CANANDAIGUA NATIONAL CORPORATION

72 South Main Street

Canandaigua, NY 14424

March 4, 2011

Dear Fellow Shareholder:

You are cordially invited to attend the 2011 Annual Meeting of Shareholders of Canandaigua National Corporation. Our annual meeting will be held in the Community Board Room on the second floor of the Main Office at 72 South Main Street, Canandaigua, NY, on Wednesday, April 13, 2011, at 1:00 p.m.

Shareholders will be asked to: (1) elect three Class 2 Directors for terms of three years; (2) approve an amendment to Paragraph Four of our Certificate of Incorporation to increase the number of authorized shares of Common Stock and authorize a class of blank check preferred stock; (3) approve the amendment and restatement of our by-laws; (4) approve our 2011 Omnibus Incentive Plan; (5) hold an advisory vote on our executive compensation; (6) hold an advisory vote on the frequency with which we solicit an advisory vote on our executive compensation; and authorize the individuals named as proxy to act in their discretion to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.  Information about the director nominees can be found in the attached proxy statement.

Your vote is important regardless of the number of shares you own. Whether or not you plan to attend the Meeting, you are urged to read and carefully consider the enclosed proxy statement. You may vote by telephone, via the Internet, or mark, sign, date and return the enclosed form of proxy in the accompanying pre-addressed, postage-paid envelope. You may withdraw your proxy if you attend the meeting and wish to vote in person.

I urge you to vote for the election of all three nominees and in favor of each of the other proposals.

George W. Hamlin, IV

Chairman and CEO

CANANDAIGUA NATIONAL CORPORATION

72 South Main Street

Canandaigua, NY 14424

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TIME

1:00 p.m., on Wednesday, April 13, 2011

PLACE

The Canandaigua National Bank and Trust Company

72 South Main Street

Canandaigua, NY 14424

ITEMS OF BUSINESS

(1) To elect Richard C. Fox, Daniel P. Fuller, and Stephen D. Hamlin as Class 2 Directors for a term of three years and until their successors have been elected and qualified.

(2) To approve an amendment to Paragraph Four of our Certificate of Incorporation to increase the number of authorized shares of Common Stock and authorize a class of blank check preferred stock.

(3) To approve the amendment and restatement of our by-laws as more fully described below.

(4) To approve our 2011 Omnibus Incentive Plan.

(5) To hold The approval of, in an advisory and non-binding vote on our executive , the compensation of the Company’s named executive officers as disclosed in the Proxy Statement ..

(6) To hold The recommendation, in an advisory and non-binding vote on the frequency with which we solicit an advisory , whether a non-binding stockholder vote on our executive to approve the compensation of the Company’s named executive officers should occur every one, two or three years ..

(7) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

RECORD DATE

Holders of the common stock of record at 5:00 p.m., on February 14, 2011 are entitled to vote at the meeting.

VOTING

It is important that your shares be represented and voted at the meeting. You can vote your shares by proxy by using any of the following methods: (a) mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope furnished for that purpose or (b) follow the instructions for voting via the Internet or by telephone which are set forth on the enclosed proxy form. Any proxy may be revoked at any time prior to its exercise at the Annual Meeting of Shareholders.  The instructions for revoking or replacing a proxy are set forth in the accompanying Proxy Statement.  Any shareholder present at the meeting may withdraw his or her proxy and vote personally on any matter brought before the meeting.

If the shareholder of record properly designates a proxy to vote at the Annual Meeting, your vote will be cast in accordance with your instructions.  If your proxy is returned without instructions, it will be voted “FOR” the nominees for director in Proposal 1; “FOR” Proposals 2, 3, 4, and 5; “FOR” consideration of advisory votes on executive compensation every two years as described in Proposal 6; and as otherwise described in the Proxy Statement.

March 4, 2011

Robert G. Sheridan

Secretary

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on April 13, 2011.  The proxy statement, annual report to shareholders, and Form 10-K are available at www.cnbank.com.

CANANDAIGUA NATIONAL CORPORATION

72 South Main Street, Canandaigua, NY 14424

(585) 394-4260

PROXY STATEMENT

Annual Meeting of Shareholders to be held Wednesday, April 13, 2011

This Proxy Statement is furnished in connection with solicitation of proxies by the Board of Directors of Canandaigua National Corporation (the “Corporation”) for use at the Annual Meeting of Shareholders to be held Wednesday, April 13, 2011, at 1:00 p.m., at The Canandaigua National Bank and Trust Company, 72 South Main Street, Canandaigua, NY 14424 and any adjournment thereof.

This Proxy Statement and the accompanying proxy are being mailed by first-class mail on or about March 4, 2011.  All expenses incurred in connection with the solicitation of proxies will be borne by the Corporation.

SHAREHOLDERS ENTITLED TO VOTE AND REVOCATION OF PROXIES

Only shareholders of record as of the close of business on February 14, 2011 are entitled to notice of, and to vote at, the Annual Meeting.  On that date, there were 472,137 shares of common stock outstanding and entitled to vote.  Each share of common stock is entitled to one vote.  A quorum will consist of the holders of not less than a majority of the shares entitled to vote, present either in person or by proxy.  

If your shares are registered in your name on the Corporation’s stock records, you are considered the shareholder of record with respect to those shares.  As the shareholder of record, you have the right to vote your shares in person or by proxy at the Annual Meeting.  The Corporation has sent its proxy materials directly to you, including a proxy card for you to use.  If you hold shares of common stock through an account with a broker, bank, or other nominee rather than directly in your own name, then your broker, bank, or other nominee is considered the shareholder of record, and you are considered the beneficial owner of these shares.  The Corporation has supplied copies of its proxy materials for its 2011 Annual Meeting to the broker, bank, or other nominee holding your shares of record, and they have the responsibility to send these proxy materials to you.  As the beneficial owner, you have the right to direct your broker, bank, or other nominee on how to vote your shares at the Annual Meeting.  The broker, bank, or other nominee that is the shareholder of record for your shares is obligated to provide you with a voting instruction card for you to use for this purpose.

Any proxy may be revoked by the person giving it at any time prior to its exercise by giving written notice of revocation to Robert G. Sheridan, Secretary, prior to the vote at the meeting.  If you are the shareholder of record, you may revoke your proxy by submitting a proxy with a later date, or by voting in person at the meeting.  If you are the beneficial owner of shares held by a nominee, please follow the instructions for revoking your voting instructions given you by the nominee.

VOTING PROCEDURES AND METHOD OF COUNTING VOTES

The holders of a majority of all common stock issued, outstanding and entitled to vote are required to be present in person or to be represented by proxy at the meeting in order to constitute a quorum for transaction of business.

If you are a registered shareholder, you have four voting options:

·

over the Internet, which we encourage if you have Internet access;

·

by telephone, by calling the telephone number on your proxy form;

·

by mail, by completing, signing, dating and returning your proxy form; or

·

by attending the annual meeting and voting your shares in person.

Instructions for each method of voting are set forth on the enclosed proxy form.  If your shares are held by a nominee, you may instruct the record holder how to vote by completing the voting instructions card provided to you.

If the shareholder of record properly designates a proxy to vote at the Annual Meeting, your vote will be cast in accordance with your instructions.  If your proxy is returned without instructions, it will be voted “FOR” the nominees for director in Proposal 1; “FOR” Proposals 2, 3, 4, and 5; “FOR” consideration of advisory votes on executive compensation every two years as described in Proposal 6; and as otherwise described in the Proxy Statement.

Abstentions and broker non-votes represented by submitted proxies will be included in the calculation of the number of the shares present at the Annual Meeting for the purposes of determining a quorum.  “Broker non-votes” means shares held of

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record by a broker that are not voted on a matter because the broker has not received voting instructions from the beneficial owner of the shares and lacks the authority to vote the shares in its discretion under the rules of the New York Stock Exchange (“NYSE”).

 

Proposal 1:  Directors are elected by a plurality of the votes cast at the Annual Meeting on this proposal, and the three nominees who receive the most votes will be elected.  If your shares are held through a nominee, your brokerage firm or other nominee is not permitted to vote your shares with respect to Proposal 1 without specific instructions from you as to how to vote with respect to the election of each of the three nominees for director.  The election of directors is not considered a “routine” matter under the NYSE rules.  Abstentions and broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of the election of directors.

 

Proposal 2:  To be approved, this proposal regarding an amendment to the Corporation’s Certificate of Incorporation requires an affirmative vote of the holders of at least a majority of the outstanding shares of common stock entitled to vote generally in the election of directors, voting together as a single class.  Proposal 2 is not considered a “routine” matter under the NYSE rules, and nominees that are members of the NYSE do not have the authority under those rules to vote their customers’ shares on Proposal 2 if the customers have not furnished voting instructions within a specified period of time prior to the Annual Meeting.  Abstentions will have the effect of a negative vote on this proposal.

Proposal 3:  To be approved, this proposal regarding the amendment and restatement of the Corporation’s By-laws requires an affirmative vote of a majority of the votes cast.  Proposal 3 is not considered a “routine” matter under the NYSE rules, and nominees that are members of the NYSE do not have the authority under those rules to vote their customers’ shares on Proposal 3 if the customers have not furnished voting instructions within a specified period of time prior to the Annual Meeting.  Abstentions and broker non-votes represented by submitted proxies will not be taken into account in determining whether more votes have been cast “FOR” rather than “AGAINST” the proposal.

Proposal 4:  To be approved, this proposal regarding the Corporation’s 2011 Omnibus Incentive Plan requires an affirmative vote of the holders of at least a majority of the outstanding shares of common stock entitled to vote generally in the election of directors, voting together as a single class.  Proposal 4 is not considered a “routine” matter under the NYSE rules, and nominees that are members of the NYSE do not have the authority under those rules to vote their customers’ shares on Proposal 4 if the customers have not furnished voting instructions within a specified period of time prior to the Annual Meeting.  Abstentions will have the effect of a negative vote on this proposal.

 

Proposal 5:  To be approved, this proposal for an advisory vote on executive compensation requires an affirmative vote of a majority of the votes cast.  Because your vote is advisory, it will not be binding on the Board or the Corporation.  Proposal 5 is not considered a “routine” matter under the NYSE rules, and nominees that are members of the NYSE will not be able to vote the shares of customers from whom they have not received voting instructions with regard to this proposal. Abstentions and broker non-votes represented by submitted proxies will not be taken into account in determining whether more votes have been cast “FOR” rather than “AGAINST” the proposal.

 

Proposal 6: A plurality of the votes cast at the Annual Meeting will determine, in a non-binding vote, whether the advisory and non-binding vote to approve the compensation of our named executive officers will occur every three years, every two years or every one year.  Because your vote is advisory, it will not be binding on the Board or the Corporation.  Proposal 6 is not considered a “routine” matter under the NYSE rules, and nominees that are members of the NYSE will not be able to vote the shares of customers from whom they have not received voting instructions with regard to this proposal.  Abstentions and broker non-votes represented by submitted proxies will not be taken into account in determining whether more votes have been cast “FOR” rather than “AGAINST” the proposal.

ELECTION OF DIRECTORS and INFORMATION WITH RESPECT TO BOARD OF DIRECTORS

Our Certificate of Incorporation provides that the Board of Directors is divided into three classes, one of which is elected at each Annual Meeting for a term of three years and until their successors have been elected and qualified.  The Board of Directors has nominated three persons for election as Directors for the terms indicated in the following table.  The Board of Directors believes that the nominees will be available and able to serve as Directors, but, if for any reason any of them should not be, the persons named in the proxy may exercise discretionary authority to vote for a substitute proposed by the Board of Directors.  The family relationships between the below-named Directors are as follows:  Frank H. Hamlin, III is the son of George W. Hamlin, IV, and Stephen D. Hamlin is the first cousin of George W. Hamlin, IV.

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PROPOSAL 1

ELECTION OF DIRECTORS

Three individuals have been nominated by the Board of Directors for reelection as Class 2 Directors at the Annual Meeting: Richard C. Fox, Daniel P. Fuller, and Stephen D. Hamlin.  If elected, the nominees would serve a term of three years expiring at the annual meeting of shareholders in 2014 and until their successors have been elected and qualified.  Directors are elected by a plurality of the votes cast.

Richard C. Fox was elected to the Board of Directors of the Corporation effective January 2, 2008, in accordance with the terms of the Stock Purchase Agreement for the Corporation’s purchase of Genesee Valley Trust Company.  In that agreement, the corporation agreed to nominate Mr. Fox as a director until after the last payment to the former shareholders was due, if earned, in January 2011.  Mr. Fox continues to serve as a director of the Corporation’s subsidiary Genesee Valley Trust Company, a post he has held since 1998 when that company was privately held.  Mr. Fox was also a shareholder of Genesee Valley Trust Company.  The Board of Directors has determined that Mr. Fox has the experience, qualifications, and skills to serve as a director of the Corporation.  Mr. Fox has exhibited his entrepreneurial vision and management expertise in his ownership and service as President of Wendy’s Restaurants of Rochester, Inc.  In Mr. Fox’s role in obtaining, financing and operating over 100 retail franchise locations in five states, he was responsible for overseeing all aspects of the business, including business strategy, financial statements, lending relationships, human resource development and compliance.  He also has extensive business and personal relationships throughout the communities served by the Corporation’s subsidiaries, not only from his personal business but also from services on the boards of Genesee Valley Trust Company and various local charities.

Daniel P. Fuller has been a member of the Corporation’s Board of Directors since 1996.  The Board of Directors has determined that Mr. Fuller’s dedicated service on the Board, including service as its Chairman for two years, has demonstrated his knowledge of the business, opportunities and risks facing the Bank and the Corporation’s other subsidiaries and his skill in developing policies and working with other Board members and management to meet the changing regulatory demands and financial challenges.  In addition, Mr. Fuller’s leadership of both Bristol Mountain Resort and Roseland Water Park has provided him with the experience and skills to understand the Corporation’s customers’ focuses and business.

Stephen D. Hamlin has been a director of the Bank since 1973 and the Corporation since 1984 and a member of the Audit Committee for 27 years.  Mr. Hamlin was Vice President of Schlegel Corp from 1963 – 1984. He is a retired business and cultural leader and served as Chief Executive Officer of Sonnenberg Gardens from 1996 to 2000. Mr. Hamlin’s leadership in many cultural and other charitable organizations has enhanced the community relations and financial management skills he brings to the Board.  Accordingly, the Board of Directors has determined that Mr. Hamlin’s extensive knowledge of the Corporation’s business and his acumen in serving as a director over the past 37 years demonstrates the skills desired for continued service on the Board.

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Mr. Fuller and Mr. Hamlin have been determined by the Board of Directors to be “independent” directors under the independence standards required of NASDAQ listed companies.  Each nominee has consented to be named in this Proxy Statement and to serve if elected.  If at the time of the Annual Meeting any of them becomes unavailable for election, the proxies may exercise discretionary authority to vote for substitutes proposed by the Board of Directors.  Management has no reason to believe that any substitute nominees will be required.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL THREE NOMINEES.

Frank H. Hamlin, III has been a director of the Corporation since 2004. Mr. Hamlin has been employed as President of Canandaigua National Bank since January 1, 2011.  Prior to being employed by the bank, Mr. Hamlin was of counsel at Croucher, Jones & Johns from July 2007 through December 2010.  Prior to that time, Mr. Hamlin worked as an attorney in private practice from June 2001 – 2007.  Mr. Hamlin received his Bachelor of Political Science, Minor in Psychology in May, 1995 from University of Vermont and his Juris Doctor from Albany Law School of Union University, May 2000.  Mr. Hamlin is admitted to practice law in all New York State courts and in United States District Court for the Western District of New York.  Mr. Hamlin’s individual qualifications and skills as a director include his extensive experience as a practicing attorney in the Rochester New York region and his deep understanding of the communities served by the company.

George W. Hamlin, IV has been a director of the Corporation since its inception in 1984. He is also a director of The Canandaigua National Bank and Trust Company, Genesee Valley Trust Company, Hometown Funding, d/b/a CNB Mortgage Company, and Canandaigua National Trust Company of Florida. Mr. Hamlin has been continuously employed by the Corporation since its inception and prior to that by The Canandaigua National Bank and Trust Company since 1979. Mr. Hamlin graduated from Yale University in 1963 with a B.S. degree in Physics. He received his Juris Doctor from the University of Virginia Law School in 1972.  Mr. Hamlin’s individual qualifications and skills as a director include his vast successful experience as a community banker over the past thirty years.  Mr. Hamlin is a nationally recognized expert in banking policy and law having served as President of the New York Bankers Association and the Independent Bankers Association of New York.  Mr. Hamlin is a two term director of the Federal Reserve Bank of New York, has testified before Congress on banking policy and has advised the President of the United States on Community Banking.  Mr. Hamlin has served on and Chaired numerous civic boards and, in particular, Health Care organizations in the Finger Lakes Region of New York.  A complete description of Mr. Hamlin’s many accomplishments is found in the director’s information section on page 4.

Caroline C. Shipley has been a director of the Corporation and a member of the Audit Committee for 27 years.  Mrs. Shipley has served as Chair of the Audit Committee from 1985 to 2002 and from 2004 to the present.  Mrs. Shipley has also served as the Treasurer of several local charitable organizations including the First Congregational Church in Canandaigua, New York and the Ontario Children’s Foundation in excess of ten years.  Mrs. Shipley served as Treasurer and Financial Manager of Sonnenberg Gardens from 1973 – 1984. Mrs. Shipley served as a member of the Board of Education of the Canandaigua City School District for 30 years and was President of the Board from 1983 to 1991 and from 2007 to 2009.  During Mrs. Shipley’s tenure, the budget of the Canandaigua City School District grew from $8.9 million in 1979 to $60.7 million in 2009, and as Board member, Mrs. Shipley played an integral part in numerous capital projects including the “Build on Our Excellence” project in 2004 for $17.8 million. Mrs. Shipley was the Financial Manager of Dell Broadcasting WCGR/WLKA from 1985 – 1991. Accordingly, the Board of Directors has determined that Mrs. Shipley’s extensive knowledge of financial and accounting issues, her knowledge of the Corporation’s business and her acumen in serving as a director over the past 27 years demonstrates the skills desired for continued service on the Board.

Sue S. Stewart has been a director of the Corporation since 2000. Ms. Stewart has served on the Audit Committee since 2010. Ms. Stewart has been Sr. Vice President and General Counsel of the University of Rochester since 2003. Ms. Stewart serves as Co-Chair of Trustees for the National Center for Education and the Economy and has served as former Director of the United Way of Greater Rochester. Accordingly, the Board of Directors has determined that Ms. Stewart understands financial, legal, accounting and compliance issues and reports from years of experience as part of senior leadership at a major international law firm and a large (19,998 FTE) research university. This includes experience and governance issues from 40 years of advising as well as serving on boards.

Mrs. Shipley and Ms. Stewart have been determined by the Board of Directors to be “independent” directors under the independence standards required of NASDAQ listed companies.  

Richard P. Miller, Jr. has been a Director of the Corporation and Bank since 1998. He has chaired the Compensation Committee since 2009. Following graduation from Middlebury College in 1965 and military service in Vietnam, he began a career with the Case Hoyt Corporation, rising from a sales trainee position to become the company’s Chief Executive Officer in 1983. Beginning in 1987, he served as Vice-President for External Affairs and Senior Counsel to the President of the University of Rochester and subsequently as Senior Vice-President and Chief Operating Officer of that institution. From 2000-2003 he served as Vice-Chancellor and Chief Operating Officer of the 64 campus State University of New York’s system. From 2003-2008, Mr. Miller served as President of Hartwick College. Since retiring, he has continued to consult with colleges and universities and now serves as Mayor of the City of Oneonta. He has served as a Director of two publicly traded corporations and a number of smaller companies. He also served as Chairman of the Board of Highland Hospital and as a member of the Board of Directors of many not-for-profit organizations, including the former Rochester Chamber of Commerce and Industrial Management Council. He is currently a member of the Board of Trustees of Hobart and William Smith Colleges. The Board of Directors has determined that Mr. Miller’s significant experience in leading and managing both the commercial and educational entities listed above, his comprehensive knowledge of finance, the Corporation’s business, and his extensive business and personal relationships throughout the communities served by the Corporation’s subsidiaries demonstrates the skills desired for continued service on the Board.

Robert G. Sheridan is also a Director of the Corporation, The Canandaigua National Bank and Trust Company, Genesee Valley Trust Company, and Hometown Funding, d/b/a CNB Mortgage Company.  Mr. Sheridan has been continuously employed as Secretary of the Corporation since 1992 and prior to that by The Canandaigua National Bank and Trust Company since 1971. Mr. Sheridan is currently an Executive Vice President and Cashier of Canandaigua National Bank; a member of the Executive Committee since 1992; serves as Chairman of the Asset Review Committee; CRA Officer and is the President of CNB Mortgage Company. Mr. Sheridan graduated from St. Bonaventure University in 1971 with a B.A. degree in History.  Mr. Sheridan’s individual qualifications and skills as a director include his 40 years of successful experience as a leader in community banking and participation in numerous civic organizations which provide him with comprehensive understanding of the communities served by the company and the vital role of community banking in the economy.

Alan J. Stone has been a Director of the Corporation and a member of the Compensation Committee since 1986. While the bank celebrates its 125^th anniversary this year, Alan has shared one-third of that time period in meaningful ways with Canandaigua National. In 1969, when creating Stone Construction Equipment Inc., Arthur S. Hamlin was Alan’s loan officer. Ten years later, George W. Hamlin., IV succeeded Arthur by which time both Stone Construction Equipment and Canandaigua National had grown dramatically and successfully. The board and management of both companies have always believed that effective leadership is based on many principles: like the golden rule, open book - participative management and trust. While most of Alan’s endeavors during his career have involved creating and operating small businesses and local community civic organizations, he (and his wife Sandy) also enjoy travel and adventure which include numerous camping, hiking and hunting experiences with indigenous people in remote parts of the world.  As a result of these travels, Alan’s perspective on human relationships continues to grow. Cultures vary a lot, but effective relationships depend on principles that do not change and are

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common among different peoples. The Board has determined that Alan’s broad experience and knowledge of both business and human relationships in addition to his dedicated service on the Board, including service as its Chairman for ten years, have demonstrated his knowledge of the business, opportunities, and risks facing the Bank and the Corporation’s other subsidiaries. His demonstrated skill in working with other Board members and management to meet the changing demands and challenges the Corporation will face in the future make him a valuable resource for the Corporation.

Mr. Miller and Mr. Stone have been determined by the Board of Directors to be “independent” directors under the independence standards required of NASDAQ listed companies.  

Thomas S. Richards, formerly a Class 2 director, served the Company from 2004 until his resignation on November 10, 2010. Mr. Richards resigned upon assuming the role of Mayor of the City of Rochester. There are no disagreements with management or the Board. The Board of Directors thanks Mr. Richards for his leadership and service provided to the Corporation.

CORPORATE GOVERNANCE

The Corporation’s business, property, and affairs are managed under the direction of our Board of Directors.  Members of our Board are kept informed of our business through discussions with our President and Chief Executive Officer and other officers, by reviewing reports and other materials provided to them, by visiting our offices, and by participating in meetings of the Board and its Committees.  The Board of Directors is committed to employing good business practices, transparency in financial reporting, and the highest level of corporate governance.

The same individuals serve as both Directors of the Corporation and Directors of the Bank.  The Corporation has an Audit Committee, but does not have standing Compensation or Nominating Committees.  These functions are performed by committees of the Board of the Bank.  

The Board of Directors of the Corporation held eleven meetings during 2010.  The Board of Directors of the Bank held twelve meetings during 2010.  No incumbent Director of the Corporation attended fewer than 75% of the aggregate of all the meetings of the Boards of Directors and the Committees of which they were members.  Directors are encouraged to attend the Annual Meeting of Shareholders.  All Directors who were serving at the time of the prior year’s annual meeting attended the meeting.

Shareholders, and other interested parties, may communicate with the Board of Directors by sending communications to the attention of Robert G. Sheridan, Secretary, who will forward relevant communications to one or more members of the Board of Directors.

BOARD DIVERSITY

The Board does not have a specific diversity policy.  The Board views diversity broadly to include people who possess a variety of personal and professional experiences, perspectives, and backgrounds.  The Board’s primary consideration is to identify candidates who are ethically sound, demonstrate integrity, and possess the background, experience, and skills that will fulfill the Board’s and the Corporation’s needs and responsibilities at the time a search is being conducted.  The Board does not believe it is appropriate to either nominate or exclude from nomination any individual based upon gender, ethnicity, color, age, or similar factors.

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COMMITTEES OF THE BOARD OF DIRECTORS

The following chart shows the composition of the committees of the Board of Directors, the number of meetings held by each committee during 2010, and which directors are “independent” as defined by applicable listing standards of the Marketplace Rules of the NASDAQ Global Market and the Securities and Exchange Commission (the “SEC”).  The Audit Committee of the Board is composed exclusively of directors whom the Board of Directors has determined are independent in accordance with Section 10A of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and the independence standards required of NASDAQ listed companies.

DIRECTORS’ COMPENSATION

Directors of the Corporation are also directors of the Bank.  For the year 2010, no compensation was paid to members of the Board of Directors for their service to the Corporation.  For their service as Directors of the Bank, they are paid an annual retainer of $5,000, which may be paid in cash or stock or a combination of cash and stock at each director’s request.   For the year 2010, the Chairman of the Board of Directors of the Bank was paid in cash at the rate of $1,300 for each Board meeting attended, and the remaining members, including employee-directors, were paid in cash at the rate of $1,050 per board meeting attended.  Chairman Chairs of board committees were paid in cash at the rate of $850 per committee meeting attended and the remaining committee members, including employee-directors, were paid in cash at the rate of $600 per committee meeting attended.  All meeting fees are paid in cash when earned.

Name		Fees Earned or Paid in Cash ($) ($)*		Stock Awards ($)*		Total ($)
Patricia A. Boland#		1,650		-		1,650
Richard C. Fox		24,800 23,093				1,707 24,800		24,800
Daniel P. Fuller		33,643 35,350				35,350 1,707		35,350
Frank H. Hamlin, III		33,200		-		33,200
George W. Hamlin, IV		36,800 35,093				1,707 36,800		36,800
Stephen D. Hamlin		25,800		-		25,800
Richard P. Miller, Jr.		26,900		-		26,900
Thomas S. Richards##		26,300 24,593				1,707 26,300		26,300
Robert G. Sheridan		37,400		-		37,400
Caroline C. Shipley		34,550 32,843				1,707 34,550		34,550
Sue S. Stewart		22,700 20,993				1,707 22,700		22,700
Alan J. Stone		25,400 23,693				1,707 25,400		25,400
Total		330,850 318,901				11,949 330,850		330,850

*

The following directors elected to receive a part of the annual retainer in shares of stock: Richard C. Fox, Daniel P. Fuller, George W. Hamlin, IV, Thomas S. Richards, Caroline C. Shipley, Sue S. Stewart, and Alan J. Stone.  Each director received five shares of Corporation stock with a value of $341.46 per share , which was the average price of the last public sealed bid auction sale of Corporation stock prior to May 3, 2010, the date of payment of the retainer which was made on May 3, 2010 paid to directors ..

^#

Mrs. Boland did not stand for re-election as director in 2010 and her term expired at the 2010 Annual Meeting of the Corporation.

^##

Mr. Richards resigned from the Board of Directors on November 10, 2010, upon assuming the role of Mayor of the City of Rochester, New York.

NOMINATING AND GOVERNANCE COMMITTEE

The Nominating and Governance Committee consists of five Directors, four of whom are independent under the NASDAQ listing standards and are not employees of the Bank.  The members of the Committee are appointed by the Board of Directors each year.  The Committee has adopted the independence standard required of NASDAQ listed companies.  Members of the Committee are as follows:

Richard P. Miller, Jr.	Sue S. Stewart	Caroline C. Shipley	George W. Hamlin, IV

The Nominating and Governance Committee met three times during 2010 to determine personal and professional qualifications

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for Board of Director candidates.  A current copy of the Charter of the Nominating and Governance Committee is available for review on the Corporation’s website at www.cnbank.com.  The Committee plays an integral role in the selection of new Directors by reviewing the qualifications of candidates, conducting interviews, and making recommendations to the Board of Directors.  In its deliberations, the Nominating and Governance Committee considers the skills represented among the existing Board members and identifies any particular qualifications that might be sought in new Directors for the purpose of augmenting the skills and experience represented on the Board, all in the context of the perceived needs of the Board at that time.  In addition, the Nominating and Governance Committee will consider director candidates recommended by shareholders. Shareholders may submit such recommendations by following the procedures outlined in the “Shareholder Proposals” section of this proxy statement. Thomas Richards, a former member of the Nominating and Governance Committee, resigned from the Board of Directors on November 10, 2010, upon assuming the role of Mayor of the City of Rochester, New York.

AUDIT COMMITTEE

The Audit Committee consists of three Directors who are not employees and are “independent” of the Bank and who are appointed annually by the Board of Directors.  Members of the Committee are:

Caroline C. Shipley	Stephen D. Hamlin	Sue S. Stewart

The Audit Committee met four times during 2010 to supervise external audit, internal audit, and compliance activities of the Corporation and its subsidiaries.  The function of the Committee is to make or cause to be made suitable examinations every year and to ensure that the Corporation’s activities are being conducted in accordance with the law and the banking rules and regulations, and in conformance with established policy.  The Committee works directly with the internal auditor to review audit plans, staffing, and the results of individual audits.  At least annually, the Committee meets in executive session independently with both the internal and external auditors.  In addition, the Audit Committee retains the services of a reputable independent registered public accounting firm.  The Committee receives and reviews the reports of the independent registered public accounting firm and presents them to the Board of Directors with comments and recommendations.  At least once during each twelve-month period, this Committee requires audits of the Trust Department and determines whether an adequate review of the assets in each trust has been made. Thomas Richards, a former member of the Audit Committee, resigned from the Board of Directors on November 10, 2010, upon assuming the role of Mayor of the City of Rochester, New York.

REPORT OF THE AUDIT COMMITTEE

Following is the report of the Audit Committee with respect to the Corporation’s audited financial statements for the fiscal year ended December 31, 2010.

The purpose of the Audit Committee is to assist the Board in its general oversight of the Corporation’s financial reporting, internal controls and audit functions.  The Audit Committee Charter, which is available for review on the Corporation’s website at www.cnbank.com, describes in greater detail the full responsibilities of the Committee.  The Audit Committee is comprised solely of independent directors as defined by applicable SEC rules.  The Audit Committee has reviewed and discussed the consolidated financial statements with management and KPMG LLP, the Corporation’s independent registered public accounting firm.  Management is responsible for the preparation, presentation and integrity of the Corporation’s financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.  KPMG LLP is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles, as well as expressing an opinion on the effectiveness of internal control over financial reporting.  

In connection with the preparation of the consolidated financial statements for fiscal year 2010, management provided the Committee with, and the Committee reviewed, a report on the effectiveness of the Corporation’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations.  The Committee also reviewed the report of management contained in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the SEC, as well as KPMG LLP’s Report of Independent Registered Public Accounting Firm included in the Corporation’s Annual Report on Form 10-K related to its audit of: (i) the consolidated financial statements and (ii) the effectiveness of internal controls over financial reporting.  

The Committee continues to oversee the Corporation’s efforts related to its internal control over financial reporting.  The Audit Committee has discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61,

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“The Auditor’s Communication with Those Charged with Corporate Governance” and PCAOB Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements.”  In addition, KPMG LLP has provided the Audit Committee with the written disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and the Audit Committee has discussed with KPMG LLP their firm’s independence.  Based on their review of the consolidated financial statements and discussions with and representations from management and KPMG LLP referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Corporation’s Annual Report on Form 10-K for fiscal year 2010, for filing with the SEC.

THE AUDIT COMMITTEE

Caroline C. Shipley	Stephen D. Hamlin	Sue S. Stewart

The Corporation appointed KPMG LLP as auditors for the fiscal years ended December 31, 2010, and December 31, 2009.   All services provided by the external auditor are pre-approved by the Audit Committee.  The Chair of the Audit Committee may approve engagement of services that arise between Audit Committee meetings.  External auditors are prohibited from providing the following non-audit services:  bookkeeping; financial information systems design and implementation; appraisal or valuation; actuarial services; internal audit outsourcing; management functions or human resources; broker dealer, investment advisor or investment banking; legal or expert services unrelated to the audit; or any other service determined by the Board to be impermissible.  The lead external audit partner and the SEC reviewing partner are required to rotate off the engagement after five years and must stay off the engagement for five years.  Other partners (non-lead, tax or other specialist partners) must rotate after seven years and must stay off the engagement for two years.  The Audit Committee annually evaluates the partners on the account to ensure they meet the rotation requirement.

The following table presents fees for professional audit services rendered by KPMG LLP for the audit of the Corporation’s annual financial statements for 2010 and 2009, and fees billed for other services rendered by KPMG LLP:

		2010		2009
Audit Fees(1)	$	265,000	$	252,500
Audit-Related Fees	$	0	$	0
Tax Fees(2)	$	40,070	$	51,575
All Other Fees	$	0	$	0
Total Fees	$	305,070	$	304,075
(1) Audit fees consisted of professional services rendered for the audits of the consolidated financial statements of the Corporation and the audit of Internal Controls over Financial Reporting. (2) Tax fees consisted of services related to income tax compliance of $39,450 for 2010 and $35,300 for 2009 and tax planning and tax advice of $620 for 2010 and $16,275 for 2009.

Audit Committee Financial Expert:   The Corporation’s Board of Directors does not have a “financial expert” serving on its Audit Committee.  It is the opinion of the Board of Directors that the cumulative experience of the Directors serving on the Audit Committee is adequate to provide appropriate oversight of the audit functions.

Audit Committee Chairperson Caroline C. Shipley has been a director of the Corporation and a member of the Audit Committee for 27 years.  Mrs. Shipley has served as Chair of the Audit Committee from 1985 to 2002 and from 2004 to the present.  Mrs. Shipley has also served as the Treasurer of several local charitable organizations including the First Congregational Church in Canandaigua, New York and the Ontario Children’s Foundation in excess of ten years.  Mrs. Shipley served as Treasurer and Financial Manager of Sonnenberg Gardens from 1973 – 1984. Mrs. Shipley served as a member of the Board of Education of the Canandaigua City School District for 30 years and was President of the Board from 1983 to 1991 and from 2007 to 2009.  During Mrs. Shipley’s tenure, the budget of the Canandaigua City School District grew from $8.9 million in 1979 to $60.7 million in 2009, and as Board member, Mrs. Shipley played an integral part in numerous capital projects including the “Build on Our Excellence” project in 2004 for $17.8 million. Mrs. Shipley was the Financial Manager of Dell Broadcasting WCGR/WLKA from 1985 – 1991.

Audit Committee member Stephen D. Hamlin has been a director of the Bank since 1973 and the Corporation since 1984 and a member of the Audit Committee for 27 years.  Mr. Hamlin was Vice President of Schlegel Corp from 1963 – 1984. He is a retired business and cultural leader and served as Chief Executive Officer of Sonnenberg Gardens from 1996 to 2000.

Audit Committee member Sue S. Stewart has been a director of the Corporation since 2000. Ms. Stewart has served on the Audit Committee since 2010. Ms. Stewart is Sr. Vice President and General Counsel of the University of Rochester since 2003. Ms. Stewart serves as Co-Chair of Trustees for the National Center for Education and the Economy and has served as former Director of the United Way of Greater Rochester.

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The Board of Directors of the Corporation provides continuing professional education for its Directors through a series of educational presentations that are made to the full board at board meetings related to financial industry trends and specific information regarding changes in laws and regulations applicable to the Corporation.  In addition, continuing professional education materials relating specifically to contemporary audit issues relating to financial services companies are provided to the Audit Committee members by KPMG LLP.

TRANSACTIONS WITH CERTAIN RELATED PERSONS

George W. Hamlin, IV is the beneficial owner of a 75 percent interest in Canandaigua Aircraft, LLC which is unaffiliated with Canandaigua National Corporation.  From time to time, the Bank charters a plane from Canandaigua Aircraft, LLC for business use by Mr. Hamlin, executive officers, and other employees for time-critical business trips that could not easily be accommodated by commercial airline services.  In 2010, the Bank paid Canandaigua Aircraft, LLC $29,589.57 for charter services.  Use of the aircraft and payments were approved by our Board of Directors and, based upon a competitive analysis of comparable leased aircraft, our Board of Directors determined that the amounts billed for our use of the aircraft were at or below market rates for the charter of similar aircraft.

Through an entity controlled by Richard C. Fox, Mr. Fox is the owner and lessor of the Bank’s Brighton, NY banking office.  The lease is triple-net and commenced in 2002 for 20 years plus two five-year renewal options.  Rent escalates each five-year period commencing in 2007 based upon a combination of predetermined amounts and the consumer price index (CPI).  Total payments made by the Bank to Mr. Fox’s entity for the year ended December 31, 2010, were $225,030.47  In the opinion of management of the Corporation, the terms of the forgoing transaction were no less favorable to the Corporation than those it could have obtained from an unrelated party providing comparable premises. Under the terms of the Stock Purchase Agreement between the Corporation and the selling shareholders of Genesee Valley Trust Company, Richard C. Fox was appointed a Class 2 Director by the Board of Directors in July 2007.  Mr. Fox was first elected as a Class 2 director for a three-year term by the shareholders at the 2008 Annual Meeting and has been nominated to stand for election at the 2011 Annual Meeting for a second three-year term as a Class 2 director.

Richard C. Fox was a shareholder of Genesee Valley Trust Company and has received payments from the Corporation pursuant to the terms of the Stock Purchase Agreement between the Corporation and the shareholders of Genesee Valley Trust Company.  The payments made to Mr. Fox for his stock under the terms of the Stock Purchase Agreement through January 31, 2011 total $39,682.04.  No additional payments are due under the terms of the Stock Purchase Agreement.

Directors and executive officers of the Corporation and their associates are, as they have been in the past, customers of, and have had financial transactions with, the Bank, and additional transactions may be expected to occur in the future between such persons and the Bank or other subsidiaries of the Corporation.  Any loans from the Bank to such persons and their associates, outstanding at any time since the beginning of 2010, were made, in accordance with Federal Reserve Board Regulation O, and Section 13(k) of the Exchange Act, in the ordinary course of business of the Bank and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated customers of the Bank, and did not involve more than normal risk of collection or present other unfavorable features.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Corporation’s directors and executive officers, and persons who own more than ten percent of the Corporation’s common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of the Corporation’s common stock.  Executive officers, directors, and greater than ten percent shareholders are required by the rules of the SEC to furnish the Corporation with copies of all Section 16(a) forms they file.  To the Corporation’s knowledge, based solely on a review of copies of such reports furnished to the Corporation or written representations that no reports were required, the Corporation believes that the filing requirements of Section 16(a) were satisfied by its Directors and Executive Officers except that:  Robert G. Sheridan filed two Form 4 reports late with respect to two transactions; George W. Hamlin, IV, filed two Form 4 reports late with respect to two transactions; Richard C. Fox filed three Form 4 reports late with respect to three transactions; and Daniel P. Fuller, Caroline C. Shipley, Sue S. Stewart, Alan J. Stone, Joseph L. Dugan, Lawrence A. Heilbronner, Steven H. Swartout, and Gary L. Babbitt each filed one Form 4 report late with respect to one transaction each.

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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Set forth below, as of February 14, 2011, is the name and address of each person who owns of record or who is known by the Board of Directors to be the beneficial owner (“beneficial ownership” as used in this Proxy Statement is defined in Rule 13d-3 under the Exchange Act) of more than 5% of the Corporation's outstanding common stock, the number of shares beneficially owned, and the percentage of the Corporation’s outstanding common stock so owned.

Title of Class		Name and address of beneficial owner		Amount and nature of beneficial ownership		Percent of Class
Common stock		George W. Hamlin, IV, Director, Chairman and Chief Executive Officer 72 South Main Street, Canandaigua, NY		29,567 Shares*		6.26%
Common stock		The Canandaigua National Bank and Trust Company Held in various fiduciary capacities 72 South Main Street, Canandaigua, NY		45,513		9.64%
*Of this number, 10,460 shares may be acquired upon exercise of stock options.

The following table sets forth, as of February 14, 2011, the amount and percentage of the common stock of the Corporation beneficially owned by each Director and each executive officer.  The business address of each of the following Directors and executive officers is 72 South Main Street, Canandaigua, New York.

As of February 14, 2011, the Trust Department of The Canandaigua National Bank and Trust Company (the “Bank”) held in various fiduciary capacities 178,691 shares or 37.85%, of the outstanding shares.  The Trust Department of the Bank has the power to vote 45,513 shares, or 9.64%, of the outstanding shares.  These shares are included within the total set forth in the table above.

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EXECUTIVE OFFICER INFORMATION

Name		Position(s)		Age
George W. Hamlin, IV		Chairman, CEO and Trust Officer		69
Frank H. Hamlin, III		President		38
Robert G. Sheridan		Executive Vice President, Secretary, Cashier and CRA Officer		62
Gary L. Babbitt (1)		Executive Vice President		53
Joseph L. Dugan (2)		Executive Vice President		48
Lawrence A. Heilbronner, CPA		Executive Vice President and Chief Financial Officer		45
Steven H. Swartout, Esq.		Executive Vice President and General Counsel		52
(1)  Officer of Subsidiary Bank Only.
(2)  Officer of Subsidiary Bank since 2001 and President and CEO of Genesee Valley Trust Company since January 2011.

George W. Hamlin, IV.  Information concerning the business experience of Mr. Hamlin, who is also a director of the Corporation, The Canandaigua National Bank and Trust Company, Genesee Valley Trust Company, Hometown Funding, d/b/a CNB Mortgage Company, and Canandaigua National Trust Company of Florida is provided in the section entitled “Election of Directors and Information with Respect to Board of Directors,” which begins on page 2 of this Proxy Statement.  Mr. Hamlin has been continuously employed by the Corporation since its inception and prior to that by The Canandaigua National Bank and Trust Company since 1979.

Frank H. Hamlin, III.  Information concerning the business experience of Mr. Hamlin, who is also a director of the Corporation and The Canandaigua National Bank and Trust Company is provided in the section entitled “Election of Directors and Information with Respect to Board of Directors,” which begins on page 2 of this Proxy Statement.  Mr. Hamlin has been employed as President of The Canandaigua National Bank and Trust Company since January 1, 2011.  Prior to being employed by the Corporation, Mr. Hamlin was of counsel at Croucher, Jones & Johns from July 2007 through December 2010.  Prior to that time, Mr. Hamlin worked as an attorney in private practice from June 2002 – 2007.  Mr. Hamlin received his Bachelor of Political Science, Minor in Psychology in May, 1995 from University of Vermont and his Juris Doctor from Albany Law School of Union University, May 2000.

Robert G. Sheridan.  Information concerning the business experience of Mr. Sheridan, who is also a director of the Corporation, The Canandaigua National Bank and Trust Company, Genesee Valley Trust Company, and Hometown Funding, d/b/a CNB Mortgage Company, is provided in the section entitled “Election of Directors and Information with Respect to Board of Directors,” which begins on page 2 of this Proxy Statement. Mr. Sheridan has been continuously employed as Secretary of the Corporation since 1992 and prior to that by The Canandaigua National Bank and Trust Company since 1971. Mr. Sheridan is currently an Executive Vice President and Cashier of Canandaigua National Bank; a member of the Executive Committee since 1992; serves as Chairman of the Asset Review Committee; CRA Officer and is the President of CNB Mortgage Company. Mr. Sheridan graduated from St. Bonaventure University in 1971 with a B.A. degree in History.

Gary L. Babbitt.  Mr. Babbitt has served as Executive Vice President – Commercial Services of The Canandaigua National Bank and Trust Company since 2008.  Prior thereto, Mr. Babbitt was Senior Vice President – Commercial Services of The Canandaigua National Bank and Trust Company from 2006 to 2007.  Mr. Babbitt has been continuously employed by The Canandaigua National Bank and Trust Company since 1996.  Prior to that time, Mr. Babbitt served as a Commercial Loan Officer with two other financial services companies.  Mr. Babbitt received a Bachelor of Arts in Business Administration and Economics from Grove City College. He is also a graduate of the Bank Administration Institute Graduate School of Bank Management and Sheshunoff Executive Banking Institute.

Joseph L. Dugan.  Mr. Dugan has served as Executive Vice President – Customer Value Management of The Canandaigua National Bank and Trust Company since 2008.  Prior thereto, Mr. Dugan was Senior Vice President – Customer Value Management of The Canandaigua National Bank and Trust Company since 2001.  Mr. Dugan also serves as President and CEO of the Genesee Valley Trust Company since January 2011, where he also serves as a Director since 2008.  Prior to joining Canandaigua National Bank, Mr. Dugan was Vice President and Product Manager at PNC Bank in Pittsburgh, PA.  He also has held positions in retail and commercial banking at PNC Bank, and prior to that, Chase-Lincoln First Bank (now JP Morgan Chase) in Rochester, NY.   Mr. Dugan received his Bachelor of Arts in Economics and English from Bucknell University. Mr. Dugan serves as President of American Cancer Society’s Lakes Region Board of Advisors, as well as a Director on the American Cancer Society’s New York/New Jersey Division Board.

Lawrence A. Heilbronner, CPA.  Mr. Heilbronner has served as Executive Vice President – Finance and Operations, Chief Financial Officer, and Principal Accounting Officer of the Corporation and all subsidiaries from 2007 to the present and Chief Financial Officer of Canandaigua National Trust Company of Florida from 2009 to the present. Mr. Heilbronner was previously Senior Vice President – Chief Financial Officer and Principal Accounting Officer of the Corporation and all

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subsidiaries from 2004 to 2007.  Mr. Heilbronner was Vice President – Finance from 1998 to 2004.  Prior to 1998, Mr. Heilbronner was employed by the public accounting firm KPMG, LLP from 1987 to 1998 working in their Rochester, NY and Amsterdam, The Netherlands offices.  Mr. Heilbronner has a Bachelor of Science degree in Accounting from Binghamton University, Magna Cum Laude and graduated Brighton High School.  He is a Certified Public Accountant and an insurance broker, licensed in the State of New York.

Steven H. Swartout, Esq.  Mr. Swartout has served as Executive Vice President and General Counsel of the Corporation, and Executive Vice President – Corporate Risk & General Counsel of The Canandaigua National Bank and Trust Company, from 2007 to the present and Executive Vice President and Trust Officer of Canandaigua National Trust Company of Florida from 2009 to the present. Mr. Swartout is a Director of Genesee Valley Trust Company from 2008 to present.  Mr. Swartout was previously Senior Vice President – Corporate Risk and General Counsel of The Canandaigua National Bank and Trust Company from 2004 to 2007.  Mr. Swartout was employed as Associate General Counsel at The Canandaigua National Bank and Trust Company from 1984 to 1993.  He was a partner in the Rochester, New York law firm Lawrence, Werner, Kesselring, Swartout and Brown, LLP from 1994 to 2000 when he re-joined The Canandaigua National Bank and Trust Company as Vice President and General Counsel.  Mr. Swartout is a graduate of Vermont Law School, Hamilton College, and Canandaigua Academy.  He is licensed to practice law in all New York State courts, United States District Court for the Western District of New York, and United States Bankruptcy Court.  Mr. Swartout is a 2010 graduate of the American Bankers Association Stonier National Graduate School of Banking.

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Committee Responsibility

The Compensation Committee is responsible for establishing, reviewing and approving executive officer compensation levels, performing annual reviews of executive officers’ performance, and considering senior leadership succession and development issues and related matters for the Corporation.  The Compensation Committee recommends to the full Board the compensation of the Corporation’s executive officers, including the named executive officers identified in the Summary Compensation Table and other tables (the “Named Executive Officers” or “NEOs”) on the following pages of this Proxy Statement.  

The Compensation Committee has a Charter, a current copy of which is available for review on the Corporation’s website at www.cnbank.com.

The Compensation Committee met six (6) times during 2010 to perform annual reviews of executive officers' performance.  Based on the Committee's reviews, recommendations on executive officers' titles and salaries for the upcoming year are made to the Board of Directors for approval.

In this Compensation Discussion and Analysis, “we,” “our,” and “us” refer to the Compensation Committee.

Compensation Philosophy

Our purpose is to act on behalf of the Board of Directors to ensure the existence and implementation of fair and equitable human resource policies and compensation that support the Corporation’s mission, vision, and values.  Through our work, we endeavor to maintain executive compensation that is fair, reasonable, and consistent with the Corporation’s size and the compensation practices of the financial services industry.  The compensation program is also intended to attract, develop, and retain the best available executive officers in key leadership positions to ensure the Corporation’s continued success.  

Our goal is to attract, develop and retain high caliber executives who are capable of optimizing the Corporation’s performance for the benefit of its shareholders while maintaining the philosophy of community banking.  The Corporation’s goal as a community bank is to offer its customers extraordinary personal service and to provide a strong commitment to the communities it serves.  The Corporation’s philosophy centers on the belief that community banking is more about relationships than transactions.  As a community bank, the Corporation engages in traditional banking, which derives most of its revenues from lending out core deposits to others in the same community who are engaged in productive and constructive pursuits, which positively and in a sustained way drives the growth of local economies.  The Corporation believes that its philosophy leads to the development of meaningful, long-term relationships with its customers and communities, and we believe this philosophy should be a core element of our executive compensation program.

The goal of the Corporation’s compensation program is to align the interests of the Named Executive Officers (“NEO”) with those of the shareholders; our ultimate focus is on long-term growth and increasing shareholder value, so we believe that a significant portion of an NEO’s compensation should be tied to performance.  We believe in a “pay for performance” approach,

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and the Corporation’s compensation program contains a mix of base salary and performance based incentive compensation components.  Up to 40% of executive compensation is tied to performance and at risk components.  We consider and emphasize many factors and objectives when measuring the performance of the Corporation and its executives for the prior year and in setting goals and objectives for the coming year.  Our compensation program includes:

·

objectives that drive near term achievement of the Corporation’s budgetary and short-term financial goals;

·

objectives that drive achievement of long-term financial goals as outlined in the Corporation’s strategic plan;

·

objectives that support the values and culture of the Corporation and community banking; and

·

objectives related to the personal development of the Corporation’s executive officers and other employees.

The Role of Executive Officers in Compensation Decisions

The Chief Executive Officer, Chief Financial Officer, and Director of Human Resources each provide us with information and analysis that is used in determining the compensation of the Corporation’s executive officers.  

Compensation Committee Methodology

The Chief Executive Officer completes an annual performance assessment for each of the other Named Executive Officers (“NEO”) and recommends a total compensation package for each of the Named Executive Officers.  We review and consider both the CEO’s assessments and his compensation recommendations in our deliberations regarding compensation amounts.  We conduct an annual performance appraisal of the Chief Executive Officer based on evaluation information solicited from each member of the Board of Directors, and recommend to the Board the annual compensation package for the Chief Executive Officer.

In determining the compensation of the Corporation’s Named Executive Officers for 2010, including the compensation of the Chief Executive Officer, we considered a number of quantitative and qualitative performance factors including:  

·

the Corporation’s financial performance, including return on equity, return on assets, net interest margin, growth in earnings per share, loan growth, deposit growth, fee income, and revenue from assets under management;

·

the Corporation’s growth;

·

the Corporation’s cumulative shareholder return; and

·

the executive’s role and success in the management of assets, liabilities, capital, liquidity, and risk.

We endeavor to balance the Corporation’s short-term and long-term performance and cumulative shareholder value when establishing performance criteria for each of the Named Executive Officers and for the management team as a group.  In formulating total compensation, we also consider intangible factors such as:

·

the executive’s scope of responsibility;

·

leadership within the Corporation, the community, and the financial services industry; and

·

whether the Corporation, under the executive’s leadership, has been able to serve worthwhile public purposes while enhancing shareholder value.

All of these factors are considered in the context of the market for the Corporation’s products and services, and the complexity and difficulty of managing business risks in the prevailing economic conditions and regulatory environment.  We believe that the total compensation provided to the Corporation’s Named Executive Officers is competitive and provides effective incentives, demonstrated by the Corporation’s continued superior performance.

Details regarding the compensation of each of the Named Executive Officers are set forth in the tables that follow this report.

Peer Groups and Benchmarks

We are authorized to retain outside counsel, experts, and consultants to assist us in performing our functions.  As an additional source of information to assist us in evaluating appropriate compensation levels for the executive officers, we periodically conduct a comparison study of the Corporation’s executive compensation with the executive compensation for comparable positions at companies within the Corporation’s peer group.  The Corporation’s peer group is generally financial institutions having assets between $1 billion and $3 billion with trust departments.  We also use generally available compensation surveys produced by Towers Watson, McLagen an Aon Hewitt Company, formerly Amalfi Consulting, LLC, and CompData Surveys for financial institutions located in New York State, the Mid-Atlantic region, for all U. S. financial institutions, and for the

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group of financial institutions having less than $5 billion in assets as reference material in evaluating the Named Executive Officers’ compensation.  

In 2009 and 2010, we engaged Amalfi Consulting, Inc. to perform a comprehensive review of the Named Executive Officers’ total compensation packages.  As a part of this review, in consultation with Amalfi Consulting and management, we developed a peer group of financial institutions with similar characteristics to the Corporation.  We purposely chose institutions that are better performing (generally, as measured by return on average equity, return on average assets, net interest margin, growth in earnings per share, loan growth, deposit growth, fee income, and revenue from assets under management) than the overall bank marketplace to be consistent with the Corporation’s historical performance.

In 2010, we used the following financial services companies for peer group purposes to evaluate current and future compensation levels:

· ACNB Corporation (ACNB)	· First Financial Corporation (THFF)
· Alliance Financial Corporation (ALNC)	· First of Long Island Corp. (FLIC)
· Arrow Financial Corporation (AROW)	· Horizon Bancorp (HBNC)
· Bancorp Rhode Island, Inc. (BARI)	· LNB Bancorp, Inc. (LNBB)
· Bar Harbor Bankshares (BHB)	· Merchants Bancshares, Inc. (MBTV)
· Camden National Corporation (CAC)	· Metro Bancorp, Inc. (METR)
· Center Bancorp, Inc. (CNBC)	· Orrstown Financial Services, Inc. (ORRF)
· Century Bancorp, Inc. (CNBKA)	· Suffolk Bancorp (SUBK)
· CNB Financial Corporation (CCNE)	· Tompkins Financial Corporation (TMP)
· Community Trust Bancorp, Inc. (CTBI)	· Wainwright Bank and Trust Co. (WSIN)
· First Bancorp, Inc. (FNLC)	· Washington Trust Bancorp, Inc. (WASH)
· First Chester County Corp. (FCEC)

We used the peer group data as a point of reference and comparison only, and not for purposes of establishing or setting a specific level of compensation to be achieved.  Because the roles and duties of executive officers vary from institution to institution, a direct one-to-one comparison is not always possible.  We considered the experience of each of the Corporation’s executive officers, their years of service to the Corporation, and the responsibilities of each officer compared to the officers in the peer group as well as to one another.

Given the limitations associated with comparative pay information, we do not rely as much on benchmarking for setting compensation as we do on the Corporation’s level of performance, the executive officers’ successful management and reaction to economic conditions impacting the Corporation during the year, and their success in positioning the Corporation for continued growth and optimization of shareholder value in the future.

Risk Assessment

In developing the compensation program, we seek to ensure that the program does not promote unnecessary and excessive risk that might threaten the value of the Corporation.  We believe in adhering to a conservative and balanced approach to risk, which we believe is in line with the Corporation’s long-held policies and practices and commitment to maintaining the philosophy of community banking.  We consider the impact the Corporation’s compensation program would have on risk-taking when setting compensation.  In 2010, we engaged Amalfi Consulting, Inc. to perform a comprehensive review of the Corporation’s incentive compensation programs and agreements for all employees based on the following three core principles of sound incentive compensation policies released by the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision:

·

Risk management: provide employees incentives that appropriately balance risk and reward;

·

Internal controls: be compatible with effective controls and risk-management; and

·

Corporate governance: be supported by strong corporate governance, including active oversight of the organization’s board of directors or compensation committee.

The consultant’s review confirmed our conclusion that the Corporation’s incentive plans are, in general, appropriately structured to comply with the intent of the principles of sound incentive compensation policies.

We have assessed the Corporation’s compensation program and have concluded that the existing program does not create risks that would be reasonably likely to have a material adverse effect on the Corporation.  We reviewed the Corporation’s compensation policies and practices regarding potential risks, risk control and identification issues, and the balance of risk

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against reward.  We also reviewed and considered Amalfi Consulting’s report on our incentive compensation programs.  Based on our review and analysis, we do not believe that the Corporation’s compensation program creates significant risks for the Corporation and we believe that we and the Board are well-positioned to identify and manage any risks that might arise.

As part of our effort to continually monitor and improve the Corporation’s compensation program in view of potential risks, we considered the Corporation’s existing equity compensation program in light of current industry practices and the consultant’s report.  We are recommending approval of the 2011 Omnibus Incentive Plan, which provides for, among other things, the granting of restricted stock and associated full value equity awards or types of awards.  From a risk perspective, restricted stock has both up and downside risk, which would more closely align the Corporation’s equity compensation awards with the equity risks of all shareholders.  Please see Proposal 4 below for information regarding the 2011 Omnibus Incentive Plan.

Elements of Compensation

The Corporation’s executive compensation program has four basic elements:

·

base salary,

·

annual cash short-term incentive compensation,

·

long-term equity-based compensation, and

·

benefits, including retirement, health care, and insurance.  

We view each element of compensation as an integral component of the Corporation’s compensation program, which is designed to ensure the Corporation’s long-term success and increase shareholder value while sustaining our community banking mission.

Incentive compensation for the Named Executive Officers is based on a pay-for-performance philosophy that emphasizes performance goals designed to achieve long-term value for the shareholders; therefore, a portion of the Named Executive Officers’ annual and long-term compensation is at risk.  We believe this pay-for-performance culture, balanced by our community banking mission, is one of the principal drivers of the Corporation’s performance.

Base Salary

The Named Executive Officers’ base salaries provide compensation that reflects their role and value to the Corporation and also provides a baseline for computing certain variable, performance-based aspects of their compensation (e.g., annual cash short-term incentive compensation).  We review and adjust the Named Executive Officers’ base salaries each year.  When setting base salary levels, we consider:

·

competitive market conditions;

·

executive compensation at comparable financial institutions;

·

the Corporation’s financial performance; and

·

each individual’s performance for the prior year against the specific goals set for them.

The Corporation’s performance is measured by evaluating the attainment of strategic and financial performance goals for the year and over multiple years, with particular emphasis on earnings per share growth and return on shareholders’ equity.  Although we consider year-to-year changes in stock price in our evaluation of performance, we do not emphasize this factor because we do not believe that short-term fluctuations in stock price necessarily reflect the Corporation’s underlying strength or future prospects, particularly given the thin trading in the Corporation’s stock.  We measure individual performance by evaluating an NEO’s strategic and financial performance goals, as well as the Corporation’s goals for the NEO’s area of operational responsibility, against actual performance.  The Named Executive Officers’ individual performance goals are discussed in more detail in “Annual Short-Term Incentive Pool Compensation” below.  Annual raises are generally limited to an increase each year of an amount approximating the rate of inflation (CPI-W) for the prior year; however, for retention purposes, we will make market rate adjustments as appropriate.

Generally, we believe the base salaries of executive officers should be targeted near the seventy-fifth (75th) percentile of salaries for executives in similar positions with similar responsibilities in comparable financial institutions.  We believe that benchmarking and aligning our Named Executive Officers’ base salaries is a key component of a competitive compensation program.  Other elements of an NEO’s compensation are affected by changes in base salary and providing a competitive total compensation package is essential to achieving our goal of attracting, developing and retaining high caliber executives who are capable of optimizing the Corporation’s performance for the benefit of shareholders while maintaining the philosophy of community banking.

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Please see the Summary Compensation Table for the base salaries of the Named Executive Officers.

Annual Short-Term Incentive Pool Compensation

The Corporation’s Annual Short-Term Incentive Pool (“Annual Incentive Pool”) compensation program has played a key role in the development of the Corporation’s pay-for-performance culture.  The purpose of the Annual Incentive Pool program is to focus executives on the importance of team performance in achieving the Corporation’s strategic goals.  For the Annual Incentive Pool, each of the Named Executive Officers has an annual scorecard based on the Corporation’s annual budget and strategic plan.  Each NEO’s scorecard is proposed, in consultation with the CEO, by management and approved by us.

Annual Incentive Pool awards for 2010 were based on the attainment of individual and Corporation-wide performance targets that were capped at an achievement level of 100 points for superior achievement relative to the performance targets.  The numerical point score received by each Named Executive Officer is multiplied by a target percentage rate for each of five separate pools that we establish annually.  Each of the Named Executive Officers is placed in a particular pool based on the executive’s management responsibilities and years of service.  For 2010, the target pool for all executives was 41% of base compensation. The target percentage of base salary is increased by 2% each year until a maximum of 50% is reached.  NEOs with the longest tenure, therefore, will have approximately one-third of their annual cash compensation determined by the achievement of specific annual goals approved by the Board of Directors.

The Annual Incentive Pool formula measures Corporation-wide performance through the Corporation’s return on average assets.  For 2010, the target return on average assets was 0.95%. The actual return on average assets achieved in 2010 was 1.09%.

The annual individual performance targets are based on each Named Executive Officer’s responsibilities.  The Corporation uses a matrix management approach; that is, responsibility for successful business operation and execution of the Corporation’s strategic plans is shared among several of the Named Executive Officers depending on the area of business operation.  In February 2010, we reviewed and approved the Named Executive Officers’ proposed 2010 goals and scorecards as well as their potential cash bonus payments.  The potential cash bonus payments were determined by multiplying an NEO’s base salary for 2010 by a target percentage.  The 2010 target percentage established for each Named Executive Officer is provided below.

Scorecards contain information on the 2010 results for the businesses led by the NEOs using objective metrics, including percentage increases or decreases in the item from the prior year, as well as individual and team performance objectives for the year.  The scorecard information provides the basis for our calculation of an NEO’s potential performance bonus.  The 2010 metrics for the Named Executive officers included, among other things:

·

return on average assets;

·

loan, deposit, and fee revenue growth;

·

expense management;

·

cost of credit (credit write-offs and provisions for credit losses, net of credit recoveries);

·

book value of assets under management; and

·

capital and liquidity management.

The scorecard also includes information on qualitative measures, such as client service, teamwork and partnership, participation in executive development programs, development of personnel, producing results with integrity, and leadership, as well as information on prior years’ compensation and market compensation data.

In the current economic and regulatory environment, the Board anticipates that there may be unforeseen factors that may alter the performance targets, or make the initial performance targets unattainable.  Therefore, the Board may, in its discretion, adjust performance targets for material non-recurring events, for one-time, non-recurring, or extraordinary events or for any other reason that the Board deems appropriate.  All determinations regarding the achievement of any performance goals or objectives and the amount of any individual awards are made by the Board, in its discretion, and are based upon our recommendations.

It is expected that each of the Named Executive Officers will be able to achieve the mid-point or higher of the targeted level of performance each year.  The performance targets are designed to be challenging and we believe that the complete satisfaction of the targets will not be achieved all of the time.  Historically, our Named Executive Officers have achieved between 70% and 95% of their targets; however, at times, certain executives have reached or exceeded their targets levels and have received corresponding payouts and at our discretion or the CEO’s, adjustments may be made to targets during the year in response to immediate corporate or personal considerations. Such adjustments rarely exceed 15%.  The following table provides each

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NEO’s (i) performance, expressed as a percentage, relative to his scorecard, (ii) target percentage as a percentage of base salary, (iii) bonus payment as a percentage of base salary, and (iv) bonus payment, each in connection with an NEO’s performance in 2008, 2009, and 2010.

Annual Short-Term Incentive Pool Compensation
Named Executive Officer		Year		Performance Relative to Scorecard		Target Percentage (as a percentage of base salary)	Bonus Payment (as a percentage of base salary)		Bonus Payment
George W. Hamlin, IV		2010 2009 2008		94.0% 95.0% 94.5%		41% 39% 37%	43.4% 39.3% 39.8%		$173,909 $147,403 $137,108
Robert G. Sheridan		2010 2009 2008		81.0% 88.0% 90.0%		41% 39% 37%	37.4% 36.4% 37.9%		$77,260 $74,132 $73,306
Gary L. Babbitt		2010 2009 2008		68.5% 73.0% 76.2%		41% 21% 19%	31.7% 17.1% 18.4%		$63,162 $29,389 $30,725
Joseph L. Dugan		2010 2009 2008		80.1% 70.5% 85.5%		41% 39% 37%	37.0% 29.2% 36.0%		$76,402 $59,390 $60,213
Lawrence A. Heilbronner, CPA		2010 2009 2008		93.4% 85.0% 90.8%		41% 39% 25%	43.2% 35.2% 27.4%		$91,677 $71,605 $49,620
Gregory S. MacKay		2010 2009 2008		79.0% 76.0% 65.0%		41% 39% 37%	32.3% 29.6% 23.9%		$50,649 $45,780 $58,567
Steven H. Swartout, Esq.		2010 2009 2008		84.0% 65.0% 82.0%		41% 39% 25%	38.8% 26.9% 24.7%		$80,122 $54,757 $43,074

Between 85% and 90% of cash bonuses, if paid, are paid within the first month of the succeeding fiscal year and the remaining amount, if any, is paid upon finalization of the Corporation’s audited financial statements.  If the initial bonus payment exceeds the finalized total bonus, the executive officer is required to repay the excess.

As reported in the Annual Report and Form 10-K, the Corporation performed better than its peer group in 2010.  Loan, deposit, and fee revenue growth were strong, expenses were well managed, credit losses were minimal, book value of assets under management increased, and capital and liquidity levels were very strong.  The Corporation’s return on average assets, as measured in the FDIC Uniform Bank Holding Company reports through the third quarter of 2010, was in the 84^th percentile of all bank holding companies having $1-3 billion in assets.  Each of the NEO’s met their target levels on a majority of their performance targets and, for these reasons, in January 2011, the Board accepted our recommendation to award preliminary Annual Incentive Pool cash bonuses to the CEO and the other Named Executive Officers in accordance with the information set forth above.

Long-Term Equity-Based Compensation

Long-term equity-based compensation is an important component of the Corporation’s compensation program because it has the effect of retaining talented executives who might otherwise move to other financial institutions.   Long-term equity-based compensation also aligns the executive’s financial interests with those of the shareholders and rewards the achievement of the Corporation’s long-term goals.

Stock Appreciation Rights (“SARs”)

Approximately 10% of each Named Executive Officer’s total compensation is directly tied to the long-term appreciation of the Corporation’s stock through the grant of SARs.  SARs represent the right to receive payment in cash or stock equal to the amount, if any, by which the market value per share of the Corporation’s common stock on the date of exercise exceeds the SAR’s grant price.  To comply with the provisions of Section 409A of the Internal Revenue Code of 1986 (the “Code”), which required restatement of existing non-qualified, deferred compensation programs by December 31, 2008, the Corporation restated its non-qualified 1989 Incentive Stock Option Plan.  The restated plan (the “Stock Appreciation Rights Plan”) provides the Corporation with the ability to issue SARs.  All of the NEOs except Mr. MacKay participate in the Stock Appreciation Rights Plan.

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Long-Term SARs are exercisable at the later of 55 years of age or 15 years of tenure or at normal retirement age (65) and represent approximately 60% of an annual SAR award.  Medium-Term SARs are exercisable after five years or at retirement and represent approximately 40% of an annual SAR award.  For 2010, we set the potential award for the executives eligible to receive SARs at approximately 10% of the participants’ aggregate total base compensation as of the beginning of the year.  The SARs are allocated in accordance with (a) the level of impact the executive has or can have on long-term shareholder value and (b) the executive’s level of decision-making responsibility.  For 2010, the Named Executive Officers were allocated 72% of the total possible SARs for the year.  The amount of potential awards for a year is determined by multiplying the total base compensation of those executives participating in the Stock Appreciation Rights Plan by the percentage amount we identified as appropriate for that year and dividing that result by the prior year-end’s weighted fair value of awards.

The actual number of awards earned by each of the Named Executive Officers is determined at year end by reference to an award grid using budgeted and actual return on beginning equity for the year.  For 2010, the budgeted return on beginning equity goal was 14.15%.  The return on beginning equity achieved was 15.98%.  For each one percentage point actual return on beginning equity is greater than budgeted return on beginning equity, the number of awards in the pool is increased by 25%.  For each one percentage point actual return on beginning equity is less than budgeted return on beginning equity, the number of awards in the pool is decreased by 16.7%.  The number of awards determined in this formula is multiplied by the percentage of the pool allocated to each executive officer to determine each officer’s award.  The officer receives sixty percent (60%) of the award in the form of Long-Term SARs and forty percent (40%) in the form of Medium-Term SARs.  

SARs have historically been granted at the regularly scheduled February meeting of the Board of Directors.  The Corporation does not backdate SARs or grant any rights retroactively.  The SARs are granted “at the money” at fair market value on the first day of the year following the performance year.  Because the Corporation’s capital stock is not listed on an exchange, the market value of the SAR awards is determined using the average of the last public auction price available as of the close of business at the prior year end preceding the date of the Board meeting at which awards are made.  Executive officers are required to return cash and equity incentive awards if the relevant performance targets upon which the awards are based are ever restated or otherwise adjusted in a manner that would reduce the size of the award.

Please see the Summary Compensation Table and the other accompanying compensation tables for more information regarding the Named Executive Officers’ SAR awards. Details on the outstanding SARs are set forth in the notes to the Corporation’s financial statements.

Stock Options

The Corporation adopted a stock option plan in 1998 permitting the issuance of 48,000 (16,000 pre-split) shares of common stock to members of the Corporation’s management team.  All options were issued as of 2004 and, under the terms of the Plan, additional options may not be granted.  The stock option plan was replaced in 2005 with the issuance of phantom stock awards and SARs which, as a result of the provisions of §409A of the Code were replaced for grants after January 1, 2009, with Medium-Term SARs and Long-Term SARs as set forth above.

Please see the compensation tables below for details regarding the Named Executive Officer’s outstanding options and exercise of options.

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	48,000	$173.71	0
Equity compensation plans not approved by security holders	None	N/A	N/A
Total	48,000	$173.71	0

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New Omnibus Incentive Plan

The existing plan providing for awards of SARs and stock options does not provide the Compensation Committee and the Board with sufficient flexibility to design appropriate incentive compensation plans to ensure fair and equitable compensation programs that will enable the Corporation to attract, develop, and retain the best available officers in key leadership positions and ensure the Corporation’s continued success.  Please see the disclosure regarding the proposed new Omnibus Incentive Plan under Proposal 4 below.

Defined Contribution Profit Sharing 401(k) Plan and Roth 401(k) Plan

The Bank has maintained a Defined Contribution Profit Sharing 401(k) Plan for many years covering all Bank employees who meet the plan’s one-year service eligibility requirement.  The plan is a safe harbor prototype plan with a required minimum annual employer contribution of 3% of eligible compensation.  The Bank’s Board of Directors may make additional discretionary contributions to the plan based upon the Bank’s performance.  The Bank also maintains a Roth 401(k) plan covering all Bank employees who meet that plan’s one-year service eligibility requirement.  The Corporation makes no contribution to this plan but has provided it to its employees to encourage long-term retirement planning and to provide useful programs for retirement saving.

Supplemental Executive Retirement Plans (SERPs)

Annual contributions by the Bank to the Defined Contribution Profit Sharing Plan are primarily determined based on the base salary of the individual plan participants.  Because the Named Executive Officers do not receive contributions to their profit sharing accounts at the same rate as they would if they were not restricted to base salary increases approximating the rate of inflation (CPI-W) for the prior year, or capped by the Code, the Corporation provides supplemental executive retirement plans (“SERPs”).  The SERPs provide executives with a higher benefit than they would receive solely through the Defined Contribution Profit Sharing Plan and we have historically maintained the SERPs as an additional means of attracting and retaining high caliber executives.

Supplemental Executive Retirement Plan #1 (“SERP #1”) is an unfunded, nonqualified, deferred compensation plan that accrues to the participants an amount equal to what would have been payable as an annual profit sharing contribution based on each participant’s salary if it were not for the cap imposed by §415(c)(1)(A) of the Code.  Accrued amounts are then credited with earnings over time based on the performance of the Corporation’s Defined Contribution Profit Sharing Plan.  Participants are entitled to receive the vested portion of their account on their retirement, voluntary termination or termination without cause, disability or death.

Supplemental Executive Retirement Plan #2 (“SERP #2”) is an unfunded, nonqualified, deferred compensation plan that accrues to the participants an amount equal to the difference between the annual management base salary increase cap percentage and the increase percentage each participant would have received based upon the annual performance appraisal at the participant’s grade and quintile.  Accrued amounts are then credited with earnings over time based on the performance of the Corporation’s Defined Contribution Profit Sharing Plan.  Participants are entitled to receive the vested portion of their account on their retirement, voluntary termination or termination without cause, disability or death.

Benefits: Employee Stock Ownership Plan, Health Insurance, Life Insurance; Disability Insurance

Employee Stock Ownership Plan

The Corporation maintains an Employee Stock Ownership Plan (“ESOP”) covering all of the Corporation’s employees.  We believe that every employee should have some stock ownership in the Corporation, and this ESOP permits the attainment of that objective through a qualified deferred plan.  Contributions to the ESOP are made at the Board’s discretion and have averaged approximately 1% of the total eligible payroll of the Corporation and its subsidiaries for each of the years the ESOP has been in existence.  Individual account allocations are based on each participant’s annual base compensation.  Each participant receives a percentage of the Corporation’s contribution equal to the participant’s annual base compensation divided by the aggregate base compensation of all participants.  Participants are entitled to receive the vested portion of their account on their retirement, termination, disability or death.

Health Insurance

The Bank offers group health insurance (single, two-person, and family plans) through a health insurance company to all employees, and pays approximately 50% of full-time employees’ premiums.   In addition, in connection with certain plans, the Bank makes contributions to full-time employees’ Health Savings Accounts.  The Bank also previously made contributions to

21

full-time employees’ Health Reimbursement Accounts, but the Bank discontinued the Health Reimbursement Accounts on December 31, 2010.

Life Insurance

The Bank maintains an employer-paid group life insurance plan for full-time employees with benefits equal to three times an employee’s base salary.  Certain executives are included in a “carve-out” group and are provided with individually owned life insurance policies in the amount of three times estimated future base salary in addition to the group plan.  Premiums for those in the carve-out group are paid to the employee as a taxable bonus.  The premiums paid to the NEOs as taxable bonuses are shown as “All Other Compensation” in the Summary Compensation Table.

Short- and Long-Term Disability Insurance

All employees are covered by short-term disability insurance that provides each employee, including the Named Executive Officers, with 100% of their base salary for a period of six months.  The Bank maintains or self-insures long-term disability coverage for full-time employees in the amount of 60% of base salary through normal retirement age.

Perquisites and other Personal Benefits

 

In addition to the basic elements of compensation, the Corporation provides the Named Executive Officers with perquisites that we believe are reasonable and consistent with the Corporation’s overall compensation program and enhance the Corporation’s ability to attract and retain employees for key positions.  The Named Executive Officers receive perquisites including dues to health clubs and payment of fees for golf club memberships, which provide opportunities for business development activities and demonstrate the Corporation’s philosophy of community involvement in the markets in which we do business.

The Named Executive Officer’s perquisites are, in the aggregate, not in excess of $5,000 per NEO and are shown in summary in the Summary Compensation Table below as “All Other Compensation.”

Potential Payments Upon Termination or Change-in-Control

Generally, there are no written employment agreements, termination of employment agreements, or change in control agreements for any of the Named Executive Officers.  As part of its recruitment of Joseph L. Dugan, however, the Corporation entered into an employment agreement with him that provides that Mr. Dugan will be paid six months’ base salary in the event he is involuntary terminated from the Bank.

The terms of the Stock Appreciation Rights Plan, the Stock Option Plan, Supplemental Executive Retirement Plan #1, Supplemental Executive Retirement Plan #2, the ESOP, and the Defined Contribution Profit Sharing 401(k) Plan provide the covered Named Executive Officers with the retirement, death, disability, termination, and change of control benefits as described for each plan below.  A table setting forth the estimated potential payments to each of the Named Executive Officers follows the descriptions.

Stock Appreciation Rights Plan

Pursuant to the terms of the Stock Appreciation Rights Plan, upon termination of a participant’s employment with the Corporation and all subsidiaries, each SAR previously granted to him shall expire; provided, however, if: (i) his employment was terminated after he reached normal retirement age (age 65); (ii) his employment was terminated because of his death; or (iii) we determine, in our discretion, that his employment was terminated without cause at early retirement prior to age 65, or because he suffered a permanent disability or due to extraordinary circumstances, the SAR shall terminate at such time as we determine.

Stock Option Plan

Pursuant to the terms of the Stock Option Plan, a participant may exercise a Non-Qualified Stock Option (“NSO”) granted to him no earlier than the date specified in the NSO agreement; provided, however, upon retirement (termination of employment on or after a participant reaches age 55) the Corporation has the discretionary authority to accelerate, within the original term of the NSO, the time at which the NSO may be exercised, unless such acceleration would cause the NSO to fail to satisfy the stock right exemption from §409A of the Code.  By the terms of the Stock Option Plan:

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·

if a participant’s employment with the Corporation and all subsidiaries terminates for any reason, any NSO granted to him which is not yet exercisable on his termination date under the terms of the NSO agreement and the Plan expires on his termination date;

·

if a participant’s employment with the Corporation and all subsidiaries is terminated for cause, any NSO granted to him which is exercisable on his termination date under the terms of the NSO agreement and the Plan expires on his termination date (for this purpose, “terminated for cause” means termination by the Corporation or a subsidiary which resulted from willful acts, or failure to act, by the participant that is detrimental to the Corporation or any of its subsidiaries);

·

if a participant’s employment with the Corporation and all subsidiaries terminates by reason of death, permanent disability or retirement, any NSO granted to him which is exercisable on his termination date under the terms of the NSO agreement and the Plan may be exercised by the participant (or in the event of the participant’s death by his personal representative) no later than the date one year after his termination date; or

·

if a participant’s employment with the Corporation and all subsidiaries terminates for any reason other than death, permanent disability, retirement, or cause, any NSO granted to him which is exercisable on his termination date under the terms of the NSO agreement and the Plan may be exercised by the participant (or in the event of the participant’s death by his personal representative) no later than the date six months after his termination date.

Supplemental Executive Retirement Plan #1

Pursuant to the terms of the Supplemental Executive Retirement Plan #1, each participant shall be fully vested in a percentage of his account equal to his vested percentage in that portion of his account under the Defined Contribution Profit Sharing 401(k) Plan attributable to Bank contributions.  Any portion of a participant’s account which is not vested as of his separation from service shall be forfeited on that date.

Supplemental Executive Retirement Plan #2

Pursuant to the terms of the Supplemental Executive Retirement Plan #2, each participant shall be fully vested in a percentage of his account equal to his vested percentage in that portion of his account under the Defined Contribution Profit Sharing 401(k) Plan attributable to employer contributions.  Any portion of a participant’s account which is not vested as of his separation from service shall be forfeited on that date.

Employee Stock Ownership Plan and Profit Sharing/401(k) Plan.  

All of the Named Executive Officers are, under the terms of the respective plans, as a result of their tenure, 100% vested in all plan balances and would be entitled to 100% of the accrued balance in the individual accounts held for their benefit in the event of termination of employment for any reason.

Estimated Potential Plan Payments Upon Termination or Change in Control

(in dollars)

Mr. George Hamlin

Name of Plan		Voluntary Termination		Early Retirement*		Normal Retirement*		Involuntary/ Not for Cause Termination		For Cause Termination		Disability		Death
Stock Appreciation Rights Plan		174,837		N/A		N/A		275,613		-		275,613		275,613
Stock Option Plan		2,295,423		N/A		N/A		2,295,423		2,295,423		2,295,423		2,295,423
SERP #1		442,024		N/A		N/A		442,024		-		442,024		442,024
SERP #2		135,641		N/A		N/A		135,641		-		135,641		135,641
ESOP		150,833		N/A		N/A		150,833		150,833		150,833		150,833
Profit Sharing/401(k)		1,781,552		N/A		N/A		1,781,552		1,781,552		1,781,552		1,781,552
Short – Term Disability		-		N/A		N/A		-		-		200,182		-
Long – Term Disability		-		N/A		N/A		-		-		-		-

*Mr. Hamlin is 69 Years Old.

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Estimated Potential Plan Payments Upon Termination or Change in Control - continued

(in dollars)

Mr. Sheridan

Name of Plan		Voluntary Termination		Early Retirement		Normal Retirement		Involuntary/ Not for Cause Termination		For Cause Termination		Disability		Death
Stock Appreciation Rights Plan		95,199		150,138		150,138		150,138		-		150,138		150,138
Stock Option Plan		880,070		880,070		880,070		880,070		880,070		880,070		880,070
SERP #1		-		-		-		-		-		-		-
SERP #2		61,575		61,575		61,575		61,575		-		61,575		61,575
ESOP		83,255		83,255		83,255		83,255		83,255		83,255		83,255
Profit Sharing/401(k)		1,133,821		1,133,821		1,133,821		1,133,821		1,133,821		1,133,821		1,133,821
Short – Term Disability		-		-		-		-		-		103,205		-
Long – Term Disability		-		-		-		-		-		452,292		-

Mr. Babbitt

Name of Plan		Voluntary Termination		Early Retirement		Normal Retirement		Involuntary/ Not for Cause Termination		For Cause Termination		Disability		Death
Stock Appreciation Rights Plan		-		-		100,831		100,831		-		100,831		100,831
Stock Option Plan		-		-		-		-		-		-		-
SERP #1		-		-		-		-		-		-		-
SERP #2		3,086		3,086		3,086		3,086		-		3,086		3,086
ESOP		30,131		30,131		30,131		30,131		30,131		30,131		30,131
Profit Sharing/401(k)		191,582		191,582		191,582		191,582		191,582		191,582		191,582
Short – Term Disability		-		-		-		-		-		99,769		-
Long – Term Disability		-		-		-		-		-		1,475,050		-

Mr. Dugan

Name of Plan		Voluntary Termination		Early Retirement		Normal Retirement		Involuntary/ Not for Cause Termination		For Cause Termination		Disability		Death
Severance		-		-		-		101,750		-		-		-
Stock Appreciation Rights Plan		-		-		123,761		123,761		-		123,761		123,761
Stock Option Plan		27,128		342,772		342,772		342,772		-		342,772		342,772
SERP #1		-		-		-		-		-		-		-
SERP #2		16,448		16,448		16,448		16,448		-		16,448		16,448
ESOP		18,858		18,858		18,858		18,858		18,858		18,858		18,858
Profit Sharing/401(k)		188,948		188,948		188,948		188,948		188,948		188,948		188,948
Short – Term Disability		-		-		-		-		-		103,205		-
Long – Term Disability		-		-		-		-		-		2,214,977		-

Mr. Heilbronner

Name of Plan		Voluntary Termination		Early Retirement		Normal Retirement		Involuntary/ Not for Cause Termination		For Cause Termination		Disability		Death
Stock Appreciation Rights Plan		-		-		116,272		116,272		-		116,272		116,272
Stock Option Plan		158,868		317,090		317,090		317,090		158,868		317,090		317,090
SERP #1		-		-		-		-		-		-		-
SERP #2		9,925		9,925		9,925		9,925		-		9,925		9,925
ESOP		25,985		25,985		25,985		25,985		25,985		25,985		25,985
Profit Sharing/401(k)		227,471		227,471		227,471		227,471		227,471		227,471		227,471
Short – Term Disability		-		-		-		-		-		106,205		-
Long – Term Disability		-		-		-		-		-		2,580,694		-

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Estimated Potential Plan Payments Upon Termination or Change in Control - continued

(in dollars)

Mr. MacKay

Name of Plan		Voluntary Termination		Early Retirement		Normal Retirement		Involuntary/ Not for Cause Termination		For Cause Termination		Disability		Death
Stock Appreciation Rights Plan		-		-		-		-		-		-		-
Stock Option Plan		251,052		251,052		251,052		251,052		251,052		251,052		251,052
SERP #1		-		-		-		-		-		-		-
SERP #2		6,674		6,674		6,674		6,674		-		6,674		6,674
ESOP		-		-		-		-		-		-		-
Profit Sharing/401(k)		-		-		-		-		-		-		-
Short – Term Disability		-		-		-		-		-		-		-
Long – Term Disability		-		-		-		-		-		-		-

Mr. Swartout

Name of Plan		Voluntary Termination		Early Retirement		Normal Retirement		Involuntary/ Not for Cause Termination		For Cause Termination		Disability		Death
Stock Appreciation Rights Plan		-		-		117,149		117,149		-		117,149		117,149
Stock Option Plan		105,174		263,396		263,396		263,396		105,174		263,396		263,396
SERP #1		-		-		-		-		-		-		-
SERP #2		9,762		9,762		9,762		9,762		-		9,762		9,762
ESOP		19,406		19,406		19,406		19,406		19,406		19,406		19,406
Profit Sharing/401(k)		177,345		177,345		177,345		177,345		177,345		177,345		177,345
Short – Term Disability		-		-		-		-		-		103,205		-
Long – Term Disability		-		-		-		-		-		1,703,645		-

REPORT OF THE COMPENSATION COMMITTEE

The Compensation Committee of the Corporation’s Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis contained in this Proxy Statement.  Based on the Committee’s review of and the discussions with management with respect to the Compensation Discussion and Analysis, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, for filing with the SEC.  The foregoing report on executive compensation for 2010 is provided by the following directors, who constitute the Compensation Committee:

THE COMPENSATION COMMITTEE

Daniel P. Fuller	Alan J. Stone	Richard C. Fox
Richard P. Miller, Jr., Chair	Caroline C. Shipley	George W. Hamlin, IV (non-voting)

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS

George W. Hamlin, IV, Chairman and CEO of the Corporation and the Bank, served as a non-voting member of the Compensation Committee during 2010.  The non-employee director members of the Compensation Committee meet in executive session, outside the presence of management, to consider and recommend the compensation of the CEO and other officers.  As noted above, Mr. Hamlin makes recommendations regarding the compensation of other Named Executive Officers.

25

SUMMARY COMPENSATION TABLE

Name		Year		Salary ($)		Stock Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
George W. Hamlin, IV President & CEO		2010 2009 2008		400,363 375,000 344,262		1,580(2) -		157,093 137,108 107,246		165,655 70,305 52,820		87,085 88,792(2) 86,999 (3) 85,419(4) 86,818( 5) 4)		810,196 811,903 669,412 591,146
Robert G. Sheridan Secretary		2010 2009 2008		206,409 203,500 193,266		- -		79,904 73,307 58,870		13,016 10,389 7,502		74,841 (6 (5 ) 74,013( 7 6 ) 70,347( 8) 7)		374,170 361,209 326,584 329,985
Gary L. Babbitt Executive Vice President(1)		2010 2009 2008		199,538 172,077 167,000		- - -		29,389 30,725 16,628		1,721 943 422		37,497 34,547 32,495		268,145 238,292 216,545
Joseph L. Dugan Executive Vice President( 9) 8)		2010 2009 2008		206,409 203,500 167,102		- - -		101,664 67,588 59,900		5,071 3,719 2,600		35,634 31,708 31,140		348,778 306,515 260,742
Lawrence A. Heilbronner Executive Vice President & CFO		2010 2009 2008		212,410 203,500 181,282		- - -		85,460 55,964 43,045		3,681 2,518 1,623		33,977 34,017 31,605 31,082		335, 528 568 293,587 257,032
Gregory S. MacKay Treasurer		2010 2009 2008		156,770 154,560 150,000		- - -		45,780 58,867 35,692		606 552 326		38,281 38,431 32,541		241,437 252,410 218,559
Steven H. Swartout, Esq. Executive Vice President		2010 2009 2008		206,409 203,500 174,015		- - -		62,146 43,014 31,509		3,595 2,468 1,599		35,401 32,489 28,793		307,551 281,471 235,916
(9) Officer of subsidiary Bank only. (2) Mr. Hamlin elected to receive a part of the annual retainer he was paid as a director of the Corporation for 2009 in shares of stock.  Mr. Hamlin received five shares of the Corporation’s common stock with a value of $315.91 per share, which was the average price of the last public sealed bid auction sale of Corporation stock prior to the date of payment of the retainer for 2009. (3) Includes $ 35,093 36,800 in director fees earned or paid in cash, which is also disclosed in the “Directors’ Compensation” table above. (4) Includes $ 34,620 36,200 in director fees earned or paid in cash , which is also disclosed in the “Directors’ Compensation” table above during 2009 .. (5) Includes $37,100 in director fees earned or paid in cash , which is also disclosed in the “Directors’ Compensation” table above during 2008 .. (6) Includes $37,400 in director fees earned or paid in cash, which is also disclosed in the “Directors’ Compensation” table above. (7) Includes $36,200 in director fees earned or paid in cash , which is also disclosed in the “Directors’ Compensation” table above during 2009 .. (8) Includes $34,000 in director fees earned or paid in cash , which is also disclosed in the “Directors’ Compensation” table above during 2008 .. (9) Officer of subsidiary Bank since 2001 and President and CEO of Genesee Valley Trust Company since January , 2011.

SUMMARY COMPENSATION TABLE - continued
				All Other Compensation Detail
Name		Year			Defined Contribution Profit Sharing & 401(k) Plan ($)		Employee Stock Ownership Plan ($)		Director Fees Earned or Paid in Cash ($)		Life Insurance ($)		Other ($)
George W. Hamlin, IV		2010 2009 2008			33,130 32,036 31,343		2,399 2,356 2,437		35,093 34,620 36,800 36,200 37,100		15,938 15,938 15,938		525 469 -
Robert G. Sheridan		2010 2009 2008			28,880 28,142 27,459		2,057 1,980 2,040		37,400 36,200 34,000		2,655 5,351 3,447		3,849 2,340 3,401 -
Gary L. Babbitt		2010 2009 2008			24,291 23,854 20,883		1,750 1,711 1,569		- - -		6,790 6,642 6,642		4,666 2,340 3,401
Joseph L. Dugan		2010 2009 2008			28,579 25,013 24,394		2,072 1,712 1,763		- - -		4,983 4,983 4,983		- - -
Lawrence A. Heilbronner		2010 2009 2008			28,600 26,484 25,905		2,040 1,857 1,913		- - -		3, 337 377 3,264 3,264		- - -
Gregory S. MacKay		2010 2009 2008			23,172 23,449 20,810		1,625 1,536 1,556		- - -		11,379 11,379 10,175		2,105 2,067 2,004
Steven H. Swartout		2010 2009 2008			28,579 25,101 24,379		2,033 1,782 1,836		- - -		2,578 2,578 2,578		2,211 2,028 3,178

26

GRANTS OF PLAN-BASED NON-EQUITY AWARDS FOR 2010

		Estimated Future Payouts Under Non-Equity Incentive Plan Awards
Name	Grant Date	Threshold ($)	Target ($)	Maximum ($)
George W. Hamlin, IV	1/1/10	-	98,489	164,149
Robert G. Sheridan	1/1/10	-	50,777	84,628
Gary L. Babbitt	1/1/10	-	27,536	45,894
Joseph L. Dugan	1/1/10	-	50,777	84,628
Lawrence A. Heilbronner	1/1/10	-	52,253	87,088
Gregory S. MacKay	1/1/10	-	38,565	64,276
Steven H. Swartout	1/1/10	-	50,777	84,628

GRANTS OF PLAN-BASED STOCK AWARDS 2010 ⁽¹⁾ – continued

(1) Represents awards granted under the Company’s Incentive Stock Plan.

For additional information regarding awards under the Corporation’s incentive compensation plans, see note 14 “Stock-Based Compensation Plans” to the Consolidated Financial Statements in the 2010 Annual Report.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END