SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	12 Months Ended
Dec. 31, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Chemung Financial Corporation (the "Corporation"), through its wholly owned subsidiaries, Chemung Canal Trust Company (the "Bank") and CFS Group, Inc., provides a wide range of banking, financing, fiduciary and other financial services to its clients. The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and include the accounts of the Corporation and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. The allowance for loan losses, other-than-temporary impairment of investment securities and goodwill and other intangibles are particularly subject to change. SECURITIES Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized cost. Securities to be held for indefinite periods of time or not intended to be held to maturity are classified as available for sale and carried at fair value. Unrealized holding gains and losses on securities classified as available for sale are excluded from earnings and are reported as accumulated other comprehensive income (loss) in shareholders' equity, net of the related tax effects, until realized. Realized gains and losses are determined using the specific identification method. Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings. In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows. Securities are placed on non-accrual status when management believes there are significant doubts regarding the ultimate collectability of interest and/or principal. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income is recognized when earned. FEDERAL HOME LOAN BANK (FHLB) AND FEDERAL RESERVE BANK (FRB) STOCK The Bank is a member of both the FHLB and FRB system. FHLB members are required to own a certain amount of stock based on the level of borrowings and other factors, while FRB members are required to own a certain amount of stock based on a percentage of the Bank's capital stock and surplus. FHLB and FRB stock are carried at cost and classified as non-marketable equities and periodically evaluated for impairment based on ultimate recovery of par value. Cash dividends are reported as income. BANK OWNED LIFE INSURANCE Bank Owned Life Insurance ("BOLI") is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Changes in the cash surrender value are recorded in other income. LOANS HELD FOR SALE Certain mortgage loans are originated with the intent to sell. Loans held for sale are recorded at the lower of cost or fair value. Loans held for sale, as well as the commitments to sell the loans that are originated for sale, are regularly evaluated for changes in fair value. If necessary, a valuation allowance is established with a charge to income for unrealized losses attributable to a change in market rates. LOANS Loans are stated at the amount of unpaid principal balance less unearned discounts and net deferred origination fees and costs. The Corporation has the ability and intent to hold its loans for the foreseeable future. Interest on loans is accrued and credited to operations using the interest method. Past due status is based on the contractual terms of the loan. The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent. Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted. All payments received on non accrual loans are applied to principal. Loans are returned to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest. Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method. LOAN CONCENTRATIONS The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our core footprint. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2011 and 2010, 22.5% and 10.4%, respectively, of the Corporation's loans consisted of commercial real estate loans to borrowers in the real estate, rental or leasing sector. The major portion of this sector comprises borrowers that rent, lease or otherwise allow the use of their own assets by others. No other significant concentrations existed in the Corporation's portfolio in excess of 10% of total loans as of December 31, 2011 or 2010. Purchased Credit Impaired Loans: The Corporation purchased individual loans and groups of loans, some of which have shown evidence of credit deterioration since origination. These purchased loans are recorded at the amount paid, such that there is no carryover of the seller's allowance for loan losses. After acquisition, losses are recognized by an increase in the provision for loan losses. Such purchased loans are accounted for individually. The Corporation estimates the amount and timing of expected cash flows for each purchased loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan's contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is increased through a provision for loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans. Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned to the loan, historical loan loss experience and review of specific problem loans (including evaluations of the underlying collateral). Historical loss experience is adjusted by management based on their judgment as to the current impact of qualitative factors including changes in the composition and volume of the loan portfolio, overall portfolio quality, and current economic conditions that may affect the borrowers' ability to pay. Management believes that the allowance for loan losses is adequate to absorb probable incurred losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Management, after considering current information and events regarding the borrower's ability to repay their obligations, classifies a loan as impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is determined to be impaired and is placed on nonaccrual status, all future payments received are applied to principal. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Corporation determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five year history of net losses. For all other unclassified loans, the historical loss experience is determined by portfolio class and is based on the actual loss history experienced by the Corporation over the most recent two years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio class. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: commercial, financial and agricultural; commercial mortgages; residential mortgages; and consumer loans. Risk Characteristics Commercial, financial and agricultural loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower's operations or on the value of underlying collateral, if any. Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, inferring higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties and/or the businesses occupying the properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company's commercial real estate loans and on the value of such properties. Residential mortgage loans are generally made on the basis of the borrower's ability to make repayment from his or her employment and other income, but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers and the nature of the loan collateral. The consumer loan segment includes home equity lines of credit and home equity loans, which exhibit many of the same risk characteristics as residential mortgages. Indirect and other consumer loans may entail greater credit risk than residential mortgage and home equity loans, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles or boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. PREMISES AND EQUIPMENT Land is carried at cost, while buildings, equipment, leasehold improvements and furniture are stated at cost less accumulated depreciation and amortization. Depreciation is charged to current operations under the straight-line method over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture. Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the asset. OTHER REAL ESTATE Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at estimated fair value of the property less estimated costs to dispose at the time of acquisition. Write downs from the carrying value of the loan to estimated fair value which are required at the time of foreclosure are charged to the allowance for loan losses. Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur. INCOME TAXES The Corporation files a consolidated tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for unused tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled, or the tax loss carry forwards are expected to be utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. WEALTH MANAGEMENT GROUP FEE INCOME Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts. The unaudited market value of trust assets under administration totaled $1.596 billion at December 31, 2011 and $1.625 billion at December 31, 2010. PENSION PLAN Pension costs, based on actuarial computations of benefits for employees, are charged to current operating results. The Corporation's funding policy is to contribute amounts to the plan sufficient to meet minimum regulatory funding requirements, plus such additional amounts as the Corporation may determine to be appropriate from time to time. On April 21, 2010 the Corporation's Board of Directors approved an amendment to the Corporation's Defined Benefit Pension Plan. Under the amendment, which became effective on July 1, 2010, new employees hired on or after the effective date will not be eligible to participate in the plan, however, existing participants at that time will continue to accrue benefits. The amendment will result in a decrease over time in the future benefit obligations of the plan and the corresponding net periodic benefit cost associated with the plan. POSTRETIREMENT BENEFITS The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to employees who meet minimum age and service requirements. Postretirement life insurance benefits are also provided to certain employees who retired prior to July 1981. STOCK-BASED COMPENSATION Compensation cost is recognized for restricted stock awards issued to employees, based on the fair value of these awards at the date of the grant. The market price of the Corporation's common stock at the date of the grant is used for restricted stock awards. GOODWILL AND INTANGIBLE ASSETS Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. The Corporation has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet. The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007, the acquisition of three former M&T Bank branch offices in March 2008, the acquisition of Cascio Financial Strategies in May of 2008, the acquisition of Canton Bancorp, Inc. in May 2009, and the acquisition of Fort Orange Financial Corp. in April 2011 with balances of $3.427 million, $357 thousand, $72 thousand, $49 thousand and $2.285 million, respectively, at December 31, 2011. The trust business intangible is being amortized to expense over the expected useful life of 15 years. The identifiable core deposit and customer relationship intangibles related to the M&T branch offices and Canton Bancorp, Inc. acquisitions are being amortized to expense using a 7.25 and 7 year accelerated method, respectively. The customer relationship intangible for Cascio Financial is being expensed over a 5 year period. The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year sum-of-the-years digits method. The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value. If impairment is determined to exist, the related write- down of the intangible asset's carrying value is charged to operations. Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2011. EARNINGS PER COMMON SHARE Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. Issuable shares including those related to directors' restricted stock units and directors' stock compensation are considered outstanding and are included in the computation of basic earnings per share as they are earned. All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. Restricted stock awards are grants of participating securities. The impact of the participating securities on earnings per share is not material. Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur. COMPREHENSIVE INCOME Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded status of the Corporation's defined benefit pension plan and other benefit plans, net of the related tax effect, which are also recognized as separate components of equity. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and amounts due from banks and interest-bearing deposits with other financial institutions. TRADING ASSETS Securities that are held to fund a deferred compensation plan are recorded at fair value with changes in fair value included in earnings. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Corporation enters into sales of securities under agreements to repurchase. The agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The amount of the securities underlying the agreements continues to be carried in the Corporation's securities portfolio. The Corporation has agreed to repurchase securities identical to those sold. The securities underlying the agreements are under the Corporation's control. OTHER FINANCIAL INSTRUMENTS The Corporation is a party to certain other financial instruments with off-balance sheet risk such as unused portions of lines of credit and commitments to fund new loans. The Corporation's policy is to record such instruments when funded. SEGMENT REPORTING The Corporation's operations are solely in the financial services industry and primarily include the provision of traditional banking and wealth management services. The Corporation operates primarily in the New York counties of Albany, Broome, Chemung, Saratoga, Steuben, Schuyler, Tioga and Tompkins, and the northern tier of Pennsylvania. The Corporation has identified separate operating segments and internal financial information is primarily reported and aggregated in two lines of business, banking and wealth management advisory services. RECLASSIFICATION Amounts in the prior years' consolidated financial statements are reclassified whenever necessary to conform with the current year's presentation. ADOPTION OF NEW ACCOUNTING STANDARDS In December 2010, the FASB amended existing guidance relating to Disclosure of Supplementary Pro Forma Information for Business Combinations. This guidance specifies that if a public entity presents comparative financial statements, the entity (acquirer) should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. We disclosed pro forma information in the notes to consolidated financial statements of the merger with Fort Orange Financial Corp. See Note 21 of Notes to Consolidated Financial Statements. In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor's evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the effective interest method to determine whether a concession has been granted. In the absence of using the effective interest method, a creditor must now focus on other considerations such as the value of the underlying collateral, evaluation of other collateral or guarantees, the debtor's ability to access other funds at market rates, interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and had to be applied retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment on newly identified troubled debt restructurings, the amendments had to be applied prospectively for the first interim or annual period beginning on or after June 15, 2011. The adoption of this guidance did not have a material effect on the Corporation's operating results or financial condition. In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholder's equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. Early adoption is permitted. The adoption of this amendment will change the presentation of the components of comprehensive income for the Corporation as part of the consolidated statement of shareholder's equity.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Chemung Financial Corporation (the "Corporation"), through its wholly owned subsidiaries, Chemung Canal

Trust Company (the "Bank") and CFS Group, Inc., provides a wide range of banking, financing, fiduciary and

other financial services to its clients. The Corporation is subject to the regulations of certain federal and state

agencies and undergoes periodic examinations by those regulatory agencies.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in conformity with accounting principles

generally accepted in the United States of America and include the accounts of the Corporation and its

subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United

States of America requires management to make estimates and assumptions based on available information.

These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided,

and actual results could differ. The allowance for loan losses, other-than-temporary impairment of investment

securities and goodwill and other intangibles are particularly subject to change.

SECURITIES

Management determines the appropriate classification of securities at the time of purchase. If management has

the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are

classified as held to maturity and carried at amortized cost. Securities to be held for indefinite periods of time or

not intended to be held to maturity are classified as available for sale and carried at fair value. Unrealized holding

gains and losses on securities classified as available for sale are excluded from earnings and are reported as

accumulated other comprehensive income (loss) in shareholders' equity, net of the related tax effects, until

realized. Realized gains and losses are determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and

more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized

loss position, management considers the extent and duration of the unrealized loss, and the financial condition and

near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than

not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost

basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized

cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the

aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to

credit loss, which must be recognized in the income statement and 2) other-than-temporary impairment (OTTI)

related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the

difference between the present value of the cash flows expected to be collected and the amortized cost basis. For

equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the

Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date

to the current expected remaining cash flows. OTTI is deemed to have occurred if there has been an adverse

change in the remaining expected future cash flows.

Securities are placed on non-accrual status when management believes there are significant doubts regarding the

ultimate collectability of interest and/or principal. Premiums and discounts are amortized or accreted over the life

of the related security as an adjustment of yield using the interest method. Dividend and interest income is

recognized when earned.

FEDERAL HOME LOAN BANK (FHLB) AND FEDERAL RESERVE BANK (FRB) STOCK

The Bank is a member of both the FHLB and FRB system. FHLB members are required to own a certain amount

of stock based on the level of borrowings and other factors, while FRB members are required to own a certain

amount of stock based on a percentage of the Bank's capital stock and surplus. FHLB and FRB stock are carried

at cost and classified as non-marketable equities and periodically evaluated for impairment based on ultimate

recovery of par value. Cash dividends are reported as income.

BANK OWNED LIFE INSURANCE

Bank Owned Life Insurance ("BOLI") is recorded at the amount that can be realized under the insurance contracts

at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that

are probable at settlement. Changes in the cash surrender value are recorded in other income.

LOANS HELD FOR SALE

Certain mortgage loans are originated with the intent to sell. Loans held for sale are recorded at the lower of cost

or fair value. Loans held for sale, as well as the commitments to sell the loans that are originated for sale, are

regularly evaluated for changes in fair value. If necessary, a valuation allowance is established with a charge to

income for unrealized losses attributable to a change in market rates.

LOANS

Loans are stated at the amount of unpaid principal balance less unearned discounts and net deferred origination

fees and costs. The Corporation has the ability and intent to hold its loans for the foreseeable future.

Interest on loans is accrued and credited to operations using the interest method. Past due status is based on the

contractual terms of the loan. The accrual of interest is generally discontinued and previously accrued interest is

reversed when loans become 90 days delinquent. Loans may also be placed on non-accrual status if management

believes such classification is otherwise warranted. All payments received on non accrual loans are applied to

principal. Loans are returned to accrual status when they become current as to principal and interest and remain

current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to

receive all of its original principal and interest. Loan origination fees and certain direct loan origination costs are

deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

LOAN CONCENTRATIONS

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our core

footprint. Significant loan concentrations are considered to exist for a financial institution when there are

amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly

impacted by economic or other conditions. At December 31, 2011 and 2010, 22.5% and 10.4%, respectively, of

the Corporation's loans consisted of commercial real estate loans to borrowers in the real estate, rental or leasing

sector. The major portion of this sector comprises borrowers that rent, lease or otherwise allow the use of their

own assets by others. No other significant concentrations existed in the Corporation's portfolio in excess of 10%

of total loans as of December 31, 2011 or 2010.

Purchased Credit Impaired Loans: The Corporation purchased individual loans and groups of loans, some of

which have shown evidence of credit deterioration since origination. These purchased loans are recorded at the

amount paid, such that there is no carryover of the seller's allowance for loan losses. After acquisition, losses are

recognized by an increase in the provision for loan losses.

Such purchased loans are accounted for individually. The Corporation estimates the amount and timing of

expected cash flows for each purchased loan and the expected cash flows in excess of amount paid is recorded as

interest income over the remaining life of the loan (accretable yield). The excess of the loan's contractual

principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan expected cash flows continue to be estimated. If the present value of expected cash flows

is less than the carrying amount, a loss is recorded. If the present value of expected cash flows is greater than the

carrying amount, it is recognized as part of future interest income.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is increased through a provision for loan losses charged to operations. Loans are

charged against the allowance for loan losses when management believes that the collectability of all or a portion

of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb

probable incurred losses on existing loans. Management's evaluation of the adequacy of the allowance for loan

losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned

to the loan, historical loan loss experience and review of specific problem loans (including evaluations of the

underlying collateral). Historical loss experience is adjusted by management based on their judgment as to the

current impact of qualitative factors including changes in the composition and volume of the loan portfolio,

overall portfolio quality, and current economic conditions that may affect the borrowers' ability to pay.

Management believes that the allowance for loan losses is adequate to absorb probable incurred losses. While

management uses available information to recognize losses on loans, future additions to the allowance may be

necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part

of their examination process, periodically review the Corporation's allowance for loan losses. Such agencies may

require the Corporation to recognize additions to the allowance based on their judgments about information

available to them at the time of their examination.

Management, after considering current information and events regarding the borrower's ability to repay their

obligations, classifies a loan as impaired when it is probable that the Corporation will be unable to collect all

amounts due according to the contractual terms of the loan agreement. Factors considered by management in

determining impairment include payment status, collateral value, and the probability of collecting scheduled

principal and interest payments when due. Loans that experience insignificant payment delays and payment

shortfalls generally are not classified as impaired. Management determines the significance of payment delays and

payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan

and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment

record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is determined to be

impaired and is placed on nonaccrual status, all future payments received are applied to principal.

If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of

estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected

solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential

real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for

impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are

measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a

troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair

value of the collateral. For troubled debt restructurings that subsequently default, the Corporation determines the

amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current

factors. Loans not impaired but classified as substandard and special mention use a historical loss factor on a

rolling five year history of net losses. For all other unclassified loans, the historical loss experience is determined

by portfolio class and is based on the actual loss history experienced by the Corporation over the most recent two

years. This actual loss experience is supplemented with other economic factors based on the risks present for

each portfolio class. These economic factors include consideration of the following: levels of and trends in

delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms

of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies,

procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national

and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.

The following portfolio segments have been identified: commercial, financial and agricultural; commercial

mortgages; residential mortgages; and consumer loans.

Risk Characteristics

Commercial, financial and agricultural loans primarily consist of loans to small to mid-sized businesses in our

market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of

the borrower's ability to make repayment from the cash flow of the borrower's business. Further, the collateral

securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit

risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on

a borrower's operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential

mortgage loans, inferring higher potential losses on an individual customer basis. Loan repayment is often

dependent on the successful operation and management of the properties and/or the businesses occupying the

properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market

could have an adverse impact on the cash flows generated by properties securing the Company's commercial real

estate loans and on the value of such properties.

Residential mortgage loans are generally made on the basis of the borrower's ability to make repayment from his

or her employment and other income, but are secured by real property whose value tends to be more easily

ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the

characteristics of individual borrowers and the nature of the loan collateral.

The consumer loan segment includes home equity lines of credit and home equity loans, which exhibit many of

the same risk characteristics as residential mortgages. Indirect and other consumer loans may entail greater credit

risk than residential mortgage and home equity loans, particularly in the case of other consumer loans which are

unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles or boats.

In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of

repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the

borrower's continuing financial stability, thus are more likely to be affected by adverse personal circumstances

such as job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws,

including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

PREMISES AND EQUIPMENT

Land is carried at cost, while buildings, equipment, leasehold improvements and furniture are stated at cost less

accumulated depreciation and amortization. Depreciation is charged to current operations under the straight-line

method over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to

10 years for equipment and furniture. Amortization of leasehold improvements and leased equipment is

recognized on the straight-line method over the shorter of the lease term or the estimated life of the asset.

OTHER REAL ESTATE

Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at estimated fair value of the

property less estimated costs to dispose at the time of acquisition. Write downs from the carrying value of the

loan to estimated fair value which are required at the time of foreclosure are charged to the allowance for loan

losses. Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are

charged to operations in the period in which the declines occur.

INCOME TAXES

The Corporation files a consolidated tax return. Deferred tax assets and liabilities are recognized for future tax

consequences attributable to temporary differences between the financial statement carrying amounts of existing

assets and liabilities and their respective tax bases, and for unused tax loss carry forwards. Deferred tax assets

and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which

temporary differences are expected to be recovered or settled, or the tax loss carry forwards are expected to be

utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the

period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the

amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be

sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the

largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions

not meeting the "more likely than not" test, no tax benefit is recorded.

WEALTH MANAGEMENT GROUP FEE INCOME

Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated

balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is

recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust

accounts. The unaudited market value of trust assets under administration totaled $1.596 billion at December 31,

2011 and $1.625 billion at December 31, 2010.

PENSION PLAN

Pension costs, based on actuarial computations of benefits for employees, are charged to current operating results.

The Corporation's funding policy is to contribute amounts to the plan sufficient to meet minimum regulatory

funding requirements, plus such additional amounts as the Corporation may determine to be appropriate from

time to time. On April 21, 2010 the Corporation's Board of Directors approved an amendment to the

Corporation's Defined Benefit Pension Plan. Under the amendment, which became effective on July 1, 2010,

new employees hired on or after the effective date will not be eligible to participate in the plan, however, existing

participants at that time will continue to accrue benefits. The amendment will result in a decrease over time in the

future benefit obligations of the plan and the corresponding net periodic benefit cost associated with the plan.

POSTRETIREMENT BENEFITS

The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to

employees who meet minimum age and service requirements. Postretirement life insurance benefits are also

provided to certain employees who retired prior to July 1981.

STOCK-BASED COMPENSATION

Compensation cost is recognized for restricted stock awards issued to employees, based on the fair value of these

awards at the date of the grant. The market price of the Corporation's common stock at the date of the grant is

used for restricted stock awards.

GOODWILL AND INTANGIBLE ASSETS

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase

price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations

after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus

the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and

liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business

combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least

annually. The Corporation has selected December 31 as the date to perform the annual impairment test.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated

residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of

Partners Trust Bank in May of 2007, the acquisition of three former M&T Bank branch offices in March 2008, the

acquisition of Cascio Financial Strategies in May of 2008, the acquisition of Canton Bancorp, Inc. in May 2009,

and the acquisition of Fort Orange Financial Corp. in April 2011 with balances of $3.427 million, $357 thousand,

$72 thousand, $49 thousand and $2.285 million, respectively, at December 31, 2011. The trust business

intangible is being amortized to expense over the expected useful life of 15 years. The identifiable core deposit

and customer relationship intangibles related to the M&T branch offices and Canton Bancorp, Inc. acquisitions

are being amortized to expense using a 7.25 and 7 year accelerated method, respectively. The customer

relationship intangible for Cascio Financial is being expensed over a 5 year period. The identifiable core deposit

intangible related to the FOFC acquisition is being amortized using a 10 year sum-of-the-years digits method.

The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business

circumstances warrant a review of the carrying value. If impairment is determined to exist, the related write-

down of the intangible asset's carrying value is charged to operations.

Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were

not impaired at December 31, 2011.

EARNINGS PER COMMON SHARE

Basic earnings per share is net income divided by the weighted average number of common shares outstanding

during the period. Issuable shares including those related to directors' restricted stock units and directors' stock

compensation are considered outstanding and are included in the computation of basic earnings per share as they

are earned. All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends

are considered participating securities for this calculation. Restricted stock awards are grants of participating

securities. The impact of the participating securities on earnings per share is not material. Earnings per share

information is adjusted to present comparative results for stock splits and stock dividends that occur.

COMPREHENSIVE INCOME

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income

includes unrealized gains and losses on securities available for sale and changes in the funded status of the

Corporation's defined benefit pension plan and other benefit plans, net of the related tax effect, which are also

recognized as separate components of equity.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and amounts due from banks and interest-bearing deposits with other

financial institutions.

TRADING ASSETS

Securities that are held to fund a deferred compensation plan are recorded at fair value with changes in fair value

included in earnings.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Corporation enters into sales of securities under agreements to repurchase. The agreements are treated as

financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance

sheets. The amount of the securities underlying the agreements continues to be carried in the Corporation's

securities portfolio. The Corporation has agreed to repurchase securities identical to those sold. The securities

underlying the agreements are under the Corporation's control.

OTHER FINANCIAL INSTRUMENTS

The Corporation is a party to certain other financial instruments with off-balance sheet risk such as unused

portions of lines of credit and commitments to fund new loans. The Corporation's policy is to record such

instruments when funded.

SEGMENT REPORTING

The Corporation's operations are solely in the financial services industry and primarily include the provision of

traditional banking and wealth management services. The Corporation operates primarily in the New York

counties of Albany, Broome, Chemung, Saratoga, Steuben, Schuyler, Tioga and Tompkins, and the northern tier

of Pennsylvania. The Corporation has identified separate operating segments and internal financial information is

primarily reported and aggregated in two lines of business, banking and wealth management advisory services.

RECLASSIFICATION

Amounts in the prior years' consolidated financial statements are reclassified whenever necessary to conform with

the current year's presentation.

ADOPTION OF NEW ACCOUNTING STANDARDS

In December 2010, the FASB amended existing guidance relating to Disclosure of Supplementary Pro Forma

Information for Business Combinations. This guidance specifies that if a public entity presents comparative

financial statements, the entity (acquirer) should disclose revenue and earnings of the combined entity as though

the business combination(s) that occurred during the current year had occurred as of the beginning of the

comparable prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures

to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly

attributable to the business combination included in the reported pro forma revenue and earnings. We disclosed

pro forma information in the notes to consolidated financial statements of the merger with Fort Orange Financial

Corp. See Note 21 of Notes to Consolidated Financial Statements.

In April 2011, the FASB amended existing guidance for assisting a creditor in determining whether a

restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor's evaluation of

whether it has granted a concession and whether a debtor is experiencing financial difficulties. With regard to

determining whether a concession has been granted, the ASU clarifies that creditors are precluded from using the

effective interest method to determine whether a concession has been granted. In the absence of using the

effective interest method, a creditor must now focus on other considerations such as the value of the underlying

collateral, evaluation of other collateral or guarantees, the debtor's ability to access other funds at market rates,

interest rate increases and whether the restructuring results in a delay in payment that is insignificant. This

guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and had to be applied

retrospectively to the beginning of the annual period of adoption. For purposes of measuring impairment on

newly identified troubled debt restructurings, the amendments had to be applied prospectively for the first interim

or annual period beginning on or after June 15, 2011. The adoption of this guidance did not have a material effect

on the Corporation's operating results or financial condition.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other

comprehensive income as part of the statement of changes in shareholder's equity. The amendment requires that

comprehensive income be presented in either a single continuous statement or in two separate consecutive

statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and

interim periods within that year, that begins after December 15, 2011. Early adoption is permitted. The adoption

of this amendment will change the presentation of the components of comprehensive income for the Corporation

as part of the consolidated statement of shareholder's equity.