit ~~fees~~sharing ~~between~~distributions ~~comparable~~from ~~periods,~~ a ~~significant~~life ~~portion~~and ~~of which~~disability ~~was~~credit toinsurance ~~register~~trust ~~3,457,960~~in ~~million~~which ~~shares~~we ofhold ~~the~~an ~~Company’s~~ownership ~~common stock, $~~interest.01 Other ~~par~~income ~~value,~~decreased ~~with~~slightly ~~the~~from ~~SEC~~$442 thousand in ~~connection~~2009 ~~with~~to ~~our~~$436 ~~Amended~~thousand ~~and~~in ~~Restated Dividend~~2010, ~~Reinvestment~~a ~~and~~$6 ~~Direct~~thousand ~~Stock~~or ~~Purchase~~1.4% ~~Plan~~decrease. InSeveral ~~addition, during~~small ~~2009,~~insignificant wevariances ~~incurred~~on ~~additional~~these ~~professional~~items ~~fees~~contributed ~~for~~to ~~certain~~the ~~contracted internal~~net ~~audits~~decrease in ~~connection~~other ~~with~~income between the ~~Company’s internal audit plan~~periods.

OnNoninterest ~~a combined~~Expense. Noninterest ~~basis~~expense is comprised of salaries, employee benefits, occupancy expense, offurniture ~~Company~~and ~~premises~~equipment expense, computer service fees, advertising and ~~furniture~~marketing expense, professional fees, FDIC premium assessments, loan collection expense and ~~equipment~~ other miscellaneous expenses. Total noninterest expense ~~decreased~~increased $49580 thousand or 12.61% on a comparable period basis, from $328.~~090~~110 million in ~~2008~~2009 to $328.~~041~~690 million in ~~2009~~2010. ~~During~~The ~~2009,~~substantial weincrease ~~did~~in ~~not~~total ~~embark~~noninterest onexpense ~~any~~between ~~major market~~comparable ~~expansion~~periods ~~plans~~was ~~requiring~~primarily ~~the~~attributable ~~acquisition of new equipment due~~ to ~~modification~~ ofa ~~our~~large ~~strategic~~increase ~~plan~~in toprofessional ~~curb growth. As a result~~fees, ~~equipment~~ ~~related maintenance~~ and ~~repair~~to ~~costs~~a ~~decreased~~lesser ~~approximately~~extent, ~~$57 thousand between comparable years~~salaries.

~~Other miscellaneous~~During ~~expenses include directors’ fees~~2010, ~~fidelity~~we ~~insurance,~~recorded ~~the~~$2.072 ~~Bank’s OCC~~million ~~assessment,~~in ~~correspondent~~professional ~~bank services~~fees, ~~service~~as ~~expenses~~compared ~~related~~ to ~~the Bank’s~~$940 ~~accounts~~thousand ~~receivable~~during ~~financing services~~2009, ~~charitable~~a ~~donations~~$1.132 ~~and~~million ~~customer relations,~~or ~~other~~120.4% ~~losses,~~increase ~~dues~~between ~~and~~comparable ~~memberships,~~years. Throughout ~~office~~2010 ~~supplies,~~we ~~postage~~actively ~~and shipping,~~pursued ~~subscriptions,~~legal ~~telephone~~action ~~expense,~~against ~~employee~~nonperforming ~~travel~~or ~~and~~uncooperative ~~entertainment, software~~borrowers. In ~~amortization~~addition, ~~intangible~~we ~~asset~~incurred ~~amortization~~additional ~~expense,~~legal ~~minority~~and ~~interest expense,~~other ~~stock~~professional ~~exchange listing~~ fees, ~~gain~~to oraddress ~~loss~~various onaspects ~~the disposal~~ of ~~assets, other~~the ~~real~~Bank’s ~~estate~~formal ~~losses~~agreement ~~and~~with ~~several~~the ~~other miscellaneous expenses~~OCC. ~~During~~And ~~2009~~finally, ~~other~~during ~~miscellaneous~~the ~~expenses~~second ~~decreased~~half ~~$186 thousand~~of or2010 ~~5.1%~~in particular, ~~from~~we ~~$3.643~~incurred ~~million~~substantial inlegal ~~2008~~and toprofessional ~~$3.457~~fees ~~million~~ in ~~2009. The~~ ~~following~~connection ~~table~~with ~~itemizes~~our ~~the~~pending ~~individual~~merger ~~components~~with ofCBSI, ~~other miscellaneous~~including, ~~expenses~~but ~~that~~not ~~increased~~limited ~~(or~~to ~~decreased)~~investment ~~significantly~~banking, ~~between comparable~~audit ~~periods:~~and other professional fees.

~~Table~~During 2010, we recorded $12.637 million in salaries expense, versus $12.040 million in 2009, a $597 thousand or 5.0% increase between the periods. During 2010, we recorded a $300 thousand severance payment in connection with the departure of our former President and CEO. Other ~~Miscellaneous~~salary ~~Expenses:~~and wage increases provided to the Company’s staff throughout 2010, were offset, in part, by a $138 thousand decrease in commission and incentive pay.

	Year
Description of other miscellaneous expense	2009		2008		Increase / (Decrease)
	(in thousands)
Fidelity insurance	$	72	$	109	$	(37	)
OCC assessment		212		189		23
Correspondent bank services		188		152		36
Miscellaneous loan servicing expenses		231		152		79
Dues and memberships		76		123		(47	)
Office supplies		389		332		57
Postage and shipping		368		328		40
Travel and entertainment		191		264		(73	)
Amortization of software		205		249		(44	)
Other losses		37		136		(99	)
Minority interest expense		-		34		(34	)
Other real estate owned expenses		48		1		47
Impairment / sale of fixed assets and other real estate		153		283		(130	)
All other miscellaneous expense items, net		1,287		1,291		(4	)
Total Other Miscellaneous Expense	$	3,457	$	3,643	$	(186	)

We recorded $2.972 million in employee benefits expense during 2010, versus $3.624 million during 2009, a $652 thousand or 18.0% decrease between the periods. The decrease in employee benefits expense between the comparable years was largely due to significant decreases in pension expense and other benefits. During 2010, we recorded a $79 thousand pension expense, as compared to a $470 thousand net pension benefit during 2009. The Company’s defined benefit plan pension assets performed well during 2009, due to a significant improvement in the capital markets, increasing the value of the Company’s pension assets and, in turn, reducing the expense related to the plan. During the third quarter of 2009, we executed a cash buy-out of a split-dollar life insurance benefit program with 10 senior managers of the Bank under agreements originally established in the late 1990’s. We recorded $312 thousand in other benefits during the third quarter of 2009 in connection with the termination of these benefits. No similar transactions were recorded during 2010. In addition, the 2009 split-dollar life insurance plan settlement reduced the amount we recorded in connection with the plan by $80 thousand during 2010. Due to a reduction in staffing levels, between 2009 and 2010, we also recorded decreases in FICA expense, employee education and 401k plan expenses. These decreases, were partially offset by increase in our group health, group life and group disability benefit expenses.

~~By comparison,~~On ~~during~~a ~~2008~~combined basis, we recorded $~~283~~5.138 ~~thousand~~million in ~~losses~~occupancy onexpense, ~~the~~furniture ~~impairment~~ and ~~sale~~equipment ~~of fixed assets~~expense, ~~most~~computer ofservice ~~which~~fees ~~was~~and ~~due~~advertising toand ~~the~~marketing. This ~~abandonment~~compares ~~of a plan~~ to ~~build~~ ~~a branch office~~$5. ~~Specifically,~~275 wemillion ~~abandoned~~in ~~the~~these ~~development~~same ~~of a~~categories ~~branch~~during ~~office in Dewitt~~2009, ~~New York (Onondaga County) and recorded~~ a $~~178~~ 137 thousand ~~expense~~or ~~for site planning, architectural design, and engineering studies in 2008~~2. ~~The~~6% ~~remaining~~decrease ~~losses~~between ~~totaling $105 thousand were due to losses incurred on~~ the ~~sale of OREO~~periods. During ~~2009~~2010, we ~~incurred~~did ~~$153 thousand~~not inembark ~~net losses~~ on ~~the~~any ~~impairment~~significant ~~and~~market ~~sale~~expansion ~~of fixed assets and OREO~~initiatives, ~~$134 thousand,~~infrastructure ofinitiatives ~~which,~~or ~~was~~computer ~~attributable~~system toupgrades anresulting ~~additional~~in ~~write-down on this same site due to~~ a nominal decrease in ~~the~~these ~~appraised~~noninterest ~~value~~expense ~~of the property~~categories. ~~We expect to incur significant increases in our OREO related expenses during 2010 due to increased foreclosures and similar proceedings in connection with commercial real estate loans.~~

We recorded $1.818 million in FDIC premium assessment expense during 2010, as compared to $2.080 million in 2009, a $262 thousand or 12.6% decrease between the comparable years. During the second quarter of 2009, the FDIC levied a special assessment upon its member banks to restore the Deposit Insurance Fund to required capitalization levels. We recorded $437 thousand of FDIC premium expense due to this special assessment. There were no similar special assessments recorded in 2010. In addition, between comparable years the average outstanding balance of our insurable deposits decreased moderately in connection with our plan to deleverage the Bank’s balance sheet and improve regulatory capital ratios. Due to the weakened state of the banking industry, current and anticipated Deposit Insurance Fund capitalization levels and other factors, we anticipate incurring significant FDIC premium assessment expenses for several quarters prospectively. In addition, the FDIC has announced it will increase member premiums by 3 basis points for 2011 and 2012.

Loan collection expense includes the payment of various insurance and tax payments on behalf of our borrowers to protect the Bank’s interest in its loan collateral. During 2010, we incurred and paid past due taxes and lapsed insurance

50-K

Index

~~Income Taxes. Income~~premiums ~~tax~~for ~~expense~~several ~~increased~~large ~~from~~or ~~$1.673~~delinquent ~~million~~borrowers ~~during 2008~~and toincurred $~~2.589~~548 ~~million~~thousand ~~during 2009. The increase~~ in ~~income tax~~ expense ~~was~~related ~~primarily due~~ to athese ~~significant increase in income before tax between comparable periods~~payments. ~~The~~By ~~effective~~comparison, ~~tax~~we ~~rate~~incurred ~~increased~~$694 ~~between~~thousand ~~periods increased, from 22.3%~~ in ~~2008~~similar toexpenses ~~25.9%~~during in 2009. AAlthough ~~smaller~~this ~~proportion of~~expense ~~our~~decreased ~~income~~$146 ~~was~~thousand ~~derived from tax-exempt sources such as municipal bonds and notes and bank-owned life insurance during 2009 than in 2008 resulting in an increase in our effective tax rate~~ between comparable ~~periods. In both periods~~years, ~~our~~these ~~effective~~amounts ~~tax~~were ~~rate~~high ~~was~~based ~~below~~on ~~statutory tax rates because a significant portion of~~ our ~~pre-tax~~historical ~~income~~experience ~~was generated from nontaxable revenues including interest income on state~~ and municipal investment securities and increases in the cash surrender value of bank-owned life insurance. In addition, 60% of the dividends paid by our real estate investment trust subsidiary to its shareholders are ~~deductible~~directly ~~for~~attributable ~~New York State tax purposes. This decreases our New York State effective tax rate~~ to the ~~alternative~~increase ~~minimum~~in ~~tax~~the ~~rate~~number of ~~3%,~~borrowers asexperiencing ~~compared~~financial todifficulties ~~the~~due ~~New~~to ~~York State~~weak ~~statutory~~economic ~~Bank tax rate of 7~~conditions.~~1%.~~

Other miscellaneous expenses include directors’ fees, fidelity insurance, the Bank’s OCC assessment, 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, minority interest expense, stock exchange listing fees, gain or loss on the disposal of assets, other real estate losses, other real estate expenses and several other miscellaneous expenses. During 2010 other miscellaneous expenses increased $48 thousand or 1.4%, from $3.457 million in 2009 to $3.505 million in 2010. The following table itemizes the individual components of other miscellaneous expenses that increased (or decreased) significantly between comparable periods:

Table of Other Miscellaneous Expenses:

	Year
Description of Other Miscellaneous Expenses	2010		2009		Increase / (Decrease)
	(in thousands)
OCC assessment	$	318	$	212	$	106
Correspondent bank services		169		188		(19	)
Miscellaneous loan servicing expenses		177		231		(54	)
Office supplies		295		389		(94	)
Postage and shipping		390		368		22
Travel and entertainment		213		191		22
Amortization of software		174		205		(31	)
Intangible asset amortization		8		179		(171	)
Other real estate owned expenses		218		48		170
Other real estate losses and write-downs		218		134		84
All other miscellaneous expense items, net		1,325		1,312		13
Total Other Miscellaneous Expense	$	3,505	$	3,457	$	48

During 2010 we incurred $436 thousand in other real estate expenses, losses and write-downs. This compares to $182 thousand in other real estate expenses, losses and write-downs, a $254 thousand increase between comparable years. We expect to incur significant increases in our other real estate related expenses during 2011 due to increased foreclosures and similar proceedings in connection with commercial real estate loans and, to a lesser extent, residential real estate loans.

Income Taxes. Income tax expense decreased from $2.589 million during 2009 to $2.242 million during 2010. The decrease in income tax expense was primarily due to a decrease in income before tax between comparable years. The effective tax rate increased moderately between 2009 and 2010, from 25.9% in 2009 to 26.2% in 2010.

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 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 (*).

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

In addition to the daily funds management process, we also monitor certain liquidity ratios and complete a liquidity assessment on a monthly basis. The monthly evaluation report, known as the Liquidity Contingency Scorecard, is reviewed by the ALCO and the Bank’s Board of Directors. The report provides management with various ratios and financial market data that are compared to limits established within the Bank’s Asset and Liability Management Policy. It was designed to provide an early warning signal for a potential liquidity crisis. Based on the limits established in our Asset and Liability Management Policy, at December 31, 2009 the Bank maintained adequate levels of liquidity.

51-K

Index

The following ~~table~~list ~~summarizes~~represents ~~several~~the sources of ~~our~~funds ~~key~~available to meet our liquidity ~~measures~~requirements. Our ~~for~~primary ~~the~~sources ~~periods stated:~~of funds are denoted by an asterisk (*).

Sources of Funding

• Currency*

• Federal Reserve and Correspondent Bank Balances*

• Federal Funds Sold*

• Loan and Investment Principal and Interest Payments*

• Investment Security Maturities and Calls*

• Demand Deposits and NOW Accounts*

• Savings and Money Market Deposits*

• Certificates of Deposit and Other Time Deposits*

• Repurchase Agreements*

• FHLBNY Advances / Lines of Credit*

• Sale of Available-for-Sale Investment Securities

• Brokered Deposits

• Correspondent Lines of Credit

• Federal Reserve Discount Window Borrowings

• Sale of Loans

• Proceeds from Issuance of Equity Securities

• Branch Acquisition

In addition to the daily funds management process, we also monitor certain liquidity ratios and complete a liquidity assessment on a monthly basis. The monthly evaluation report, known as the Liquidity Contingency Scorecard, is reviewed by the ALCO and the Bank’s Board of Directors. The report provides management with various ratios and financial market data that are compared to limits established within the Bank’s Asset and Liability Management Policy. It was designed to provide an early warning signal for a potential liquidity crisis. Based on the limits established in our Asset and Liability Management Policy, at December 31, 2010 the Bank maintained adequate levels of liquidity. The following table summarizes several of our key liquidity measures for the periods stated:

Table of Liquidity Measures:

Liquidity Measure	At December 31,
		At December 31,
	2009	2008
Liquidity Measure		2010			2009
	~~(in thousands)~~	(in thousands)
Cash and cash equivalents	~~$ 34,043~~	$ ~~44,421~~	31,443		$	34,043
Available-for-Sale and Held-to-Maturity investment securities at estimated fair value less securities pledged for state and municipal deposits and borrowings	~~$ 4,890~~	$ ~~20,337~~	79,367		$	4,890
Total loan to total asset ratio	~~64.80%~~	~~63.10%~~	60.1	%		64.7	%
FHLBNY remaining borrowing capacity	~~$ 16,832~~	$ ~~7,032~~	11,779		$	16,832
Available correspondent bank lines of credit	~~$ 12,000~~	$ ~~15,000~~	-		$	12,000
Brokered certificate of deposit line of credit	~~$ 90,332~~	$ -	-		$	90,332

~~Between December~~During 312010, ~~2008~~two ~~and~~liquidity ~~December~~facilities ~~31,~~were ~~2009,~~terminated ~~our~~due ~~balance~~to ~~sheet~~the ~~liquidity,~~announcement ~~namely~~of our ~~cash~~ ~~and~~Formal ~~cash~~Agreement ~~equivalents~~with ~~and~~the ~~our~~OCC. The ~~unpledged~~first ~~investment~~was ~~securities,~~a ~~decreased~~$12.0 ~~due primarily~~million tounsecured ~~our~~overnight ~~strategy~~demand federal tofunds ~~deleverage~~facility ~~the~~with ~~Bank~~a regional bank. The facility was in place primarily for contingency purposes and ~~improve~~was ~~our~~not ~~capital ratios~~utilized by the Bank during 2010. ~~However~~The second facility, ~~our~~totaling ~~overall~~$90.332 ~~liquidity~~million ~~position~~at December 31, ~~including~~2010, ~~our~~was ~~off balance~~reduced ~~funding~~by ~~facilities,~~50% ~~improved~~during ~~significantly~~the ~~between~~third ~~December~~quarter ~~31,~~of ~~2008~~2010 and ~~December~~ ~~31,~~terminated ~~2009~~during ~~because~~the infourth ~~2009~~quarter weof ~~were~~2010. This ~~approved~~facility allowed us to participate in a nationally recognized FDIC-approved brokered certificate of deposit program. The unused portion of the facility ~~allows~~allowed us to bid weekly for FDIC-insured certificate of deposits as long as we ~~continue~~continued to meet program conditions, including maintaining our well-capitalized status. The certificate of deposit terms range from 4-weeks to 3-years with higher levels of availability in the shorter term pools. This facility primarily served as a contingency facility and was not utilized during 2010. During 2010, we actively deleveraged the Bank’s balances sheet, curbed loan growth, and therefore, did not have a need to procure brokered funding.

In light of the Formal Agreement with the OCC, we targeted to maintain an increased level of liquidity. At December 31, ~~2009~~2010 we maintained $3431.~~043~~443 million in cash and cash equivalents, and $479.~~890~~367 million in unpledged available-for-sale (at estimated fair value) and held-to-maturity investment securities~~, and $28~~.~~832 million of readily available lines of credit at other banks (excluding the brokered certificate of deposit line of credit) to fund any anticipated or unanticipated growth in earning assets.~~ This compares to $4434.~~421~~043 million in cash and cash equivalents, and $~~20.337~~4,890 million in unpledged available-for-sale (at estimated fair value) and held-to-maturity investment securities, and $22.032 million of readily available lines of credit at other banks on December 31, 2008. In aggregate, these potential funding sources provided $158.097 million of short- and long-term liquidity at December 31, 2009, as compared to $86.790 million at December 31, 2008, a $71.307 million increase between periods. Our total loan to total asset ratios of 64.8% at December 31, 2009 and 63.1% at December 31, 2008 were low relative to those of our comparative peer group of financial institutions.

Our commitments to extend credit and standby letters of credit decreased between December 31, 2008 and December 31, 2009. Commitments to extend credit and standby letters of credit totaled $110.310 million at December 31, 2009, versus $139.496 million at December 31, 2008, a $29.186 million or 20.9% decrease. The decrease between periods was principally due to decreases in commitments to fund commercial real estate construction loans. Our experience indicates that draws on the commitments to extend credit and standby letters of credit do not fluctuate significantly from quarter to quarter. We, however, will closely monitor our liquidity position over the next several quarters to assure adequate levels of short52-~~term funding are available to fund our off-balance sheet commitments.~~K

Index

securities at December 31, 2009. Our total loan to total asset ratios of 60.1% at December 31, 2010 and 64.7% at December 31, 2009 were low relative to those of our comparative peer group of financial institutions. The decrease was consistent with our strategy to mitigate credit risk and maintain high levels of balance sheet liquidity in light of the Formal Agreement.

Our commitments to extend credit and standby letters of credit decreased between December 31, 2009 and December 31, 2010. Commitments to extend credit and standby letters of credit totaled $85.174 million at December 31, 2010, versus $110.310 million at December 31, 2009, a $25.136 million or 22.8% decrease. The decrease between periods was principally due to decreases in commitments to fund commercial lines of credit. Our experience indicates that draws on the commitments to extend credit and standby letters of credit do not fluctuate significantly from quarter to quarter. We will continue to closely monitor our liquidity position to assure adequate levels of short-term funding are available to fund our off-balance sheet commitments.

On a quarterly basis we also prepare a forward-looking 90-day sources and uses report to determine future liquidity needs. Based on this report, our deposit retention experience, anticipated loan and investment funding and prepayment activity, the product offerings of our competitors, the level of interest rates, the level of regional economic activity, and our current pricing strategies, we anticipate that we will have sufficient levels of liquidity to meet our funding commitments over the next 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 maintaining a sufficient capital base to provide for future expansion and complying with all regulatory standards.

52Due to the growth in total shareholders’ equity and a decrease in total assets, our total shareholders’ equity to total assets increased from 8.04% at December 31, 2009 to 8.60% at December 31, 2010. Total shareholders’ equity increased $1.806 million or 2.5%, while total assets decreased $37.547 million or 4.1% between December 31, 2009 and December 31, 2010. Total shareholders’ equity was $74.725 million at December 31, 2010, as compared to $72.919 million at December 31, 2009. The net increase in shareholders’ equity between periods was due to a few factors. During 2010, we recorded net income of $6.324 million. We also raised $207 thousand in shareholders’ equity by reissuing common stock held in the treasury account through a Dividend Reinvestment and Direct Stock Purchase Plan. These amounts were offset, in part, by $2.799 million in accumulated other comprehensive losses associated with the Bank’s available-Kfor-sale investment securities portfolio, defined benefit plan and split-dollar life insurance plan. In addition, during 2010 we declared and paid cash dividends totaling $1.927 million.

~~Index~~The Company and the Bank are both subject to regulatory capital guidelines as established by federal bank regulators. Under these guidelines, in order to be “adequately capitalized” the Company and the Bank must both maintain a minimum ratio of Tier 1 capital to average assets and Tier 1 capital to risk-weighted assets of 4.0% and a minimum ratio of total capital to risk-weighted assets of 8.0%. Tier 1 capital is comprised of shareholders’ equity less intangible assets and accumulated other comprehensive income. Total capital for this risk-based capital standard includes Tier 1 capital plus allowable portions of the Company’s allowance for loan losses. Similarly, for the Bank to be considered “well capitalized,” it must maintain a Tier 1 capital to average assets ratio of 5.0%, a Tier 1 capital to risk-weighted assets ratio of 6.0% and a total capital to risk-weighted assets ratio of 10.0%. The Company exceeded all capital adequacy guidelines, and the Bank exceeded all “well capitalized” guidelines at December 31, 2010 and December 31, 2009.

~~Due~~In to addition, the ~~growth in total shareholders~~Bank’s ~~equity~~Board ~~during~~of ~~2009,~~Directors ~~and~~has toestablished a ~~lesser~~minimum ~~extent,~~capital ~~a decrease~~policy inthat ~~total~~exceeds ~~assets~~“well atcapitalized” ~~December~~regulatory ~~31,~~standards ~~2009, our total shareholders’ equity~~ to ~~total~~ ~~assets~~ensure ~~increased~~the ~~from~~safety ~~7.29% at December 31, 2008 to 8.04% at December 31, 2009. Total shareholders’ equity increased $5.460 million or 8.1% between December 31, 2008~~ and ~~December~~soundness ~~31,~~of ~~2009. Total~~the ~~shareholders~~Company’ ~~equity~~s ~~was~~banking ~~$72~~subsidiary.~~919 million at December 31, 2009, as compared to $67.459 million at December 31, 2008.~~ The ~~net increase in shareholders~~Bank’s ~~equity between~~Tier ~~periods~~1 ~~was~~capital ~~due~~ to aaverage ~~few~~assets ~~factors. During 2009~~ratio, weTier ~~recorded net~~1 ~~income~~capital ofto ~~$7.401 million. In addition, we recorded a decrease in the net actuarial loss on our defined benefit plan and split~~risk-

Filing Compare · Wilber CORP