NOTE B: ACQUISITIONS

On November 30, 2011 the Company, through its BPAS subsidiary, acquired certain assets and liabilities of CAI Benefits, Inc. (“CAI”), a provider of actuarial, consulting and retirement plan administration services, with offices in New York City and Northern New Jersey. The results of CAI's operations have been included in the consolidated financial statements since that date. The transaction adds valuable service capacity and enhances distribution prospects in support of the Company's broader-based employee benefits business, including daily valuation plan and collective investment fund administration.

On April 8, 2011, the Company acquired The Wilber Corporation (“Wilber”), parent company of Wilber National Bank, for approximately $103 million in stock and cash, comprised of $20.4 million in cash and the issuance of 3.35 million additional shares of the Company's common stock. Based in Oneonta, New York, Wilber operated 22 branches in the Central, Greater Capital District, and Catskill regions of Upstate New York. Wilber was merged into the Company and Wilber National Bank was merged into Community Bank, N.A. The results of Wilber's operations have been included in the Company's financial statements since that date.

The assets and liabilities assumed in these acquisitions were recorded at their estimated fair values based on management's best estimates using information available at the dates of the acquisitions. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed.

(000's omitted)
Consideration paid:
Community Bank System, Inc. common stock	$82,580
Cash	22,155
Total consideration paid	104,735
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	26,901
Investment securities	297,573
Loans	462,334
Premises and equipment	6,360
Accrued interest receivable	2,615
Other assets and liabilities, net	46,943
Core deposit intangibles	4,015
Other intangibles	1,858
Deposits	(771,554)
Borrowings	(19,668)
Total identifiable assets	57,377
Goodwill	$ 47,358

The above recognized amounts of assets and liabilities, at fair value, are subject to adjustment based on updated information not available at the time of acquisition.

Acquired loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that the Company will be unable to collect all contractually required payments were aggregated by comparable characteristics and recorded at fair value without a carryover of the related allowance for loan losses. Cash flows for each pool were determined using an estimate of future credit losses and an estimated rate of prepayments. Projected monthly cash flows were then discounted to present value using a market-based discount rate. The excess of the undiscounted expected cash flows over the estimated fair value is referred to as the “accretable yield” and is recognized into interest income over the remaining lives of the acquired loans.

The following is a summary of the loans acquired in the Wilber acquisition:

(000's omitted)	Acquired Impaired Loans	Acquired Non-Impaired Loans	Total Acquired Loans
Contractually required principal and interest at acquisition	$41,730	$680,516	$722,246
Contractual cash flows not expected to be collected	(20,061)	(31,115)	(51,176)
Expected cash flows at acquisition	21,669	649,401	671,070
Interest component of expected cash flows	(2,509)	(206,227)	(208,736)
Fair value of acquired loans	$19,160	$443,174	$462,334

The core deposit intangible and customer lists are being amortized over their estimated useful life of approximately eight years, using an accelerated method. The goodwill, which is not amortized for book purposes, was assigned to the Banking segment for the Wilber acquisition and to the Other segment for the CAI acquisition. The goodwill arising from the Wilber acquisition is not deductible for tax purposes while goodwill arising from the CAI acquisition is deductible for tax purposes.

The fair value of checking, savings and money market deposit accounts acquired from Wilber were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificate of deposit accounts were valued as the present value of the certificates expected contractual payments discounted at market rates for similar certificates.

Direct costs related to the acquisitions were expensed as incurred. During 2011, the Company incurred $4.8 million of merger and acquisition integration related expenses and have been separately stated in the Consolidated Statements of Income.

Supplemental Pro Forma Financial Information

The following unaudited condensed pro forma information assumes the Wilber acquisition had been completed as of January 1, 2011 for the year ended December 31, 2011 and January 1, 2010 for the year ended December 31, 2010. The pro forma information does not include amounts related to CAI as the amounts were immaterial and financial information is not available. The table below has been prepared for comparative purposes only and is not necessarily indicative of the actual results that would have been attained had the acquisition occurred as of the beginning of the years presented, nor is it indicative of the Company's future results. Furthermore, the unaudited pro forma information does not reflect management's estimate of any revenue-enhancing opportunities nor anticipated cost savings or the impact of conforming certain acquiree accounting policies to the Company's policies that may have occurred as a result of the integration and consolidation of the acquisitions.

The pro forma information set forth below reflects adjustments related to (a) certain purchase accounting fair value adjustments; (b) amortization of core deposit and other intangibles; and (c) income tax rate adjustment. Expenses related to the conversion of systems and other costs of integration, as well as certain one-time costs, are included in the periods in which they were incurred.

	Pro Forma (Unaudited) Year Ended December 31,
(000's omitted)	2011	2010
Total revenue, net of interest expense	$308,559	$314,425
Net income	70,424	68,176
Earnings per share:
Basic	$1.92	$1.88
Diluted	$1.89	$1.85