[X]

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2003

OR

[  ]

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from__________ to__________

New York
(State or other jurisdiction of
incorporation or organization)

16-1234823
(IRS Employer Identification Number)

72 South Main Street
Canandaigua, New York
(Address of principal executive offices)

14424
(Zip code)

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days

Yes   X

No

    Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of he Exchange Act).

Yes   

No X

    The number of shares outstanding of each of the issuer's classes of common stock was 477,203 shares of common stock, par value $20.00, outstanding as at April 30, 2003.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This report contains certain "forward-looking statements" intended to qualify for the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. When used or incorporated by reference in the Company's disclosure documents, the words "anticipate," "estimate," "expect," "continue," "project," "target," "goal," "budget" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including, but not limited to (1) economic conditions, (2) real estate market, and (3) interest rates. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected or budgeted. These forward-looking statements speak only as of the date of the document. The Company expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein to reflect any change in the Company's expectation with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

PART I -- FINANCIAL INFORMATION

PAGE

Item 1. Financial Statements (Unaudited)

  Condensed consolidated balance sheets at March 31, 2003 and December 31, 2002

4

Condensed consolidated statements of income for the three-month periods ended    

5

March 31, 2003 and 2002.

Consolidated statements of stockholders' equity for the three-month periods ended

   March 31, 2003 and 2002

6

  Consolidated statements of cash flows for the three-month periods ended March 31, 2003 and 2002.

7

  Notes to consolidated financial statements.

8

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations

9

Item 3. Quantitative and Qualitative Disclosures about Market Risk

13

Item 4. Controls and Procedures

14

PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings

15

Item 2.  Changes in Securities and Use of Proceeds

15

Item 3.  Defaults Upon Senior Securities

15

Item 4.  Submission of Matters to a Vote of Security Holders

15

Item 5.  Other Information

15

Item 6.  Exhibits and Reports on Form 8-K

15

SIGNATURES

16

CERTIFICATIONS

17

EXHIBITS

19

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

March 31,

December 31,

2003

2002

Cash and due from banks

$

36,556

34,667

Interest-bearing deposits with other financial institutions

26,235

3,990

Federal funds sold

-

11,200

Securities:

  - Available for sale, at fair value

45,278

46,215

  - Held-to-maturity (fair value of $119,820 in 2003 and $121,533 in 2002)

115,126

117,028

Loans:

  Commercial, financial and agricultural

109,764

109,317

  Commercial mortgage

268,277

264,132

  Residential mortgage

87,194

90,332

  Consumer-auto indirect

89,472

89,747

  Consumer-other

21,803

22,371

  Other

1,103

1,606

  Loans held for sale

8,225

9,320

    Total loans

585,838

586,825

  Less:  Allowance for loan losses

(6,191

)

(6,162

)

    Loans - net

579,647

580,663

Premises and equipment - net

16,517

16,727

Accrued interest receivable

4,610

3,915

Federal Home Loan Bank stock and Federal Reserve Bank stock

2,200

2,200

Other assets

9,528

9,098

        Total Assets

$

835,697

825,703

Deposits:

  Demand:

    Non-interest bearing

$

97,964

103,020

    Interest bearing

85,820

81,971

  Savings and money market

358,942

334,274

  Time deposits

211,014

225,134

        Total deposits

753,740

744,399

Borrowings

1,034

1,048

Guaranteed Preferred Beneficial Interest in Company's Subordinated Debt

19,435

19,409

Accrued interest payable and other liabilities

6,502

7,430

        Total Liabilities

780,711

772,286

Stockholders' Equity:

  Common stock, $20 par value; 2,000,000 shares authorized;

    486,624 shares issued in 2003 and 2002

9,732

9,732

  Additional paid-in capital

6,958

6,958

  Retained earnings

39,184

37,655

  Treasury stock at cost (9,421 shares in 2003 and 2002)

(1,159

)

(1,159

)

  Accumulated other comprehensive income

271

231

        Total Stockholders' Equity

54,986

53,417

        Total Liabilities and Stockholders' Equity

$

835,697

825,703

CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three-month periods ended March 31, 2003 and 2002 (Unaudited)
(dollars in thousands, except per share data)

2003

2002

Interest income:

  Loans, including fees

$

9,741

9,570

  Securities

1,568

1,072

  Other

44

88

        Total interest income

11,353

10,730

Interest expense:

  Deposits

2,622

3,738

Borrowings

9

9

  Guaranteed Preferred Beneficial Interest in Company's Subordinated Debt

267

-

      Total interest expense

2,898

3,747

      Net interest income

8,455

6,983

Provision for loan losses

390

241

      Net interest income after provision for loan losses

8,065

6,742

Other income:

  Service charges on deposit accounts

1,203

1,076

  Trust income

781

901

  Net gain on sale of mortgage loans

813

294

  Other operating income

324

445

      Total other income

3,121

2,716

Operating expenses:

  Salaries and employee benefits

4,087

3,940

  Occupancy

1,404

1,241

  Marketing and public relations

354

280

  Office supplies, printing and postage

315

252

  FDIC insurance

30

90

  Other operating expenses

1,310

1,221

      Total operating expenses

7,500

7,024

      Income before income taxes

3,686

2,434

Income taxes

1,131

718

      Net income

$

2,555

1,716

Basic earnings per share

$

5.35

3.60

Diluted earnings per share

$

5.27

3.57

CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three-month periods ended March 31, 2003 and 2002 (Unaudited)
(dollars in thousands, except per share data)

Accumulated

Additional

Other

Common

Paid in

Retained

Treasury

Comprehensive

Stock

Capital

Earnings

Stock

Income

Total

Balance at December 31, 2002

$

9,732

6,958

37,655

(1,159

)

231

53,417

  Comprehensive income:

    Change in unrealized gain on

      securities available for sale,

      net of taxes of $23

-

-

-

-

40

40

    Net income

-

-

2,555

-

-

2,555

  Total comprehensive income

2,595

  Cash dividend - $2.15 per share

-

-

(1,026

)

-

-

(1,026

)

Balance at March 31, 2003

$

9,732

6,958

39,184

(1,159

)

271

54,986

Balance at December 31, 2001

$

8,110

8,553

32,428

(1,218

)

259

48,132

  Change in par value of stock

1,622

(1,622

)

-

-

-

-

  Comprehensive income:

    Change in unrealized gain on

      securities available for sale,

      net of taxes of $29

-

-

-

-

43

43

    Net income

-

-

1,716

-

-

1,716

  Total comprehensive income

1,759

  Cash dividend - $2.05 per share

-

-

(978

)

-

-

(978

)

Balance at March 31, 2002

$

9,732

6,931

33,166

(1,218

)

302

48,913

CANANDAIGUA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three-month periods ended March 31, 2003 and 2002 (Unaudited)
(dollars in thousands)

2003

2002

Cash flow from operating activities:

  Net income

$

2,555

1,716

  Adjustments to reconcile net income to

    net cash provided by operating activities:

    Depreciation, amortization and accretion

734

551

    Provision for loan losses

390

241

    Deferred income tax benefit

(107

)

(110

)

    Undistributed loss from minority owned entities

(4

)

(4

)

    Net gain on sale of mortgage loans

(813

)

(294

)

    Originations of loans held for sale

(67,108

)

(44,382

)

    Proceeds from sale of loans held for sale

69,016

49,348

    Increase in accrued interest receivable and other assets

(876

)

(1,597

)

    Decrease in accrued interest payable and other liabilities

(928

)

(1,089

)

      Net cash provided by operating activities

2,859

4,380

Cash flow from investing activities:

  Proceeds from call of FHLB stock

-

315

  Purchase of FHLB stock

-

(202

)

  Securities available-for-sale:

    Proceeds from maturities and calls

1,000

-

  Securities held to maturity:

    Proceeds from maturities and calls

6,292

59,347

    Purchases

(4,484

)

(59,809

)

  (Decrease) increase in loans, net

(631

)

6,989

  Fixed asset purchases - net

(403

)

(326

)

  Cash received from sale of other real estate

-

314

      Net cash provided by investing activities

1,774

6,628

Cash flow from financing activities:

  Net increase (decrease) in demand, savings and money market deposits

23,461

(5,386

)

  Net increase (decrease) in time deposits

(14,120

)

4,244

  Principal repayments on long-term borrowings

(14

)

(12

)

  Dividends paid

(1,026

)

(978

)

      Net cash provided by (used in) financing activities

8,301

(2,132

)

      Net increase in cash and cash equivalents

12,934

8,876

  Cash and cash equivalents - beginning of period

49,857

46,641

  Cash and cash equivalents - end of period

$

62,791

55,517

Supplemental disclosures of cash flow information:

  Cash paid during the period for:

    Interest

$

3,254

3,913

    Income taxes

$

345

136

  Additions to other real estate acquired through foreclosure

$

162

-

(1)   Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and with generally accepted accounting principles for interim financial information. Such principles are applied on a basis consistent with those reflected in the December 31, 2002 Form 10-K Report of the Company filed with the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Management has prepared the financial information included herein without audit by independent certified public accountants. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2003, is not necessaril y indicative of the results that may be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2002.

Amounts in prior periods' condensed consolidated financial statements are reclassified whenever necessary to conform to the current year's presentation.

(2)   Stock Option Plan

The Company applies APB Opinion No. 25 in accounting for its stock option plan, and accordingly, no compensation cost has been recognized for its fixed-award stock options in the condensed consolidated statement of income. Had compensation cost been determined based on the fair value at the grant date of the stock options using valuation models consistent with the approach of SFAS No. 123, the Company's net income and earnings per share for the year-to-date periods in 2003 and 2002 would have been reduced to the pro forma amounts indicated below (net income in thousands):

For the three months ended March 31,

2003

2002

 Net income as reported

$

2,555

1,716

 Compensation expense, net of taxes

182

210

   Pro forma

2,373

1,506

Earnings per share:

   As reported:

      Basic

$

5.35

3.60

      Diluted

5.27

3.57

   Pro forma:

      Basic

$

4.97

3.16

      Diluted

4.90

3.13

The weighted average fair value of options granted during 2003 and 2002 was $31.74 and $37.46, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

Grant year

2003

2002

Dividend yield

2.49%

2.60%

Risk-free interest rate

3.83%

5.07%

Life

12.2 years

13.2 years

Volatility

12.99%

13.30%

(3)   Dividends Per Share

The Company declared a semi-annual $2.15 per share dividend on common stock on January 8, 2003, which was paid on February 3, 2003 to shareholders of record January 8, 2003.

(4)   Earnings Per Share

Basic earnings per common share is calculated by dividing net income available to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the maximum dilutive effect of stock issueable upon conversion of stock options. Calculations for the three-month periods ended March 31, 2003, and 2002 follow (dollars in thousands, except share data):

2003

2002

Basic Earnings Per Share:

  Net income applicable to common shareholders

$

2,555

1,716

  Weighted average common shares outstanding

477,203

476,661

      Basic earnings per share

$

5.35

3.60

Diluted Earnings Per Share:

  Net income applicable to common shareholders

$

2,555

1,716

  Weighted average common shares outstanding

477,203

476,661

  Effect of assumed exercise of stock options

7,560

3,932

    Total

484,763

480,593

      Diluted earnings per share

$

5.27

3.57

The Company's stock is not actively traded nor is it traded in the over-the-counter market. In addition, it is not listed with a national securities exchange. Due to the limited number of transactions, the weighted average sale price may not be indicative of the actual market value of the Company's stock.

(6)   Segment Information

Reportable segments are comprised of the Company and its banking subsidiary operations (Bank) and CNB Mortgage (CNBM), as their performance is evaluated on an individual operating basis. The interim period reportable segment information for the three months ended March 31, 2003 and 2002 follows. (dollars in thousands):

2003

2002

Bank

CNBM

Bank

CNBM

Revenues (net interest income and non-interest income:

  From external customers

$

11,413

163

9,600

99

  Intersegment

(662

)

662

(583

)

583

      Total segment revenues

$

10,751

825

9,017

682

Net income:

  Bank

$

2,555

1,716

  CNBM

354

218

      Total segment net income

2,909

1,934

   Eliminations

(354

)

(218

)

      Total net income

$

2,555

1,176

(7)   Impact of Accounting Standard Adoption

The Company adopted Financial Accounting Standards Board (FASB) Statement No. 143, "Accounting for Asset Retirement Obligations," which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and accrete the liability over time. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. Since the Company had no transactions covered by this statement, its adoption had no impact on the Company's financial condition or results of operations.

The Company also adopted FASB Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." Statement 146 replaces Issue 94-3. Since the impact of adoption is dependent upon any future exit or disposal activity decisions, of which there were none, adoption of the statement had no impact on the Company's financial condition or results of operations.