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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

Based upon the closing price of the registrant's Common Stock as of June 30, 2004, the aggregate market value of the voting stock held by non-affiliates of the registrant was $61,410,870.

As of February 28, 2005 there were 3,641,508 shares of Common Stock, $0.01 par value outstanding.

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 11, 2005 are incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Form 10-K.

Some of the information contained in this report concerning the markets and industry in which we operate is derived from publicly available information and from industry sources. Although we believe that this publicly available information and information provided by these industry sources are reliable, we have not independently verified the accuracy of any of this information.

Chemung Financial Corporation has been a financial holding company since June 22, 2000. This provides the Corporation with the flexibility to offer an array of financial services, such as insurance products, mutual funds, and brokerage services. The Corporation believes that this allows us to better serve the needs of our clients as well as provide an additional source of fee based income. To that end, the Corporation established a financial services subsidiary, CFS Group, Inc., which commenced operations during September 2001. As such, Chemung Financial Corporation now operates as a financial holding company with two subsidiaries, Chemung Canal Trust Company, a full-service community bank with full trust powers, and CFS Group, Inc., a subsidiary offering non-traditional financial services such as mutual funds, annuities, brokerage services and insurance.

The Securities and Exchange Commission (the "SEC") maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Corporation. In addition, we maintain a corporate web site at www.chemungcanal.com. We make available free of charge through our web site our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act and filed with the SEC as soon as reasonably practicable after we electronically file or furnish such material with or to the SEC. The contents of our web site are not a part of this report. These materials are also available free of charge by written request to: Jane H. Adamy, Senior Vice President and Secretary, Chemung Canal Trust Company, One Chemung Canal Plaza, Elmira, NY 14901.

The Bank is a New York State chartered, independent commercial bank, which engages in full-service commercial and consumer banking and trust business. The Bank's services include accepting time, demand and savings deposits, including NOW accounts, Super NOW accounts, regular savings accounts, insured money market accounts, investment certificates, fixed-rate certificates of deposit and club accounts. The Bank's services also include making secured and unsecured commercial and consumer loans, financing commercial transactions (either directly or participating with regional industrial development and community lending corporations), and making commercial, residential and home equity mortgage loans, revolving credit loans with overdraft checking protection, small business loans and student loans. Additional services include renting safe deposit facilities, and the use of networked automated teller facilities.

Trust services provided by the Bank include services as executor, trustee under wills and agreements, guardian and custodian and trustee and agent for pension, profit-sharing and other employee benefit trusts, as well as various investment, pension, estate planning and employee benefit administrative services.

CFS Group, Inc. commenced operations in September 2001 and offers an array of financial services including mutual funds, full and discount brokerage services, and annuity and other insurance products.

For additional information, which focuses on the results of operations of the Corporation and its subsidiaries, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.

There have been no material changes in the manner of doing business by the Corporation or its subsidiaries during the fiscal year ended December 31, 2004.

Six of the Bank's 13 full-service branches, in addition to the main office, are located in Chemung County, New York. The Bank's other seven full-service branches are located in the adjacent counties of Schuyler, Steuben, and Tioga. All of the Bank's facilities are located in New York State. The Corporation defines its market areas as those areas within a 25-mile radius of its branches in Chemung, Steuben, Schuyler, and Tioga counties, including the northern tier of Pennsylvania. The Corporation's lending policy restricts substantially all lending efforts to these geographical regions.

Within these market areas, the Bank encounters intense competition in the lending and deposit gathering aspects of its business from commercial and thrift banking institutions, credit unions and other providers of financial services, such as brokerage firms, investment companies, insurance companies and Internet vendors. The Corporation also competes with non-financial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make available loans to certain borrowers. Unlike the Corporation, many of these competitors are not subject to regulation as extensive as that of the Corporation and, as a result, they may have a competitive advantage over the Corporation in certain respects. This is particularly true of credit unions because their pricing structure is not encumbered by income taxes.

Competition for the Corporation's fiduciary services comes primarily from brokerage firms and independent investment advisors. These firms devote much of their considerable resources toward gaining larger positions in these markets. The market value of the Corporation's trust assets under administration totaled $1.4 billion at year-end 2004. The Trust and Investment Division is responsible for the largest component of non-interest revenue.

The Bank is chartered under the laws of New York State and is supervised by the New York State Banking Department ("NYSBD"). The Bank also is a member bank of the Federal Reserve System and, as such, the Federal Reserve Board serves as its primary federal regulator.

CFS Group, Inc. is subject to supervision by other regulatory authorities as determined by the activities in which it is engaged. Insurance activities are supervised by the New York State Insurance Department, and brokerage activities are subject to supervision by the SEC and the National Association of Securities Dealers, Inc. ("NASD").

The Corporation is subject to capital adequacy guidelines of the Federal Reserve Board. The guidelines apply on a consolidated basis and require bank holding companies to maintain a minimum ratio of Tier 1 capital to total average assets (or "leverage ratio") of 4%. For the most highly rated bank holding companies, the minimum ratio is 3%. The Federal Reserve Board capital adequacy guidelines also require bank holding companies to maintain a minimum ratio of Tier 1 capital to risk-weighted assets of 4% and a minimum ratio of qualifying total capital to risk-weighted assets of 8%. Any bank holding company whose capital does not meet the minimum capital adequacy guidelines is considered to be undercapitalized, and is required to submit an acceptable plan to the Federal Reserve Board for achieving capital adequacy. In addition, an undercapitalized company's ability to pay dividends to its shareholders and expand its lines of business through the acquisition of new banking or non-banking subsidiaries also c ould be restricted by the Federal Reserve Board. The Federal Reserve Board may set higher minimum capital requirements for bank holding companies whose circumstances warrant it, such as companies anticipating significant growth or facing unusual risks. As of December 31, 2004, the Corporation's leverage ratio was 10.07%, its ratio of Tier 1 capital to risk-weighted assets was 16.71% and its ratio of qualifying total capital to risk-weighted assets was 18.77%. The Federal Reserve Board has not advised the Corporation that it is subject to any special capital requirements.

The Bank is subject to leverage and risk-based capital requirements and minimum capital guidelines of the Federal Reserve Board that are similar to those applicable to the Corporation. As of December 31, 2004, the Bank was in compliance with all minimum capital requirements. The Bank's leverage ratio was 9.59%, its ratio of Tier 1 capital to risk-weighted assets was 15.96%, and its ratio of qualifying total capital to risk-weighted assets was 18.02%.

The Bank also is subject to substantial regulatory restrictions on its ability to pay dividends to the Corporation. Under Federal Reserve Board and NYSBD regulations, the Bank may not pay a dividend without prior approval of the Federal Reserve and the NYSBD if the total amount of all dividends declared during such calendar year, including the proposed dividend, exceeds the sum of its retained net income to date during the calendar year and its retained net income over the preceding two calendar years. As of December 31, 2004, approximately $3.3 million was available for the payment of dividends by the Bank to the Corporation without prior approval, after giving effect to the payment of dividends in the fourth quarter of 2004. The Bank's ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements.

The deposits of the Bank are insured up to regulatory limits by the Federal Deposit Insurance Corporation ("FDIC") and are subject to deposit insurance assessments to maintain the Bank Insurance Fund ("BIF") of the FDIC. In light of the prevailing favorable financial situation of federal deposit insurance funds and the low number of depository institution failures, since January 1, 1997, banks classified in the highest capital and supervisory evaluation categories have not been required to pay any annual insurance premiums on bank deposits insured by the BIF. BIF assessment rates are subject to semi-annual adjustment by the FDIC within a range of up to five basis points without public comment. The FDIC also possesses authority to impose special assessments from time to time.

The Federal Deposit Insurance Act provides for additional assessments to be imposed on insured depository institutions to pay for the cost of Financing Corporation ("FICO") funding. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC insurance funds and do not vary depending upon a depository institution's capitalization or supervisory evaluation. During 2004, FDIC assessments for purposes of funding FICO bond obligations ranged from an annualized $0.154 per $100 of deposits for the first quarter of 2004 to $0.0146 per $100 of deposits for the fourth quarter of 2004. The Bank paid $81,062 of FICO assessments in 2004. For the first quarter of 2005, the FICO assessment rate is $0.0144 per $100 of deposits.

Transactions between the Bank, and either the Corporation or CFS Group, Inc., are governed by sections 23A and 23B of the Federal Reserve Act. Generally, sections 23A and 23B are intended to protect insured depository institutions from suffering losses arising from transactions with non-insured affiliates, by limiting the extent to which a bank or its subsidiaries may engage in covered transactions with any one affiliate and with all affiliates of the bank in the aggregate, and requiring that such transactions be on terms that are consistent with safe and sound banking practices.

Under the Gramm-Leach-Bliley Act ("GLB Act"), all financial institutions, including the Corporation, the Bank and CFS Group, Inc. are required to establish policies and procedures to restrict the sharing of nonpublic customer data with nonaffiliated parties at the customer's request and to protect customer data from unauthorized access. In addition, the Fair and Accurate Credit Transactions Act of 2003 ("FACT Act") includes many provisions concerning national credit reporting standards and permits customers, including customers of the Bank, to opt out of information-sharing for marketing purposes among affiliated companies. The FACT Act also requires banks and other financial institutions to notify their customers if they report negative information about them to a credit bureau or if they are granted credit on terms less favorable that those generally available. The Federal Reserve Board and the Federal Trade Commission have extensive rule making authority under the FACT Act, and the Corporation and the Bank are subject to these provisions. The Corporation has developed policies and procedures for itself and its subsidiaries to maintain compliance and believes it is in compliance with all privacy, information sharing and notification provisions of the GLB Act and the FACT Act.

Under Title III of the USA PATRIOT Act, also known as the International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001, all financial institutions are required in general to identify their customers, adopt formal and comprehensive anti-money laundering programs, scrutinize or prohibit altogether certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning their customers and their transactions. Additional information-sharing among financial Institution, regulators, and law enforcement authorities is encouraged by the presence of an exemption from the privacy provisions of the GLB Act for financial institutions that comply with this provision and the authorization of the Secretary of the Treasury to adopt rules to further encourage cooperation and information-sharing. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the finan cial institution under the Bank Merger Act, which applies to the Bank, or the BHC Act, which applies to the Corporation.

As of December 31, 2004, the Corporation and its subsidiaries employed 278 persons on a full-time equivalent basis. None of the Corporation's employees are covered by collective bargaining agreements, and the Corporation believes that its relationship with its employees is good.

Financial Information About Foreign and Domestic Operations and Export Sales

Neither the Corporation nor its subsidiaries relies on foreign sources of funds or income.

The following disclosures present certain summarized statistical data covering the Corporation and its subsidiaries. See also Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7, of this report for other required statistical data.

The following table sets forth the carrying amount of investment securities at the dates indicated (in thousands of dollars):

Included in the above table are $249,331, $282,920 and $257,154 (in thousands of dollars) of securities available for sale at December 31, 2004, 2003 and 2002, respectively. Also, included in the above table are $12,138, $13,085 and $7,835 of securities held to maturity at December 31, 2004, 2003 and 2002, respectively.

The following table sets forth the carrying amounts and maturities of debt securities at December 31, 2004 and the weighted average yields of such securities (all yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security, except mortgage-backed securities which are based on the average life at the projected prepayment speed of each security). Federal tax equivalent adjustments have been made in calculating yields on municipal obligations (in thousands of dollars):

The following table shows the maturity of loans (excluding residential mortgages and consumer loans) outstanding as of December 31, 2004. Also provided are the amounts due after one year, classified according to the sensitivity to changes in interest rates (in thousands of dollars):

Allocation of the Allowance for Loan Losses

The allocated portions of the allowance reflect management's estimates of specific known risk elements in the respective portfolios. Among the factors considered in allocating portions of the allowance by loan type are the current levels of past due, non-accrual and impaired loans. The unallocated portion of the allowance represents risk elements and probable losses in the loan portfolio that have not been specifically identified. Factors considered in determining the appropriate level of unallocated allowance include historical loan loss history, current economic conditions, and loan growth. The following table summarizes the Corporation's allocation of the loan loss allowance for each year in the five-year period ended December 31, 2004:

The above allocation is neither indicative of the specific loan amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category.

The average daily amounts of deposits and rates paid on such deposits is summarized for the periods indicated in the following table (in thousands of dollars):

Scheduled maturities of time deposits at December 31, 2004 are summarized as follows (in thousands of dollars):

Maturities of time deposits in denominations of $100,000 or more outstanding at December 31, 2004 are summarized as follows (in thousands of dollars):

Information regarding securities sold under agreements to repurchase and FHLB advances is included in notes 8 and 9 to the consolidated financial statements appearing elsewhere in this report.

The Corporation and the Bank currently conduct all their business activities from the Bank's main office in Elmira, NY, 13 branch locations situated in a four-county area, owned office space adjacent to the Bank's main office in Elmira, NY, and ten off-site automated teller facilities (ATMs), three of which are located on leased property. The main office is a six-story structure located at One Chemung Canal Plaza, Elmira, New York, in the downtown business district. The main office consists of approximately 60,000 square feet of space, of which 745 square feet is occupied by the Corporation's subsidiary CFS Group, with the remaining 59,255 square feet entirely occupied by the Bank. The combined square footage of the 13 branch banking facilities totals approximately 65,000 square feet. The office building adjacent to the main office was acquired during 1995 and consists of approximately 33,186 square feet of which 30,766 square feet are occupied by operating departments of the Bank and 2,420 square feet ar e leased. The leased automated teller facility spaces total approximately 150 square feet.

The Bank operates one of its branch facilities (Bath Office) and three automated teller facilities (Elmira/Corning Regional Airport, Elmira College and WalMart Store) under lease arrangements. Additionally, in October 2004, the Bank leased approximately 7,800 square feet of space in the Eastowne Mall, which is located in close proximity to the main office. This is temporary space until renovations in the main office have been completed. The rest of its offices, including the main office and the adjacent office building, are owned.

The Corporation holds no real estate in its own name.

Neither the Corporation nor its subsidiaries are a party to any material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

There were no matters submitted to a vote of shareholders during the fourth quarter of 2004.

The Corporation's stock is traded in the over-the-counter market under the symbol CHMG.OB.

Below are the quarterly market price ranges for the Corporation's stock for the past three years, based upon actual transactions as reported by securities brokerage firms which maintain a market or conduct trades in the Corporation's stock and other transactions known by the Corporation's management.

Below are the dividends paid quarterly by the Corporation for each share of the Corporation's common stock over the last three years:

As of February 28, 2005 there were 648 registered holders of record of the Corporation's stock.

The table below sets forth the information with respect to purchases made by the Corporation of our common stock during the fourth quarter of our fiscal year ended December 31, 2004:

The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes thereto appearing elsewhere in this report.

Chemung Financial Corporation, through its wholly owned subsidiaries, Chemung Canal Trust Company (the "Bank") and CFS Group, Inc., a financial services company, provides a wide range of banking, financing, fiduciary and other financial services within its local market areas.

Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the inherent uncertainty in evaluating the level of the allowance required to cover probable credit losses inherent in the loan portfolio, and the material effect that such judgments can have on the Corporation's results of operations. While management's current evaluation of the allowance for loan losses indicates that the allowance is adequate, under adversely different conditions or assumptions, the allowance would need to be increased. For example, if historical loan loss experience significantly worsened or if current economic conditions significantly deteriorated, additional provisions for loan losses would be required to increase the allowance. In addition, the assumptions and estimates used in the internal review of the Corporation's non-performing loans and potential problem loans, and the associated evaluation of the related collateral coverage for these loans, have a sign ificant impact on the overall analysis of the adequacy of the allowance for loan losses. While management has concluded that the current evaluation of collateral values is reasonable under the circumstances, if collateral evaluations were significantly lowered, the Corporation's allowance for loan losses policy would also require additional provisions for loan losses.

Management of Credit Risk - Loan Portfolio

The Corporation manages credit risk consistent with state and federal laws governing the making of loans through written policies and procedures; loan review to identify loan problems at the earliest possible time; collection procedures (continued even after a loan is charged off); an adequate allowance for loan losses; and continuing education and training to ensure lending expertise. Diversification by loan product is maintained through offering commercial loans, 1-4 family mortgages, and a full range of consumer loans.

The Corporation monitors its loan portfolio carefully. The Loan Committee of the Corporation's Board of Directors is designated to receive required loan reports, oversee loan policy, and approve loans above authorized individual and Senior Loan Committee lending limits. The Senior Loan Committee, consisting of the president, two executive vice presidents, business client division manager, retail client division manager, consumer loan manager, mortgage loan manager and credit manager, implements the Board-approved loan policy.

The Corporation is subject to intense competition throughout the southern tier of New York State and the northern tier of Pennsylvania in the lending and deposit gathering aspects of its business from commercial and thrift banking institutions, credit unions and other providers of financial services, such as brokerage firms, investment companies, insurance companies and Internet vendors. The Corporation also competes with non-financial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make available loans to certain borrowers. Unlike the Corporation, many of these competitors are not subject to regulation as extensive as that of the Corporation and, as a result, they may have a competitive advantage over the Corporation in certain respects. Additionally, the pricing structure of credit unions is not encumbered by income taxes.

Competition for the Corporation's fiduciary services comes primarily from brokerage firms and independent investment advisors. These firms devote considerable resources toward gaining larger positions in these markets. The market value of trust assets under administration by the Corporation totaled approximately $1.4 billion at year-end 2004. The Trust and Investment Division is responsible for the largest component of the Corporation's non-interest revenue.

Consolidated assets at December 31, 2004 totaled $722.5 million as compared to $747.2 million at year-end 2003, a decrease of $24.7 million or 3.3%. As discussed in greater detail below, this decrease is primarily the result of a $33.6 million decrease in securities available for sale and an $8.9 million decrease in loans, net of unearned income and deferred origination fees and costs, offset to some extent primarily by a $14.7 million increase in cash and cash equivalents as well as a $3.2 million increase in loans held for sale.

The $8.9 million decrease in loans, net of unearned income and deferred origination fees and costs, was impacted to a great extent by a $4.6 million decrease in credit card balances, primarily due to the sale of our consumer credit card portfolio during the fourth quarter of 2004. During the quarter the Corporation sold approximately $8.2 million in consumer credit card accounts to TCM Bank, N.A. (TCM), a bank specializing in credit card financing and administration for community banks. This sale was motivated by the increasing cost of processing and administration associated with the credit card portfolio, as well as TCM's ability to offer enhancements to our credit card holders. Through a three-year participation agreement with TCM, we are continuing to participate in the funding of 45% of this portfolio. While at reduced levels, this will provide the Corporation with ongoing revenue from the credit card portfolio, without the expense of processing and administration. We will also continue to offer cr edit cards under the Bank's name, acting as an agent for TCM. The premium on the sale of this portfolio totaled $1.241 million, $948 thousand of which was recognized as a gain during the fourth quarter of 2004. The remaining premium will be recognized over the three-year term of the participation agreement.

Additionally, during the third quarter of 2004, management decided to pursue the sale of certain non-performing and potential problem loans. Accordingly, during the third quarter, these loans were written-down to the lower of cost or estimated fair value, which resulted in a charge to the allowance for loan losses of $772 thousand during that quarter. At that time, these loans were reclassified from portfolio loans to loans held for sale. The balance of these loans at December 31, 2004 totaled $3.2 million.

With the exception of the aforementioned items, all other loans, were down $1.1 million since the beginning of 2004, as a decrease in total business loans (including commercial mortgages) of $9.1 million was offset to some extent primarily by a $7.5 million increase in total consumer loans. The decrease in total business loans was impacted by both decreases in commercial loans and floor plan balances of $5.2 million and $3.9 million, respectively. Consumer installment loans rose $3.9 million during 2004, with new indirect automobile financing being particularly strong during the second half of 2004. Also contributing to consumer loan growth during 2004 were increases in student loans and home equity loans of $2.3 million and $1.1 million, respectively. During 2004, the Corporation's residential mortgage portfolio grew by $605 thousand.

The available for sale segment of the securities portfolio totaled $249.3 million at December 31, 2004 compared to $282.9 million at the end of 2003, a decrease of $33.6 million, or 11.9%. The decrease in the available for sale segment of the securities portfolio was impacted by the sale of approximately $12.1 million of mortgage-backed securities and a $2.5 million corporate bond during the fourth quarter of 2004. Also during the fourth quarter of 2004, approximately $9.8 million of federal agency bonds were called. Net gains on the sale of investments during the fourth quarter totaled $383 thousand. It is management's intent to reinvest proceeds from the aforementioned sales and calls during 2005, as we anticipate higher interest rates going forward. The held to maturity segment of the portfolio, consisting primarily of local municipal obligations, totaled $12.1 million as of December 31, 2004, a decrease of $1.0 million since year-end 2003.

Total cash and cash equivalents at year-end 2004 increased $14.7 million due to an $18.2 million increase in federal funds sold and interest bearing deposits, offset to some extent by a $3.5 million decrease in cash and due from banks. The increase in federal funds sold and interest-bearing deposits can be attributed to proceeds from the sale and call of investments during the fourth quarter of 2004. The decrease in cash and due from banks resulted primarily from lower branch cash levels and a lower volume of fed items in transit on December 31, 2004 as compared to year-end 2003.

Total deposits decreased $31.5 million, or 5.7%, from $551.1 million at December 31, 2003 to $519.6 million at December 31, 2004. While period-end non-interest bearing demand deposit balances increased $6.4 million, interest bearing deposits decreased $37.9 million. This decrease in interest bearing balances was caused primarily by decreases in time and insured money market balances of $16.2 million and $19.5 million, respectively, as well as a $5.3 million decrease in NOW account balances. These decreases were partially offset by a $3.1 million increase in savings accounts. The decrease in interest bearing deposits since year-end 2003 reflects the fact that, in the absence of loan growth during 2004, the Corporation has not been aggressive in the pricing of these deposit products. The $9.5 million increase in securities sold under agreements to repurchase reflects an increase in security purchases funded with repurchase agreements through the Federal Home Loan Bank of New York.

The $4.8 million decrease in other liabilities is due primarily to a $3.7 million decrease in income taxes payable due to the timing of the Corporation's required estimated tax payments.

BALANCE SHEET COMPARISONS

SECURITIES AVAILABLE FOR SALE (in thousands)

Included in the preceding table are 46,354 shares of SLM Corp. (formerly USA Education, Inc.) at a cost basis of approximately $1 thousand and estimated fair value of $2.475 million. These shares were acquired as preferred shares of Student Loan Marketing Association, or Sallie Mae, a permitted exception to the Government regulation banning bank ownership of equity securities in the original capitalization of the U.S. Government Agency. Later, the shares were converted to common stock as Sallie Mae recapitalized. Additionally, at December 31, 2004, the Corporation held marketable equities totaling $734 thousand at cost, with a total estimated fair value of $6.162 million. The shares, other than SLM Corp., were acquired prior to the enactment of the Banking Act of 1933.

Non-marketable equity securities included in the Corporation's portfolio are 10,888 shares of Federal Reserve Bank stock and 54,000 shares of the Federal Home Loan Bank of New York stock. They are carried at their cost of $544 thousand and $5.400 million, respectively. The fair value of these securities is assumed to approximate their cost. The number of shares of these last two investments is regulated by regulatory policies of the respective institutions.

Non-performing loans at year-end 2004 totaled $10.765 million as compared to $12.331 million at year-end 2003, a decrease of $1.566 million. Loans in non-accrual status have decreased $1.220 million. During 2004, three commercial relationships with a current balance of $350 thousand were added to the non-accrual category. These additions were offset primarily by principal reductions on other non-accruing commercial loans, as well as a reduced level of mortgages and consumer loans in non-accrual status. Additionally, during the third quarter of 2004, the Corporation charged $228 thousand to the allowance for loan losses to write-down the balance of a non-accruing commercial relationship to its estimated fair value in conjunction with management's decision to reclassify this relationship to held-for-sale. A $277 thousand reduction in troubled debt restructurings resulted from the transfer of a relationship in this category at December 31, 2003 to non-accrual status during the second quarter of 2004. Subs equent to this transfer, this relationship was charged-off. The reduction in non-performing loans was also impacted by a $69 thousand decrease in accruing loans past due 90 days or more, this decrease related primarily to a reduced level of mortgage loans in this category.

The following table summarizes the Corporation's non-performing assets including non-accruing loans held for sale (in thousands of dollars):

Information with respect to interest income on non-accrual and troubled debt restructured loans for the years ended December 31 is as follows (in thousands of dollars):

In addition to non-performing loans, as of December 31, 2004, the Corporation, through its credit administration and loan review functions, has identified 22 commercial relationships totaling $11.367 million in potential problem loans, as compared to $16.874 million (22 relationships) at December 31, 2003. The $5.507 million decrease in these loans is primarily related to the upgrading during 2004 of one commercial relationship which totaled $4.999 million at December 31, 2003 and the write-down to its estimated fair value of one relationship now categorized as held for sale, this write-down totaling $544 thousand. Potential problem loans are loans that are currently performing, but where known information about possible credit problems of the related borrowers causes management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms, and which may result in the disclosure of such loans as non-performing at some time in the future. At the Corporation, pote ntial problem loans are typically loans that are performing but are classified in the Corporation's loan rating system as "substandard." Management cannot predict the extent to which economic conditions may worsen or other factors which may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on non-accrual, become restructured, or require increased allowance coverage and provisions for loan losses.

Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the historical loan loss experience, review of specific problem loans (including evaluations of the underlying collateral), changes in the composition and volume of the loan portfolio, overall portfolio quality, and current economic conditions that may affect the borrowers' ability to pay. During 2002 and 2003, the Corporation significantly increased the allowance for loan losses through an increased provision for loan loss expense in light of continuing loan quality issues related to the impact of a weak local economic environment on several large commercial relationships. With the level of non-performing relationships having declined during 2004, and seeing positive indications of improving business conditions for these clients, the Corporation reduced its provision for loan losses during 2004 to $1.5 million as compared to $4.7 million during 2003, a redu ction of $3.2 million. At December 31, 2004, the Corporation's allowance for loan losses totaled $9.983 million, resulting in a coverage ratio of allowance to non-performing loans of 92.7%. The allowance for loan losses is an amount that management believes will be adequate to absorb probable loan losses on existing loans. Net loan charge-offs during 2004 totaled $1.365 million or 0.35% of average outstanding loans, compared to $2.526 million or 0.61% of average outstanding loans in 2003. This $1.161 million decrease in net charge-offs was due primarily to lower commercial loan charge-offs. The allowance for loan losses to total loans at December 31, 2004 was 2.62% as compared to 2.52% as of December 31, 2003.

The following summarizes the Corporation's loan loss experience for each year in the five-year period ended December 31, 2004 (in thousands of dollars):

Liquidity and Capital Resources

Liquidity management involves the ability to meet the cash flow requirements of deposit clients, borrowers, and the operating, investing and financing activities of the Corporation. The Corporation uses a variety of resources to meet its liquidity needs. These include short term investments, cash flow from lending and investing activities, core-deposit growth and non-core funding sources, such as time deposits of $100,000 or more, securities sold under agreements to repurchase and other borrowings.

The Corporation is a member of the Federal Home Loan Bank of New York ("FHLB") which allows it to access borrowings which enhance management's ability to satisfy future liquidity needs. At December 31, 2004, the Corporation maintained a $75.531 million line of credit with the FHLB, as compared to $74.957 million at December 31, 2003.

During 2004, cash and cash equivalents increased $14.7 million, compared to an increase of $9.0 million during 2003. In addition to cash provided by operating activities, other primary sources of cash in 2004 included proceeds from maturities, sales and principal payments on securities ($105.0 million) and an increase in securities sold under agreements to repurchase ($9.5 million). In addition to cash provided by operating activities, other primary sources of cash in 2003 included proceeds from maturities, sales and principal payments on securities ($159.5 million), a net decrease in loans ($32.7 million) and an increase in deposits ($9.3 million).

Cash generated during 2004 was used primarily to fund the purchase of securities totaling $73.6 million as well as a deposit decrease of $31.5 million. Other significant uses of cash during 2004 included an increase in loans, excluding loans transferred to held for sale ($6.2 million), the payment of cash dividends ($3.4 million), the purchase of treasury shares ($2.4 million) and the purchase of premises and equipment ($2.0 million). During 2003, the purchase of securities totaled $191.8 million. Other significant uses of cash during 2003 included the repayment of Federal Home Loan Bank advances ($15.8 million), the payment of cash dividends ($3.5 million), purchases of premises and equipment ($2.2 million) and the purchase of treasury shares (1.3 million).

The Corporation continues to maintain a strong capital position. As of December 31, 2004, the Corporation's ratio of Total Capital to Risk Weighted Assets was 18.77% compared with 17.61% a year earlier. The Corporation's leverage ratio (Tier I Capital/Average Assets) was 10.07% at December 31, 2004 and 9.62% at December 31, 2003. These ratios are in excess of the requirements for being considered "well capitalized" by the FDIC, the Federal Reserve and the New York State Banking Department.

Cash dividends declared totaled $3.433 million or $0.93 per share in 2004 versus $3.450 million or $0.92 per share in 2003 and $3.549 million or $0.92 per share in 2002. Dividends declared during 2004 amounted to 39.3% of net income compared to 49.6% and 54.3% of 2003 and 2002 net income, respectively. It is management's objective to continue generating sufficient capital internally, while retaining an adequate dividend payout ratio to our shareholders.

When shares of the Corporation become available in the market, we may purchase them after careful consideration of our capital position. On November 17, 2004, the Corporation announced that its Board of Directors authorized the repurchase of up to 180,000 shares, or approximately 5% of its outstanding common shares, either through open market or privately negotiated transactions over a two-year period. During 2004, 79,714 shares were purchased at a total cost of $2.449 million or an average price of $30.72 per share, with 8,800 of these shares purchased subsequent to the above share repurchase announcement. During 2003, 42,748 shares were purchased at a total cost of $1.287 million or an average price of $30.11 per share, and in 2002 there were 187,812 shares purchased at a total cost of $5.333 million (average of $28.39 per share).

For the year ended December 31, 2004, the Corporation engaged in no off-balance sheet transactions reasonably likely to have a material effect on the Corporation's consolidated financial statements.

Contractual Obligations

As of December 31, 2004, the Corporation is contractually obliged under long-term agreements as follows (in thousands of dollars):

Results of Operations