NOTE B: ACQUISITIONS

On September 7, 2012, the "Bank" completed its acquisition of three branches in Western New York from First Niagara, Bank, N.A. ("First Niagara"), acquiring approximately $54 million of loans and $101 million of deposits. The assumed deposits consist primarily of core deposits (checking, savings and money market accounts) and the purchased loans consist of in-market performing loans, primarily residential real estate loans. Under the terms of the purchase agreement, the Bank paid a blended deposit premium of 3.1%, or approximately $3 million. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

On July 20, 2012, the Bank completed its acquisition of 16 retail branches in Central, Northern and Western New York from HSBC Bank USA, N.A. ("HSBC"), acquiring approximately $106 million in loans and $697 million of deposits. The assumed deposits consist primarily of core deposits (checking, savings and money markets accounts) and the purchased loans consist of in-market performing loans, primarily residential real estate loans. Under the terms of the purchase agreement, the Bank paid First Niagara (who acquired HSBC's Upstate New York banking business and assigned its right to purchase the 16 branches to the Bank) a blended deposit premium of 3.4%, or approximately $24 million. The effects of the acquired assets and liabilities have been included in the consolidated financial statements since that date.

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 Company acquired $1.4 million of assets and $0.2 million of liabilities. 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 the Bank. The Company acquired $462.3 million of loans, $297.6 million of investments, $771.6 million of deposits, and $19.7 million of borrowings. The results of Wilber's operations have been included in the Company's financial statements since that date.

The assets and liabilities assumed in the acquisitions were recorded at their estimated fair values based on management's best estimates using information available at the dates of the acquisition, and are subject to adjustment based on updated information not available at the time of acquisition.. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed.

(000s omitted)	2012			2011
Consideration paid (received):
Community Bank System, Inc. common stock	$	0		$	82,580
Cash		(595,462	)		22,155
Total net consideration paid (received)		(595,462	)		104,735
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		5,510			26,901
Investment securities		0			297,573
Loans		160,116			462,334
Premises and equipment		4,941			6,360
Accrued interest receivable		588			2,615
Other assets and liabilities, net		171			46,942
Core deposit intangibles		6,521			4,016
Other intangibles		0			1,858
Deposits		(797,962	)		(771,554	)
Borrowings		0			(19,668	)
Total identifiable assets (liabilities), net		(620,115	)		57,377
Goodwill	$	24,653		$	47,358

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 loan were determined using an estimate of 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 at the date of 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 following is a summary of the loans acquired from HSBC and First Niagara at the date of acquisition:

(000's omitted)	Acquired Impaired Loans		Acquired Non-Impaired Loans			Total Acquired Loans
Contractually required principal and interest at acquisition	$	0	$	201,745		$	201,745
Contractual cash flows not expected to be collected		0		(3,555	)		(3,555	)
Expected cash flows at acquisition		0		198,190			198,190
Interest component of expected cash flows		0		(38,074	)		(38,074	)
Fair value of acquired loans	$	0	$	160,116		$	160,116

The fair value of checking, savings and money market deposit accounts acquired 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.

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

Direct costs related to the acquisitions were expensed as incurred. Merger and acquisition integration-related expenses amount to $5.7 million and $4.8 million during 2012 and 2011, respectively, and have been separately stated in the Consolidated Statements of Income.

Supplemental pro forma financial information related to the HSBC and First Niagara acquisitions has not been provided as it would be impracticable to do so. Historical financial information regarding the acquired branches is not accessible and thus the amounts would require estimates so significant as to render the disclosure irrelevant.