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|UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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|FORM 10-Q                                                              

[Ö]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the quarterly period ended March 31, 2010OR[  ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from__________ to__________


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|-------------------------------
|Commission File Number: 2-94863




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|------------------------
|[cnc10q_20100331002.gif]




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|--------------------------------------------------------------------------------------
|CANANDAIGUA NATIONAL CORPORATION(Exact name of registrant as specified in its charter)

New York(State or other jurisdiction of
incorporation or organization)16-1234823(IRS Employer Identification Number)72 South Main Street
Canandaigua, New York(Address of principal executive offices)14424(Zip code)


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|(585) 394-4260(Registrant's telephone number, including area code)




|                                                                                                                                                                                                                                                                     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate by check mark whether the 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, and (2) has been subject to such filing requirements for the past 90 days.

Yes  [Ö]No  [ ]


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|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

Yes  [ ]No  [ ]


|                                                                                                                                                                                                                                                                                                    
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ]           Accelerated filer [Ö]            Non-accelerated filer [ ]         Smaller reporting company [ ]




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




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|---------------------------------------------------------------------------------------------------
|The registrant had 470,946 shares of common stock, par value $20.00, outstanding at April 21, 2010.

1


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|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Forward-Looking Statements

This report, including information incorporated by reference, contains, and future filings by Canandaigua National Corporation on Forms 10-K, 10-Q and 8-K and future oral and written statements, press releases, and letters to shareholders by Canandaigua National Corporation and its management may contain, certain "forward-looking statements" intended to qualify for the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. When used or incorporated by reference in the Company's disclosures and documents, the words "anticipate," "believe," "contemplate," "estimate," "expect," "foresee," "project," "target," "goal," "budget" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act. Such forward-looking statements are subject to certain risks discussed within this document and the Companys most recent Annual Report on Form 10-K. These forward-looking statements are based on currently available financial, economic, and competitive data and management's views and assumptions regarding future events. These forward-looking statements are inherently uncertain, so should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, targeted, or budgeted. These forward-looking statements speak only as of the date of the document. We expressly disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein.  We caution readers not to place undue reliance on any of these forward-looking statements.

2


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|-----------------------------------------------------------------------------------
|CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
March 31, 2010




|                                                                                            |  |     
|------------------------------------------------------------------------------------------- |  | ----
|PART I -- FINANCIAL INFORMATION                                                             |  | PAGE
|                                                                                            |  |     
|Item 1.  Financial Statements (Unaudited)                                                   |  |     
|                                                                                            |  |     
|Condensed consolidated balance sheets at March 31, 2010 and December 31, 2009               |  | 4   
|                                                                                            |  |     
|Condensed consolidated statements of income for the three-month periods ended               |  |     
|March 31, 2010 and 2009.                                                                    |  | 5   
|                                                                                            |  |     
|Condensed consolidated statements of stockholders' equity for the three-month periods ended |  |     
|March 31, 2010 and 2009                                                                     |  | 6   
|                                                                                            |  |     
|Condensed consolidated statements of cash flows for the three-month periods ended           |  |     
|March 31, 2010 and 2009                                                                     |  | 7   
|                                                                                            |  |     
|Notes to condensed consolidated financial statements                                        |  | 8   
|                                                                                            |  |     
|Item 2.  Management's Discussion and Analysis of Financial                                  |  |     
|Condition and Results of Operations                                                         |  | 17  
|                                                                                            |  |     
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                          |  | 23  
|                                                                                            |  |     
|Item 4. Controls and Procedures                                                             |  | 23  
|                                                                                            |  |     
|PART II -- OTHER INFORMATION                                                                |  |     
|                                                                                            |  |     
|Item 1.  Legal Proceedings                                                                  |  | 24  
|                                                                                            |  |     
|Item 1A.Risk Factors                                                                        |  | 24  
|                                                                                            |  |     
|Item 2.  Unregistered Sales of Equity Securitiesand Use of Proceeds                         |  | 24  
|                                                                                            |  |     
|Item 3.  Defaults Upon Senior Securities                                                    |  | 24  
|                                                                                            |  |     
|Item 4.  (Reserved)                                                                         |  | N/A 
|                                                                                            |  |     
|Item 5.  Other Information                                                                  |  | 24  
|                                                                                            |  |     
|Item 6.  Exhibits                                                                           |  | 26  
|                                                                                            |  |     
|SIGNATURES                                                                                  |  | 27  
|                                                                                            |  |     

3


|                             
|-----------------------------
|PART I  FINANCIAL INFORMATION
|Item 1. Financial Statements 




|                                                                                                                                                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSMarch 31, 2010 and December 31, 2009 (Unaudited)
(dollars in thousands, except per share data)




|                                                                         |   |           |  |              | 
|------------------------------------------------------------------------ | - | --------- |  | ------------ | 
|                                                                         |   | March 31, |  | December 31, | 
|                                                                         |   | 2010      |  | 2009         | 
|Assets                                                                   |   |           |  |              | 
|Cash and due from banks                                                  | $ | 30,269    |  | 33,453       | 
|Interest-bearing deposits with other financial institutions              |   | 4,094     |  | 4,376        | 
|Federal funds sold                                                       |   | 100,247   |  | 40,395       | 
|Securities:                                                              |   |           |  |              | 
|- Available for sale, at fair value                                      |   | 118,894   |  | 118,925      | 
|- Held-to-maturity (fair value of $164,139 in 2010 and $165,913 in 2009) |   | 158,229   |  | 159,183      | 
|Loans:                                                                   |   |           |  |              | 
|Commercial and industrial                                                |   | 204,020   |  | 214,841      | 
|Commercial mortgage                                                      |   | 432,925   |  | 429,955      | 
|Residential mortgage - first lien                                        |   | 222,927   |  | 218,731      | 
|Residential mortgage - junior lien                                       |   | 85,448    |  | 83,236       | 
|Consumer-automobile indirect                                             |   | 164,627   |  | 171,902      | 
|Consumer and other                                                       |   | 27,802    |  | 28,919       | 
|Loans held for sale                                                      |   | 7,661     |  | 6,657        | 
|Total gross loans                                                        |   | 1,145,410 |  | 1,154,241    | 
|Plus:  Net deferred loan costs                                           |   | 5,414     |  | 5,698        | 
|Less:  Allowance for loan losses                                         |   | (14,478)  |  | (14,232)     | 
|Loans - net                                                              |   | 1,136,346 |  | 1,145,707    | 
|Premises and equipment - net                                             |   | 12,834    |  | 12,041       | 
|Accrued interest receivable                                              |   | 7,396     |  | 6,692        | 
|Federal Home Loan Bank stock and Federal Reserve Bank stock              |   | 2,689     |  | 2,689        | 
|Goodwill                                                                 |   | 8,818     |  | 8,818        | 
|Intangible assets                                                        |   | 6,470     |  | 6,719        | 
|Prepaid FDIC Assessment                                                  |   | 6,683     |  | 7,659        | 
|Other assets                                                             |   | 20,087    |  | 19,343       | 
|Total Assets                                                             | $ | 1,613,056 |  | 1,566,000    | 
|                                                                         |   |           |  |              | 
|Liabilities and Stockholders' Equity                                     |   |           |  |              | 
|Deposits:                                                                |   |           |  |              | 
|Demand                                                                   |   |           |  |              | 
|Non-interest-bearing                                                     | $ | 178,384   |  | 182,124      | 
|Interest-bearing                                                         |   | 140,699   |  | 131,987      | 
|Savings and money market                                                 |   | 627,758   |  | 573,983      | 
|Time                                                                     |   | 480,801   |  | 489,603      | 
|Total deposits                                                           |   | 1,427,642 |  | 1,377,697    | 
|Borrowings                                                               |   | 8,609     |  | 9,841        | 
|Junior subordinated debentures                                           |   | 51,547    |  | 51,547       | 
|Accrued interest payable and other liabilities                           |   | 12,370    |  | 15,180       | 
|Total Liabilities                                                        |   | 1,500,168 |  | 1,454,265    | 
|                                                                         |   |           |  |              | 
|Stockholders' Equity:                                                    |   |           |  |              | 
|Common stock, $20 par value; 2,000,000 shares authorized;                |   |           |  |              | 
|486,624 shares issued in 2010 and 2009                                   |   | 9,732     |  | 9,732        | 
|Additional paid-in capital                                               |   | 8,591     |  | 8,591        | 
|Retained earnings                                                        |   | 98,887    |  | 97,795       | 
|Treasury stock, at cost (15,678shares at March 31, 2010                  |   |           |  |              | 
|and 15,788 at December 31, 2009)                                         |   | (5,105)   |  | (5,143)      | 
|Accumulated other comprehensive income, net                              |   | 783       |  | 760          | 
|Total Stockholders' Equity                                               |   | 112,888   |  | 111,735      | 
|Total Liabilities and Stockholders' Equity                               | $ | 1,613,056 |  | 1,566,000    | 

See accompanying notes to condensed consolidated financial statements.    4


|                                                                                                                                                                                                                 |   |                               |  |        |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------------- |  | ------ |  |  |  |  |  | 
|CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEFor the three-month periods ended March 31, 2010 and 2009 (Unaudited)
(dollars in thousands, except per share data)
|                                                                                                                                                                                                                
|                                                                                                                                                                                                                 |   |                               |  |        |  |  |  | 
|                                                                                                                                                                                                                 |   | Three months 
ended March 31, |  |       
|                                                                                                                                                                                                                 |   |                               |  |        |  | 
|                                                                                                                                                                                                                 |   | 2010                          |  | 2009   |  | 
|Interest income:                                                                                                                                                                                                 |   |                               |  |        |  | 
|Loans, including fees                                                                                                                                                                                            | $ | 16,219                        |  | 16,341 |  | 
|Securities                                                                                                                                                                                                       |   | 2,259                         |  | 2,222  |  | 
|Federal funds sold and other                                                                                                                                                                                     |   | 55                            |  | 33     |  | 
|Total interest income                                                                                                                                                                                            |   | 18,533                        |  | 18,596 |  | 
|Interest expense:                                                                                                                                                                                                |   |                               |  |        |  | 
|Deposits                                                                                                                                                                                                         |   | 3,224                         |  | 4,776  |  | 
|Borrowings                                                                                                                                                                                                       |   | 77                            |  | 159    |  | 
|Junior subordinated debentures                                                                                                                                                                                   |   | 745                           |  | 748    |  | 
|Total interest expense                                                                                                                                                                                           |   | 4,046                         |  | 5,683  |  | 
|Net interest income                                                                                                                                                                                              |   | 14,487                        |  | 12,913 |  | 
|Provision for loan losses                                                                                                                                                                                        |   | 2,425                         |  | 1,155  |  | 
|Net interest income after provision for loan losses                                                                                                                                                              |   | 12,062                        |  | 11,758 |  | 
|                                                                                                                                                                                                                 |   |                               |  |        |  | 
|Other income:                                                                                                                                                                                                    |   |                               |  |        |  | 
|Service charges on deposit accounts                                                                                                                                                                              |   | 2,555                         |  | 2,034  |  | 
|Trust and investment services income                                                                                                                                                                             |   | 2,806                         |  | 2,299  |  | 
|Gain on sale of mortgage loans, net                                                                                                                                                                              |   | 368                           |  | 744    |  | 
|Mortgage servicing income, net                                                                                                                                                                                   |   | 198                           |  | 126    |  | 
|Loan-related fees                                                                                                                                                                                                |   | 69                            |  | 64     |  | 
|(Loss) gain on call of securities, net                                                                                                                                                                           |   | (5)                           |  | 3      |  | 
|Other operating income                                                                                                                                                                                           |   | 423                           |  | 292    |  | 
|Total other income                                                                                                                                                                                               |   | 6,414                         |  | 5,562  |  | 
|                                                                                                                                                                                                                 |   |                               |  |        |  | 
|Operating expenses:                                                                                                                                                                                              |   |                               |  |        |  | 
|Salaries and employee benefits                                                                                                                                                                                   |   | 7,273                         |  | 6,614  |  | 
|Occupancy, net                                                                                                                                                                                                   |   | 1,658                         |  | 1,493  |  | 
|Marketing and public relations                                                                                                                                                                                   |   | 555                           |  | 455    |  | 
|Office supplies, printing and postage                                                                                                                                                                            |   | 370                           |  | 373    |  | 
|Professional and other services                                                                                                                                                                                  |   | 771                           |  | 755    |  | 
|Technology and data processing                                                                                                                                                                                   |   | 924                           |  | 906    |  | 
|Intangible amortization                                                                                                                                                                                          |   | 249                           |  | 266    |  | 
|Other real estate operations                                                                                                                                                                                     |   | 224                           |  | 457    |  | 
|FDIC insurance                                                                                                                                                                                                   |   | 521                           |  | 184    |  | 
|Other operating expenses                                                                                                                                                                                         |   | 1,165                         |  | 1,078  |  | 
|Total operating expenses                                                                                                                                                                                         |   | 13,710                        |  | 12,581 |  | 
|                                                                                                                                                                                                                 |   |                               |  |        |  | 
|Income before income taxes                                                                                                                                                                                       |   | 4,766                         |  | 4,739  |  | 
|Income taxes                                                                                                                                                                                                     |   | 1,249                         |  | 1,200  |  | 
|Net income                                                                                                                                                                                                       | $ | 3,517                         |  | 3,539  |  | 
|                                                                                                                                                                                                                 |   |                               |  |        |  | 
|Basic earnings per share                                                                                                                                                                                         | $ | 7.47                          |  | 7.50   |  | 
|Diluted earnings per share                                                                                                                                                                                       | $ | 7.35                          |  | 7.38   |  | 

See accompanying notes to condensed consolidated financial statements.    5


|                                                                                                                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYFor the three-month periods ended March 31, 2010 and 2009 (Unaudited)
(dollars in thousands, except share data)




|                                 |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|-------------------------------- | ----------- | - | ------ |  | ---------- |  | -------- |  |  | -------- |  |  | ------------- |  |  | -------
|                                 |             |   |        |  |            |  |          |  |  |          |  |  | Accumulated   |  |  |        
|                                 | Number of   |   |        |  | Additional |  |          |  |  |          |  |  | Other         |  |  |        
|                                 | Shares      |   | Common |  | Paid-in    |  | Retained |  |  | Treasury |  |  | Comprehensive |  |  |        
|                                 | Outstanding |   | Stock  |  | Capital    |  | Earnings |  |  | Stock    |  |  | Income (Loss) |  |  | Total  
|Balance at December 31, 2009     | 470,836     | $ | 9,732  |  | 8,591      |  | 97,795   |  |  | (5,143)  |  |  | 760           |  |  | 111,735
|Comprehensive income:            |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|Change in fair value of          |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|interest rate swap,              |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|net of taxes of $43              |             |   | -      |  | -          |  | -        |  |  | -        |  |  | 64            |  |  | 64     
|Change in unrealized gain on     |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|securities available for sale,   |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|net of taxes of $(79)            |             |   | -      |  | -          |  | -        |  |  | -        |  |  | (116)         |  |  | (116)  
|Plus reclassification adjustment |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|for realized losses included in  |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|net income on called securities, |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|net of taxes of $39              |             |   | -      |  | -          |  | -        |  |  | -        |  |  | 75            |  |  | 75     
|Net income                       |             |   | -      |  | -          |  | 3,517    |  |  | -        |  |  | -             |  |  | 3,517  
|Total comprehensive income       |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  | 3,540  
|Shares issued as compensation    | 110         |   | -      |  | -          |  | -        |  |  | 38       |  |  | -             |  |  | 38     
|Cash dividend - $5.15 per share  |             |   | -      |  | -          |  | (2,425)  |  |  | -        |  |  | -             |  |  | (2,425)
|Balance at March 31, 2010        | 470,946     | $ | 9,732  |  | 8,591      |  | 98,887   |  |  | (5,105)  |  |  | 783           |  |  | 112,888
|                                 |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|                                 |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|Balance at December 31, 2008     | 471,859     | $ | 9,732  |  | 8,591      |  | 87,273   |  |  | (4,819)  |  |  | (339)         |  |  | 100,438
|Comprehensive income:            |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|Change in fair value of          |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|interest rate swap,              |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|net of taxes of $18              |             |   | -      |  | -          |  | -        |  |  | -        |  |  | 26            |  |  | 26     
|Change in unrealized gain on     |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|securities available for sale,   |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        
|net of taxes of $72              |             |   | -      |  | -          |  | -        |  |  | -        |  |  | 128           |  |  | 128    
|Net income                       |             |   | -      |  | -          |  | 3,539    |  |  | -        |  |  | -             |  |  | 3,539  
|Total comprehensive income       |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  | 3,693  
|Purchase of treasury stock       | (549)       |   | -      |  | -          |  | -        |  |  | (173)    |  |  | -             |  |  | (173)  
|Shares issued as compensation    | 95          |   | -      |  | -          |  | (3)      |  |  | 33       |  |  | -             |  |  | 30     
|Cash dividend - $4.85 per share  |             |   | -      |  | -          |  | (2,289)  |  |  | -        |  |  | -             |  |  | (2,289)
|Balance at March 31, 2009        | 471,405     | $ | 9,732  |  | 8,591      |  | 88,520   |  |  | (4,959)  |  |  | (185)         |  |  | 101,699
|                                 |             |   |        |  |            |  |          |  |  |          |  |  |               |  |  |        

See accompanying notes to condensed consolidated financial statements.    6


|                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three-month periods ended March 31, 2010 and 2009 (Unaudited)
(dollars in thousands)




|                                                                    |   |          |  |  |  |          | 
|------------------------------------------------------------------- | - | -------- |  |  |  | -------- | 
|                                                                    |   | 2010     |  |  |  | 2009     | 
|Cash flow from operating activities:                                |   |          |  |  |  |          | 
|Net income                                                          | $ | 3,517    |  |  |  | 3,539    | 
|Adjustments to reconcile net income to                              |   |          |  |  |  |          | 
|net cash provided by operating activities:                          |   |          |  |  |  |          | 
|Depreciation, amortization and accretion                            |   | 1,325    |  |  |  | 1,070    | 
|Provision for loan losses                                           |   | 2,425    |  |  |  | 1,155    | 
|Gain on sale of other real estate, net                              |   | (16)     |  |  |  | -        | 
|Deferred income tax benefit                                         |   | (396)    |  |  |  | (114)    | 
|Income from equity-method investments, net                          |   | (6)      |  |  |  | 11       | 
|Loss (gain) on call of securities, net                              |   | 5        |  |  |  | (3)      | 
|Gain on sale of mortgage loans, net                                 |   | (368)    |  |  |  | (744)    | 
|Originations of loans held for sale                                 |   | (33,576) |  |  |  | (65,496) | 
|Proceeds from sale of loans held for sale                           |   | 32,940   |  |  |  | 54,559   | 
|Increase in all other assets                                        |   | (10)     |  |  |  | (2,279)  | 
|Decrease in all other liabilities                                   |   | (2,703)  |  |  |  | (385)    | 
|Net cash provided by (used in) operating activities                 |   | 3,137    |  |  |  | (8,687)  | 
|                                                                    |   |          |  |  |  |          | 
|Cash flow from investing activities:                                |   |          |  |  |  |          | 
|Securities available-for-sale:                                      |   |          |  |  |  |          | 
|Proceeds from maturities and calls                                  |   | 11,858   |  |  |  | 7,272    | 
|Purchases                                                           |   | (11,912) |  |  |  | (10,979) | 
|Securities held to maturity:                                        |   |          |  |  |  |          | 
|Proceeds from maturities and calls                                  |   | 4,409    |  |  |  | 4,331    | 
|Purchases                                                           |   | (3,748)  |  |  |  | (1,774)  | 
|Loan originations and principal collections, net                    |   | 7,859    |  |  |  | (3,352)  | 
|Purchase of premises and equipment                                  |   | (1,318)  |  |  |  | (722)    | 
|Proceeds from sale of FHLB stock, net                               |   | -        |  |  |  | 198      | 
|Investment in equity-method investments                             |   | (453)    |  |  |  | (31)     | 
|Proceeds from sale of other real estate                             |   | 234      |  |  |  | 69       | 
|Net cash provided by (used in) investing activities                 |   | 6,929    |  |  |  | (4,988)  | 
|                                                                    |   |          |  |  |  |          | 
|Cash flow from financing activities:                                |   |          |  |  |  |          | 
|Net increase in demand, savings and money market deposits           |   | 58,747   |  |  |  | 85,224   | 
|Net (decrease) increase in time deposits                            |   | (8,802)  |  |  |  | 15,632   | 
|Overnight borrowings, net                                           |   | -        |  |  |  | (4,400)  | 
|Principal repayments on borrowings                                  |   | (1,238)  |  |  |  | (4,064)  | 
|Proceeds from issuance of treasury stock for compensation           |   | 38       |  |  |  | 30       | 
|Payments to acquire treasury stock                                  |   | -        |  |  |  | (173)    | 
|Dividends paid                                                      |   | (2,425)  |  |  |  | (2,289)  | 
|Net cash provided by financing activities                           |   | 46,320   |  |  |  | 89,960   | 
|                                                                    |   |          |  |  |  |          | 
|Net increase in cash and cash equivalents                           |   | 56,386   |  |  |  | 76,285   | 
|Cash and cash equivalents - beginning of period                     |   | 78,224   |  |  |  | 32,670   | 
|Cash and cash equivalents - end of period                           | $ | 134,610  |  |  |  | 108,955  | 
|                                                                    |   |          |  |  |  |          | 
|Supplemental disclosure of cash flow information:                   |   |          |  |  |  |          | 
|Interest paid                                                       | $ | 3,897    |  |  |  | 5,881    | 
|Income taxes paid                                                   |   | 201      |  |  |  | 262      | 
|Supplemental schedule of noncash investing and financing activities |   |          |  |  |  |          | 
|Real estate acquired in settlement of loans                         | $ | 81       |  |  |  | 2,374    | 
|                                                                    |   |          |  |  |  |          | 

See accompanying notes to condensed consolidated financial statements.    7


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|----------------------------------------------------------------
|CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES               
|Notes to Condensed Consolidated Financial Statements (Unaudited)




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|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(1)   Basis of Presentation                                                                                                                                                                                          
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                      | The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and applicable regulations of the Securities and Exchange Commission (SEC) and with generally accepted accounting principles for interim financial information. Such principles are applied on a basis consistent with those reflected in the December 31, 2009 Form 10-K Report of the Company filed with the SEC. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  Management has prepared the financial information included herein without audit by independent certified public accountants.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month periods ended March 31, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009.
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                      | Amounts in prior periods' condensed consolidated financial statements are reclassified whenever necessary to conform to the current year's presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                      | Management has evaluated the impact of subsequent events on these financial statements to the date of filing of this Form 10-K with the Securities and Exchange Commission.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2)   Dividend                                                                                                                                                                                                       
|                                                                                                                                                                                                                     
|On January 13, 2010, the Board of Directors declared a semi-annual $5.15 per share dividend on the Companys common stock payable  to shareholders of record on January 23, 2010, which was paid on February 1, 2010.




|                                                                                                                                                                                                                                                                                                                                                                                                                           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3)   Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                           
|Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding during the period.  Diluted earnings per share includes the maximum dilutive effect of stock issuable upon conversion of stock options. Calculations for the three-month periods ended March 31, 2010 and 2009 follow (dollars in thousands, except share data):

For the three months ended March 31,20102009Basic Earnings Per Share:Net income applicable to common shareholders$3,5173,539Weighted average common shares outstanding470,838471,739Basic earnings per share$7.477.50Diluted Earnings Per Share:Net income applicable to common shareholders$3,5173,539Weighted average common shares outstanding470,838471,739Effect of assumed exercise of stock options7,9237,978Total478,761479,717Diluted earnings per share$7.357.38   8


|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |           |  | 
|------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- |  | ----- |  | ------ |  | ------------ |  | --------- |  | 
|                          | (4)   Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                          | The Company is organized into three reportable segments: the Company and its bank and Florida trust subsidiaries (Bank), CNB Mortgage Company (CNBM), and Genesee Valley Trust Company (GVT). These have been segmented due to differences in their distribution channels, the volatility of their earnings, and internal and external financial reporting requirements.  The interim period reportable segment information for the three-month periods ended March 31, 2010 and 2009 follows (dollars in thousands).
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 2010     
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Bank      |  | CNBM  |  | GVT    |  | Intersegment |  | Total    
|Net interest income       | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 14,492    |  | 4     |  | (1)    |  | (8)          |  | 14,487   
|Non-interest income       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 5,410     |  | 769   |  | 1,004  |  | (769)        |  | 6,414    
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|Total revenues            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 19,902    |  | 773   |  | 1,003  |  | (777)        |  | 20,901   
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|Provision for loan losses |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 2,425     |  | -     |  | -      |  | -            |  | 2,425    
|Intangible amortization   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 55        |  | -     |  | 194    |  | -            |  | 249      
|Other operating expenses  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 12,200    |  | 461   |  | 950    |  | (150)        |  | 13,461   
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|Total expenses            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 14,680    |  | 461   |  | 1,144  |  | (150)        |  | 16,135   
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|Income (loss) before tax  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 5,222     |  | 312   |  | (141)  |  | (627)        |  | 4,766    
|Income tax                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 1,249     |  | 122   |  | (41)   |  | (81)         |  | 1,249    
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|Net income (loss)         | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 3,973     |  | 190   |  | (100)  |  | (546)        |  | 3,517    
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|Total identifiable assets | $                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 1,598,187 |  | 7,515 |  | 17,538 |  | (10,184)     |  | 1,613,056
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |           |  |       |  |        |  |              |  |          
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      




|                          |   |           |  |       |  |        |  |              |  |           |  | 
|------------------------- | - | --------- |  | ----- |  | ------ |  | ------------ |  | --------- |  | 
|                          |  
|                          |   | 2009     
|                          |   |           |  |       |  |        |  |              |  |          
|                          |   | Bank      |  | CNBM  |  | GVT    |  | Intersegment |  | Total    
|Net interest income       | $ | 12,937    |  | 3     |  | (14)   |  | (13)         |  | 12,913   
|Non-interest income       |   | 4,364     |  | 1,255 |  | 900    |  | (957)        |  | 5,562    
|                          |   |           |  |       |  |        |  |              |  |          
|Total revenues            |   | 17,301    |  | 1,258 |  | 886    |  | (970)        |  | 18,475   
|                          |   |           |  |       |  |        |  |              |  |          
|Provision for loan losses |   | 1,155     |  | -     |  | -      |  | -            |  | 1,155    
|Intangible amortization   |   | 57        |  | -     |  | 209    |  | -            |  | 266      
|Other operating expenses  |   | 11,093    |  | 360   |  | 956    |  | (94)         |  | 12,315   
|                          |   |           |  |       |  |        |  |              |  |          
|Total expenses            |   | 12,305    |  | 360   |  | 1,165  |  | (94)         |  | 13,736   
|                          |   |           |  |       |  |        |  |              |  |          
|Income (loss) before tax  |   | 4,996     |  | 898   |  | (279)  |  | (876)        |  | 4,739    
|Income tax                |   | 1,200     |  | 351   |  | (114)  |  | (237)        |  | 1,200    
|                          |   |           |  |       |  |        |  |              |  |          
|Net income (loss)         | $ | 3,796     |  | 547   |  | (165)  |  | (639)        |  | 3,539    
|                          |   |           |  |       |  |        |  |              |  |          
|Total identifiable assets | $ | 1,496,586 |  | 4,523 |  | 21,687 |  | (10,508)     |  | 1,512,288
|                          |   |           |  |       |  |        |  |              |  |          




|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5)   Loan Servicing Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|The Company services first-lien, residential loans for the Federal Home Loan Mortgage Company (FHLMC), also known as Freddie Mac, and certain commercial loans as lead participant.  The associated servicing rights (assets) entitle the Company to a future stream of cash flows based on the outstanding principal balance of the loans and contractual servicing fees.  Failure to service the loans in accordance with contractual requirements may lead to a termination of the servicing rights and the loss of future servicing fees.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|The Company services all loans for FHLMC on a non-recourse basis; therefore, its credit risk is limited to temporary advances of funds to FHLMC, while FHLMC retains all credit risk associated with the loans.  Commercial loans are serviced on a non- recourse basis, wherein the Company is subject to credit losses only to the extent of the proportionate share of the loans principal balance owned.                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Gross servicing fees earned by the Company for the three-month periods ended March 31, 2010 and 2009, respectively, amounted to $329,000 and $231,000, and are included in net mortgage servicing income on the statements of income.                                                                                                                                                                                                                                                                                                        

9    (5)   Loan Servicing Assets(continued)


|                                                                                                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                       
|The following table presents the changes in mortgage servicing assets for the three-month periods ended March 31, 2010 and 2009, respectively, as well as the estimated fair value of the assets at the beginning and end of the period (in thousands).

20102009BookEstimated
FairBookEstimated
FairValueValueValueValueBalance at January 1,$1,797$  2,893$855$   1,597Originations192350Amortization(131)(104)Balance at March 31,$1,858$  2,736$1,101$   1,791


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|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) Interest Rate Swap Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The Company is exposed to interest rate risk as a result of both the timing of changes in interest rates of assets and liabilities, and the magnitude of those changes.  In order to reduce this risk for the Companys $30 million floating-rate junior subordinated debenture, the Company entered into an interest rate swap agreement in 2007.  This interest rate swap agreement modifies the repricing characteristics of the debentures from a floating-rate debt to a fixed-rate debt. For this swap agreement, amounts receivable or payable are recognized as accrued under the terms of the agreement, and the net differential is recorded as an adjustment to interest expense of the related debentures. The interest rate swap agreement is designated as a cash flow hedge. Therefore, the effective portion of the swaps unrealized gain or loss was initially recorded as a component of other comprehensive income. The ineffective portion of the unrealized gain or loss, if any, is immediately reported in other operating income.  The swap agreement is carried at fair value in Other Liabilities on the Condensed Consolidated Statement of Condition.
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|(7) Fair Values of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Current accounting pronouncements require disclosure of the estimated fair value of financial instruments. Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly, non-distressed sale between market participants at the measurement date. With the exception of certain marketable securities and one-to-four-family residential mortgage loans originated for sale, the Companys financial instruments are not readily marketable and market prices do not exist. The Company, in attempting to comply with accounting disclosure pronouncements, has not attempted to market its financial instruments to potential buyers, if any exist. Since negotiated prices in illiquid markets depend upon the then present motivations of the buyer and seller, it is reasonable to assume that actual sales prices could vary widely from any estimate of fair value made without the benefit of negotiations.  Additionally, changes in market interest rates can dramatically impact the value of financial instruments in a short period of time. Finally, the Company expects to retain substantially all assets and liabilities measured at fair value to their maturity or call date.  Accordingly, the fair values disclosed herein are unlikely to represent the instruments liquidation values, and do not, with the exception of securities, consider exit costs, since they cannot be reasonably estimated by management.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|The estimated fair values of the Company's financial instruments are as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

March 31, 2010December 31, 2009CarryingFairCarryingFairFinancial Assets:AmountValueAmountValueCash and equivalents$134,610134,61078,22478,224Securities, available-for-sale and held-to-maturity$279,812285,772280,797287,527Loans-net$1,136,3461,162,2011,145,7071,207,093Loan servicing rights$1,8582,7361,7972,893Financial Liabilities:Deposits:Demand, savings andmoney market accounts$946,841946,841888,094888,094Time deposits$480,801482,381489,603482,384Borrowings$8,6099,0889,8419,993Junior subordinated debentures$51,54753,36851,54753,527Other financial instruments:Interest rate swap agreement$(1,330)(1,330)(1,437)(1,437)Letters of credit$(119)(119)(120)(120)   10


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|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(7) Fair Values of Financial Instruments(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|The following methods and assumptions were used to estimate the fair value of each class of financial instrument:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Cash and Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|For these short-term instruments that generally mature in 90 days or less, or carry a market rate of interest, the carrying value approximates fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Securities (Available-for-Sale and Held-to-Maturity)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Fair values for securities are determined using independent pricing services and market-participating brokers, or matrix models using observable inputs. The pricing service and brokers use a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models.  Inputs to their pricing models include recent trades, benchmark interest rates, spreads, and actual and projected cash flows. Management obtains a single market quote or price estimate for each security.  None of the quotes or estimates is considered a binding quote, as management would only request one if management had the positive intent to sell the securities in the foreseeable future and management believed the price quoted represented one from a market participant with the intent and the ability to purchase. Internal matrix models are used for non-traded municipal securities.  Matrix models consider observable inputs, such as benchmark interest rates and spreads.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Certain securities fair values are determined using unobservable inputs and include bank debt based CDOs. There is a very limited market and limited demand for these CDOs due to imbalances in marketplace liquidity and the uncertainty in evaluating the credit risk in these securities. In determining fair value for these securities, management considered various inputs. Management considered fair values from several brokerage firms which were determined using assumptions as to expected cash flows and approximate risk-adjusted discount rates.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by interest type such as floating, adjustable, and fixed-rate loans, and by portfolios such as commercial, mortgage, and consumer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|The fair value of performing loans is calculated by discounting scheduled cash flows through the loans' estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan category. The estimate of maturity is based on the average maturity for each loan classification.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Delinquent loans (not in foreclosure) are valued using the method noted above, and also consider the fair value of collateral for collateral-dependent loans. While credit risk is a component of the discount rate used to value loans, delinquent loans are presumed to possess additional risk. Therefore, the calculated fair value of loans is reduced by the allowance for loan losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|The fair value of loans held for sale is estimated based on outstanding investor commitments or in the absence of such commitments, is based on current yield requirements or quoted market prices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Loan Servicing Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Fair value is determined through estimates provided by a third party. To estimate the fair value, the third party considers market prices for similar assets and the present value of expected future cash flows associated with the servicing assets calculated using assumptions that market participants would use in estimating future servicing income and expense. Such assumptions include estimates of the cost of servicing loans, loan default rates, an appropriate discount rate, and prepayment speeds. The estimated fair value of mortgage servicing rights may vary significantly in subsequent periods due to changing interest rates and the effect thereof on prepayment speeds. The key economic assumptions used to determine the fair value of mortgage servicing rights at March 31, 2010 and 2009, and the sensitivity of such values to changes in those assumptions are summarized in the 2009 Annual Report and are substantially unchanged.                                    




|                                                                                                                                                                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Deposits                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                           
|The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed maturity time deposits is estimated using a discounted cash flow approach that applies current market rates to a schedule of aggregated expected maturities of time deposits.
|                                                                                                                                                                                                                                                                                                                                           
|Borrowings                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                           
|The fair value of borrowings is based on quoted market prices for the identical debt when traded as an asset in an active market.  If a quoted market price is not available, fair value is calculated by discounting scheduled cash flows through the borrowings' estimated maturity using current market rates.                          
|                                                                                                                                                                                                                                                                                                                                           

11


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|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(7) Fair Values of Financial Instruments(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Junior Subordinated Debentures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|There is no trading market for the Companys debentures.  Therefore the fair value of junior subordinated debentures is determined using an expected present value technique. The fair value of the adjustable-rate debentures approximates their face amount, while the fair value of fixed-rate debentures is calculated by discounting scheduled cash flows through the borrowings' estimated maturity using current market rates.                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Interest Rate Swap Agreement (Swap)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The fair value of the swap was the amount the Company would have expected to pay to terminate the agreement and was based upon the present value of expected future cash flows using the LIBOR swap curve, the basis for the underlying interest rate.                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Other Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The fair values of letters of credit and unused lines of credit approximate the fee charged to make the commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(8) Fair Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Some of the financial instruments disclosed in the previous note are measured at fair value in the condensed consolidated financial statements. Accounting principles establish a three-level valuation hierarchy for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | Level 1  inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | Level 2  inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  | Level 3  inputs to the valuation methodology are unobservable and significant to the fair value measurement.                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The following table presents for each of the fair-value hierarchy levels the Companys assets and liabilities that are measured at fair value on a recurring and non-recurring basis at March 31, 2010, by caption on the Condensed Consolidated Balance Sheet (dollars in thousands).                                                                                                                                                                                                                                                                                                          




|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|----------------------------------- |  | ---------------- |  |  | ----------------- |  |  | ------------------- |  |  |  | -------------- | 
|                                    |  |                  |  |  | Internal models   |  |  | Internal models     |  |  |  |                | 
|                                    |  | Quoted market    |  |  | with significant  |  |  | with significant    |  |  |  | Total carrying | 
|                                    |  | prices in active |  |  | observable market |  |  | unobservable market |  |  |  | value in the   | 
|                                    |  | markets          |  |  | parameters        |  |  | parameters          |  |  |  | Consolidated   | 
|                                    |  | (Level 1)        |  |  | (Level 2)         |  |  | (Level 3)           |  |  |  | Balance Sheet  | 
|Measured on a recurring basis:      |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Assets                              |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Securities available-for-sale:      |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|U.S. Treasury                       |  | $ 501            |  |  | -                 |  |  | -                   |  |  |  | 501            | 
|U.S. government sponsored           |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|enterprise obligations              |  | -                |  |  | 36,577            |  |  | -                   |  |  |  | 36,577         | 
|State and municipal obligation      |  | -                |  |  | 79,446            |  |  | -                   |  |  |  | 79,446         | 
|All other                           |  | -                |  |  | 1,366             |  |  | 1,004               |  |  |  | 2,370          | 
|Total assets                        |  | $ 501            |  |  | 117,389           |  |  | 1,004               |  |  |  | 118,894        | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Liabilities                         |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Interest rate swap agreement        |  | $ -              |  |  | -                 |  |  | 1,330               |  |  |  | 1,330          | 
|Letters of credit                   |  | -                |  |  | -                 |  |  | 119                 |  |  |  | 119            | 
|Total liabilities                   |  | $ -              |  |  | -                 |  |  | 1,449               |  |  |  | 1,449          | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Measured on a non-recurring basis:  |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Assets                              |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Loans                               |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Loans-held-for-sale                 |  | $ -              |  |  | 7,661             |  |  | -                   |  |  |  | 7,661          | 
|Collateral dependent impaired loans |  | -                |  |  | -                 |  |  | 3,479               |  |  |  | 3,479          | 
|Other assets                        |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Other real estate owned             |  | -                |  |  | -                 |  |  | 2,616               |  |  |  | 2,616          | 
|Loan servicing assets               |  | -                |  |  | -                 |  |  | 1,858               |  |  |  | 1,858          | 
|Total assets                        |  | $ -              |  |  | 7,661             |  |  | 7,953               |  |  |  | 15,614         | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 

12


|                                      
|--------------------------------------
|(8) Fair Value Measurements(continued)




|                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The following table shows a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month period ended March 31, 2010 (in thousands).

Three months endedMarch 31,2010Securities available for sale, beginning of period$972Unrealized gain included in other comprehensive income32Securities available for sale, end of period$1,004


|                                                                                                                                                                                                                                                           
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                           
|The following table presents for each of the fair-value hierarchy levels the Companys assets and liabilities that were measured at fair value on a recurring basis at March 31, 2009, by caption on the Consolidated Balance Sheet (dollars in thousands).




|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                |  |  |  |  |  |  |  |  | 
|----------------------------------- |  | ---------------- |  |  | ----------------- |  |  | ------------------- |  |  |  | -------------- |  |  |  |  |  |  |  |  | 
|                                    |  |                  |  |  | Internal models   |  |  | Internal models     |  |  |  |                | 
|                                    |  | Quoted market    |  |  | with significant  |  |  | with significant    |  |  |  | Total carrying | 
|                                    |  | prices in active |  |  | observable market |  |  | unobservable market |  |  |  | value in the   | 
|                                    |  | markets          |  |  | parameters        |  |  | parameters          |  |  |  | Consolidated   | 
|                                    |  | (Level 1)        |  |  | (Level 2)         |  |  | (Level 3)           |  |  |  | Balance Sheet  | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Measured on a recurring basis:      |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Assets                              |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Securities available-for-sale       |  | $ -              |  |  | 99,707            |  |  | 724                 |  |  |  | 100,431        | 
|Total assets                        |  | $ -              |  |  | 99,707            |  |  | 724                 |  |  |  | 100,431        | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Liabilities                         |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Interest rate swap agreement        |  | $ -              |  |  | 1,829             |  |  | -                   |  |  |  | 1,829          | 
|Letters of credit                   |  | -                |  |  | 133               |  |  | -                   |  |  |  | 133            | 
|Total liabilities                   |  | $ -              |  |  | 1,962             |  |  | -                   |  |  |  | 1,962          | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Measured on a non-recurring basis:  |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Assets                              |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Loans                               |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Loans-held-for-sale                 |  | $ -              |  |  | 13,734            |  |  | -                   |  |  |  | 13,734         | 
|Collateral dependent impaired loans |  | -                |  |  | -                 |  |  | 5,491               |  |  |  | 5,491          | 
|Other assets                        |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|Other real estate owned             |  | -                |  |  | -                 |  |  | 3,034               |  |  |  | 3,034          | 
|Loan servicing assets               |  | -                |  |  | -                 |  |  | 1,101               |  |  |  | 1,101          | 
|Total assets                        |  | $ -              |  |  | 13,734            |  |  | 9,626               |  |  |  | 23,360         | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 
|                                    |  |                  |  |  |                   |  |  |                     |  |  |  |                | 

13


|                                                                                                                                
|--------------------------------------------------------------------------------------------------------------------------------
|(9) Securities                                                                                                                  
|                                                                                                                                
|Amortized cost and fair value of available-for-sale and held-to-maturity securities at March 31, 2010 are summarized as follows:
|                                                                                                                                




|                                                                                                               |   |                |  |                  |  |        |  |  |        
|-------------------------------------------------------------------------------------------------------------- | - | -------------- |  | ---------------- |  | ------ |  |  | -------
|                                                                                                               |   | March 31, 2010
|                                                                                                               |   |                |  |                  |  |        |  |  |        
|                                                                                                               |   |                |  | Gross Unrealized |  |        | 
|                                                                                                               |   | Amortized      |  |                  |  |        |  |  | Fair   
|                                                                                                               |   | Cost(1)        |  | Gains            |  | Losses |  |  | Value  
|                                                                                                               |   |                |  |                  |  |        |  |  |        
|Securities Available for Sale:                                                                                 |   |                |  |                  |  |        |  |  |        
|U.S. Treasury                                                                                                  | $ | 502            |  | -                |  | (1)    |  |  | 501    
|Government sponsored enterprise obligations                                                                    |   | 36,465         |  | 197              |  | (85)   |  |  | 36,577 
|State and municipal obligations                                                                                |   | 76.828         |  | 2,706            |  | (88)   |  |  | 79,446 
|Corporate obligations(1)                                                                                       |   | 1,228          |  | -                |  | (224)  |  |  | 1,004  
|Equity securities                                                                                              |   | 1,293          |  | 73               |  | -      |  |  | 1,366  
|                                                                                                               |   |                |  |                  |  |        |  |  |        
|Total securities Available for Sale                                                                            | $ | 116,316        |  | 2,976            |  | (398)  |  |  | 118,894
|                                                                                                               |   |                |  |                  |  |        |  |  |        
|(1)Amortized cost includes a $820,000 write-down for other-than-temporary impairment prior to January 1, 2010.
|                                                                                                               |   |                |  |                  |  |        |  |  |        
|Securities Held to Maturity:                                                                                   |   |                |  |                  |  |        |  |  |        
|Government sponsored enterprise obligations                                                                    | $ | 3,010          |  | -                |  | (14)   |  |  | 2,996  
|State and municipal obligations                                                                                |   | 154,390        |  | 5,887            |  | (95)   |  |  | 160,182
|Corporate obligations                                                                                          |   | 829            |  | 132              |  | -      |  |  | 961    
|                                                                                                               |   |                |  |                  |  |        |  |  |        
|Total securities Held to Maturity                                                                              | $ | 158,229        |  | 6,019            |  | (109)  |  |  | 164,139
|                                                                                                               |   |                |  |                  |  |        |  |  |        




|                                                                                                                                                                                                                                                                                                                                                                              
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                              
|The amortized cost and fair value of debt securities by years to maturity as of March 31, 2010, follow (in thousands). Maturities of amortizing securities are classified in accordance with the contractual repayment schedules. Expected maturities will differ from contracted maturities since issuers may have the right to call or prepay obligations without penalties.

Available for SaleHeld to MaturityAmortized Cost(1)Fair ValueAmortized CostFair ValueYearsUnder 1$12,14112,25525,14125,4071 to 562,18064,440106,946111,7615 to 1037,50237,87424,70425,41810 and over3,2002,9591,4381,553Total$115,023117,528158,229164,139  (1)Amortized cost includes a $820,000 write-down for other-than-temporary impairment prior to January 1, 2010.


|                                                                                                                                                                                                                                                           
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The following table presents gross unrealized losses and fair value of available-for-sale investments aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2010.




|                                            |   |                     |  |                |  |       |  |            |  |        |  |           
|------------------------------------------- | - | ------------------- |  | -------------- |  | ----- |  | ---------- |  | ------ |  | ----------
|March 31, 2010                              |   | Less than 12 months |  | Over 12 months |  | Total
|                                            |   | Fair                |  | Unrealized     |  | Fair  |  | Unrealized |  | Fair   |  | Unrealized
|Securities Available for Sale               |   | Value               |  | Losses         |  | Value |  | Losses     |  | Value  |  | Losses    
|U.S. Treasury                               | $ | 501                 |  | 1              |  | -     |  | -          |  | 501    |  | 1         
|Government sponsored enterprise obligations |   | 11,887              |  | 85             |  | -     |  | -          |  | 11,887 |  | 85        
|State and municipal obligations             |   | 4,445               |  | 83             |  | 871   |  | 5          |  | 5,316  |  | 88        
|Corporate obligations                       |   | -                   |  | -              |  | 824   |  | 224        |  | 824    |  | 224       
|Total temporarily impaired securities       | $ | 16,833              |  | 169            |  | 1,695 |  | 229        |  | 18,528 |  | 398       
|                                            |   |                     |  |                |  |       |  |            |  |        |  |           
|Securities Held to Maturity                 |   |                     |  |                |  |       |  |            |  |        |  |           
|Government sponsored enterprise obligations | $ | 2,996               |  | 14             |  | -     |  | -          |  | 2,996  |  | 14        
|State and municipal obligations             |   | 5,291               |  | 77             |  | 1,844 |  | 18         |  | 7,135  |  | 95        
|Total temporarily impaired securities       | $ | 8,287               |  | 91             |  | 1,844 |  | 18         |  | 10,131 |  | 109       
|                                            |   |                     |  |                |  |       |  |            |  |        |  |           

14


|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) Securities(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Substantially all of the unrealized losses on the Company's securities were caused by market interest rate changes from those in effect when the securities were purchased by the Company. With the exception of certain corporate obligations, discussed below, the contractual terms of these securities do not permit the issuer to settle the securities at a price less than par value. All securities rated by an independent rating agency carry an investment grade rating, except for certain corporate obligations. Because the Company does not intend to sell the securities and it believes it is not likely to be required to sell the securities before recovery of their amortized cost basis, which may be, and is likely to be, maturity, the Company does not consider these securities to be other than temporarily impaired at March 31, 2010, except as discussed below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|In the available-for-sale portfolio, the Company holds approximately $1.0 million of bank trust-preferred securities with an adjusted cost basis of $1.2 million.  These securities are backed by debt obligations of banks, with about $0.7 million of the securities backed by two of the largest U.S. banks and $0.3 million backed by a pool of banks debt in the form of a collateralized debt obligation (CDO). As a result of market upheaval, a lack of regular trading market in these securities, and bank failures, the fair value of these securities had fallen sharply in 2008 and continued to fall in the first half of 2009.  Until the second quarter of 2009, there had been no reduction in cash receipts (interest) on these securities; that is, they were current as to principal and interest.  However, the collateral underlying one CDO had diminished due to debt defaults and interest deferrals of some of the banks, and beginning in the June 2009 quarter, a portion of interest payments due had been deferred.  Management analyzed the expected underlying cash flows and the ability of the collateral to produce sufficient cash flows to support future principal and interest payments.  Managements analysis indicated these cash flows would be insufficient, and accordingly, the Company recognized other-than-temporary-impairment (OTTI) and wrote down this CDO by $0.7 million during the quarter ended September 30, 2008. An additional OTTI write-down of $0.1 million was taken in the quarter ended June 30, 2009.  Because all of the impairment was deemed to be credit related, the entire write-down had been charged to income with none charged to other comprehensive income.  Management intends to sell this security, but if the financial condition of the underlying banks continues to deteriorate, further write-downs could occur before its sale. The maximum potential write-down would be its current carrying value of less than $0.2 million.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

15


|                         
|-------------------------
|(9) Securities(continued)




|                                                                                                                                   
|-----------------------------------------------------------------------------------------------------------------------------------
|Amortized cost and fair value of available-for-sale and held-to-maturity securities at December 31, 2009 are summarized as follows:
|                                                                                                                                   




|                                                                                                               |   |                   |  |                  |  |        |  |  |        
|-------------------------------------------------------------------------------------------------------------- | - | ----------------- |  | ---------------- |  | ------ |  |  | -------
|                                                                                                               |   | December 31, 2009
|                                                                                                               |   |                   |  |                  |  |        |  |  |        
|                                                                                                               |   |                   |  | Gross Unrealized |  |        | 
|                                                                                                               |   | Amortized         |  |                  |  |        |  |  | Fair   
|                                                                                                               |   | Cost              |  | Gains            |  | Losses |  |  | Value  
|                                                                                                               |   |                   |  |                  |  |        |  |  |        
|Securities Available for Sale:                                                                                 |   |                   |  |                  |  |        |  |  |        
|U.S. Treasury                                                                                                  | $ | 502               |  | -                |  | (2)    |  |  | 500    
|U.S. government sponsored enterprise obligations                                                               |   | 35,473            |  | 192              |  | (382)  |  |  | 35,283 
|State and municipal obligations                                                                                |   | 77,742            |  | 3,126            |  | (52)   |  |  | 80,816 
|Corporate obligations(1)                                                                                       |   | 1,227             |  | -                |  | (255)  |  |  | 972    
|Equity securities                                                                                              |   | 1,322             |  | 32               |  | -      |  |  | 1,354  
|                                                                                                               |   |                   |  |                  |  |        |  |  |        
|Total securities Available for Sale                                                                            | $ | 116,266           |  | 3,350            |  | (691)  |  |  | 118,925
|                                                                                                               |   |                   |  |                  |  |        |  |  |        
|(1)Amortized cost includes a $820,000 write-down for other-than-temporary impairment prior to January 1, 2010.
|                                                                                                               |   |                   |  |                  |  |        |  |  |        
|Securities Held to Maturity:                                                                                   |   |                   |  |                  |  |        |  |  |        
|U.S. government sponsored agencies obligations                                                                 | $ | 1,015             |  | 4                |  | -      |  |  | 1,019  
|State and municipal obligations                                                                                |   | 157,414           |  | 6,673            |  | (75)   |  |  | 164,012
|Corporate obligations                                                                                          |   | 754               |  | 128              |  | -      |  |  | 882    
|                                                                                                               |   |                   |  |                  |  |        |  |  |        
|Total securities Held to Maturity                                                                              | $ | 159,183           |  | 6,805            |  | (75)   |  |  | 165,913
|                                                                                                               |   |                   |  |                  |  |        |  |  |        

The following table presents the fair value of securities with gross unrealized losses and at December 31, 2009, excluding those for which other-than-temporary-impairment charges have been taken, aggregated by category and length of time that individual securities have been in a continuous loss position.


|                                                 |   |                     |  |                |  |       |  |            |  |        |  |  |            | 
|------------------------------------------------ | - | ------------------- |  | -------------- |  | ----- |  | ---------- |  | ------ |  |  | ---------- | 
|                                                 |   | Less than 12 months |  | Over 12 months |  | Total
|                                                 |   | Fair                |  | Unrealized     |  | Fair  |  | Unrealized |  | Fair   |  |  | Unrealized
|Securities Available for Sale                    |   | Value               |  | Losses         |  | Value |  | Losses     |  | Value  |  |  | Losses    
|U.S. Treasury                                    | $ | 500                 |  | 2              |  | -     |  | -          |  | 500    |  |  | 2         
|U.S. government sponsored enterprise obligations |   | 20,592              |  | 382            |  | -     |  | -          |  | 20,592 |  |  | 382       
|State and municipal obligations                  |   | 4,586               |  | 52             |  | -     |  | -          |  | 4,586  |  |  | 52        
|Corporate obligations                            |   | -                   |  | -              |  | 792   |  | 255        |  | 792    |  |  | 255       
|                                                 |   |                     |  |                |  |       |  |            |  |        |  |  |           
|Total temporarily impaired securities            | $ | 25,678              |  | 436            |  | 792   |  | 255        |  | 26,470 |  |  | 691       
|                                                 |   |                     |  |                |  |       |  |            |  |        |  |  |           
|Securities Held to Maturity                      |   |                     |  |                |  |       |  |            |  |        |  |  |           
|State and municipal obligations                  | $ | 5,675               |  | 63             |  | 1,808 |  | 12         |  | 7,483  |  |  | 75        
|                                                 |   |                     |  |                |  |       |  |            |  |        |  |  |           
|Total temporarily impaired securities            | $ | 31,353              |  | 499            |  | 2,600 |  | 267        |  | 33,953 |  |  | 766       




|                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|-------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(10) Accounting Pronouncements Implemented in the Current Year
|                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                               | We implemented the following Accounting Standards Updates (ASU) as of January 1, 2010 with no impact to our financial condition or results of operations. In some instances, expanded disclosures were implemented:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                               | ASU 2009-16,Accounting for Transfers of Financial Assets.ASU 2009-16 amends the guidance in Topic 860-10, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. It eliminates the QSPE concept, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies the derecognition criteria, revises how retained interests are initially measured, and removes the guaranteed mortgage securitization recharacterization provisions.                                                                                                                                                                                                       
|                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                               | ASU 2009-17,Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. ASU 2009-17 amends the guidance related to the consolidation of variable interest entities (VIE). It requires reporting entities to evaluate former Qualifying Special Purpose Entities (QSPEs) for consolidation, changes the approach to determining a VIEs primary beneficiary from a quantitative assessment to a qualitative assessment designed to identify a controlling financial interest, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a VIE. It also clarifies, but does not significantly change, the characteristics that identify a VIE.
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16


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|(10) Accounting Pronouncements Implemented in the Current Year(continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
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|ASU 2010-06,Fair Value Measurements and Disclosures (Topic 820).ASU 2010-06was issued in January 2010. Subtopic 820-10 has been amended to require new disclosures: (a) transfers in and out of Levels 1 and 2 should be disclosed separately including a description of the reasons for the transfers, and (b) activity in Level 3 fair value measurements shall be reported on a gross basis, including information about purchases, sales, issuances, and settlements.  The amendments also clarify existing disclosures relating to disaggregated reporting, model inputs, and valuation techniques. The new disclosures were effective for us in the first quarter of 2010, except for the gross reporting of Level 3 activity which is effective beginning in the first quarter of 2011.
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|ASU  2010-09,Subsequent Events (Topic 855).This ASU amends FASB ASC Topic 855, Subsequent Events(originally issued as FASB Statement No. 165, Subsequent Events), so that SEC filers, as defined in the ASU, no longer are required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. Entities that are not SEC filers must continue to disclose the date through which subsequent events have been evaluated, including situations in which the financial statements are revised for a correction of an error or retrospective application of U.S. GAAP. The Company is an SEC filer.                                                                                                                          




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|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|The following is our discussion and analysis of certain significant factors which have affected the Company's financial condition and operating results during the periods included in the accompanying condensed consolidated financial statements. This discussion and analysis supplements our Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Critical Accounting Estimate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|We are instructed, pursuant to SEC guidance, to evaluate and disclose those accounting estimates that we judge to be critical - those most important to the portrayal of the Company's financial condition and results, and that require our most difficult, subjective and complex judgments. We consider the Allowance for Loan Losses (allowance) as critical given the inherent uncertainty in evaluating the levels of the allowance required to reflect credit losses in the portfolio.  We also consider the valuation of investment securities for Other-Than-Temporary-Impairment (OTTI) as critical in the current market environment given the lack of an active and liquid market for a small number of our holdings. There has been no change in our methodology for estimating the allowance or securities valuation, which is fully described within the 2009 Annual Report.
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Financial Overview                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|We are pleased to report net income of $3.5 million for the three-months ended March 31, 2010 in line with the same period in 2009.  Diluted earnings per share were $7.35 and $7.38 for these periods, respectively.  Reflecting franchise growth, earnings were positively impacted by a $2.4 million (13.1%) growth in total revenues (net interest income and non-interest income). Operating expenses increased $1.1 million (9.0%) with FDIC insurance expenses accounting for about 30% of expense growth.  Negatively impacting 2010s results was a $1.3 million increase in provision for loan losses over 2009.                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Balance sheet growth was seen in Federal Funds Sold funded by an increase in municipal deposits.   All other interest-earning assets--loan and investments--declined since year-end 2009 along with non-municipal deposits.  Off-balance sheet, the growth in market value of Assets under Administration continued recent quarterly trends increasing $54.6 million or 3.3% from year-end. This is reflective of both growth in underlying accounts  book value increased $8.0 million -- and improved equity market conditions.                                                                                                                                                                                                                                                                                                                                                          
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|For the coming quarter we expect both the loan and investment portfolios to grow as well as retail and commercial deposits, reversing this quarters trend. We expect operating results to improve due to continued revenue growth and our expectation of a lower provision for loan losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                




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|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Financial Condition (three months ended March 31, 2010)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|At March 31, 2010, total assets were $1,613.1 million, up $47.1 million or 3.0% from $1,566.0 million at December 31, 2009. Cash and cash equivalents (cash, balances with other financial institutions, and federal funds sold) grew $56.4 million to $134.6 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The securities portfolio fell $1.0 million from December 2009. During the first quarter, in addition to scheduled maturities, we saw an increase in securities called. That is issuers repaid debt obligations before their stated maturities.  The continuing low interest rate environment has made it beneficial for issuers to call higher cost debt and replace with lower cost debt.  Conversely, with these investments called, we are finding fewer investments with attractive terms (rate, maturity, credit quality) in which to invest. Accordingly, we purchased fewer investments in the quarter with the uninvested funds held in Federal Funds Sold.  During the second quarter of 2010 we expect more securities to be called, but we cannot accurately predict the volume.  We will also experience seasonal maturities of state and municipal obligations.  We expect to reinvest funds into new investments, but the portfolios total size could shrink further if attractive opportunities are not available.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The securities portfolio consists principally of New York State municipality obligations (83.6% of total at March 31, 2010) with the remainder mostly in US Treasury and government sponsored enterprise obligations.  The total fair value of both the available-for-sale and the held-to-maturity securities portfolios exceeded amortized cost as a result of a decrease in mid- and long-term market rates since the securities purchase. In both portfolios we hold some securities with fair values below their amortized cost and concluded there are none considered to be other than temporarily impaired in this quarter.                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Gross loans decreased $9.1 million to $1,150.8 million. The commercial portfolios decreased $7.9 million due to lower originations and higher paydowns on existing loans, principally in the commercial and industrial category. The residential loan portfolios increased $6.4 million reflecting the impact of the continuing mortgage refinances and higher home purchases due to the existing home buyers tax credit which expires in April 2010. The consumer loan portfolios decreased $8.4 million for the quarter principally due to lower originations of indirect automobile loans.  Several local and national-based banks have re-entered the indirect lending business providing interest rates far below our current offering rates. In the coming quarter we expect all portfolios to grow with higher originations than those experienced in this quarter.  Please see the section entitled Impaired Loans and Non-Performing Assets for a discussion of credit quality.                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Total deposits at March 31, 2010, were $1,427.6 million and were up $49.9 million from December 31, 2009.  Growth occurred in interest bearing demand, principally driven by retail customers, while growth in savings and money market accounts came from municipal customers.  We experienced a decline in demand accounts principally driven by commercial customers.  We also experienced a decline in time deposits principally driven by retail customers, who shifted maturing time deposit funds to interest bearing demand accounts. Next quarter we expect both retail and commercial customer account growth mostly in demand, savings and money market accounts.  We expect municipal deposits to remain steady or possibly decline somewhat depending upon New York States fiscal position.                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Total borrowings declined $1.2 million from the installment payment of the GVT purchase. We had no overnight borrowings during the quarter, and had no new long-term borrowings. We do not expect borrowings to change in the coming quarter, because the strength of deposit inflows should be sufficient to fund the increases we project for the loan and securities portfolios.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Results of Operations (three months ended March 31, 2010)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Net interest income increased $1.6 million or 12.2% for the quarter over the same quarter in 2009, reflecting the positive impact of the balance sheet's year-over-year growth and a widening interest rate margin and spread. With general interest rates remaining low we have seen both asset yields and liability costs fall as maturing products are replaced at lower interest rates.  Given the general steepness of the yield curve, this downward pricing is impacting deposit costs more favorably than asset yields, thus widening our interest rate spread and margin.                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|On a tax-equivalent basis, compared to the same quarter in 2009, the overall growth in interest-earning assets and interest-bearing liabilities had a $0.8 million positive impact on net interest income, and the change in rates had a $0.8 million positive impact. Net interest margin was 4.17% for the first quarter of 2010, up from 4.04% during the same quarter in 2009.  As we discussed in our 2009 Annual Report, we expect net interest income to increase for the year due to our balance sheet growth, but we expect little positive impact from rate changes given the interest rate environment and our anticipation of a higher rate environment towards the second half of the year. Summary tax-equivalent net interest income information for the three-month periods ended March 31, 2010 and 2009 follows (dollars in thousands).                                                                                                                                                                         

20102009AnnualizedAnnualizedAverageAverageAverageAverageBalanceInterestRateBalanceInterestRateTotal interest-earningassets$1,483,20519,4925.26%1,372,91219,5375.69%Total interest-bearingliabilities$1,286,7074,0461.26%1,181,9935,6831.92%Interest rate spread4.00%3.77%Net interest margin$15,4464.17%$13,8544.04%


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|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|The provision for loan losses was $2.4 million for the quarter, about double the same quarter last year. The provision in the 2010 quarter was mostly driven by a decline in asset quality indicators (past-due and nonaccrual loans, impaired loans, current and historical net-charge-offs), which led to the need for a higher allowance for loan losses at quarter end.  A summary of the allowance for loan losses and net charge-offs for the year to date is presented in a following section.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Total other income for the quarter ended March 31, 2010 increased 15.3% to $6.4 million from $5.6 million in 2009.  Service charges on deposit accounts increased 25.6% reflecting customer usage of our Courtesy Limit product launched in late 2009.  Account maintenance service charges were down year-on year, with higher deposit balances offsetting these charges. On the other hand, debit and ATM card revenues continued to increase (up 17.7% year-on-year) with consumers shifting from cash and checks to electronic transactions.  We expect second quarter service charge revenue to be as strong as this quarters.  However, revenues in the second half of the year may be substantially lower due to the impact of recent federal regulations limiting financial institutions sales of overdraft protection products. We have a cross-functional team of employees working tirelessly to modify our Courtesy Limit offering to be the best solution for our current and future customers within the regulatory framework.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Trust and investment services income increased $0.5 million or 22.1% for the quarter compared to last year. Total assets under administration have grown markedly year on year due to both organic growth in underlying accounts and higher market value of assets within the accounts resulting from improved equity and bond markets.  We anticipate organic and market value growth to continue into the coming quarters, but year-over-year growth rates should be less than 10%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         




|                                                
|------------------------------------------------
|Assets Under Administration
as of
(in thousands)




|                                            |   |           |  |              |  |          
|------------------------------------------- | - | --------- |  | ------------ |  | ---------
|                                            |   |           |  |              |  |          
|                                            |   | March 31, |  | December 31, |  | March 31,
|                                            |   | 2010      |  | 2009         |  | 2009     
|                                            |   |           |  |              |  |          
|Cost basis of assets under administration   | $ | 1,599,944 |  | 1,591,943    |  | 1,556,616
|                                            |   |           |  |              |  |          
|Market value of assets under administration | $ | 1,706,409 |  | 1,651,777    |  | 1,381,355
|                                            |   |           |  |              |  |          




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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|With the rapid fall in mortgage interest rates during 2009 we saw the largest refinance boom in over five years.  By the end of 2009, rates had settled and slightly increased into 2010.  This increase in rates led to a lower volume of refinance loans in 2010 compared to 2009.  On the other hand, the federal governments The Worker, Homeownership, and Business Assistance Act of 2009sextension of the tax creditto April 2010 led to higher demand for purchase money mortgages.  Our total closings for the quarter fell nearly 40% compared to the same quarter in 2009 due to a lower volume of refinance loans.  Corresponding with this decline in volume, the net gain on loans sold fell just over 50% when compared to 2009.  We expect closings in the coming quarter to be near this quarters.  However we expect purchase money mortgage closings to slow during the last half of the year following the expiration of the tax credit and refinance mortgages to slow due to our anticipation of higher market interest rates.




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|----------------------------------------------------------------------------------------------------
|CNB Mortgage Closed Loans by Type
For the three-month periods ended March 31,
(dollars in thousands)

20102009Purchase money mortgages$23,53518,550Refinance mortgages22,30355,453Total mortgage closings$45,83874,003Percentage of loans retained in portfolio26.8%11.5%


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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Operating expenses increased 9.0% or $1.1 million for the quarter ended March 31, 2010, over the same three-month period in 2009. However, as discussed above, $0.3 million of this increase was due to an increase in FDIC insurance premiums. Excluding this, operating expenses would have shown about a 7% increase, reflective of our franchise growth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Salaries and benefits increased about 10% reflecting a higher headcount, incumbent salary increases, and higher benefit costs. Occupancy costs have increased with the addition of new offices, including our newest banking office at Alexander Park in the City of Rochester, New York.  Marketing and public relations expenses have increased due to promotional activities in Sarasota, Florida, and a higher level of charitable contributions to not-for-profit agencies in our communities.  Other real estate owned expenses were substantially lower than in 2009 when we incurred high expenses principally associated with payment of delinquent property taxes due on the properties owned.  For the second quarter of 2010 we expect to see similar growth rates for all categories as in this quarter except FDIC insurance expense should be comparatively lower due to a $0.7 million one-time assessment in 2009.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The quarterly effective tax rate was 26.2% in 2010 and 25.3% in 2009.  The change in the effective rate is attributable to the ratio of tax-exempt income to total income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
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|Liquidity                                                                                                                                                                                                                                                                                                                                                                                                                                                  
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|There has been no material change from December 31, 2009, in our available sources of wholesale liquidity from either the Federal Home Loan Bank of New York (FHLB) or the Federal Reserve Bank of New York.                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|For the three months ended March 31, 2010, cash flows from all activities provided $56.4 million in net cash and cash equivalents versus $76.3 million for the same period in 2009.  In both years the principal source of cash inflows was deposits.                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Net cash provided by operating activities was $3.1 million in 2010, while in 2009 operating activities used $8.7 million of net cash.  Both the largest source and use of operating cash in 2010 and 2009 were loans held for sale with activity in 2010 about half that of 2009. Excluding the effect of loans held for sale, operating activities provided $4.1 million of cash for the three-month period in 2010 and used $3.0 million of cash in 2009.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|For the first quarter of 2010, investing activities provided $6.9 million in cash and equivalents and used $5.0 million in 2009. Major investing activities included net securities purchases as well as loan originations.  Net loan activity was lower in 2010 than in 2009 resulting in a net cash inflow instead of the typical net cash outflow for investing activities.                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Cash provided by financing activities was $46.3 million in 2010 versus $90.0 million in 2009.  The main contributor in both years was deposit activity with 2010s activity about half of 2009s.                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|For the remainder of 2010, cash for growth is expected to come primarily from operating activities and customer deposits.  Customer deposit growth is mainly expected to come from Monroe County retail sources and Ontario County municipalities.                                                                                                                                                                                                         




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|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Contractual obligations and commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Less material, but a part of our ongoing operations, and expected to be funded through normal operations, are liquidity uses such as lease obligations, long-term debt repayments, and other funding commitments. There has been no material change from the information disclosed in our 2009 Annual Report.                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Also, as discussed more fully in our 2009 Annual Report, in the normal course of business, various commitments and contingent liabilities are outstanding. Because many commitments and almost all letters of credit expire without being funded in whole or in part, the notional amounts are not estimates of future cash flows.  The following table presents the notional amount of the Company's significant commitments. Most of these commitments are not included in the Company's consolidated balance sheet (in thousands).

March 31, 2010December 31, 2009NotionalNotionalAmountAmountCommitments to extend credit:Commercial lines of credit$112,956104,423Commercial real estate and construction$20,54523,069Residential real estate at fixed rates$5,0115,824Home equity lines of credit$119,224113,982Unsecured personal lines of credit$17,03115,937Standby and commercial letters of credit$7,9648,298Commitments to sell real estate loans$7,6616,657


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|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|In October 2009, the Bank was served with a Summons and Complaint filed in United States District Court for the Western District of New York in an action seeking class action status alleging that the Bank violated the Electronic Funds Transfer Act, 15 U.S.C. §1693 et seq. and its implementing regulations 12 C.F.R §205 et seq. by failing to post a notice on or at two of its automatic teller machines advising consumers who transact an electronic funds transfer of the fact that a fee may be imposed for the transaction and the amount of the fee.  The plaintiff is seeking statutory damages on behalf of the class and attorneys fees.  Damages are capped by statute at $500,000, exclusive of costs and fees.  On November 24, 2009, the Bank by its counsel moved to dismiss the class action allegations.  Although settlement negotiations are ongoing, in the event a settlement is not achieved, the Bank intends to defend the matter vigorously. No estimate of potential loss to be incurred by the Company can be made by management at this time.
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|Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Under the regulatory framework for prompt corrective action, as of March 31, 2010, the Company and Bank are categorized as "well-capitalized."  This is unchanged from December 31, 2009, and management anticipates no change in this classification for the foreseeable future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
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20


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|----------------------------------------------------------------------------------------------------------------------------------
|Credit-Related Information

Allowance for Loan Losses and Net Charge-offs                                                         
|                                                                                                                                  
|Changes in the allowance for loan losses for the three-month periods ended March 31, 2010, and 2009 follow (dollars in thousands):

March 31,20102009Balance at beginning of period$14,23211,992Provision for loan losses2,4251,155Loans charged off(2,489)(464)Recoveries on loans previously charged off310143Balance at end of period$14,47812,826Allowance as a percentage of total period end loans1.26%1.16%Allowance as a percentage of non-performing loans58.6%112.0%Net charge-offs to average loans (annualized)0.76%0.12%


|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                          | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | 
|The provision for loan losses for the three-month period ended March 31, 2010 was significantly higher than the same period in 2009 as discussed in the Results of Operations.  The balance in the allowance and the provision for loan losses have increased with growth in the total loan portfolio from 2009 and negative changes in asset quality. As discussed more fully in the Annual Report, we determine the amount necessary in the allowance for loan losses based upon a number of factors.  Based on our current assessment of the loan portfolio, we believe the amount of the allowance for loan losses at March 31, 2010, is adequate at $14.5 million. However, should the trend of higher non-performing and non-accrual loans continue, or should we experience further declines in customers credit quality measured through loan impairment or internal loan classifications, we may need a higher allowance for loan losses as a percentage of total loans.  This would necessitate an increase to the provision for loan losses.  Net charge-offs to average loans increased in the quarter to 76 basis points in 2010 from 12 basis points in 2009. This is a historically high net charge-off rate for us and was driven by a large charge-off of one impaired commercial loan with an impaired reserve and a number of smaller consumer loans.  We do not expect a continuation of this high charge-off rate in the coming quarters.
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Non-Performing Assets and Impaired Loans




|                       | 
|---------------------- | 
|Non-Performing Assets 
|Non-Performing Assets 
|(Dollars in thousands)

March 31,December 31,March 31,201020092009Loans past due 90 days or more and accruing:Commercial and industrial$20242265Real estate-commercial369--Real estate-residential407290300Consumer and other107375150Total past due 90 days or more and accruing1,0851,087515Loans in non-accrual status:Commercial and industrial8,85010,2827,098Real estate-commercial12,4975,6563,138Real estate-residential2,7052,609697Consumer and other---Total non-accrual loans24,05218,54710,933Total non-performing loans25,13719,63411,448Other real estate ownedCommercial547603639Residential2,0692,1662,395Total other real estate owned2,6162,7693,034Total non-performing assets$27,75322,40314,482Non-performing loans to total period-end loans2.19%1.70%1.05%Non-performing assets to total period-endloans and other real estate2.42%1.94%1.32%


|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|There were no troubled debt restructurings during these periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Total non-performing loans increased $5.1 million to $24.7 million at March 31, 2010 from $19.6 million at December 31, 2009 and $11.4 million at March 31, 2009.  The increase in non-performing loans during the quarter has come mainly in commercial real estate loans and was principally due to two large commercial relationships discussed in the Annual Report.  The loans underlying these relationships are considered impaired, but are sufficiently collateralized such that no impairment reserve is necessary.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Non-performing residential real estate loans have remained steady from year-end 2009 with some new loans becoming non-performing and others improving and others in foreclosure. The increase from March 31, 2009 was a result of a foreclosure tied to one real estate investor.  Given the current economic climate, and growth in non-performing loans, we can expect additional foreclosures in the coming periods.                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|The percentage of non-performing loans to total loans has risen substantially over the last twelve months.  While this increase is large, it is near the peak percentage reached by the Company in the last recession earlier in the decade of 1.93%.                                                                                                                                                                                                                                                                        




|                                                                                                                                                                   
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Impaired Loans                                                                                                                                                     
|Information on impaired loans for the three-month periods ended March 31, 2010, and 2009 and twelve months ended December 31, 2009, follows (dollars in thousands):

Three MonthsTwelve MonthsThree MonthsEndedEndedEndedMarch 31,December 31,March 31,201020092009Recorded investment at period end$24,05218,54710,933Impaired loans as percent of total loans2.10%1.61%1.00%Impaired loans with related allowance$3,4797,7715,491Related allowance$1,3342,7991,472Average investment during period$21,30014,3069,851Interest income recognized during periodn/mn/mn/mn/m  not meaningful


|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|As noted in the Non-Performing Assets section, we experienced a significant increase in non-performing loans during the period. This increase resulted from a small number of large commercial loans becoming past due on scheduled principal and interest payments. Impaired loans with a related reserve have declined since year end, and reserves for impaired loans declined to $1.3 million at March 31, 2010 versus $2.8 million at December 31, 2009 and $1.5 million at March 31, 2009. The balance of impaired loans with a related reserve declined due to a combination of (1) improved financial position of loans, and (2) charge-offs of loans.  These charge-offs also reduced the related allowance. We believe the trend of impaired loans, the level of impaired loans, and the related reserve are consistent with current economic conditions. Typically the longer an economic recession continues, the more likely borrowers will experience financial difficulties due to constraints on their income and cash flow.  These constraints make it more difficult for them to timely pay their debt obligations, resulting in higher non-accrual and impaired loans for us.  We see signs of improving regional economic conditions, but their positive impact will take time to be realized.  We can anticipate more loans, though we know of none specifically that become impaired in the coming quarters.  Concurrently, we expect some loans, which are currently impaired, to improve over this same period. Accordingly we do not expect the level of impaired loans to substantially decline during the June 30, 2010 quarter.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|At March 31, 2010 we identified a total of 66 loans totaling $24.1 million that were considered impaired.  Of these, six, with a balance of $3.5 million outstanding had specific reserves associated with them amounting to $1.3 million. These reserves are included in the total allowance for loan losses.  Five of the loans totaling $6.5 million are associated with two commercial and industrial loans to companies in the food and beverage industry originated between 2005 and 2007 for which we have made specific reserves of $0.9 million.  During the first quarter of 2010, as discussed above, we charged-off $1.6 million of these loans, on which we had impairment reserves. These companies market their products throughout the United States.  Their businesses have been negatively impacted by the recession, and their operating cash flow has been insufficient to support principal and interest payments on our loans.  Three of the loans with no impairment reserves (due to adequate collateralization) totaling $6.4 million are in the recreation business. These are local companies. They also have been negatively impacted by the recession, experiencing a decline in user revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Our local economy continues to reflect some of the same trends we are seeing in the national and state economies, but our statistics are better than both. As reported by the Bureau of Labor Statistics the Rochester region unemployment was about 8.2% at the end of March 2010, up slightly from 8% at the end of last year.  Since March 2009, the economy has lost roughly 1.4% of non-farm jobs.  Overall, employment has retreated from about 500,700 in the spring of 2009 to about 493,900 this spring. Business conditions are also comparatively slow in the region, again, reflecting the recession.  However, recent reports from the Federal Reserve Bank of New York indicate manufacturing conditions are improving and the six month forward outlook is positive. These unemployment and other economic trends have impacted our allowance calculation by increasing the dollar amount of reserve weve allocated for economic condition factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
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22


|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                                                                                                                                                                                             | Legislative and Fiscal Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                             | The U.S. Congress has been debating bills regarding the regulation and management of financial products, services, and companies.  This is commonly referred to as Financial Overhaul legislation.  The House has passed legislation.  The Senate continues to debate its version of the legislation.  What a final bill for the Presidents signature might look like, and whether the President would sign the final bill into law is unknown at this time.  Because of this, we cannot at this time predict what the impact to the Company will be.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                             | The State of New York is five weeks into its new fiscal year without a completed, approved, budget.  Since April 1, 2010, the State budget has been managed through weekly Extender bills introduced by the Governor.  The Governors bills have been austerity budgets, reducing funding to many programs and services throughout the state.  In addition, in order to conserve and manage cash flow, the Comptroller of New York has withheld payments to various service providers, agencies, municipalities and school districts.  To date lack of a budget and the restriction on cash flows has not had an impact on the Company. However, should this situation continue, there may be business consequences, for example: (a) reduced inflows or large outflows from municipal deposit accounts, (b) increased borrowings from municipalities, which may impact their credit ratings, cost of borrowings, or ability to timely repay existing debts, (c) for those reliant on State funding: for-profit, not-for-profit, and individual borrowers inability to timely pay debts to the Company, or withdrawals from deposit accounts to fund their needs.
|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                             | Recent Accounting Standards to be implemented in Future Periods                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                             | ASU No. 2010-11,Derivatives and Hedging (Topic 815).This ASU clarifies that embedded credit-derivative features related only to the transfer of credit risk in the form of subordination of one financial instrument to another are not subject to potential bifurcation and separate accounting. Other embedded credit-derivative features are required to be analyzed to determine whether they must be accounted for separately. The ASU provides guidance about whether embedded credit-derivative features in financial instruments issued by structures such as collateralized debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and separate accounting. This ASU is effective for the Company on July 1, 2010. Management has not evaluated whether and how this statement may impact the Companys financial condition or results of operations.                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                             | Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                             | Interest Rate Sensitivity and Asset / Liability Management Review                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|As set forth in our 2009 Annual Report, we predicted market interest rates for 2010 would remain fairly steady for most of the year at current historic lows with an increase in the second half of the year.  We have not changed our outlook at this time.
|                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                                                                                                                                                                                                                                             | We measure net interest income at-risk by estimating the changes in net interest income resulting from instantaneous and sustained parallel shifts in interest rates of plus- or minus- 200 basis points over a twelve-month period.  This provides a basis or benchmark for our Asset/Liability Committee to manage our interest rate risk profile. Presented below is a table showing our interest rate risk profile at March 31, 2010 and December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

EstimatedChanges in InterestPercentage Change inRatesFuture Net Interest Income(basis points)20102009+200-%(1)%+100(3)(3)No change---100(1)(1)-200(2)(3)


|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Our model suggests our interest rate risk has decreased slightly from year end for a change in rates. Our exposure to increasing rates has decreased, because, although if interest rates move upward our liability costs (deposits and borrowings) will rise faster than our asset yields, those liabilities will be impacted by interest rate ceilings which we will implement as necessary.  Our exposure has also decreased in a downward rate scenario. While we have less opportunity to lower liability costs further, asset yields will hit floor rates with a large downward change in rates.




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|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Item 4. Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of March 31, 2010, that the Company's disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Also, there have been no changes in the Company's internal control over financial reporting that occurred during the first quarter of 2010, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.                                                                                                                                                                                                                                                                                        




|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 
|------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                     | PART II -- OTHER INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                     | CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                     | Item 1.  Legal proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                     | See Contractual obligation and commitments on page 20.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                     | Item 1A.  Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                     | There has been no material change to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                     | Item 2.Unregistered Sales of Equity Securitiesand Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                                                                     | The following table sets forth, for the monthly periods indicated in 2010, the total number of shares purchased and the price paid per share by the Canandaigua National Corporation for treasury and by subsidiaries of the Company for compensation, including the Arthur S. Hamlin award.  Each of these entities is considered an affiliated purchaser of the Company under Item 703 of Regulation S-K.  The Company and subsidiaries purchase were determined based on the most recent price established in the sealed-bid auction immediately preceding the purchase. Purchases occur on an ad-hoc basis when shares become available in the marketplace and the Company is interested in purchasing these shares for the corporate purposes discussed above. Sales occur when corporate needs require the use of shares and there are none available in the market at the time.
|                                                                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Purchases and Sales of Equity Securities for the year to date through March 31, 2010

TotalAverageSharesPrice PerDatePurchased (#)Share ($)PurposeMarch 2010(110)$ 341.46Compensation


|                                                                                                                                                                                                                                                                                                                          |                                          | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | 
|                                                                                                                                                                                                                                                                                                                          | Item 3.  Defaults Upon Senior Securities
|                                                                                                                                                                                                                                                                                                                          |                                         
|                                                                                                                                                                                                                                                                                                                          | None                                    
|                                                                                                                                                                                                                                                                                                                          |                                         
|Item 5.  Other information                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                         
|Unresolved Staff Comments                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                         
|On February 1, 2010, the Company responded to a series of staff comments issued in December 2009.  Management believes its response has resolved all staff comments, however, as of the date of this filing, this has not been confirmed by the Commission. Management does not believe any of the matters were material.

24


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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Common Stock Trades                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|While the Company's stock is not actively traded, it trades periodically in sealed-bid public auctions administered by the Banks Trust Department for selling shareholders at their request. It is not listed on a national securities exchange. Due to the limited number of transactions, the quarterly high, low and weighted average sale prices may not be indicative of the actual market value of the Company's stock. The following table sets forth a summary of information about the Company's common stock during each period for transactions that were administered by the Banks Trust Department:

Date of TransactionNumber of
Shares
SoldAverage
Price
Per ShareHighest Accepted
BidLowest
Accepted
BidMarch 18, 2010760$ 341.46$ 367.00$ 335.00


|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Although the Companys common stock is not listed with a national securities exchange, it trades sporadically on the Over-the-Counter Bulletin Board System. The following table sets forth a summary of information about these trades. Due to the limited number of transactions, the quarterly high, low and weighted average sale prices may not be indicative of the actual market value of the Company's stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|The OTC Bulletin Board® (OTCBB) is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (OTC) equity securities. An OTC equity security generally is any equity that is not listed or traded on NASDAQ® or a national securities exchange. The OTCBB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with The NASDAQ Stock MarketSM.  Investors must contact a broker/dealer to trade OTCBB securities. Investors do not have direct access to the OTCBB service. The Securities and Exchange Commission's (SEC's) Order-Handling Rules which apply to NASDAQ-listed securities do not apply to OTCBB securities.  The OTCBB market quotations set forth below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

PeriodNumber of
Shares
TransactedQuarterly
Average
Sales PriceQuarterly
High
Sales PriceQuarterly Low
Sales Price1st Quarter, 2010452$ 309.68$ 330.00$ 280.00   25


|                 
|-----------------
|Item 6.  Exhibits




|        |                                                                                                                                                                                                 |  |                                                                       
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------
|        | Exhibit                                                                                                                                                                                         |  | Where exhibit may be found:                                           
|        |                                                                                                                                                                                                 |  |                                                                       
|(3.i)   | Certificate of Incorporation of the Registrant, as amended                                                                                                                                      |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2008 
|        |                                                                                                                                                                                                 |  |                                                                       
|(3.ii.) | By-laws of the Registrant, as amended                                                                                                                                                           |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2008 
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.1)  | Canandaigua National Corporation Stock Option Plan, as amended                                                                                                                                  |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2008 
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.2)  | Canandaigua National Corporation Incentive Stock Plan, as amended                                                                                                                               |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2008 
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.3)  | The Canandaigua National Bank and Trust Company Supplemental Executive Retirement Plan #1                                                                                                       |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2008 
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.4)  | The Canandaigua National Bank and Trust Company Supplemental Executive Retirement Plan #2                                                                                                       |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2008 
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.5)  | Canandaigua National Corporation Employee Stock Ownership Plan                                                                                                                                  |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2009 
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.6)  | Employment Agreement of Joseph L. Dugan dated November 20, 2000                                                                                                                                 |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2009 
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.7)  | Stock Purchase Agreement, dated September 6, 2007, by and among Canandaigua National Corporation, Genesee Valley Trust Company, and  the Shareholders of Genesee Valley Trust Company           |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2009*
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.8)  | Asset purchase Agreement, dated December 22, 2008, by and among The Canandaigua National Bank and Trust Company, Greentree Capital Management, LLC, Peter J. Gaess, and T.C. Lewis              |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2009*
|        |                                                                                                                                                                                                 |  |                                                                       
|(10.9)  | Amendment to Asset purchase Agreement, dated December 31, 2008, by and among The Canandaigua National Bank and Trust Company, Greentree Capital Management, LLC, Peter J. Gaess, and T.C. Lewis |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2009*
|        |                                                                                                                                                                                                 |  |                                                                       
|(11)    | Calculations of Basic Earnings Per Share and Diluted Earnings Per Share                                                                                                                         |  | Note 3 to the Condensed Consolidated Financial Statements             
|        |                                                                                                                                                                                                 |  |                                                                       
|(24)    | Form of Power of Attorney for filing Forms
3, 4, 5 and 13 under 1934 Act                                                                                                                        |  | Filed as an Exhibit to Form 10-K for the year ended December 31, 2009 




|       |                                                                                                                                                                                                                                                |  |               
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|(31.1) | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                   |  | Filed Herewith
|       |                                                                                                                                                                                                                                                |  |               
|(31.2) | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                   |  | Filed Herewith
|       |                                                                                                                                                                                                                                                |  |               
|(32)   | Certification of Chief Executive Officer and Chief Financial Officer under 18 U.S.C. Section 1350 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                    |  | Filed Herewith
|       |                                                                                                                                                                                                                                                |  |               
|       | *The Company has requested the Securities and Exchange Commission to grant confidential treatment for certain portions of these agreements. Confidential information is omitted from these agreements and filed separately with the Commission

26


|                                                                                                                                                                                        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SIGNATURES                                                                                                                                                                              
|CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES                                                                                                                                       
|Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CANANDAIGUA NATIONAL CORPORATION(Registrant)May 6, 2010/s/ George W. Hamlin, IVDateGeorge W. Hamlin, IVPresident and Chief Executive OfficerMay 6, 2010/s/ Lawrence A. HeilbronnerDateLawrence A. HeilbronnerExecutive Vice President and
Chief Financial Officer    27